Mail-Stop 4561
May 24, 2007
Via facsimile and U.S. Mail
Mr. Donald L. Denney
President and Chief Executive Officer
Monarch Community Bancorp, Inc.
375 North Willowbrook Road
Coldwater, Michigan 49036
Re: Monarch Community Bancorp, Inc.
Preliminary Proxy Statement and Schedule 13E-
3
File Nos. 0-49814 (Proxy), 5-78792 (Schedule 13E-3)
Filed April 23, 2007
Dear Mr. Denney:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
The purpose of our review process is to assist you in your
compliance with the applicable disclosure requirements and to
enhance
the overall disclosure in your filing. We look forward to working
with you in these respects. We welcome any questions you may have
about our comments or on any other aspect of our review. Feel
free
to call us at the telephone numbers listed at the end of this
letter.
Schedule 13E-3
1. Rule 13e-3 requires that each affiliate engaged in a going
private
transaction file a Schedule 13E-3 and furnish the required
disclosures. We believe that members of your senior management
are
affiliates engaged in the going private transaction and should be
added as filing persons to the Schedule 13E-3. Please refer to
Section III of Release No. 34-17719 and Section II.D.3 of our
Current
Issues and Rulemaking Projects Outline dated November 14, 2000 for
additional guidance. Alternatively, please provide us your
detailed
legal analysis addressing why you believe these persons are not
filing persons.
2. Please note that each new filing person must individually
comply
with the filing, dissemination and disclosure requirements of
Schedule 13E-3. Therefore, you will need to revise the disclosure
to
include all of the information required by Schedule 13E-3 and its
instructions for any filing persons added in response to the
preceding comments. For example, include a statement as to
whether
each person believes the Rule 13e-3 transaction to be procedurally
and substantially fair to unaffiliated security holders and an
analysis of the material factors upon which they relied in
reaching
such a conclusion. Refer to Item 8 to Schedule 13E-3 and Q&A No.
5
of Exchange Act Release No. 17719 (Apr. 19, 1981) and Question and
Answer No. 5 of Exchange Act Release No. 34-17719 (April 13,
1981).
In this regard, the reasons for the transaction and the
alternatives
considered by these affiliates may be different than those of the
company, and this fact should be reflected in the disclosure. In
addition, be sure that each new filer signs the Schedule 13E-3.
Preliminary Proxy Statement
General
3. Please fill in the blanks in your proxy statement.
4. Where appropriate, please indicate that this is a 13e-3
transaction with a Schedule 13E-3 filed with the Commission. Note
also for your related documents.
5. Please confirm to us, in a supplemental response, that the
proxy
statement will be sent or given at least 20 calendar days prior to
the meeting date.
Shareholder Letter
6. Please revise to disclose the 270 shareholder limit. Also
address
this issue throughout the proxy statement where you discuss the
material terms of the transaction. Similarly, disclose that
employees are not going to be cashed out in connection with the
merger.
Important Notices, page 5
7. Please place the Summary Term Sheet first, before this section.
8. The staff notes later disclosures that documents are
incorporated
by reference and contained in a Schedule 13E-3 filing (see the
preamble to the Summary and the Q&A regarding the valuation
report).
Please reference those documents at this heading.
Summary, page 7
9. Revise to change the caption to "Summary Term Sheet."
10. At the eight bullet you use the figure 7.2%. Please reconcile
this figure with later, different information in the filing. For
example, at the fourteenth bullet at this heading you use 9% and
on
page 15 you use 7.2%.
11. Please break the tenth bullet into two, one for shareholders
who
want to remain shareholders and one for those who do not. Note
also
for the disclosure currently at the top of page 12. Where
appropriate in the body of the text, please identify any brokers
known to the company that hold 1,000 shares or more, as of a
recent
date.
12. At the tenth bullet you say that shareholders may want to have
their shares held in street name so they are not cashed out. You
then suggest they become a record holder on Monarch`s shareholder
list for notification reasons, "rather than" have their shares
held
in street name. Please clarify this situation. Avoid trade
jargon
and, where appropriate, specifically disclose the consequences of
joint ownership. Note also for the text currently at the top of
page12.
