**Exhibit 10.7****MANAGEMENT CONTINUITY AGREEMENT**     This Management Continuity Agreement (“Agreement”) is entered into this 21st dayof February, 2005 between Monarch Community Bancorp, Inc., a Maryland corporation (the “Company”),and Ralph A. Micalizzi, Jr. (“Executive”).**WITNESSETH:**     **WHEREAS**, the Executive is currently employed by the Company’s affiliate, Monarch CommunityBank (the “Bank”), as its Internal Auditor; and     **WHEREAS**, the Company desires to provide certain security to Executive in connection with achange in control of the Company or the Bank;     **NOW, THEREFORE**, in consideration of the mutual covenants and promises contained herein, andother good and valuable consideration, the receipt of which is hereby acknowledged, the partieshereto agree as follows:**Section 1. Definition of Change in Control; Change in Control Period**     **1.1 Change in Control.**For purpose of this Agreement, a “Change in Control” of the Companyshall be deemed to have occurred upon:     (A) any third person, including a “group” as defined in Section 13(d)(3) of theSecurities Exchange Act of 1934, shall become the beneficial owner of shares of the Companywith respect to which 25% or more of the total number of votes for the election of the Boardmaybe cast;     (B) there occurs a change in control of the Bank within the meaning of the Home OwnersLoan Act of 1933 or 12 C.F.R. Part 574;     (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 were directors of the Companybefore such transaction or event cease to constitute a majority of the Board of Directors ofthe Company or any successor to the Company; or     (D) the Company transfers substantially all of its assets to another corporation orentity which is not an affiliate of the Company.     Notwithstanding the foregoing, a Change of Control will not be deemed to have occurred:     (A) solely because more than 25% of the combined voting power of the then outstandingvoting securities of the Company are acquired by (1) a trustee or other fiduciary holdingsecurities under one or more employee benefit plans maintained for employees of the Bank orthe Company, or (2) in the event of a merger or similar transaction involving the Company orthe Bank occurs and immediately following such transaction, persons who were shareholders ofthe Company immediately prior to such transaction remain shareholders of the Company or otherparty to the transaction in the same proportion as their previous ownership of stock; or     (B) if Executive agrees in writing that the transaction or event in question does notconstitute a Change of Control for the purposes of this Agreement.     **1.2 Change in Control Period.**The Change-in-Control Period shall mean the period commencingon the date of a Change in Control and ending on the twelve (12) month anniversary of the datethereof.**Section 2. Obligations of the Company upon Termination.**     **2.1 Other than for Cause, Death, Disability or Retirement.**If, during the Change-in-ControlPeriod, Executive’s employment is terminated by the Company or the Bank other than for Cause (ashereinafter defined), Death, Disability (as hereinafter defined), or Retirement (as hereinafterdefined) or if Executive terminates (his/her) employment for Good Reason (as hereinafter defined),Executive shall receive:
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     (A) (his/her) annual base salary for a period of twelve (12) months following the dateof termination in an amount not less than (his/her) base salary in effect immediately priorto the Change in Control; plus     (B) Executive and Executive’s family shall continue to be provided, at the expense ofthe Company, continuing health care coverage under health care programs in effect immediatelyprior to the Change of Control (or health care programs substantially similar thereto) for aperiod of twelve (12) months after the date of termination, provided that, to the extentExecutive paid a portion of the premium for such benefit while employed, Executive shallcontinue to pay such portion during the period of continuation hereunder and providedfurther, that if such benefit is subject to the health care continuation rules of theConsolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) then any period ofcontinuation hereunder shall be credited against the continuation rights under COBRA andExecutive will be required to complete all COBRA election and other forms.     **2.2 Cause; Death; Disability; Retirement**. If Executive’s employment is terminated by reasonof Death, Disability or Retirement during the Change-in-Control Period, this Agreement shallterminate without further obligation to Executive or (his/her) legal representatives other than theobligation to pay to Executive (his/her) annual base salary through the date of termination and toprovide Executive any other benefits which have accrued prior to the date of termination.     **2.3 Cause**. If Executive’s employment shall be terminated for Cause during theChange-in-Control Period, this Agreement shall terminate without further obligations to Executive.**Section 3. Definitions.**     **3.1 Cause**. For purposes of this Agreement, Cause shall mean termination due to Executive’spersonal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personalprofit, intentional failure to perform stated duties or to follow one or more specific writtendirectives of the Board, reasonable in nature and scope, willful violation of any law, rule orregulation (other than traffic violations or similar offenses) or final cease-and-desist order, ormaterial breach of any provision of this Agreement (which is not cured within thirty (30) daysafter its occurrence and notice to Executive). Any determination of “Cause” as defined by thisSection 4.1 shall be determined by a majority vote of the Board of Directors of the Company or theBank.     **3.2 Disability.**“Disability” shall have the meaning as such term has under the Company’sLong-Term Disability Plan.     **3.3. Good Reason.**For purposes of this Agreement, “Good Reason” shall mean the occurrence ofany of the following events which have not been consented to in advance by Executive in writing:     (A) if Executive would be required to move (his/her) personal residence or perform(his/her) principal executive functions more than twenty-five (25) miles from Executive’sprimary office as of the date immediately prior to the Change of Control;     (B) if the Company should fail to maintain Executive’s base salary or fail to maintainemployee benefit plans or arrangements generally comparable to those in place as of the dateimmediately prior to the Change in Control, except to the extent that such reduction inemployee benefit plans is part of an overall adjustment in benefits for all employees of theCompany or the Bank; or     (C) if Executive would be assigned substantial duties and responsibilities other thanthose normally associated with the position referenced in the preambles to this Agreement.The preceding events shall only provide the basis for “Good Reason” if Executive provides notice ofsuch events within one hundred twenty (120) days of their occurrence in the manner required bySection 5.1 of this Agreement.     **3.4 Retirement.**For purpose of this Agreement, termination of Executive’s employment based on“Retirement” shall mean voluntary termination in accordance with the Company’s retirement policy,including early retirement, generally applicable to the Company’s salaried employees or inaccordance with any retirement arrangement established with Executive’s consent.
