Monarch Community Bancorp DEF 14A 2006
Proxy Statement Pursuant to Section 14(a) of the Securities
Monarch Community Bancorp, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
COMMUNITY BANCORP, INC.
March 24, 2006
I am pleased to invite you to attend the Monarch Community Bancorp, Inc.s 2006 annual meeting of shareholders on Tuesday, April 18, 2006. We will hold the meeting at 10:00 a.m. at the Creal Soccer Complex, 511 North Marshall Road, Coldwater, Michigan.
On the page following this letter, you will find the Notice of Meeting which lists the matters to be considered at the meeting. Following the Notice of Meeting is the proxy statement which describes these matters and provides you with additional information about our Company. Also enclosed you will find your proxy card, which allows you to vote on these matters, and the Companys 2005 Annual Report.
Your vote is important. A majority of the common stock must be represented, either in person or by proxy, to constitute a quorum for the conduct of business. Please complete and mail in your proxy card promptly, even if you plan to attend the meeting. You can attend the meeting and vote in person, even if you have sent in a proxy card.
The Board of Directors recommends that shareholders vote FOR each of the proposals stated in the proxy statement.
The rest of the Board and I look forward to seeing you at the meeting. Whether or not you can attend, we greatly appreciate your cooperation in returning the proxy card.
MONARCH COMMUNITY BANCORP, INC.
MONARCH COMMUNITY BANCORP, INC.
We are sending you this Proxy Statement and the enclosed proxy card because the Board of Directors of Monarch Community Bancorp, Inc. (the Company we or us) is soliciting your proxy to vote at the 2006 Annual Meeting of Shareholders (the Annual Meeting). This Proxy Statement summarizes the information you need to know to vote at the Annual Meeting.
You are invited to attend our Annual Meeting on April 18, 2006 beginning at 10:00 a.m., local time. The Annual Meeting will be held at the Creal Soccer Complex, 511 North Marshall Road, Coldwater, Michigan.
This Proxy Statement and the enclosed form of proxy are being mailed starting on or about March 24, 2006.
Holders of record of common stock of the Company at the close of business on February 24, 2006 are entitled to receive this notice. Generally, each share of common stock of the Company is equal to one vote. However, the Companys Articles of Incorporation limit the number of shares that may be voted by any holder owning beneficially more than 10% of the outstanding shares of the common stock of the Company (the Limit). A beneficial holder of shares in excess of the Limit may not vote any shares exceeding the Limit. A shareholder may exceed the Limit if affiliates of the shareholder as well as persons acting in concert hold sufficient shares together with such shareholder so as to exceed the Limit. Pursuant to the Articles of Incorporation, the Board of Directors will (i) make all determinations necessary to implement these rules and (ii) demand that anyone reasonably believed to beneficially own shares in excess of the Limit supply information to the Company to enable the enforcement of these rules.
There is no cumulative voting at the Annual Meeting.
As of the record date, there were 2,661,096 common shares issued and outstanding.
Unless you hold your shares in the Companys Savings and Profit Sharing Plan (the 401(k) Plan) or the Employee Stock Ownership Plan and Trust (the ESOP), you can vote on matters to come before the meeting in one of two ways:
You may also choose to vote for all of the nominees for Director and each proposal by simply signing, dating and returning the enclosed proxy card without further direction. All signed and returned proxies that contain no direction as to vote will be voted FOR each of the nominees for Director and FOR each of the proposals.
The Board of Directors has selected itself as the persons to act as proxies on the proxy card.
If you plan to attend the Annual Meeting and vote in person, you should request a ballot when you arrive. HOWEVER, IF YOUR SHARES ARE HELD IN THE NAME OF YOUR BROKER, BANK OR OTHER NOMINEE, THE INSPECTOR OF ELECTION WILL REQUIRE YOU TO PRESENT A POWER OF ATTORNEY OR PROXY IN YOUR NAME FROM SUCH BROKER, BANK OR OTHER NOMINEE FOR YOU TO VOTE SUCH SHARES AT THE ANNUAL MEETING. Please contact your broker, bank or nominee.
If you participate in the Companys 401(k) Plan or ESOP, please return your proxy in the envelope on a timely basis to ensure that your proxy is voted. If you own or are entitled to give voting instructions for shares in the 401(k) Plan or ESOP and do not vote your shares or give voting instructions, generally, the Plan Administrator or Trustee will vote your shares in the same proportion as the shares for all plan participants for which voting instructions have been received. Holders of shares in the 401(k) Plan or ESOP will not be permitted to vote such shares at the Annual Meeting, but their attendance is encouraged and welcome.
