SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule 12a-6(e)
(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
BLACKHAWK BANCORP, INC.
(Name of Registrant as Specified in Its Charter)
Not Applicable
--------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11.
1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
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previously. Identify the previous filing by registration statement number,
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1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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BLACKHAWK BANCORP, INC.
400 Broad Street
Beloit, Wisconsin 53511
(608) 364-8911
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
on May 19, 2004
To the Shareholders of BLACKHAWK BANCORP, INC.:
The 2004 Annual Meeting of the Shareholders of Blackhawk Bancorp, Inc. (the
"Corporation") will be held on Wednesday, May 19, 2004 at 10:00 A.M., local
time, at the Beloit Inn, 500 Pleasant Street, Beloit, Wisconsin 53511 for the
following purposes:
(1) Election of four directors to serve for a term of three years;
(2) Ratification of the appointment of the Corporation's independent
accountants for fiscal 2004; and
(3) Transaction of such other business as may properly come before the
Annual Meeting or any adjournment thereof.
Only shareholders of record on the books of the Corporation at the close of
business on April 1, 2004 will be entitled to vote at the Annual Meeting or any
adjournment thereof. If you do not vote by proxy and plan to attend the meeting
and hold your stock in a brokerage account ("street name" holders), please bring
a copy of your brokerage statement to the annual meeting of shareholders
reflecting your stock ownership as of April 1, 2004.
Your attention is called to the Proxy Statement accompanying this notice
for a more complete description of the matters to be acted upon at the Annual
Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Todd J. James
TODD J. JAMES
Executive Vice President and Secretary
Beloit, Wisconsin
April 9, 2004
A PROXY, WHICH IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, IS ENCLOSED.
PLEASE INDICATE YOUR VOTING DIRECTIONS, SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF FOR ANY REASON YOU LATER DESIRE
TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE YOUR PROXY IS VOTED.
BLACKHAWK BANCORP, INC.
400 Broad Street
Beloit, Wisconsin 53511
(608) 364-8911
PROXY STATEMENT
This Proxy Statement and accompanying proxy
were first mailed to Shareholders on or about April 9, 2004.
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Blackhawk Bancorp, Inc., a Wisconsin
corporation (the "Corporation"), for the annual meeting of shareholders to be
held on Wednesday, May 19, 2004, beginning at 10:00 A.M.
Shareholders of record at the close of business on April 1, 2004 will be
entitled to one vote on each matter presented for each share so held. At that
date there were 2,526,145 shares of Common Stock outstanding and entitled to
vote at the meeting. Any shareholder entitled to vote may vote either in person
or by duly authorized proxy. Shares of the Corporation's Common Stock
represented by properly executed proxies received by the Corporation will be
voted at the meeting and any adjournment thereof in accordance with the terms of
such proxies, unless revoked. If no choice is specified, the proxy will be voted
in favor of the nominees listed in Item 1, for ratification of the appointment
of McGladrey & Pullen, LLP as auditors for 2004 and in the discretion of the
proxy holder on any other matter which may properly come before the meeting and
all adjournments or postponements of the meeting. Proxies may be revoked at any
time prior to the voting thereof either by written notice filed with the
secretary or the acting secretary of the meeting or by oral notice to the
presiding officer during the meeting. The representation at the meeting in
person or by proxy of shareholders of the Corporation holding a majority of the
Corporation's shares of Common Stock entitled to vote shall constitute a quorum
for the transaction of business. For the purpose of determining the presence of
a quorum, shares represented on any matter will be counted as present and
represented on all matters to be acted upon, including any matter with respect
to which the holder of such shares abstains from voting, and including shares
which are not voted by a holder of record who is a broker because the broker has
not received authority from the beneficial owner, as required under applicable
laws and rules, to vote the shares on such matter ("broker nonvotes").
Directors are elected by a plurality of the votes cast by the holders of
the Corporation's Common Stock at a meeting at which a quorum is present.
"Plurality" means that the individuals who receive the largest number of votes
cast are elected as directors up to the maximum number of directors to be chosen
at the meeting. Consequently, any shares not voted (whether by abstention,
broker nonvote or otherwise) have no impact on the election of directors except
to the extent that the failure to vote for an individual results in another
individual receiving a comparatively larger number of votes. Under Wisconsin
law, votes cast "AGAINST" a director nominee are given no legal effect and are
not counted as votes cast in the election of directors.