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**Section 4. Excise and Other Tax Ramifications.**     **4.1 Reduction in Excess Parachute Payments Tax Ramifications.**In the event it shall bedetermined that any payment made hereunder or pursuant to any other plan following a Change inControl (whether paid or payable pursuant to the terms of this Agreement) would be subject to theexcise tax imposed in Section 4999 of the Internal Revenue Code of 1986 (the “Code”), then paymentspursuant to this Agreement or payments under any other agreement or plan that are treated as beingcontingent upon a change in control under Section 280G of the Code shall be reduced to the maximumamount that may be paid to Executive or for (his/her) benefit without any such payment constitutingan “parachute payment,” as defined by Section 280G of the Code. The determination of the maximumamount payable to Executive or for (his/her) benefit shall be made by an accounting firm mutuallyacceptable to Executive and the Company, and unless Executive directs otherwise, payments that areconsidered to be partially contingent upon a change in control shall be the last payments to bereduced.     **4.2 Section 162(m)**. Should payments be precluded from deduction by the Company under Section162(m) of the Code, the Company may defer until the first day of the tax year following the year inwhich determination is made that payments will be non-deductible under 162(m) (the “DeterminationYear”) only those amounts necessary to maintain the tax deductibility of compensation paid toExecutive in the Determination Year.**Section 5. Administration of the Agreement.**     **5.1 Notice of Termination.**Any termination by the Company or by Executive shall becommunicated by a written notice to the other party hereto and shall mean a notice which shallindicate the specific termination provision in this Agreement relied upon by the party, shall setforth in reasonable detail the facts and circumstances claimed to provide a basis for terminationof Executive’s employment under the provision indicated and the date of termination.     **5.2 Date of Termination.**The date of termination shall mean:     (A) if Executive’s employment is terminated by the Executive for Good Reason, the dateof the receipt of the notice contemplated by Section 5.1 hereof;     (B) if Executive’s employment is terminated by the Company or the Bank other than forDeath, Disability or Retirement, the date of termination shall be the date on which theCompany or the Bank notifies Executive of the termination; and     (C) if Executive’s employment is terminated by reason of Death, Disability orRetirement, the date of termination shall be the date of Executive’s Death, Disability orRetirement, as the case may be.**Section 6. Arbitration.**     (A) In the event of dispute under this Agreement, the parties agree pursuant to MCLA600.5001; MSA 27A.5001, etseq., to binding arbitration in accordance withthe rules of the American Arbitration Association (“AAA”) in effect at the time a demand forarbitration of the dispute is made, with the place of arbitration being Coldwater, Michigan.The prevailing party in any such arbitration shall be entitled to recover from the otherparty all expenses for attorneys, fees and costs incurred by the prevailing party inconjunction with the arbitration proceedings. The decision and award of the arbitrator madeunder the AAA rules shall be exclusive, final and binding on all parties, their heirs,representatives, affiliates, successors and assigns. It is further agreed that anyarbitration award may be certified to the Branch County Circuit Court which shall render ajudgment upon the award made pursuant to said arbitration;     (B) Limited civil discovery shall be permitted for the production of documents and thetaking of depositions, provided, however, that no party is permitted to take the depositionof more than three witnesses except by agreement of the other party or upon order of thearbitrator pursuant to the motion of a party. Subject to the foregoing limitations,discovery shall be conducted in accordance with the Michigan Court Rules with any enforcementissues resolved by the arbitrator;
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     (C) The arbitration and all proceedings, discovery and any award of the arbitrator, areconfidential. Neither the parties nor the arbitrator shall disclose any information gainedduring the course of the arbitration or any person or entity who is not a party to thearbitration unless permitted by law. Attendance at the arbitration shall be limited to theparties, counsel and those called as witnesses; and     (D) Executive and the Company acknowledge that each has had the opportunity to consultwith counsel of choice before signing this agreement, and Executive and the Company eachhereby knowingly and voluntarily, without coercion, WAIVES ALL RIGHTS TO TRIAL BY JURY or alldisputes between them and instead agrees to binding arbitration.**Section 7. Successors and Assigns**. This Agreement shall inure to the benefit of and be bindingupon any corporate or other successor of the Company which shall acquire, directly or indirectly,by merger, consolidation, purchase or otherwise, all or substantially all of the assets of theCompany. Since the Executive’s services are the unique and personal skills of Executive, Executiveshall be precluded from assigning or delegating his rights or duties hereunder without firstobtaining the written consent of the Company.**Section 8. Amendments.**No amendments or additions to this Agreement shall be binding upon theparties hereto unless made in writing and signed by both parties, except as herein otherwisespecifically provided.**Section 9. Applicable Law**. This Agreement shall be governed by all respects whether as tovalidity, construction, capacity, performance or otherwise, by the laws of the State of Michigan,except to the extent that Federal law shall be deemed to apply.**Section 10. Severability**. The provisions of this Agreement shall be deemed severable and theinvalidity or unenforceability of any provision shall not affect the validity or enforceability ofthe other provisions hereof.**Section 11. Notice.**For purposes of this Agreement, notices and all other communications providedfor in this Agreement shall be in writing and shall be deemed to have been duly given whendelivered or mailed by United States registered mail, return receipt requested, postage prepaid,provided that all notices to the Company be addressed to:Corporate Secretary