EXHIBIT 10.1

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “Agreement”), dated effective as of March 25,
2013 (the “Effective Date”), is by and between Mill City Ventures III, Ltd., a
Minnesota corporation (the “Company”), and Douglas M. Polinsky, a resident of
State of Minnesota (“Polinsky”).

 

It is Hereby Agreed as Follows:

 

1.         Engagement and Acceptance. The Company hereby engages Polinsky, and
Polinsky hereby agrees to perform services for the Company as described in
Section 2, in accordance with the terms and conditions hereof, for a term
commencing as of the Effective Date and continuing thereafter until the
three-year anniversary of such date (the “Term”).

 

2.         Duties. During the Term, Polinsky will serve in the capacity of the
Chief Executive Officer of the Company, and the co-manager of the investment
portfolio of the Company. In all matters, Polinsky will report solely and
directly to the Board. Subject to the oversight of the Board of Directors of the
Company (the “Board”), Polinsky will be responsible for management of the
Company’s operations and business affairs, including but not limited to
(i) implementing the Company’s investment objectives and strategies and (ii)
retaining staff and office space and procuring services as appropriate and
reasonably necessary to carry out the business of the Company. Polinsky will
have such authority and responsibilities as are customarily performed by one
holding such positions in the same or similar businesses or enterprises as those
of the Company.

 

3.         Compensation.

 

(a)         For his services hereunder, following the completion of any fiscal
year in which any portion of the Term is in effect, the Company will pay
Polinsky as follows (subject in all events to paragraph (b) below and any other
limitations under the Investment Company Act of 1940 Act, the “1940 Act”):

 

(i)         a base salary equal to $50,000 per annum, payable in accordance with
normal payroll practices adopted by the Company, which may be increased (but not
decreased) on an annual basis at the discretion of the Compensation Committee of
the Board;

 

(ii)         an annual bonus, payable at the discretion of the Compensation
Committee of the Board after the conclusion of each fiscal year, in an amount
not less than Polinsky’s then-current base salary; and

 

(iii)         for each fiscal year of the Company, an amount of the Company’s
net income for each fiscal year which, when aggregated with the base salary
payments under clause (i) above, any annual bonus payments made with respect to
such fiscal year under clause (ii), any other perquisites or benefits paid to
Polinsky during such fiscal year (collectively, the “Base Compensation”),
together with all such Base Compensation and profit-sharing compensation paid to
all other officers and employees of the Company, equals twenty percent (20%) of
such net income of the Company after taxes. The payments, if any, made pursuant
to this paragraph (iii) are referred to herein as the “Profit-Sharing
Compensation.” Any Profit-Sharing Compensation to be made under this paragraph
shall be calculated based upon the completed audited financials of the Company
for the applicable fiscal year and shall be paid as soon as practicable
following the completion of such audit. Company officers and employees eligible
to receive any Profit-Sharing Compensation shall, among themselves, determine
the manner in which they will participate in such compensation and, in the
absence of specific direction to the contrary, the Company will be entitled to
tender payment of Profit-Sharing Compensation to all such persons ratably. Base
Compensation and Profit-Sharing Compensation are collectively referred to as
“Compensation.”

 

 

 

 

 

(b)         Notwithstanding anything to the contrary contained in this
Agreement, the aggregate amount of Base Compensation, Profit-Sharing
Compensation and any other compensation or benefits paid or payable hereunder
for each fiscal year shall not exceed twenty percent (20%) of the Company’s net
income, after taxes.

 

(c)         During the Term, Polinsky shall be entitled to receive reimbursement
for all reasonable and appropriate business expenses incurred by him in
connection with his duties under this Agreement in accordance with the policies
of the Company as in effect from time to time.

 

(d)         The Company agrees at all times to remain qualified as a “regulated
investment company” as defined in Section 851 et seq. of the Internal Revenue
Code of 1986, as amended (the “Code”), and to take all steps and actions
necessary to maintain such status, including without limitation to make such
elections, registrations, investments and distributions necessary to maintain
status as a regulated investment company. The Company agrees that if it shall
fail to qualify as a regulated investment company for any reason, net income of
the Company for purposes of this Section 3 shall nonetheless be calculated as if
the Company were at all times qualified as a regulated investment company.

