EXHIBIT 10.1

SETTLEMENT AGREEMENT AND MUTUAL RELEASE

     This Settlement Agreement and Mutual Release (“Agreement”) is made and
entered into this 9th day of December, 2004, by and among John R. Schroll, an
individual with an address at 209 North Clay Street, Coldwater, Michigan 49036
(“Schroll” or “Party”), Monarch Community Bancorp, Inc., a Maryland corporation
with its chief executive office located at 375 North Willowbrook Road,
Coldwater, Michigan 49036 (“Bancorp” or “Party”) and Monarch Community Bank, a
federally-chartered banking corporation with its chief executive office located
at 375 North Willowbroook Road, Coldwater, Michigan 49036 (“Bank” or “Party”).

FACTUAL RECITALS

A.   Schroll and Bank entered into an Employment Agreement dated November 12,
2002, as amended (the “Employment Agreement”) pursuant to which Schroll was
employed as Bank’s President and Chief Executive Officer.   B.   Bancorp
appointed Schroll to Bank’s Board of Directors.   C.   Schroll was employed by
Bancorp as its President and Chief Executive Officer.   D.   Schroll currently
serves as a duly-elected Director of Bancorp whose term expires in April, 2007.
  E.   Schroll’s position as President and CEO of Bancorp and Bank was
involuntarily terminated by Bancorp and Bank without cause on or about
August 19, 2004.   F.   Schroll’s employment with Bancorp and Bank was
involuntarily terminated by Bancorp’s Board of Directors and Bank’s Board of
Directors, respectively, without cause on or about September 30, 2004.   G.   A
dispute between the Parties (the “Dispute”) arose in respect of certain monies
owed to Schroll by Bancorp and/or Bank, as the case may be, pursuant to both:
(i) the Employment Agreement, in Schroll’s capacity as a director, officer
and/or employee of Bank and (ii) in Schroll’s capacity as a director, officer
and/or employee of Bancorp.   H.   Schroll commenced an action in the State of
Michigan Circuit Court in Branch County, File No. 04-09-617-CK, in which Schroll
alleged various

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    claims arising out of the Employment Agreement and his employment with
Bancorp and Bank (“Lawsuit”).   I.   Schroll, Bancorp, and Bank shall be
collectively referred in this Agreement as the “Parties”.   J.   The Parties
believe that it is in their best respective interests and to their best
respective advantage in order to forever settle, adjust and compromise the
Dispute and all other controversies and disputes that now or in the future may
exist between them pursuant to the terms and upon the conditions more fully
detailed in this Agreement.

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are both acknowledged and mutually agreed to by the
respective Parties, it is agreed as follows:

1.   Agreements of Schroll. In consideration of the agreements of both Bank and
Bancorp, as the case may be, contained herein Schroll agrees as follows:

A.   To accept the Payments, Personal Property and Benefits (as each are
hereinafter defined) from both Bank and Bancorp, as the case may be, as a full
and final satisfaction of the Dispute.   B.   Simultaneously with the execution
hereof, to sign Exhibit A hereto whereby he will immediately resign from the
Board of Directors of Bancorp and all of its affiliates.   C.   To execute all
documents necessary in order to effectuate the terms of this Agreement.   D.  
To dismiss, with prejudice and without cost or attorney fees to any Party, the
Lawsuit.

2.   Agreements of Bank and/or Bancorp. In consideration of the agreements of
Schroll contained herein, Bank and/or Bancorp, as the case may be, agree as
follows:

A.   To transmit and/or provide to Schroll the following: (i) payment(s)
(individually, a “Payment” and collectively, the “Payments”), (ii) personal
property (“Personal Property”) and (iii) benefits (individually a “Benefit” and
collectively the “Benefits”) in the following amounts and manner:

•   Continue to make consecutive weekly salary payments in the amount of
$2,865.39 commencing on August 22, 2004 with a final weekly payment to be made
on January 7, 2005.*