The presence, in person or by proxy, of the holders of one-third of the votes entitled to be cast by the shareholders at the Annual Meeting is necessary to constitute a quorum. Abstentions and broker non votes are counted as present and entitled to vote for purposes of determining a quorum. A broker non vote occurs when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because such broker, bank or nominee does not have discretionary authority to vote and has not received instructions from the beneficial owner.
Once a quorum is achieved, a plurality of votes cast is all that is necessary for the election of directors. Abstentions and broker non votes are not counted in determining the vote. As to ratification of Plante & Moran, PLLC and all other matters that may come before the meeting, the affirmative vote of a majority of votes cast is necessary for the approval of such matters. Abstentions and broker non votes are again not counted for purposes of approving the matter.
If you give a proxy, you may revoke it at any time before it is exercised. You may revoke your proxy in any one of three ways:
If you choose to revoke your proxy by attending the Annual Meeting, you must vote in accordance with the rules for voting at the Annual Meeting. Attending the Annual Meeting alone will not constitute revocation of a proxy.
We will pay the expenses of soliciting proxies. Proxies may be solicited on our behalf by directors, officers or employees in person or by telephone, mail or telegram. We do not intend to engage a proxy solicitation firm to assist us in the distribution and solicitation of proxies. The Company will also request persons, firms and corporations holding shares in their names for other beneficial owners to send proxy materials to such beneficial owners. The Company will reimburse these persons for their expenses.
The Board of Directors knows of no business which will be presented for consideration at the Annual Meeting other than as stated in the Notice of Annual Meeting of Shareholders. If, however, other matters are properly brought before the Annual Meeting, it is the intention of the persons named in the proxies to vote the shares on such matters in their discretion.
Our Companys Board of Directors is the ultimate decision making body of the Company, except for matters which law or our Certificate of Incorporation requires the vote of shareholders. The Board of Directors selects the management of the Company which is responsible for the Companys day to day operations. The Board acts as an advisor to management and also monitors its performance. Our Board of Directors has determined that each of Messrs. Adamson, Bracy, Dally, Dobbins, Mitchell, Ross, Vozar, and Welch are independent as independence is defined in the National Association of Securities Dealers listing standards, as those standards have been modified or supplemented.
Members of the Board of Directors serve also as Directors of Monarch Community Bank (the Bank). The Bank is the Companys wholly owned subsidiary. You will find a discussion of its activities in your Annual Report.
During 2005, the Board of Directors met as the Companys Board of Directors 13 times. In addition, the Board of Directors has authorized four Committees to manage distinct matters of the Company. These Committees are the Executive Committee, the Audit Committee, the Nominating Committee and the Compensation Committee. Membership on each of the Committees is set forth in the table below. All of our Directors attended 75 percent or more of the meetings of the Board and the Board Committees on which they served in 2005.
The Executive Committee generally acts in lieu of the full Board of Directors between board meetings. This committee is responsible for formulating and implementing policy decisions, subject to review by the entire Board of Directors.
The Audit Committee is responsible for recommending the annual appointment of the public accounting firm to be our outside auditors, subject to approval of the Board of Directors and shareholders. The Committee is responsible for the following tasks:
While the Board of Directors endorses the effectiveness of our Audit Committee, its membership does not include a director who qualifies for designation as an audit committee financial expert a relatively new concept under federal regulation that contemplates such designation only when an audit committee member satisfies all five qualification requirements, such as experience (or experience actively supervising others engaged in), preparing, auditing, analyzing or evaluating financial statements presenting a level of accounting complexity comparable to what is encountered in connection with our Companys financial statements.
Our Board of Directors has a Nominating Committee which consists of three directors. Messrs. Dally, Dobbins, and Welch are the current members of this committee. The Nominating Committee identifies individuals to become board members and selects, or recommends for the boards selection, director nominees to be presented for shareholder approval at the annual meeting of shareholders or to fill any vacancies. During the fiscal year ended December 31, 2005, the Nominating Committee held one meeting.
Our Board of Directors has adopted a written charter for the Nominating Committee, a copy of which was attached as an appendix to the proxy statement in connection with the 2005 annual meeting and is also available to shareholders on our website, at http://www.monarchcb.com. Each of the members of our Nominating Committee is independent as independence is defined in the National Association of Securities Dealers listing standards, as those standards have been modified or supplemented.