Approval of any other matter which properly comes before the meeting,
including ratification of McGladrey & Pullen, LLP, as the Corporation's auditors
for 2004, will require the affirmative vote of a majority of the shares
represented at the meeting and entitled to vote on the particular matter. In
tabulating votes cast on any such other matter, abstentions will be considered
votes cast, and accordingly will have the same effect as a negative vote.
Broker nonvotes, on the other hand, will not be counted as shares entitled to be
voted on the particular matter, and therefore will have no impact on the outcome
of the vote.
Expenses in connection with the solicitation of proxies will be paid by the
Corporation. Upon request, the Corporation will reimburse brokers, dealers,
banks and voting trustees, or their nominees, for reasonable expenses incurred
in forwarding copies of the proxy material and annual report to the beneficial
owners of shares which such persons hold of record. Solicitation of proxies
will be principally by mail. Proxies may also be solicited in person, or by
telephone, by officers and regular employees of the Corporation, who will
receive no additional or special compensation for their services. Shares held
for the accounts of participants in the Corporation's Employee Stock Ownership
Plan ("ESOP") will be voted in accordance with the instructions of the
participants or otherwise in accordance with the terms of the ESOP. Under
provisions of the ESOP, if no instructions are received from a participant,
their shares cannot be voted.
BENEFICIAL OWNERSHIP OF SECURITIES
The table below sets forth information regarding the beneficial ownership
of Common Stock of the Corporation, as of March 1, 2004, by each 5% shareholder,
by each director and nominee for director, by each of the executive officers
named in the Summary Compensation Table, and by all nominees for director and
individuals who served as directors and executive officers of the Corporation on
March 1, 2004 as a group. Other than Mr. Hendricks, who is a director of the
Corporation, and Dennis M. Conerton, no person is known to the Corporation to be
the beneficial owner of more than 5% of the outstanding shares of the
Corporation's Common Stock.
NUMBER OF SHARES
BENEFICIALLY OWNED AND
NAME AND ADDRESS NATURE OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP(1)(2) OF CLASS
------------------- ----------------------- --------
R. Richard Bastian, III 40,000 shares 1.56%
130 Eaglewood
Rockton IL 61072
Roger G. Bryden 76,767 shares 3.04%
c/o Bryden Motors, Inc.
548 Broad Street
Beloit WI 53511
Stephen P. Carter 1,000 shares 0.04%
3131 Talbot Trail
Rockford IL 61114
John B. Clark 88,400 shares(4) 3.48%
1840 Sherwood Drive S.W.
Beloit WI 53511
Prudence A. Harker 8,667 shares .34%
c/o LifeCircle, LLC
500 S. Park Avenue
South Beloit IL 61080
Charles Hart 23,800 shares .94%
c/o Tricor, Inc.
520 W. Grand Avenue
Beloit WI 53511
Kenneth A. Hendricks 320,634 shares(4) 12.64%
c/o ABC Supply Co., Inc.
One ABC Parkway
Beloit WI 53511
Charles J. Howard 22,000 shares .87%
4920 Forest Hills Road
Loves Park IL 61111
Todd J. James 9,167 shares 0.36%
505 West 7th Street
Pecatonica IL 61063
Marco T. Lenis no shares 0.00%
412 Market Street
Rockford IL 61107
George D. Merchant 84,725 shares 3.34%
2413 Liberty Avenue
Beloit WI 53511
Merritt J. Mott 17,000 shares .67%
c/o Rockford Sanitary Systems, Inc.
5159 28th Avenue
Rockford IL 61109
Stephen R. Thomas no shares 0.00%
1003 Beach Bay Rd.
Poplar Grove IL 61065
All directors and executive officers 705,031 shares(3)(4) 26.82%
of the Corporation on March 1, 2004
as a group (18 persons)
Dennis M. Conerton 146,741 shares(3) 5.81%
1352 Middle Road
South Beloit IL 61080
(1) Except as noted otherwise, each person holds sole voting and
dispositive powers with respect to all shares shown opposite his or
her name.