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•   A lump-sum salary payment of $177,654.18 on or about January 14, 2005.* For
the purposes of the provisions of the Michigan Employment Security Act, MCL
408.31, et seq., as amended, and any related regulations, this payment shall be
considered a severance payment which is allocated equally to each week from
January 14, 2005 to March 18, 2006, inclusive.   •   Transfer of Bank’s
Chevrolet Suburban automobile (“Vehicle”) and a one-time payment in the amount
of $1,312.72 for both the transfer of title and registration of the Vehicle.+  
•   A one-time lump-sum discretionary bonus payment in the amount of
$35,774.00.+   •   Ongoing health insurance coverage for both Schroll and his
family until March 18, 2006 under Bank’s health care plan pursuant to the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), at Bancorp’s or
Bank’s expense, except that Schroll will pay that portion of the premium which
other senior management employees of Bank are required to pay. If through no
fault of Schroll, COBRA coverage becomes unavailable, Bancorp or Bank will
provide substitute coverage identical or substantially identical to the health
insurance coverage that both Schroll and his family received prior to Schroll’s
without-cause termination from both Bank and Bancorp.*   •   A one-time OnStar®
reimbursement in the amount of $199.00.+   •   In lieu of ongoing long-term
disability insurance coverage, a one-time $2,500.00 payment.*   •   Conveyance
of both the (i) Computer and (ii) Palm Pilot that were furnished to Schroll by
the Bank during his employment.+   •   A one-time life insurance coverage
payment in the amount of $1,606.83.*   •   A one-time payment in the amount of
$10,000.00 to be applied by Schroll to his outstanding legal fees. +   •   A
one-time allocation payment in the amount of $25,458.00 related to Schroll’s
Employee Stock Ownership Plan participation.+   •   A one-time future and
accrued medical reimbursement payment of $1,500.00.+

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•   A one-time payment in the amount of $6,304.00 representing eighty-eight (88)
aggregate hours of paid leave time.+   •   A one-time payment in the amount of
$7,048.00 representing Section 401(k) aggregate payment allocations.+   •   All
amounts submitted by Schroll pursuant to his monthly expense reimbursement
requests.+   •   A one-time payment in the amount of $75,000.00 to be applied by
Schroll (at his discretion) to amounts owed to him for both outstanding
attorneys fees and one (1) vesting period pursuant to Bancorp’s 2003 Recognition
and Retention Plan (“RRP”). *   •   A one-time payment in the amount of
$8,890.00 to be applied by Schroll for one (1) vesting period pursuant to
Bancorp’s 2003 Stock Option and Incentive Plan (“SOP”).+   •   A one-time
payment in the amount of $64,941.67 for one (1) RRP vesting period. [Assumes
$14.27/share redemption price]*

    Except as otherwise indicated, Bancorp and/or Bank will make the payments
referenced above within 10 days of the date hereof.

B.   To execute all documents necessary in order to effectuate the terms of this
Agreement.

3.   Release. The Parties agree to a mutual release as follows:

A.   In consideration of the execution of this Agreement and the full, final and
complete resolution of the Dispute, Schroll, on behalf of himself and any other
persons or entities claiming under or through him, hereby releases, discharges
and acquits Bancorp and/or Bank and its respective current and former agents,
servants, officers, directors, shareholders, employees, owners, officials,
subsidiaries, affiliates, attorneys, successors, predecessors, heirs, personal
representatives and assigns from all causes of action, suits, claims, debts,
judgments, executions, damages, demands, and rights whatsoever, in law, in
equity or otherwise, accrued or unaccrued, known or unknown, matured or
unmatured, liquidated or unliquidated, certain or contingent, which Schroll ever
had or claimed to have or now

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*Ongoing Obligation(s) To Be Performed by either Bank and/or Bancorp, as the
case may be.   +Bank and/or Bancorp, as the case may be, has completed
Obligation(s).