The Nominating Committees policy is to consider director candidates recommended by shareholders. Such recommendations must be made pursuant to timely notice in writing to
Andrew J. Van
The Nominating Committee has established certain qualifications in order to be eligible for service on the Board:
Historically, the Nominating Committee used a subjective process for identifying and evaluating nominees for director, based on the information available to, and the subjective judgments of, the members of the Nominating Committee and our then current needs; and nominees have been existing directors or business associates of our directors or officers. In 2005, objective standards for evaluating director nominees were adopted, as follows:
A. Nominees for Directors of the Company shall possess such qualifications as the Companys Bylaws may require.
B. Nominees shall own, directly or indirectly, at least 1,000 shares of common stock of the Company. Shares owned jointly with other persons shall be counted toward such minimum.
C. Nominees shall be at least 30 years of age as of the date of election to the Board.
D. Nominees shall be citizens of the United States of America.
E. Nominees shall possess a Bachelors Degree from an accredited college or university, or shall possess employment experience judged by the Committee to be the equivalent of such a degree.
F. Nominees shall possess a minimum of 10 years experience in a least one of the following:
G. Nominees shall exhibit a basic understanding of financial statements and the banking industry.
H. Nominees shall not be or have been under any type of disciplinary order, sanction, or penalty from a national or state banking, securities, or licensed profession regulatory body.
I. Nominees shall not have been convicted of a crime, other than non-substance abuse related traffic offenses.
J. Nominees shall certify in writing that he or she possess the above qualifications.
K. Nominees shall furnish such references as the Committee may request.
L. Nominees shall answer such questions and attend such interviews as the Committee shall request.
Nominees recommended by a shareholder also will be evaluated in accordance with the above standards. The complete Nominating Committee Polices and Procedures is available on our website, www.monarchcb.com.
Nominations of persons for election to the Board of Directors may be made only by or at the direction of the Board of Directors or by any shareholder entitled to vote for the election of directors who complies with the notice procedures set forth in Monarch Community Bancorps bylaws. Pursuant to our bylaws, nominations by shareholders must be delivered in writing to the Secretary of Monarch Community Bancorp at least 90 days but no more than 120 days prior to the first anniversary of the preceding years annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the shareholder must be delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the tenth day following the day on which notice of the date of annual meeting was mailed or public announcement of the date of such meeting is first made.
The Compensation Committee is responsible for establishing annual and long-term performance goals for the Chief Executive Officer (Mr. Denney) and senior management. This Committee also approves the senior officers compensation and other incentive compensation programs. The Committees functions include:
The Company has adopted a Code of Ethics that applies to all of our employees, officers and directors, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our Code of Ethics contains written standards that we believe are reasonably designed to deter wrongdoing and to promote:
This Code of Ethics is attached to our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 as Exhibit 14. We have also posted it on our Web site at http://www.monarchcb.com. We will provide to any person without charge, upon request, a copy of our Code of Ethics. Requests for a copy of our Code of Ethics should be made to our Secretary at 375 North Willowbrook Road, Coldwater, Michigan 49036. We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or a waiver from, a provision of our Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and that relates to any element of the code definition enumerated in Securities and Exchange Commission, Regulation S-K, Item 406(b) by posting such information on our Web site at http://www.monarchcb.com within five business days following the date of the amendment or waiver.
Our Board of Directors has a process for shareholders to send communications to the Board of Directors, its Nominating Committee or its Audit Committee, including complaints regarding accounting, internal accounting controls, or auditing matters. Communications can be sent to the Board of Directors; its Nominating Committee or its Audit Committee or specific directors either by regular mail to the attention of the Board of Directors, its Nominating Committee, its Audit Committee or specific directors, at our principal executive offices at 375 North Willowbrook Road, Coldwater, Michigan 49036. All of these communications will be reviewed by our Secretary (1) to filter out communications that our Secretary deems are not appropriate for our directors, such as spam and communications offering to buy or sell products or services, and (2) to sort and relay the remainder to the appropriate directors. We encourage all of our directors to attend the annual meeting of shareholders, if possible. All of our then-current directors attended the 2005 annual meeting of shareholders.
The members of the Boards of Directors of Monarch Community Bancorp and Monarch Community Bank are identical. Except for Mr. Denney, during 2005, each director of the Bank received an annual retainer fee of $10,000 for his service on the Board of Directors. In addition, each director received $300 for each Bank regular and special board meeting attended, and a fee not to exceed $300 for each committee meeting attended. Effective January 1, 2006, the annual retainer fee is $12,000. The Chairman of the Board receives an additional $9,000 per year. No fees are paid for attending the Companys board meetings or committee meetings if these meetings are held in conjunction with meetings of the Banks Board of Directors.
Through December 2004, we maintained a deferred compensation plan for the benefit of our directors. Under the plan each director may make an annual election to defer receipt of all or a portion of his monthly director fees into a non-qualified deferred program to supplement his retirement. The deferred amounts are allocated to a deferral account and credited with interest at the rate equal to the greater of 5% or Monarch Community Banks return on average equity for the previous fiscal year. On December 16, 2004, the plan was terminated effective December 31, 2004.