(2) Includes options to purchase shares exercisable currently or within 60
days of March 1, 2004 for each of the persons identified in the table
as follows: Bastian - 30,000; Bryden - 667; Clark - 12,200; Harker -
667; Hart - 12,200; Hendricks - 10,100; Howard - 4,000; James - 8,667;
Merchant - 12,200 and Mott - 2,000, and for all directors and
executive officers as a group - 102,368.
(3) Includes shares allocated to the individual's account under the
Corporation's ESOP as follows: Mr. Conerton - 1,883 shares; and for
all directors and executive officers as a group - 4 shares.
(4) For Messrs. Clark and Hendricks, includes 76,200 shares, and 310,534
shares, respectively, held jointly with such person's spouse, and for
all directors and executive officers as a group, includes 386,734
shares held jointly with such persons' spouses.
The information presented in the table is based on information furnished by
the specified persons and was determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934 (the "1934 Act"), as required for purposes of
this Proxy Statement. Briefly stated, under that Rule shares are deemed to be
beneficially owned by any person or group having the power to vote or direct the
vote of, or the power to dispose or direct the disposition of, such shares, or
who has the right to acquire beneficial ownership thereof within 60 days.
Beneficial ownership for the purposes of this Proxy Statement is not necessarily
to be construed as an admission of beneficial ownership for other purposes.
ELECTION OF DIRECTORS
The Corporation's Bylaws, and actions of the Board taken pursuant thereto,
provide that there shall be 12 directors divided into three classes, as nearly
equal in number as practicable, each to serve 3-year staggered terms. At each
annual meeting the term of office of one of the three classes expires, and a new
class must be elected or re-elected to serve for a term of three years or until
their successors are duly elected and qualified.
The four nominees standing for election as directors of the Corporation at
the 2004 annual meeting are Mrs. Prudence A. Harker, Mr. Charles J. Howard, Mr.
Marco T. Lenis and Mr. Merritt J. Mott for terms expiring at the 2007 annual
meeting of shareholders. Mr. Howard has been a director of the Corporation
since 2000. Mr. Mott has been a director of the Corporation since 2001. Mrs.
Harker has been a director of the Corporation since 2002. Mr. Lenis has been
nominated to a newly created directorship in 2004 and was initially recommended
to the Nominating and Director Evaluation Committee by Mr. Bastian, the
Corporation's President and Chief Executive Officer.
The Board recommends that the shareholders elect the four nominees to serve
as directors of the Corporation for a term of three years or until their
successors have been duly elected and qualified. Unless otherwise directed,
proxies will be voted for the election of the four nominees. If any of the
nominees should decline or be unable to act as a director, which is not
foreseen, proxies may be voted with discretionary authority for a substitute
nominee designated by the Board of Directors.
NOMINEES FOR ELECTION TO TERM EXPIRING IN 2007:
DIRECTOR
NAME AND AGE PRINCIPAL OCCUPATION(1) SINCE
------------ --------------------------- --------
Prudence A. Harker, 59(3) President of LifeCircle, LLC. 2002
Investment Advisor
Representative, AXA Advisors,
LLC.
Charles J. Howard, Chairman of the Board and 2000
57(2) (4) (5) Chief Executive Officer of
William Charles, Ltd. (a
company engaged in heavy
manufacturing, waste
management, truck sales, and
real estate development).
Marco T. Lenis, 53 President and CEO of La Voz ----
Latina (the largest Hispanic
community-based organization
in Illinois).
Merritt J. Mott, 58(3) (4) Mr. Mott is the owner and 2001
Chief Executive Officer of
Rockford Sanitary Systems,
Inc. (designer and
manufacturer of fluid
filtration/separation systems
for commercial plumbing use).
Mr. Mott also serves as a
member of the Board of
Directors of Landstar System,
Inc., a publicly traded
transportation technology
services company.
In addition to those four persons, the following eight individuals also
presently serve as directors of the Corporation for the indicated terms.