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    has or claims to have against Bancorp and/or Bank, including, but not
limited to any cause of action related or relating to a breach of any express
and/or implied contract or tort, arising under the common law, any federal,
state or local statute of ordinance, including, but not limited to, Title VII of
the Civil Rights Act of 1964, as amended (42 U.S.C. §2000 et seq.), the Age
Discrimination in Employment Act, as amended (29 U.S.C. §621 et seq.), the
Elliott-Larson Civil Rights Act (MCL 37.2101 et seq.), the Americans with
Disabilities Act (42 U.S.C. §12101 et seq.), the Equal Pay Act (29 U.S.C. §206
et seq.), the Family and Medical Leave Act (29 U.S.C. §2601 et seq.), the Fair
Labor Standards Act of 1938 (29 U.S.C. §201 et seq.) and any other federal,
state or local law dealing with payment of wages, minimum wage, overtime or
equal pay, the COBRA, the Employee Retirement Income Security Act of 1974, as
amended (29 U.S.C §1001 et seq.), and any and all actions, charges, complaints
or allegations which have been or could in the future be filed with the Michigan
Department of Civil Rights, the Michigan Department of Labor, the United States
Equal Employment Opportunity Commission, the National Labor Relations Board, and
any other local, state or federal administrative agency, which arise out of, or
are connected with, in any way, the Employment Agreement, any unvested rights
under the Monarch Community Bancorp, Inc. Amended and Restated 2003 Stock Option
Plan, and any related agreements, and any unvested rights under the Monarch
Community Bancorp, Inc. 2003 Recognition and Retention Plan, and any related
agreements or which otherwise arise out of, or are connected with, in any way,
the employment or the termination of employment of Schroll by Bank or Bancorp,
or any relationship between Schroll and Bank and/or Bancorp based upon any
events occurring up to and including the date of execution of this Agreement.
Provided however this release shall not affect any future or ongoing duties,
responsibilities and/or payments either due and/or owing to Schroll by either
Bank or Bancorp pursuant to the specifically enumerated sections of the
Employment Agreement referenced herein, this Agreement or otherwise, all of
which shall survive the execution and delivery of this Agreement.   B.   In
consideration of the execution of this Agreement and the full, final and
complete resolution of the Dispute, Bancorp and/or Bank, on behalf of itself and
any other persons or entities claiming under or through it, hereby releases,
discharges and acquits Schroll, his attorneys, successors, predecessors, heirs,
personal representatives and assigns from all causes of action, suits, claims,
debts, judgments, executions, damages, demands, and rights whatsoever, in law,
in equity or otherwise, accrued or unaccrued, known or unknown, matured or
unmatured, liquidated or unliquidated, certain or contingent, which Bancorp
and/or Bank ever had or claimed to have or now has or claims to have against
Schroll, including, but not

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    limited to any cause of action related or relating to a breach of any
express and/or implied contract.   C.   The Parties agree that the mutual
releases set forth in this Agreement shall not affect either Bank’s or Schroll’s
obligations, duties and responsibilities (as the case may be) in respect of the
following retirement interests/plans that Bank maintains/administers either for
or on behalf of Schroll:

(i)   Schroll’s Employee Stock Ownership Plan (“ESOP”);   (ii)   Schroll’s
401(k) Retirement Plan;   (iii)   Schroll’s Deferred Compensation Plan; and  
(iv)   Schroll’s Pension Plan.

4.   Representations and Warranties. In making and executing this Agreement, the
Parties hereby represent, warrant and agree as follows:

A.   The Parties have received independent legal advice from their attorneys
with respect to their rights and asserted rights arising out of the matters in
controversy and with respect to the advisability of executing this Agreement.  
B.   The Parties have made such investigation of all matters pertaining to this
Agreement as they deem necessary and do not rely on any statement, promise or
representation by the Parties hereto with respect to such matters.   C.  
Schroll acknowledges that, in accordance with the ADEA, as amended by the Older
Workers Benefit Protection Act of 1990, he has been given a period of twenty-one
(21) days to review and consider this Agreement before signing it. If he elects
to sign this Agreement without availing himself of the opportunity to consider
its provisions for at least twenty-one (21) days, Schroll hereby acknowledges
that his decision to shorten the time for considering this Agreement prior to
signing is knowing and voluntary, and such decision is not induced by Bank or
Bancorp through fraud, misrepresentation, or a threat to withdraw or alter the
provisions set forth in this Agreement prior to the expiration of the twenty-one
(21) day time period, or by providing different terms should he agree to execute
the Agreement prior to the expiration of the twenty-one (21) day time period.
Bank and Bancorp advises and encourages Schroll to consult with his attorneys
concerning this Agreement prior to executing this Agreement. By signing this
Agreement, Schroll acknowledges that he has read this Agreement thoroughly, that
he has been advised and encouraged by Bank and Bancorp, and has had the
opportunity, to consult with his attorneys prior

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    to signing the Agreement and that his agreement to the terms of this
Agreement is knowing, willing, and voluntary. Schroll understands that he may
revoke this Agreement within seven (7) days after the date on which he signs
this Agreement, and that this Agreement does not become effective until the
expiration of the seven (7) day period. In the event that Schroll wishes to
revoke this Agreement within the seven (7) day period, he must provide such
revocation in writing to BRAD A. RAYLE, 39400 Woodward Avenue, Suite 101,
Bloomfield Hills, Michigan 48304.   D.   Both Bancorp and Bank represent and
agree that neither of them have received any indication from their respective
federal and/or State governmental regulators that either of them may be
prohibited from fulfilling their respective duties and/or obligations pursuant
to this Agreement for any reason. Neither Bank nor Bancorp has been informed by
their respective federal and/or State governmental regulators that a potential
order may be entered against either of them concerning their financial
condition, safety or soundness which could impinge on their respective ability
to fully perform hereunder.

5.   Remedies.

A.   Upon or after the occurrence of any default in the obligations under this
Agreement by any Party hereto, the other Party may without any further notice or
demand/exercise all other rights and/or remedies accorded pursuant to applicable
Michigan law.   B.   Bank, Bancorp and Schroll each covenant and agree that
Sections 8 (Non-Competition, Confidentiality and Non-Solicitation), 16
(Indemnification) and 19 (Arbitration) of the Employment Agreement shall survive
the execution and delivery of this Agreement in their entirety and may be
enforced as provided therein; provided, however, the Parties expressly agree
that the one-year time periods referenced in Section 8(a) and Section 8(d) of
the Employment Agreement expire on August 18, 2005.

6.   Rights and Remedies Cumulative; No Waiver. All rights and remedies of any
Party hereto provided herein: (a) are cumulative and concurrent, (b) may be
exercised independently, successively or together against the other Parties or
their respective properties at the sole discretion of the enforcing Party,
(c) shall not be exhausted by any exercise thereof, but may be exercised as
often as occasion therefore may arise, and (d) shall not be construed to be
waived or released by any Party’s delay in exercising or failure to exercise
them or any of them at any time it may be entitled to do so. Time is of the
essence of this Agreement.   7.   Expenses. Legal counsel fees and expenses
incurred to enforce or protect a Party’s interests under this Agreement shall be
paid in the manner more-fully