Currently, the Board of Directors has nine members divided into three classes of three directors per class. Each class of directors has three-year terms. One class of directors is up for election each year. This results in a staggered Board which ensures continuity from year to year.
Three directors will be elected at the Annual Meeting to serve for three-year terms expiring at our Annual Meeting in the year 2009.
The persons named in the enclosed proxy card intend to vote the proxy for the election of each of the three nominees unless you indicate on the proxy card that your vote should be withheld from any or all of such nominees. Each nominee elected as director will continue in office until his or her successor has been elected, or until his death, resignation or retirement.
The Board of Directors has proposed the following nominees for election as Directors with terms expiring in 2009 at the Annual Meeting: Martin L. Mitchell, Stephen M. Ross and Gordon L. Welch.
The Board of Directors recommends a vote FOR the election of these nominees as Directors.
We expect each nominee to be able to serve if elected. If any nominee is not able to serve, proxies will be voted in favor of the remainder of those nominated and may be voted for substitute nominees. The principal occupation and certain other information about the nominees and other directors whose terms of office continue after the Annual Meeting is set forth below. Such terms may include years of services for the Bank prior to the formation of the Company.
The Audit Committee of the Board of Directors has appointed Plante & Moran, PLLC to serve as our independent auditors for 2006 and is seeking the ratification of the appointment of Plante & Moran, PLLC by our shareholders.
In the event our shareholders fail to ratify the selection of Plante & Moran, PLLC, the Audit Committee will consider it as a direction to select other auditors for the subsequent year. Representatives of Plante & Moran, PLLC will be present at the Annual Meeting to answer questions. They will also have the opportunity to make a statement if they desire to do so.
Audit fees and expenses billed to the Company by Plante & Moran, PLLC for the audit of the Companys financial statements for the fiscal years ended December 31, 2005 and December 31, 2004, and for review of the Companys financial statements included in the Companys quarterly reports on Form 10-Q, are as follows:
Audit related fees and expenses billed to the Company by Plante & Moran, PLLC for fiscal years 2005 and 2004 for services related to the performance of the audit or review of the Companys financial statements that were not included under the heading Audit Fees, are as follows:
Tax fees and expenses billed to the Company for fiscal years 2005 and 2004 for services related to tax compliance, tax advice and tax planning, consisting primarily of preparing the Companys federal and state income tax returns for the previous fiscal periods and inclusive of expenses are as follows:
Fees and expenses billed to the Company by Plante & Moran, PLLC for all other services provided during fiscal years 2005 and 2004 are as follows:
In accordance with Section 10A(i) of the Exchange Act, before Plante & Moran, PLLC is engaged by us to render audit or non-audit services, the engagement is approved by our Audit Committee. None of the audit-related, tax and other services described in the table above were approved by the Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X. None of the time devoted by Plante & Moran, PLLC on its engagement to audit the Companys financial statements for the year ended December 31, 2005 is attributable to work performed by persons other than Plante & Moran, PLLC employees.
The affirmative vote of a majority of votes cast on this proposal, without regard to abstentions or broker non votes, is required for the ratification of the appointment of Plante & Moran, PLLC.
The Board of Directors recommends a vote FOR the ratification of the appointment of Plante & Moran, PLLC as our independent auditors for the year 2006.
The following table shows, for the years ended December 31, 2005, 2004 and 2003, the cash compensation paid by the Company, as well as certain other compensation paid or accrued for those years, to the Chief Executive Officer and other executive officers (Named Executive Officers) who accrued salary and bonus in excess of $100,000 in fiscal year 2005.
Backgrounds of our Executive Officers
In addition to the information about our President and Chief Executive Officer, Donald L. Denney, which is set forth on page 12, following is information about the Companys other executive officers.
William C. Kurtz, Age 47, Senior Vice President and COO, formerly CFO. Mr. Kurtz has been employed by Monarch Community Bank since 1997. He has held the positions of Chief Financial Officer, Controller, Head of Consumer and Mortgage Lending, and Compliance Officer.
Andrew J. Van Doren, Age 57, Vice President, Secretary, and General Counsel for Monarch Community Bancorp, Inc. since the Company was formed in 2002. He has been employed by Monarch Community Bank since 2001 as Vice President, Secretary, General Counsel, and Chief compliance Officer. Prior to coming to the Bank, Mr. Van Doren was President of Biringer, Hutchinson, Van Doren, Lillis, and Bappert, P.C., a law firm in Coldwater, Michigan, which he joined in 1983. Mr. Van Doren holds a B.A. from Western Michigan University and a Juris Doctor degree from Northwestern University School of Law.