 

(e)         Notwithstanding the foregoing, in the event of a termination of
Polinsky’s services during the Term, the Company’s obligation to continue to pay
Compensation as set forth in this Section 3 shall terminate except as provided
for in Section 4.

 

4.         Termination.

 

(a)         The Company may terminate this Agreement without Cause upon no less
than 30 days prior written notice to Polinsky, and Polinsky may terminate this
Agreement for Good Reason upon no less than 30 days prior written notice to the
Company (subject, however, to the right of the Company to cure the conditions
constituting Good Reason during such 30-day period). If this Agreement is
terminated by the Company without Cause, by Polinsky for Good Reason, or if this
Agreement terminates due to Polinsky’s death or disability (as reasonably
determined by the Company), Polinsky shall be entitled to: (i) Compensation,
through the date of such termination, determined in accordance with Section
3(a); and (ii) reimbursement, pursuant to Section 3(c), of business expenses
incurred by him through the date of such termination.

 

(b)         If this Agreement is terminated by the Company for Cause, the
Company’s only obligation to Polinsky shall be (i) Compensation, through the
date of such termination, determined in accordance with Section 3(a); and (ii)
reimbursement, pursuant to Section 3(c), of expenses incurred by him through the
date of such termination; provided, however, that the Company may offset against
any such payments the amount of any damages sustained by the Company as a result
of the conduct constituting Cause.

 

(d)         For the purposes of this Agreement, “Cause” means (i) Polinsky’s
commission of a felony that affects the Company materially or is related,
directly or indirectly, to the performance of any of Polinsky’s duties or
obligations hereunder, (ii) acts of dishonesty by Polinsky resulting or
intending to result in personal gain or enrichment at the expense of the
Company, (iii) conduct by Polinsky in connection with his duties hereunder that
is fraudulent or grossly negligent, or (iv) conduct constituting a material
violation of securities laws or related regulations.

 

(e)         For the purposes of this Agreement, “Good Reason” means, without
Polinsky’s consent, (i) a material and adverse reduction in Polinsky’s
responsibilities, position or duties, or (ii) any requirement that Polinsky
relocate himself or his family, or (iii) the Company’s material breach of the
Agreement. The Company will have 30 days after receipt of notice from Polinsky
in writing specifying the deficiency to cure the deficiency that would result in
Good Reason.

 

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5.         Obligation of Confidentiality.

 

(a)          During the course of Polinsky’s services under this Agreement and
in connection with carrying out his duties hereunder, Polinsky will have access
to certain material non-public information relating to the Company and not
readily available from sources outside the Company. The confidential and
proprietary information, in any material respect, of the Company are among its
most valuable assets, including but not limited to, information about
transactions, contracts, intellectual property, finances, personnel, investment
and competitive strategies, sales, financial, marketing, and financial and
non-financial information relating to the portfolio investments of the Company.
The Company invested, and continues to invest, considerable amounts of time and
money in its process, technology, know-how, obtaining and developing the
goodwill of its customers, its other external relationships, its data systems
and databases, and all the information described above (hereinafter collectively
referred to as “Confidential Information”), and any misappropriation or
unauthorized disclosure of Confidential Information in any form would
irreparably harm the Company. Polinsky acknowledges that such Confidential
Information constitutes valuable, highly confidential, special and unique
property of the Company. Polinsky shall hold in a fiduciary capacity for the
benefit of the Company all Confidential Information which shall have been
obtained by Polinsky in connection with his services under this Agreement which
shall not be or become public knowledge, except for any information that is
public information (other than information that becomes public information as a
result of acts by Polinsky or representatives of Polinsky in violation of this
Agreement). Confidential Information shall not include specific items that have
become publicly available other than through Polinsky’s unauthorized disclosure.
Except as required by law or an order of a court or governmental agency with
jurisdiction, Polinsky shall not, during the Term or at any time thereafter,
disclose any Confidential Information, directly or indirectly, to any person or
entity for any reason or purpose whatsoever, nor shall Polinsky use it in any
way, except in the course of his services under this Agreement or to enforce any
rights or defend any claims hereunder or under any other agreement to which
Polinsky is a party, provided that such disclosure is relevant to the
enforcement of such rights or defense of such claims and is only disclosed in
the formal proceedings related thereto. Polinsky shall take all reasonable steps
to safeguard the Confidential Information and to protect it against disclosure,
misuse, espionage, loss and theft. Polinsky understands and agrees that Polinsky
shall acquire no rights to any such Confidential Information.