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    described in Section 19 (Arbitration) of the Employment Agreement; provided,
however, notwithstanding anything to the contrary contained herein or in the
Employment Agreement, if an action is brought by the Bank pursuant to Section
8(e) of the Employment Agreement, legal counsel fees and expenses incurred in
connection therewith shall be awarded to the prevailing party.   8.   Assigns.
Each of the Parties hereto warrants, represents and agrees that it has not
heretofore assigned or transferred or purported to assign or transfer to any
person, firm, partnership, corporation or other entity whatsoever, any of the
action or actions, cause or causes of action, at law or in equity, suits, debts,
demands, claims, contracts, covenants, liens, liabilities, losses, costs,
expenses (including, without limitation, attorney fees) or damages released
herein. Each Party hereto agrees to indemnify, defend or hold harmless the other
Party from any claims, expenses or liabilities (including attorney fees) arising
from any prior assignment or transfer subject to this paragraph. Further, this
Agreement may not be assigned by any of the Parties voluntarily, involuntarily
or by operation of law without having first received the prior written consent
of all the Parties, which such consent may be withheld at the sole discretion of
any such Party.   9.   Regulatory Actions. To the extent practicable, Bank and
Bancorp, as the case may be, covenant and agree that they will provide Schroll
with prior written notice of: (i) any contemplated or proposed regulatory action
by the Office of Thrift Supervision, the Security and Exchange Commission and/or
any other federal, state or local regulatory agency which might in any manner
impinge on the ability of either Bank or Bancorp to meet its obligations
pursuant to this Agreement and (ii) any proposed or contemplated voluntary
action by either Bank’s or Bancorp’s Board of Directors which might in any
manner impinge on the ability of either Bank or Bancorp to meet its obligations
pursuant to this Agreement.   10.   No Admission. Neither the negotiations nor
the execution of this Agreement, or any of its provisions, are to be construed
as an admission by either of the Parties hereto, or by their respective
attorneys, officers, directors, employees or agents, regarding the truth of any
matter alleged in connection with the Dispute.   11.   Confidentiality. Each of
the Parties acknowledges and agrees that Bancorp and/or Bank are required by
Securities and Exchange Commission (“SEC”) requirements applicable to public
companies, to publicly disclose the terms and conditions of this Agreement. The
Parties further acknowledge that banking regulatory authorities which have
jurisdiction over Bancorp and Bank (“Banking Regulators”) have full and
continuing access to all information about Bancorp’s and Bank’s operations,
including information relating to the terms and conditions of this Agreement and
the basis for any claims and negotiations leading to it Except as necessary to
satisfy SEC requirements, and requirements of Banking Regulators, and except as
may otherwise be required by law, the Parties and their

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    attorneys agree not to publicize or disclose or cause or knowingly permit or
authorize the publicizing or disclosure of the contents of this Agreement, the
terms of this Agreement, the underlying claims in the Dispute, the resolution of
the Dispute, the payment terms or the other terms of the settlement. Each of the
Parties also agrees that, at all times following the execution of this
Agreement, they shall not make derogatory or negative statements about any other
Party. Notwithstanding the foregoing, the Parties may make confidential
communications to their attorneys and accountants provided those persons are
instructed to maintain the strict confidential of the terms of this Agreement
and to otherwise comply with the provisions of this Agreement. In the event of a
breach or threatened breach of this paragraph, the Parties will be entitled to
pursue any and all legal or equitable remedies pursuant to the provisions of
this Agreement.   12.   Joint Participation. The Parties hereto participated
jointly in the preparation of this Agreement, and each of the Parties has had
the opportunity to obtain the advice of legal counsel and to review, comment
upon, and redraft this Agreement. Accordingly, it is agreed that no rule of
construction shall apply against either of the Parties or in favor of any of the
Parties. This Agreement shall be construed as if the Parties jointly prepared
this Agreement, and any uncertainty or ambiguity shall not be interpreted
against any one of the Parties and in favor of the other.   13.   Employment
Inquiries. Other than as may be necessary to satisfy SEC requirements, Banking
Regulators or as otherwise may be required by law, Bancorp and Bank will only
provide information to third parties regarding Schroll’s employment with either
Bank or Bancorp as follows:

•   Schroll’s salary on August 19, 2004.   •   Schroll’s position on August 19,
2004.   •   Schroll’s dates of employment with Bank, Bancorp and their
respective predecessors.

14.   Voluntariness of Agreement. The Parties agree that they have sufficient
information to evaluate this Agreement and no further information is necessary.
The Parties further believe that no further information, financial or otherwise,
would affect their decision to execute this Agreement and assume that their
claims against each other may be infinitely more or less valuable than reflected
by any information which they have today. The Parties hereby affirm and
acknowledge that they have read the foregoing Agreement, that they have had the
opportunity to review or discuss it with counsel of their choice and that they
fully understand and appreciate the meaning of each of its terms, and that it is
voluntary, a full and final compromise, release and settlement to the fullest
extent permitted by law of all claims, demands, injuries, relating to or arising
out of any facts, claims, matters, or events occurring prior to the execution of
this Agreement.

