**EXHIBIT 10.6**
**MONARCH COMMUNITY BANCORP, INC.**
**2003 STOCK OPTION AND INCENTIVE PLAN**
**INCENTIVE STOCK OPTION AGREEMENT**
ISO NO.
     This Option is granted on (the “Grant Date”), by Monarch Community Bancorp, Inc., aMaryland-chartered corporation (the “Corporation”), (the “Optionee”), in accordance with thefollowing terms and conditions:
     1. Option Grant and Exercise Period. The Corporation hereby grants to the Optionee anIncentive Stock Option (“Option”) to purchase, pursuant to the Monarch Community Bancorp, Inc. 2003Stock Option and Incentive Plan, as the same may be amended from time to time (the “Plan”), andupon the terms and conditions therein and hereinafter set forth, an aggregate of ### shares (the“Option Shares”) of the common stock of the Corporation (“Common Stock”) at the price of $$$$  pershare (the “Exercise Price”). A copy of the Plan, as currently in effect, is incorporated hereinby reference and is attached to this Award Agreement.
     This Option shall be exercisable only during the period (the “Exercise Period”) commencing onthe dates set forth in Section 2 below, and ending at 5:00 p.m., Coldwater, Michigan time, on thedate ten years after the Grant Date, such later time and date being hereinafter referred to as the“Expiration Date,” subject to earlier expiration in accordance with Section 5 in the event of aTermination of Service. The aggregate Market Value (as determined on the Grant Date) of the OptionShares with respect to which Incentive Stock Options are exercisable for the first time by the bythe Optionee in any calendar year shall not exceed One Hundred Thousand Dollars ($100,000.00). Tothe extent that this Option does not qualify as an Incentive Stock Option for any reason, it shallbe deemed *ab initio*to be a Non-Qualified Stock Option.
     2. Method of Exercise of This Option. This Option may be exercised during theExercise Period, with respect to not more than the cumulative number of Option Shares set forthbelow on or after the dates indicated, by giving written notice to the Corporation as hereinafterprovided specifying the number of Option Shares to be purchased. The number of Option Shares thatare exercisable on a particular date pursuant to this Section 2 shall not be accelerated by theCommittee (as defined in the Plan) except in connection with a change in control as set forth inSection 9 of this Award Agreement, or in the event of the death or disability of the Optionee orthe allowance of such acceleration by applicable OTS regulations.          Number of Option      Shares Exercisable Date       
 

 

The notice of exercise of this Option shall be in the form prescribed by the Committee referred toin Section 3 of the Plan and directed to the address set forth in Section 12 below. The date ofexercise is the date on which such notice is received by the Corporation. Such notice shall beaccompanied by payment in full of the Exercise Price for the Option Shares to be purchased uponsuch exercise. Payment shall be made (i) in cash, which may be in the form of a check, moneyorder, cashier’s check or certified check, payable to the Corporation, or (ii) by delivering sharesof Common Stock already owned by the Optionee having a Market Value equal to the Exercise Price, or(iii) a combination of cash and such shares. Promptly after such payment, subject to Section 3below, the Corporation shall issue and deliver to the Optionee or other person exercising thisOption a certificate or certificates representing the shares of Common Stock so purchased,registered in the name of the Optionee (or such other person), or, upon request, in the name of theOptionee (or such other person) and in the name of another in such form of joint ownership asrequested by the Optionee (or such other person) pursuant to applicable state law.
     3. Delivery and Registration of Shares of Common Stock. The Corporation’s obligationto deliver shares of Common stock hereunder shall, if the Committee so requests, be conditionedupon the Optionee’s compliance with the terms and provisions of Section 11 of the Plan.
     4. Nontransferability of this Option. This Option may not be assigned, encumbered,transferred, pledged or hypothecated except, in the event of the death of the Optionee, by will orthe applicable laws of decent and distribution to the extent provided in Section 5 below. ThisOption is exercisable during the Optionee’s lifetime only by the Optionee or a person acting withthe legal authority of the Optionee. The provisions of this Option shall be binding upon, inure tothe benefit of and be enforceable by the parties hereto, the successors and assigns of theCorporation and any person acting with the legal authority of the Optionee or to whom this Optionis transferred by will or by the laws of descent and distribution.
     5. Termination of Service or Death of Optionee. Except as provided in this Section 5and Section 9 below, and notwithstanding any other provision of this Option to the contrary, thisOption shall be exercisable only if the Optionee has not incurred a Termination of Service at thetime of such exercise.
     If the Optionee incurs a Termination of Service for any reason excluding death and Terminationof Service for Cause, the Optionee may, but only within the period of three months (or one year inthe case of disability, as defined in Section 22(e)(3) of the Code) immediately succeeding suchTermination of Service and in no event after the Expiration Date, exercise this Option to theextent the Optionee was entitled to exercise this Option on the date of Termination of Service. Ifthe Optionee incurs a Termination of Service for Cause, all rights under this Option shall expireimmediately upon the giving to the Optionee of notice of his termination, except as provided inSection 9 below.
     In the event of the death of the Optionee prior to the Optionee’s Termination of Service orduring the three-month period referred to in the immediately preceding paragraph, the person orpersons to whom the Option has been transferred by will or by the laws of descent and distributionmay, but only to the extent the Optionee was entitled to exercise this Option on the date of theOptionee’s death, exercise this Option at any time within one year following the death of theOptionee, but in no event after the Expiration Date. Following the death of the Optionee,
 