Eric C. Cook, Age 35, Vice President of the Company since April 15, 2004. Mr. Cook began his banking career 1992 with Marshall Savings Bank. He currently is employed by Monarch Community Bank as Vice President and Regional President in Marshall, with responsibility for the Banks northern operations. Mr. Cook holds a B.A. from Alma College, an M.B.A from Western Michigan Universitys Haworth School of Business, and has completed the Graduate School of Banking at the University of Wisconsin. He serves on several Michigan Bankers Association committees.
Ralph A. Micalizzi, Jr., Age 43, appointed Vice President, Chief Financial Officer, and Treasurer on February 16, 2006. He joined Monarch Community Bank as Internal Auditor in February 2005; became Bank Vice President and Chief Accountant in October, 2005; and Bank Chief Financial Officer and Treasurer on February 16, 2006. Previously, Mr. Micalizzi served as Chief Financial Officer of United Midwest Savings Bank, Columbus Ohio; Chief Financial Officer of First Central Bank, Lenoir
City, Tennessee, Vice President of Corporate Accounting Department for First American Corporation, Nashville, Tennessee; Vice President and Internal Auditor, Southeast Bancorp, Inc., Corbin Kentucky; and was employed for 10 years by public accounting firms. He holds a Bachelor of Accounting degree from Florida International University and has been a Certified Public Accountant since 1992.
FISCAL YEAR-END OPTION/SAR VALUES
Option Grants in 2005
The following table sets forth certain information concerning the number and value of stock options granted in the last fiscal year to the individuals named above in the summary compensation table:
Donald L. Denneys (Executive) employment agreement with the Company, dated September 16, 2004, provides that he will serve in the capacity of President and Chief Executive Officer of the Company. The term of the agreement is for two years beginning on September 6, 2004 and ending on September 5, 2006, unless terminated earlier in accordance with the agreement. During the term of the agreement, the Company will pay to Executive a base salary of $180,000 annually. The rate of Executives base salary beginning in 2006 will be reviewed by the Board of Directors, and Executive will be entitled to an increase in such amount as the Board may decide. Executive is also entitled to receive an annual discretionary bonus pursuant to the bonus program then in effect and is eligible for stock options, awards, and participation in the Companys employee benefit and fringe benefit programs.
Upon any termination of Executives employment with the Company (other than a termination which occurs following a change in control), Executive has agreed not to compete with the Company for the longer of (i) the period that Executive continues to receive his base salary under the agreement, or (ii) one year following his date of termination. The agreements prohibition on competition prohibits Executive from working for or advising, consulting or otherwise serving or having a material financial interest in any entity whose business is similar to or which materially competes with the business activities of the Company within a 50 mile radius of Coldwater, Michigan. The prohibition on competition also prohibits Executive from offering employment to or employing on his own behalf or on behalf of another person or entity, any person who is employed by the Company within six months of Executives termination of employment.
If the Board terminates Executives employment without cause prior to the expiration of the term, Executive is entitled to his base salary and to continue to participate in the Companys health care plan for the longer of (i) the remainder of the term of his agreement, or (ii) one year following the date of termination of employment. If Executives employment is terminated for cause, no continued payments or benefits are due under the agreement. For cause is defined as termination due to Executives personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, failure to perform stated duties or to follow one or more specific written directives of the Board, reasonable in nature and scope, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease and desist order, or material breach of any provision of the agreement.
If, following a change in control, the agreement is terminated by the Company without cause or by Executive for good reason, Executive is entitled to his base salary and to continue to participate in the Companys health care plan for a period of two years. Good reason generally includes: (A) if Executive would be required to move his personal residence or perform his principal executive functions more than 25 miles from the Companys main office; (B) if, in the organizational structure of the Company, Executive would be required to report to a person or persons other than the Board; (C) if the Company should fail to maintain Executives base salary or fail to maintain employee benefit plans or arrangements generally comparable to those currently in place; (D) if Executive is assigned substantial duties and responsibilities other than those normally associated with his current position; or (E) if Executive is removed from or not re-nominated to serve on the Board.
A change in control is defined to include the following: (A) any third person becoming the beneficial owner of shares of the Company with respect to which 25% or more of the total number votes for the election of the Board may be cast; (B) a change in control of the Companys subsidiary bank within the meaning of the Home Owners Loan Act of 1933; (C) as a result of or in connection with, any merger or other business combination, sale of assets or contested election, wherein the persons who are directors of the Company before such transaction or event ceased to constitute a majority of the Board of the Company or any successor to the Company; or (D) the Company transfers substantially all of its assets to another corporation or entity which is not an affiliate of the Company.