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15.   Integration. With the exception of the ongoing duties, responsibilities
and payments due by the Parties pursuant to this Agreement, including but not
limited to, the obligations referenced in Section 5.B. of this Agreement, or
otherwise, each of which shall survive the execution and delivery of this
Agreement, this Agreement constitutes a single integrated written contract
expressing the entire Agreement between the Parties hereto. There are no other
agreements, written or oral, expressed or implied, between the Parties hereto
except as set forth in this Agreement.   16.   Counterparts. This Agreement may
be executed in counterparts, each of which shall be deemed equally authentic.  
17.   Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Parties hereto and each of their respective successors, heirs,
personal representatives and permitted assigns.   18.   Governing Law. This
Agreement shall be construed, interpreted, governed, and enforced pursuant to
the domestic internal laws, without regard to the conflicts of laws, of the
State of Michigan.   19.   Exclusive Venue and Jurisdiction. Each of the Parties
irrevocably covenant and agree that exclusive jurisdiction and venue for all
matters either related or relating to this Agreement shall take place and be
arbitrated in Branch County, Michigan pursuant to Section 19 of the Employment
Agreement; provided, however, notwithstanding anything contained herein to the
contrary, an action brought by the Bank pursuant to Section 8(e) of the
Employment Agreement shall be brought in the Circuit Court in Branch County,
Michigan. The Parties further covenant and agree that no future objection shall
be made regarding the convenience of Branch County, Michigan in order to
arbitrate (or litigate in the case of an action brought by the Bank pursuant to
Section 8(e) of the Employment Agreement) any disputes related or relating to
this Agreement.   20.   Joint and Several Liability. All agreements, conditions,
performance, covenants, representations, authorizations and undertakings of both
Bank and Bancorp under this Agreement and otherwise shall be joint and several
and shall equally legally bind both Bank and Bancorp. In the event of any
default by Bancorp or Bank pursuant to this Agreement, Schroll may pursue his
remedies against either Bank or Bancorp or both Bank and Bancorp at any time and
both Bank and Bancorp waive any defense based upon Schroll’s election of
remedies.   21.   Severability. Should any of the provisions of this Agreement
be rendered invalid by a court or government agency of competent jurisdiction,
it is agreed that this shall not in any way or manner affect the enforceability
of the other provisions of this Agreement which shall remain in full force and
effect.

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22.   Notices. Notices to the Parties shall be transmitted to the addresses set
forth on page one of this Agreement with copies to:

     
For Schroll:
  Kevin C. O’Malley, Esquire

  Perrin Rynders, Esquire

  Varnum, Riddering, Schmidt & Howlett LLP

  201 North Washington Square, Suite 810

  Lansing, MI 48933
 
   
For Bancorp and/or Bank:
  Joseph B. Hemker, Esquire

  Brad A. Rayle, Esquire

  Howard & Howard Attorneys, P.C.

  Comerica Building

  151 South Rose Street, Suite 800

  Kalamazoo, MI 49007

     IN WITNESS WHEREOF, the Parties have executed this Agreement on the day and
year stated above.

     

  JOHN R. SCHROLL
 
  /s/ John R. Schroll

 

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  MONARCH COMMUNITY BANCORP, INC.
 
  /s/ Donald L. Denney

 

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  By: Donald L. Denney

  Its: President and Chief Executive Officer
 
   

  MONARCH COMMUNITY BANK
 
  /s/ Donald L. Denney

 

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  By: Donald L. Denney

  Its: President and Chief Executive Officer

 

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EXHIBIT A

The undersigned, John R. Schroll, does hereby resign from all positions he has
as a director of Monarch Community Bancorp, Inc., Monarch Community Bank and
Community Services Group, Inc.

     
Dated: December 9, 2004
  /s/ John R. Schroll
 
 

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  John R. Schroll