 

the Committee may, in its sole discretion, as an alternative means of settlement of thisOption, elect to pay to the person to whom this Option is transferee by will or by the laws ofdescent and distribution, the amount by which the Market Value per share of Common stock on thedate of exercise of this Option shall exceed the Exercise Price per Option Share, multiplied by thenumber of Option Shares with respect to which this Option is properly exercised. Any suchsettlement of this Option shall be considered an exercise of this Option for all purposes of thisOption and of the Plan.
     6. Notice of Sale. The Optionee or any person to whom the Option Shares shall havebeen transferred shall promptly give notice to the Corporation in the event of the sale or otherdisposition of Option Shares within the later of (i) two years from the Grant Date or (ii) one yearfrom the date of exercise of this Option. Such notice shall specify the number of Option Sharessold or otherwise disposed of and be directed to the address set forth in Section 12 below.
     7. Adjustments for Changes in Capitalization of the Corporation. In the event of anychange in the outstanding shares of Common Stock by reason of any recapitalization, stock split,reverse stock split, stock dividend, reorganization, consolidation, combination or exchange ofshares, merger, or any other change in the corporate structure of the Corporation or in the sharesof Common Stock, the number and class of shares covered by this Option and the Exercise Price shallbe appropriately adjusted by the Committee, whose determination shall be conclusive.
     8. Effect of Merger or Other Reorganization. In the event of any merger,consolidation or combination of the Corporation with or into another corporation (other than amerger, consolidation or combination in which the Corporation is the continuing corporation andwhich does not result in the outstanding shares of Common Stock being converted into or exchangedfor different securities, cash or other property, or any combination thereof), the Optionee shallhave the right (subject to the provisions of the Plan and the limitations contained herein),thereafter and during the Exercise Period, to receive upon exercise of this Option an amount equalto the excess of the Market Value on the date of such exercise of the securities, cash or otherproperty, or combination thereof, on the date of such merger, consolidation or combination inrespect of a share of Common stock over the Exercise Price, multiplied by the number of OptionShares with respect to which this Option shall have been exercised. Such amount may be payablefully in cash, fully in one or more of the kind or kinds of property payable in such merger,consolidation or combination, or partly in cash and partly in one or more of such kind or kinds ofproperty, all in the discretion of the Committee.
     9. Effect of Change in Control. If a tender offer or exchange offer for shares of theCorporation (other than such an offer by the Corporation) is commenced, or if a Change in Controlshall occur, and the Optionee thereafter incurs a Termination of Service for any reason whatsoever,this Option shall (to the extent it is not then exercisable) become exercisable in full upon thehappening of such events; provided, however, that this Option shall not become exercisable to theextent that it has previously been exercised or otherwise terminated.
     10. Stockholder Rights Not Granted by This Option. The Optionee is not entitled byvirtue hereof to any rights of a stockholder of the Corporation or to notice of meetings ofstockholders or to notice of any other proceedings of the Corporation.
     11. Withholding Tax. Where the Optionee or another person is entitled to receiveOption Shares pursuant to the exercise of this Option, the Corporation shall have the right to
 

 

require the Optionee or such other person to pay to the Corporation the amount of any taxeswhich the Corporation or any of its Affiliates is required to withhold with respect to such OptionShares, or in lieu thereof, to retain, or sell without notice, a sufficient number of such sharesto cover the amount required to be withheld, or in lieu of any of the foregoing, to withhold asufficient sum from the Optionee’s compensation payable by the Corporation to satisfy theCorporation’s tax withholding requirements.
     12. Notices. All notices to the Corporation shall be delivered or mailed to itaddressed to the Secretary of Monarch Community Bancorp, Inc., 375 North Willowbrook Road,Coldwater, Michigan 49036. Any notices hereunder to the Optionee shall be delivered personally ormailed to the Optionee’s address noted below. Such addresses for the service of notices may bechanged at any time provided written notice of the change is furnished in advance to theCorporation or to the Optionee, as the case may be.
     13. Plan and Plan Interpretations as Controlling. This Option and the terms andconditions herein set forth are subject in all respects to the terms and conditions of the Plan,which are controlling. Capitalized terms used herein which are not defined in this Award Agreementshall have the meaning ascribed to such terms in the Plan. All determinations and interpretationsmade in the discretion of the Committee shall be final and conclusive upon the Optionee or hislegal representatives with regard to any question arising hereunder or under the Plan.
     14. Optionee Service. Nothing in this Option shall limit the right of the Corporationor any of its Affiliates to terminate the Optionee’s service as a director, advisory director, oremployee, or otherwise impose upon the Corporation or any of its Affiliates any obligation toemploy or accept the services of the Optionee.
     15. Amendment. Except as prohibited by OTS regulations, the Committee may waive anyconditions of or rights of the Corporation or modify or amend the terms of this Award Agreement,provided, however, that the Committee may not amend, alter, suspend, discontinue or terminate anyprovision hereof which may adversely affect the Optionee without the Optionee’s (or his legalrepresentative’s) written consent.
     16. Option Acceptance. The Optionee shall signify his acceptance of the terms andconditions of this Option by signing in the space provided below and returning a signed copy hereofto the Corporation at the address set forth in Section 12 above.
 

 

     IN WITNESS WHEREOF, the parties hereto have caused this Award Agreement to be executed as ofthe date first above written.        MONARCH COMMUNITY BANCORP, INC.      By:         Stephen Ross, Chairman        ACCEPTED:                 (Street Address)        (City, State and Zip Code)