In the event of disputes under the agreement, the parties have agreed to binding arbitration in accordance with the rules of the American Arbitration Association and have waived their right to a trial by jury. The Company has also agreed to indemnify Executive to the fullest extent permitted under law and applicable regulation against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Company.
On December 16, 2004, the Company entered into management continuity agreements with two of its executive officers: William C. Kurtz, Senior Vice President and Chief Operating Officer and Andrew J. Van Doren, Vice President and General Counsel, and on February 21, 2005, with Ralph A. Micalizzi, Jr., Vice President, Treasurer, and Chief Financial Officer (each an Executive). The agreements are valid for a period of one year and will renew automatically for successive one-year periods, unless the Board of Directors of the Company indicates by resolution adopted at least three months prior to the end of the relevant one-year term that the agreements shall not be renewed.
Pursuant to the agreements if, during a change in control period, Executive is terminated other than for cause, death, disability or retirement, or if Executive terminates his employment for good reason, then the Executive is entitled to receive his annual base salary for a period of twelve months following the date of termination and ongoing health insurance coverage for Executive and his family under the Banks health care plan for a period of twelve months. If Executives employment is terminated by reason of death, disability or retirement during the change in control period, then the agreement terminates and the Company must pay Executive his annual base salary through the date of termination and any benefits that have accrued prior to that date. If Executives employment is terminated for cause, then the agreement terminates without any further obligations to Executive.
A change in control is defined to include the following: (A) any third person becoming the beneficial owner of shares of the Company with respect to which 25% or more of the total number votes for the election of the Board may be cast; (B) a change in control of the Companys subsidiary bank within the meaning of the Home Owners Loan Act of 1933; (C) as a result of or in connection with, any merger or other business combination, sale of assets or contested election, wherein the persons who are directors of the Company before such transaction or event ceased to constitute a majority of the Board of the Company or any successor to the Company; or (D) the Company transfers substantially all of its assets to another corporation or entity which is not an affiliate of the Company. The change in control period is defined as the period commencing on the date of the change in control and ending twelve months later.
Cause is defined as termination due to Executives personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, failure to perform stated duties or to follow one or more specific written directives of the Board, reasonable in nature and scope, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease and desist order, or material breach of any provision of the agreement. Good reason generally includes: (A) if Executive would be required to move his personal residence or perform his principal executive functions more than 25 miles from the Executives primary office; (B) if the Company should fail to maintain Executives base salary or fail to maintain employee benefit plans or arrangements generally comparable to those currently in place; or (C) if Executive is assigned substantial duties and responsibilities other than those normally associated with his current position.
In the event of disputes under the agreement, the parties have agreed to binding arbitration in accordance with the rules of the American Arbitration Association and have waived their right to a trial by jury.
The Bank has a 401(k) Plan in which substantially all employees may participate. The 401(k) Plan provides for matching contributions equal to 50% on the first 6% of the participants 401(k) deferrals for the year.
The Bank has established an ESOP for employees of the Bank. Full-time employees who have been credited with at least 1,000 hours of service during a 12-month period and who have attained age 21 are eligible to participate in our employee stock ownership plan.
The ESOP borrowed funds from the Company to purchase 185,150 shares of Common Stock in the Banks conversion from mutual to stock form. The loan to the ESOP will be repaid principally from the Banks contributions to the ESOP over a period of ten years, and the collateral for the loan is the Common Stock purchased by the ESOP. The ESOP is subject to the requirements of the Employee Retirement Income Security Act of 1974, and the regulations of the Internal Revenue Service and the Department of Labor thereunder.
The Recognition Plan acquired 92,575 shares of Common Stock. At December 31, 2005, 60,502 shares had been granted to current directors and executive officers and 20,208 of such shares had vested. Under the Recognition Plan, shares are awarded as restricted stock which vests over a five-year period.
An aggregate of 231,438 shares of Common Stock were reserved under the 2003 Stock Option Plan. At December 31, 2005, 243,207 options to acquire shares of Common Stock had been granted. However, 56,300 options were granted to persons who are no longer employed; such options were forfeited by those persons11,069 of such forfeited options were granted to others, and 45,931 are available for future grants.
We have followed a policy of granting consumer loans and loans secured by the borrowers personal residence to our officers, directors and employees. Loans to all officers and directors up to $250,000 when aggregated with other loans to that officer or director must be reported to the Board of Directors. Loans exceeding $250,000 (when aggregated) must be approved by a majority of the disinterested directors. All loans to our employees, executive officers and directors were made in the ordinary course of business and on the same terms and conditions as those of comparable transactions prevailing at the time, in accordance with our underwriting guidelines, and do not involve more than the normal risk of collectibility or present other unfavorable features. All loans to directors and executive officers were performing in accordance with their terms at December 31, 2005.