CLASS OF DIRECTORS WHOSE TERM EXPIRES IN 2005:
DIRECTOR
NAME AND AGE PRINCIPAL OCCUPATION (1) SINCE
------------ ---------------------------- --------
R. Richard Bastian, III, 57(2) President and Chief 2001
Executive Officer of the
Corporation since 2002 and
of its subsidiary, Blackhawk
State Bank (the "Bank")
since 2001. Previously,
President of the Bank of
Kenosha from 1999 to 2001
and Executive Vice President
and Director of the Clean
Air Action Corporation from
1994 to 2000.
Roger G. Bryden, 61 Owner/Operator, Bryden 2002
Motors, Inc. (Dodge-
Chrysler-Jeep automotive
dealership in Beloit, WI).
John B. Clark, 61(3) (5) Retired since 1997; prior 1989
thereto Senior Vice
President, Wachovia
Securities, Inc. (securities
investment firm).
Charles Hart, 70(2) Salesperson at Tricor, Inc. 1993
(full service insurance
agency) since 1999;
Director, Hart, Kruse &
Boutelle, Inc. (real
estate).
CLASS OF DIRECTORS WHOSE TERM EXPIRES IN 2006:
DIRECTOR
NAME AND AGE PRINCIPAL OCCUPATION(1) SINCE
------------ --------------------------- --------
Stephen P. Carter, 52 (3) Executive Vice President, 2003
Chief Financial Officer and
Treasurer of Woodward
Governor Company
(manufacturer of energy
control systems for
engines).
Kenneth A. Hendricks, Chairman and Chief 1996
62(2)(4) Executive Officer of ABC
Supply Co., Inc. (roofing
and siding wholesaler).
George D. Merchant, 71(3) (5) Retired; prior thereto, 1989
Owner/Operator of two Dairy
Queen ice cream store
franchises.
Stephen R. Thomas, 51 President of Cirrus Trails, 2003
Inc., holding company for
Poplar Grove Airmotive,
Inc. and President of Emery
Air, Inc.
(1) Except as otherwise noted, all directors have been employed in the
principal occupations noted above for the past five years or more.
(2) Member of the Executive Committee in 2003.
(3) Member of the Audit and Compliance Committee in 2003.
(4) Member of the Compensation and Management Development Committee in
2003.
(5) Member of the Nominating and Director Evaluation Committee in 2003.
MEETINGS AND COMMITTEES
The Board of Directors held 13 meetings during 2003. Each of the directors
attended at least 75% of the meetings of the Board (including meetings of
committees of which the director is a member) held during the period of 2003 for
which he or she served as a director. The Common Stock of the Corporation is not
listed or quoted on any securities exchange or NASDAQ, and therefore there are
no specific director independence requirements that apply to the Corporation's
Board of Directors. However, using the NASDAQ independence requirements, the
Board has determined that all of the Corporation's directors other than Mr.
Bastian are considered "independent". While the Board does not have a formal
policy requiring director attendance at the Annual Meetings of Shareholders, the
Corporation encourages all of its directors to attend the Annual Meetings, and
all 11 current directors attended the Corporation's 2003 Annual Meeting.
The Corporation has an Executive Committee, of which Mr. Howard was the
chairman. The other members of the Executive Committee are set forth on the
tables above. The Executive Committee is authorized to exercise the powers of
the Board of Directors in the management of the business and affairs of the
Corporation when the Board is not in session, except for those powers which are
non-delegable by law or have been delegated to other committees. The Executive
Committee did not meet in 2003.
The Corporation has a Compensation and Management Development Committee of
which Mr. Mott was the chairman. The other members of the Compensation and
Management Development Committee are set forth on the tables above. The
Compensation and Management Development Committee reviews and makes
recommendations with respect to the Corporation's and its subsidiary's hiring
and compensation policies, and performs administrative functions with respect to
the Corporation's 1990 and 1994 Executive Stock Option Plans. The Committee met
once in 2003.
The Corporation has a Nominating and Director Evaluation Committee of which
Mr. Howard was the Chairman. The other members of the Nominating and Director
Evaluation Committee are set forth on the tables above. The Nominating and
Director Evaluation Committee conducts the annual Director's performance
evaluation and makes recommendations to the full Board of Directors regarding
director retention. In addition, the Committee develops and reviews background
information on candidates for the Board of Directors and makes recommendations
to the full Board of Directors regarding such candidates. The Committee does not
have a formal charter. All of the members of the Committee are considered
independent within the meaning of the listing standards of NASDAQ. The
Nominating and Director Evaluation Committee met twice in 2003.