 

(b)         All files, records, documents, data, evaluation mechanisms and
analytics and similar items relating thereto or to the business of the Company,
as well as all investor lists, potential portfolio company lists, compilations
of research, and marketing techniques of the Company, whether prepared by
Polinsky or otherwise coming into Polinsky’s possession in connection with his
services under this Agreement, shall be presumed to be Confidential Information
under this Agreement and shall remain the exclusive property of the Company.
Polinsky shall not remove any such items from the premises of the Company,
except in furtherance of Polinsky’s duties under this Agreement.

 

(c)         As requested by the Company and at the Company’s expense, from time
to time and upon the termination of his services under this Agreement, Polinsky
will promptly (i) deliver to the Company or (ii) destroy, all copies and
embodiments, in whatever form, of all Confidential Information in Polinsky’s
possession or within his control (including but not limited to memoranda,
records, notes, plans, manuals, notebooks, documentation, flow charts, disks,
drives, tapes and all other materials containing or embodying any Confidential
Information) irrespective of the location or form of such material. If requested
by the Company, Polinsky will provide the Company with written confirmation that
all such materials have been delivered to the Company or destroyed as provided
herein.

 

6.         Non-Solicitation or Hire of Employees. During the Term and for a
period of 12 months following the termination of the Term (for any reason),
Polinsky shall not directly or indirectly solicit or attempt to solicit, any
employee of the Company (or any person who was an employee of the Company during
the 12-month period immediately prior to the relevant date) to terminate such
employee’s employment relationship with the Company in order, in either case, to
enter into a similar relationship with Polinsky, or any other person or any
entity in competition with the business of the Company.

 

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7.         Certain Understandings and Agreements. The Company realizes that
Polinsky has a variety of business interests and relationships with respect to
such business investments that are ongoing. The Company understands that
Polinsky is not prepared to terminate these interests, relationships or
activities in order to enter into this Agreement. After due consideration of
these factors, the Company has determined that the benefits to the Company from
Polinsky’s services under this Agreement outweigh any detriment to the Company
from the pursuit by Polinsky of such other interests, relationships or
activities while serving under this Agreement. Accordingly, the parties have
reached the agreements contained in this Section 7:

 

(a)         During the Term, Polinsky shall not be required to devote his full
business time and attention to his duties under this Agreement, but shall devote
such time as he believes, in his judgment, is necessary to fulfill his
obligations under this Agreement. In this regard, the Company has determined to
rely on Polinsky’s professionalism and his determination with such matters and
any such determination shall not subject Polinsky to any liability under this
Agreement, although the Company retains the right to terminate this Agreement as
provided herein.

 

(b)         The Company realizes that in the course of his activities during the
Term, Polinsky may identify, develop or become aware of investment opportunities
that are suitable for the Company (“Opportunities”). Opportunities may also be
suitable investments for Polinsky or other entities in which Polinsky has an
interest or others with whom Polinsky has a relationship (collectively, “Other
Parties”). Polinsky agrees that any Opportunities that come to him from a
director, officer or employee of the Company or which are submitted to him
during the Term in his capacity as a officer or director of the Company or which
are primarily investments in the types of securities in which the Company might
invest shall be Opportunities of the Company (“Company Opportunities”), and
Polinsky will not pursue any such Company Opportunity with any Other Parties,
unless (i) Polinsky shall have determined that such Company Opportunity is not
suitable for the Company and (ii) the Board, including a majority of the
directors on the Board who are not “interested persons” as defined under the
1940 Act, shall have concurred with such determination. With respect to all
other Opportunities other than Company Opportunities, Polinsky shall have no
obligation to offer such Opportunity to the Company and shall use his own
judgment in determining whether to allocate such Opportunity to the Company or
to Other Parties, and Polinsky shall have no liability to the Company with
respect to any such allocation. Notwithstanding the foregoing, Polinsky may
pursue a Company Opportunity on behalf of both the Company and the Other
Parties, subject to compliance with applicable law, regulation and any
applicable order granted by the United States Securities and Exchange
Commission.