The Compensation Committee of the Board of Directors is comprised of Lauren L. Bracy, James R. Vozar, and Gordon L. Welch, none of whom is or was formerly an officer of the Company. Neither Mr. Bracy, Mr. Vozar nor Mr. Welch had any relationship with the Company which would have required disclosure in this Proxy Statement under the caption Transactions with Certain Related Persons. No executive officer of the Company served as a director or on the compensation committee of any other entity in 2005.
The following graph compares the cumulative total stockholder return on the Companys common stock (MCBF), with cumulative return for the Russell 3000 Index and the SNL $250 - $500 Million Thrift Index over the same period, assuming the investment of $100 on August 30, 2002, and reinvestment of all dividends.
Total Return Performance
Monarch Community Bancorp
SNL $250M-$500M Thrift Index
Under rules established by the Securities and Exchange Commission, the Company is required to provide certain information in regard to the compensation and benefits provided to Donald Denney, as President and Chief Executive Officer of the Company and the Bank, and the other three executive officers of the Company and the Bank. The disclosure requirements for these four individuals (the executive officers) include information set forth in various compensation tables contained in this Proxy Statement and a report explaining the rationale and manner regarding executive officer salaries, bonuses and contributions to the ESOP by the Board of Directors of the Company, with Mr. Denney abstaining from and voting on such matters. Decisions regarding the grant of awards to executive officers pursuant to the Incentive Stock Plan are made by the Compensation Committee of the Board of Directors. The Compensation Committee of the Board of Directors of the Company has prepared the following report.
This report describes the current compensation policy as endorsed by the Companys Board of Directors and the Compensation Committee, and the resulting actions taken in arriving at 2005 compensation as reported in the various compensation tables. The executive compensation program of the Bank has been designed to:
The executive compensation program is comprised of salary, opportunities for annual cash bonuses, participation in the ESOP, participation in the Incentive Stock Option Plan and participation in the Retention and Recognition Plan (RRP). An executive officers salary is based on a number of factors, including, (1) the Banks performance as compared to internally established goals for the most recently ended fiscal year and to the performance of other Michigan-based financial institutions, (2) the individual officers level of responsibility with the Bank and (3) comparisons to salaries paid to officers holding similar positions in other Michiganbased financial institutions. The award of an annual cash bonus is made in the discretion of the Board of Directors and is pursuant to a formal plan or formula. A bonus, if granted, is based on the individual performance of the executive officer and the achievement of financial performance goals of the Company, as established in the Companys annual budget and business plan. The Bank, as plan sponsor of the ESOP, made an ESOP contribution which was allocated among all participating employees of the Bank, including the executive officers based on their annual salaries. The Compensation Committee uses the award of stock options and/or available (RRP) stock to officers to
align the officers interests with those of the shareholders; significant vesting periods are also used to retain employees. The amount of stock granted is determined by reviewing the practices of other financial institutions based on information provided by an outside reliable research consultants to the Board of Directors.
In 1993, Section 162 (m) of the Internal Revenue Code was amended to place limits on the deductibility of compensation in excess of $1 million paid to executive officers of publicly held companies. The Board of Directors of the Company does not believe, however, that the amendment has had or will have any impact on the compensation policies followed by the Board.
President/Chief Executive Officers Compensation
Mr. Denneys base salary was $180,000 for 2005. The base salary reflected consideration of (i) an assessment of the Companys performance during 2004 as compared to goals set in the Companys annual budget and business plan for 2004, (ii) a comparison of the Companys performance as compared to the performance of other Michigan-based financial institutions, and (iii) compensation data provided by comparative industry surveys. Each year, management of the Bank prepares, and the Board of Directors approves, an annual budget and business plan containing financial performance goals measured primarily in terms of earnings per share, asset quality, return on assets and return on stockholders equity. In setting Mr. Denneys salary for 2005, the Board reviewed the goals established for 2004 and determined that such goals have been achieved by the Company. The Board also reviewed the Companys performance as compared to the performance of other Michigan-based financial institutions of similar asset size. Compensation data for other Michigan-based financial institutions of similar asset size is also provided through surveys independently prepared by the Michigan Bankers Association. The survey reviewed by the Board in setting Mr. Denneys 2005 salary contained information on salaries paid during 2004 to the chief executive officers of financial institutions in the same region and asset size of Michigan-based banks with deposits in excess of $250 million. The Board also reviewed the compensation data from Crowe Chizek and Company LLC by comparing the salaries of CEOs of Michigan banks with an asset size similar to the Bank. While the foregoing factors are not specifically weighted in the decision-making process, primary emphasis is placed on the Companys performance during the previous year as compared to the internally-established goals. Review of comparable compensation data is used primarily as a check to ensure that the salary established is within the range of salaries paid to other chief executive officers of Michigan-based financial institutions. Although the Board reviewed a number of objective factors as described above in setting Mr. Denneys salary for 2005 its final decision was based on a subjective determination.