13. Please add a bullet to discuss that although this transaction
will result in deregistration, there is no process to prevent the
number of holders from rising to above 300 in the future, which
would
require re-registration. Note also for the body of the proxy.
14. Revise to add a "Dividend Rights" bullet and disclose the date
the last dividend was declared, the amount and the total amount of
dividends paid during the last 2 full fiscal years.
Special Factors
Background of the Merger Proposal, page 12
15. Please relocate the second and third paragraphs on page 12 to
a
more appropriate location given that this section is entitled
"Background of the Merger Proposal" and the referenced disclosure
relates to procedural matters.
16. Refer to the section captioned "Alternatives Considered."
Please
explain why the board found it unlikely that many holders of small
numbers of shares would tender securities into a potential issuer
tender offer, as disclosed in the first bullet point. Similarly,
explain why the board considered a forward stock split following a
reverse stock split to be problematic.
17. Revise this "Background" section generally to describe the
events
that took place before the board determined to proceed with this
transaction. We note, for example, that your disclosure describes
a
board meeting in August 2005 and then a senior management meeting
in
September 2006. What happened in the interim? We also note that
your event chronology skips from November 16, 2006 to February 15,
2007.
18. In connection with senior management`s September 2006 meeting,
please describe how, if at all, management reduced compensation
expense, as disclosed in the last paragraph of page 13.
19. Please disclose when Donnelly Penman was retained and the
services requested of the financial advisor.
20. Please clarify the second sentence of the second full
paragraph
of page 15.
21. With regard to the procedural safeguards discussion in the
second
full paragraph on page 15, we note the consideration and rejection
in
the formation of an independent committee. In this regard, revise
to
disclose the functions that the independent committee might have
served versus those that were served by the Board.
22. Regarding your compliance with future Section 404
requirements,
discussed at the top of page 13, please disclose whether the
company
is currently aware of any problems that it would have with these
requirements.
23. We remind you that each and every report, opinion,
consultation,
whether written or oral, received by the company or any affiliates
from any third party materially related to this transaction
constitutes a separate Item 1015 report that must be described in
detail in the document and, if written, filed as an exhibit to
Schedule 13E-3 pursuant to Item 1016(c) of Regulation M-A. This
includes, for example, any written documentation furnished to the
board in connection with an oral presentation, such as, board
books,
analyses, talking papers, drafts, summaries, outlines, and the
like.
Also, confirm to us that you have described in detail all oral
presentations made to the board by Donnelly Penman concerning the
methodologies it used.
Structure of the Merger, page 16
24. We note the description of section 1.6 of the merger agreement
in
the last paragraph of this section. Please provide a supplemental
analysis of this provision. For example, tell us why you would
not
have the necessary information to avoid the need for this
provision
as of the record date. Would all transfers of shares, whether as
a
result of a market transaction or of a conversion of the form in
which the shares are held, not be known as of the record date? If
so, why would you be unable to determine then the number of record
holders that would remain following the merger? In addition,
please
give us your detailed legal analysis of the ability of security
holders to make an informed voting decision prior to knowing how
the
transaction may affect them. We note that if the board uses the
mechanism described, then there will be security holders who will
not
know until after they have voted whether they will continue
holding
shares, what the tax consequences of the transaction will be to
them,
etc. Finally, if this agreement provision is used after the
definitive proxy statement is delivered to security holders,
please
tell us how you intend to comply with Rule 14a-9 and whether you
intend to deliver revised or supplemental proxy materials.
Financial Fairness, page 18
25. Noting the disclosure on page 25 that all directors hold over
1,000 shares, and therefore, will not be cashed out, the Board may
have considered themselves to have a conflict of interest in
participating in the amount of consideration to be offered to
those
unaffiliated shareholders to be cashed out. Please state the
Board`s
consideration of same.
26. Similarly, the Board may have considered their voting to be a
conflict of interest when deciding whether to only consider the
votes
of unaffiliated holders. Please state the Board`s consideration of
same.
27. We note your disclosure here and elsewhere in the proxy
statement
that the board of directors determined that the merger is fair to
and
in the best interests of the company and all security holders and
that the board believed "the process by which the merger is to be
approved is fair." Please revise here and throughout the filing
to
more clearly and consistently articulate whether the going private
transaction is substantively and procedurally fair to unaffiliated
security holders. See Item 1014(a) of Regulation M-A. We note
additionally that procedural fairness is a broader concept than
how
the merger agreement is to be approved.