The Corporation has an Audit and Compliance Committee of which Mrs. Harker
was the chairperson. The other members of the Audit and Compliance Committee are
set forth on the tables above. The Board of Directors believes that all of the
current members of the Audit and Compliance Committee are "independent
directors" as defined by the listing standards of NASDAQ. The Board has
determined that Mr. Carter is qualified as an audit committee financial expert
within the meaning of SEC regulations because he has accounting and related
financial management expertise resulting from his educational background and his
position as a corporate chief financial officer. The Audit and Compliance
Committee's functions include meeting with the Corporation's independent public
accountants and making recommendations to the Board of Directors regarding the
engagement or retention of such accountants, pre-approval of the independent
public accountant's fees, adoption of accounting methods and procedures, public
disclosures required to comply with securities laws and other matters relating
to the Corporation's financial accounting. The Charter for the Audit and
Compliance Committee is attached to this Proxy Statement as Annex I. The Audit
and Compliance Committee met 10 times in 2003.
SELECTION OF NOMINEES FOR THE BOARD
The Nominating and Director Evaluation Committee considers candidates for
Board membership suggested by its members and other Board members, as well as by
management and shareholders. To permit time for careful and thoughtful
investigation and consideration by the Committee, a shareholder who wishes to
recommend a prospective nominee for the Board should notify the Company's
Corporate Secretary or any member of the Nominating and Director Evaluation
Committee in writing not later than 6 months before the next Annual Meeting of
Shareholders with whatever supporting material the shareholder considers
appropriate. See also "Shareholder Proposals" below for further information on
the requirements under the Corporations' Bylaws relating to director
nominations. The Nominating and Director Evaluation Committee will also
consider whether to nominate any person nominated by a shareholder pursuant to
the provisions of the Company's Articles of Incorporation and Bylaws relating to
the election of Directors on the same basis as any other person suggested to the
Committee by management or otherwise.
Once the Nominating and Director Evaluation Committee has identified a
prospective nominee, the Committee makes an initial determination as to whether
to conduct a full evaluation of the candidate. This initial determination is
based on whatever information is provided to the Committee with the
recommendation of the prospective candidate, as well as the Committee's own
knowledge of the prospective candidate, which may be supplemented by inquiries
to the person making the recommendation or others. The preliminary
determination is based primarily on the need for additional Board members to
fill vacancies or expand the size of the Board and the likelihood that the
prospective nominee can satisfy the evaluation factors described below. If the
Committee determines, in consultation with other Board members as appropriate,
that additional consideration is warranted, the Committee will gather additional
information about the prospective nominee's background and experience and report
its findings to the whole Board.
Prospective nominees are evaluated against the following standards and
qualifications:
o The ability of the prospective nominee to represent the interests of
the Company's shareholders;
o The prospective nominee's standards of integrity, commitment and
independence of thought and judgment;
o The prospective nominee's ability to dedicate sufficient time,
energy and attention to the diligent performance of his or her
duties, including the prospective nominee's service on other public
company boards;
o The extent to which the prospective nominee contributes to the range
of talent, skill and expertise appropriate for the Board;
o The extent to which the prospective nominee helps the Board meet the
needs of its markets, communities and customers and reflects the
diversity of the Company's shareholders, employees, customers and
communities;
o The prospective nominee's visibility in the community and the
nominee's ability to actively participate in business development
for the Bank.
The Corporation also requires that its directors own, or commit to acquire
within 12 months of their election, at least 10,000 shares of Corporation Common
Stock. Three of the current directors, Mr. Carter, Mrs. Harker and Mr.Thomas,
do not currently meet this requirement. Messrs. Carter and Thomas will not have
been directors for 12 months until May 19, 2004, the date of the Annual Meeting.
Mrs. Harker has been a director for more than 12 months and has acquired 8,000
shares and holds 667 vested options to purchase shares. Directors have
encountered difficulty in attaining this requirement because of the relatively
modest levels of market trading in the Corporation's stock coupled with periodic
restrictions on their ability, as insiders, to purchase shares.