 

8.         General Provisions.

 

(a)         Any notice or other communication required or which may be given
hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission or sent by certified, registered or express mail, postage
prepaid, and shall be deemed given when so delivered personally, or sent by
facsimile transmission or, if mailed, four days after the date of mailing, as
follows:

 

(b)         This Agreement contains the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements,
written or oral, with respect thereto.

 

(c)         Polinsky represents and warrants that he is not a party to or
subject to any restrictive covenants, legal restrictions or other agreements in
favor of any entity or person which would in any way preclude, inhibit, impair
or limit Polinsky’s ability to perform his obligations under this Agreement,
including but not limited to non-competition agreements, non-solicitation
agreements or confidentiality agreements.

 

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(d)         This Agreement may be amended, modified, superseded, canceled,
renewed or extended, and the terms and conditions hereof may be waived, only by
a written instrument signed by the parties or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any right, power or privilege hereunder, nor any
single or partial exercise of any right, power or privilege hereunder, preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder.

 

(e)         This Agreement shall be governed and construed in accordance with
the laws of the State of Minnesota applicable to agreements made and not to be
performed entirely within such state, without regard to conflicts of laws
principles. The parties irrevocably agree to submit to the jurisdiction and
venue of the courts of the State of Minnesota, in any action or proceeding
brought with respect to or in connection with the Agreement.

 

(f)         The parties acknowledge and agree that Polinsky’s breach or
threatened breach of any of the restrictions set forth in this Sections 5, 6 or
7 will result in irreparable and continuing damage to the Company for which
there may be no adequate remedy at law and that the Company shall be entitled to
equitable relief, including specific performance and injunctive relief as
remedies for any such breach or threatened or attempted breach. Polinsky hereby
consents to the grant of an injunction (temporary or otherwise) against Polinsky
or the entry of any other court order against Polinsky prohibiting and enjoining
him from violating, or directing him to comply with any provision of Section 5,
6 or 7. Polinsky also agrees that such remedies shall be in addition to any and
all remedies, including damages, available to the Company against him for such
breaches or threatened or attempted breaches.

 

(g)         This Agreement, and the rights and obligations hereunder, may not be
assigned by the parties without written consent signed by the parties.

 

(h)         This Agreement may be executed in counterparts, each of which shall
be deemed an original but all of which shall constitute one and the same
instrument.

 

(i)         If any term, provision, covenant or restriction of this Agreement,
or any part thereof, is held by a court of competent jurisdiction of any
foreign, federal, state, county or local government or any other governmental,
regulatory or administrative agency or authority to be invalid, void,
unenforceable or against public policy for any reason, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected or impaired or
invalidated. Polinsky acknowledges that the restrictive covenants contained in
Sections 5, 6 and 7 are a condition of this Agreement and are reasonable and
valid in temporal scope and in all other respects.

 

(j)         If any court determines that any of the covenants in Sections 5, 6
or 7, or any part of any of them, is invalid or unenforceable, the remainder of
such covenants and parts thereof shall not thereby be affected and shall be
given full effect, without regard to the invalid portion. If any court or
arbitrator determines that any of such covenants, or any part thereof, is
invalid or unenforceable because of the geographic or temporal scope of such
provision, such court or arbitrator shall reduce such scope to the minimum
extent necessary to make such covenants valid and enforceable.

 

(k)         The Company or other payor is authorized to withhold from any
benefit provided or payment due hereunder, the amount of withholding taxes due
any federal, state or local authority in respect of such benefit or payment and
to take such other action as may be necessary in the opinion of the Board to
satisfy all obligations for the payment of such withholding taxes.

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In Witness Whereof, the parties hereto, intending to be legally bound hereby,
have executed this Employment Agreement to be effective as of the Effective
Date.

 

COMPANY: POLINSKY:

 

MILL CITY VENTURES III, LTD.

 

 

By: /s/ Joseph A. Geraci, II   /s/ Douglas M. Polinsky     Joseph A. Geraci, II
  Douglas M. Polinsky     Chief Financial Officer      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signature Page –

Employment Agreement with Douglas M. Polinsky