Mr. Denney was awarded a 5 per cent bonus ($9,000) bonus for 2005 and received additional 2000 Shares of (RRP) Stock (5 years vesting period). He also was eligible for ESOP contribution. Mr. Denneys contribution was $18,504 for the year 2005. The size of the contribution (as limited by the Internal Revenue Code) was determined as a function of Mr. Denneys 2005 salary and the size of the contribution made by the Bank, as plan sponsor, to the ESOP for the benefit of all employees of the Bank eligible to participate in the ESOP Plan. For 2005, the ESOP Plan contribution made by the Bank amounted to 7.35 % of the aggregate salaries paid ($245,646) to all Bank employees eligible to participate in the plans. Mr. Denney was eligible for the 401K Plan with a Company match up to 3% maximum.
Compensation for Other Executive Officers
Effective January 31, 2005, the Board of Directors increased the base salaries of the 4 other executive officers, Mr. Kurtz (3.0 per cent increase), Mr. Cook (1.0 per cent increase) and Mr. Van Doren
(3.0 per cent increase) all increases of 2005 salary base. Bonus was awarded to all 4 executive officers of 5 per cent of annual salary for 2005 payable in 2006. All executive officers received additional compensation representing the contributions the Bank made to the ESOP Plan. The size of those ESOP contributions was determined in accordance with the same procedures as was used for all employees of the Bank the salaries were based on the same considerations as those used in making the compensation decisions concerning the President/Chief Executive Officer of the Bank and those considerations described under the Compensation Policy.
THE COMPENSATION COMMITTEE
The Audit Committee is comprised of three directors (Messrs. Adamson, Dobbins, and Mitchell). Each of the directors is independent, under the definition contained in Rule 4200(a)(15) of the NASDs listing standards. The Board of Directors has adopted a written charter for the Audit Committee, which was included as an Appendix to the Proxy Statement in connection with the 2005 Annual Meeting.
In connection with the audited financial statements contained in the Companys 2005 Annual Report on Form 10-K for the fiscal year ended December 31, 2005, the Audit Committee reviewed and discussed the audited financial statements with management and Plante & Moran, PLLC. The Audit Committee discussed with Plante & Moran, PLLC the matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU § 380). The Audit Committee has also received the written disclosures and the letter from Plante & Moran, PLLC required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with them their independence.
Based on the review and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2005.
THE AUDIT COMMITTEE
Section 16(a) of the Securities Exchange Act of 1934 requires the Companys executive officers and directors, and persons who own more than 10% of any registered class of the Companys equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than 10% shareholders are required by regulation to furnish the Company with copies of all Section 16(a) reports they file.
Based on its review of the copies of the reports it has received and written representations provided to the Company from the individuals required to file the reports, the Company believes that all Directors and Executives of the Company filed all reports required on a timely basis pursuant to Section 16 of the Securities Exchange Act of 1934, except as follows: The Form 4 for transactions of Donald L. Denney that occurred on September 30, 2005 and December 15, 2005 was not filed until January 18, 2006. One Form 4 reporting one transaction by Mr. Kurtz was filed 3 days late.
In order to be eligible for inclusion in next years proxy materials for the annual meeting of shareholders, any shareholder proposal to take action at such meeting must be received at our executive office located at 375 North Willowbrook Road, Coldwater, Michigan 49035, on or before November 24, 2006. Any shareholder proposals received after December 19, 2006, but on or before January 18, 2007, may be considered for presentation at next years annual meeting although not included in the proxy statement. In the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from April 18, 2007, the shareholder proposal must be delivered not earlier than the 120th day prior to the date of such annual meeting and not later than the close of business on the later of the 90th day prior to the date of such annual meeting or the tenth day following the day on which notice of the date of the annual meeting was mailed or public announcement of the date of such meeting is first made.
All shareholder proposals for inclusion in Monarch Community Bancorps proxy materials may be subject to the requirements of the proxy rules adopted under the Securities Exchange Act of 1934 and, as with any shareholder proposal, regardless of whether included in our proxy materials, Monarch Community Bancorps articles of incorporation and bylaws and Maryland law.
Whether or not you plan to attend the Meeting, please vote by marking, signing, dating and promptly returning the enclosed proxy in the enclosed envelope.