The Committee also considers such other relevant factors as it deems
appropriate, including the current composition of the Board, the balance of
management and independent directors, the need for Audit Committee expertise and
the evaluations of other prospective nominees. In connection with this
evaluation, the Committee determines whether to interview the prospective
nominee, and if warranted, one or more members of the Committee, and others as
appropriate, interview the prospective nominee in person. After completing this
evaluation and interview, the Committee makes a recommendation to the full Board
as to the persons who should be nominated by the Board, and the Board determines
the nominees after considering the recommendation and report of the Committee.
SHAREHOLDER COMMUNICATION WITH THE BOARD
Shareholders and other parties interested in communicating directly with
the non-management directors may do so by writing to any director at the
addresses shown on pages 2 and 3 of this proxy. The non-management director
will share any such communication (other than communications which are, in
essence, customer or employee complaints not relating to the writer's
shareholder status) with the full Board of Directors at the next regularly
scheduled Board of Directors meeting in its executive session (excluding members
of management). Concerns relating to accounting, internal controls or auditing
matters are immediately brought to the attention of the Company's internal audit
department and handled in accordance with procedures established by the Audit
and Compliance Committee with respect to such matters.
COMPANY CODE OF ETHICAL PRACTICES
The Corporation has a Code of Ethical Practices, which is applicable to all
employees of the Corporation and the Bank, including the principal executive
officer, the principal financial officer and the principal accounting officer.
The Code of Ethical Practices has been filed as Exhibit 14 to the Corporation's
Report on Form 10-KSB for the year ended December 31, 2003. There have been no
waivers or exceptions from the Code of Ethical Practices applicable to the
Corporation's principal executive officer, principal financial officer and
principal accounting officer.
AUDIT AND COMPLIANCE COMMITTEE REPORT
The Corporation's Audit and Compliance Committee is comprised of five
directors who are not officers of the Corporation. The members of the Audit and
Compliance Committee are independent as defined by Rule 4200(a) (15) of the
National Association of Securities Dealers' listing standards. A responsibility
of the Committee is to monitor and review the Corporation's financial reporting
process on behalf of the Board of Directors. Management is responsible for the
Corporation's internal controls and the financial reporting process while the
independent accountants are responsible for performing an independent audit of
the Corporation's consolidated financial statements in accordance with generally
accepted auditing standards and to issue a report thereon.
The Committee held ten meetings during 2003. Quarterly meetings are held
to review the company's financial statements and Forms 10-QSB and 10-KSB prior
to filing with the SEC. The Company's independent public accountants, McGladrey
& Pullen, LLP are present at these quarterly meetings and also meet in executive
session with the Audit and Compliance Committee with no members of management
present.
The Audit and Compliance Committee believes that management maintains an
effective system of internal controls that results in fairly presented financial
statements. The Committee discussed with McGladrey & Pullen, LLP matters
relating to communications with audit committees as required by Statement on
Auditing Standards No. 61. McGladrey & Pullen, LLP also provided to the
Committee the written disclosures relative to auditor independence as required
by Independence Standards Board Standard No. 1. The Committee also reviewed a
list of non-audit services performed during fiscal year 2003 and determined,
based upon their scope, that such services did not affect the independence of
McGladrey & Pullen, LLP in performing their audit services. Fees paid to and
for the 2003 and 2002 financial statement audits performed by McGladrey &
Pullen, LLP are as summarized under the caption "Audit and Non-Audit Fees"
below. The Audit and Compliance Committee considered these fees in its
assessment of the independence of McGladrey & Pullen, LLP and deemed that the
services provided and the fees paid for those services were compatible with
maintaining independence of the Corporation's independent public accountant.
Based on these reviews and discussions, the Audit and Compliance Committee
recommended to the Board of Directors that the audited financial statements be
included in the Corporation's Annual Report on Form 10-KSB for the year ended
December 31, 2003.
Respectfully submitted to the Corporation's shareholders by the Audit and
Compliance Committee of the Board of Directors.
Prudence A Harker, Committee Chair George D. Merchant
John B. Clark Merritt J. Mott
Stephen P. Carter
AUDIT AND NON-AUDIT FEES
The following table presents fees for professional audit services rendered
by McGladrey & Pullen, LLP for the audit of the Corporation's annual financial
statements for fiscal 2003 and 2002, and fees billed for other services rendered
by McGladrey & Pullen, LLP for fiscal 2003 and 2002.