28. Please disclose the financial projections provided to Donnelly
Penman, whether they were a separate document or provided as part
of
the Strategic Plan.
29. We note that in the "Trading Indication Analysis" you refer to
the "previously described" Fair Value Premium. It appears,
however,
that the concept of Fair Value Premium is not previously
described.
Please revise.
30. Please explain in the Net Book Value analysis the difference
between net book value and tangible book value.
31. Please revise to disclose the data underlying the results
described in connection with the analyses performed by Donnelly
Penman and to show how that information resulted in the
multiples/values disclosed, and explain how the results in each
analysis support the fairness opinion given by Donnelly Penman.
For
example, disclose (i) the company`s projected results that were
used
in conducting the Discounted Cash Flow Analysis, and (ii) the
names
and data for each comparable company that is the basis for the
results disclosed on page 21 with respect to the Selected
Comparable
Companies analysis and the Monarch data to which Donnelly Penman
applied those results to arrive at the implied per share equity
values.
32. Please explain the Liquidation Value disclosure. What
specifically about the company and its business led the financial
advisor to believe a liquidation analysis was not relevant?
33. Please explain the line-item "Multiple of Diluted EPS" in the
table at the top of page 22. How did the financial advisor
calculate
this figure? What is its significance as a measuring point and
what
is the significance of the results obtained in relation to the
financial advisor`s opinion?
34. We note that total book value and core deposit analysis,
disclosed on page 22, do not seem to support either the board`s or
the financial advisor`s conclusions. Please specifically describe
the consideration Donnelly Penman gave to this matter and how the
advisor was able to provide a fairness opinion in light of these
results. Also, please expand the Recommendation of our Board of
Directors, page 22, to disclose what consideration the Board gave
to
these results in making its determination as to fairness.
35. We note in the financial advisor`s opinion included as
Appendix B
that Donnelly Penman expressed its opinion as to the fairness,
from a
financial point of view, to the shareholders of the company,
without
limiting its opinion to unaffiliated security holders and without
addressing the fairness to those security holders who will not be
cashed out. In light of these facts, please address how any
filing
person relying on the Donnelly Penman opinion was able to reach
the
required fairness.
Recommendation of our Board of Directors, page 22
36. We note that the second positive factor for all unaffiliated
stockholders, at the bottom of page 22, discusses the board`s
retention of independent legal counsel. We note that the law firm
retained was already the company`s law firm at the you`re your
general counsel contacted it to obtain advice relating to, among
other items, a going private transaction (page 13). Explain in
your
disclosure how this firm served as independent legal counsel.
37. Disclose how the board considered the fairness of the going
private transaction given that some security holders, your
employees,
would not be affected by it.
Material U.S. Federal Income Tax Consequences of the Merger, page
29
38. Please relocate this discussion to appear before the
description
of "Certain Terms of the Merger."
39. We note your statement that the summary of material federal
income tax consequences only a general summary. Please delete
this
statement, as it implies that you are not responsible for the
disclosure in your proxy statement.
Selected Historical Financial Data, page 40
40. It appears you have chosen to comply with Item 1010(c) of
Regulation M-A but you have not included a page for the pro forma
required by Item 1010(c)(1) with respect to the year ended
December
31, 2006. Please revise. Also, please provide the book value
information as of the date of the most recent balance sheet. See
Item 1010(c)(5) of Regulation M-A.
Closing Comments
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested information. Detailed cover letters
greatly
facilitate our review. Please understand that we may have
additional
comments after reviewing your amendment and responses to our
comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company and each filing person
acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
Any questions regarding the comments may be directed to
Michael
Clampitt at (202) 551-3434 or to me at (202) 551-3421.
Sincerely,
David S. Lyon
Senior Financial Analyst
CC: Via U.S. Mail and Fax:
Timothy E. Kraepel, Esq.
Howard & Howard Attorneys, P.C.
39400 Woodward Avenue, Suite 101
Bloomfield Hills, Michigan 48304-5151
Phone (248) 645-1483
Facsimile (248) 645-1568
Mr. D. L. Denney
Monarch Community Bancorp, Inc.
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