Fiscal Fiscal
2003 2002
------ ------
Audit fees (1) $67,171 $44,000
Audit-related fees (2) $21,263 $10,070
Tax fees (3) $15,520 $ 8,537
(1) Audit fees consist of fees for professional services rendered for
the audit of the Corporation's financial statements and review of
financial statements included in the Corporation's quarterly reports
and services normally provided by the independent auditor in
connection with statutory and regulatory filings or engagements.
(2) Audit-related fees are fees principally for professional services
rendered for the audit of the Corporation's employee benefits plans
and due diligence and technical accounting consulting and research.
(3) Tax fees consist of compliance fees for the preparation of original
and amended tax returns, claims for refunds and tax payment-planning
services for tax compliance, tax planning and tax advice. Tax
service fees also include fees relating to other tax consulting and
planning for other than tax compliance and preparation.
The Audit and Compliance Committee requires that all fees for services to
be performed by the Corporation's independent public accountants, McGladrey &
Pullen, LLP, be pre-approved by the Committee. All fees for services which were
performed by the Corporation's independent public accountants in 2003 and 2002
were pre-approved by the Committee.
COMPENSATION OF DIRECTORS
DIRECTORS' FEES
Directors of the Corporation who are not employees of the Corporation or of
the Bank receive a $6,000 annual retainer and $250 for each board meeting
attended and $100 for each committee meeting attended. Employee directors do not
receive any additional compensation for serving as a director. The Corporation
has also established stock option plans in which non-employee directors are
eligible to participate.
DIRECTORS' STOCK OPTION PLANS
Prior to its expiration in 1995, the Corporation maintained the Blackhawk
Bancorp, Inc. 1990 Directors' Stock Option Plan (the "1990 Directors' Plan"),
which was intended to provide an incentive for directors of the Corporation who
are not active full-time employees of the Corporation or of a subsidiary of the
Corporation ("Outside Directors") to improve corporate performance on a long-
term basis. To replace the expired 1990 Directors' Plan, the Board of Directors
adopted, and the shareholders of the Corporation on May 11, 1994 approved, the
Blackhawk Bancorp, Inc. 1994 Directors' Stock Option Plan (the "1994 Directors'
Plan"), which is substantially similar in all material respects to the 1990
Directors' Plan. The 1994 Directors' Plan has 150,000 shares of the
Corporation's Common Stock reserved for issuance and provides for the granting
of non-qualified stock options.
On March 3, 2003, each of the ten Outside Directors automatically was
granted an option under the 1994 Directors' Plan to purchase 2,000 shares of the
Corporation's Common Stock at a per share exercise price of $9.90 (the per share
market price of the Corporation's Common Stock on that date). On March 1, 2002,
each of the ten Outside Directors automatically was granted an option to
purchase 2,000 shares at an exercise price of $9.50, the market price on that
date. Giving effect to those grants, the total number of shares of the
Corporation's Common Stock subject to outstanding grants under the 1990 and 1994
Directors' Plans as of March 1, 2004 was 68,700. The 1990 Directors' Plan
expired in 1995 and the 1994 Directors' Plan expired December 31, 2003;
therefore, no more options will be granted under those Plans.
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table summarizes certain information for each of the last
three years concerning all compensation awarded or paid to or earned by the
Chief Executive Officer and the only other executive officer of the Corporation
who had total compensation exceeding $100,000 in 2003.
SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------
Long Term
ANNUAL COMPENSATION Compensation
------------------------------------------------------ ----------------------------------
Name and Bonus Other Annual Options/ Other
Principal Position Year Salary ($) ($)(1) Compensation(2) SARs(3) Compensation(4)
------------------ ---- ---------- ----------- -------------------- ------------ --------------------
R. Richard Bastian, III(5) 2003 $ 160,000 $ 0 $11,959 11,250 $ 9,339
President and Chief Executive 2002 $ 142,904 $ 0 $ 8,721 10,000 $ 9,052
Officer of the Corporation since 2001 $ 85,917 $ 25,000 $ 4,690 40,000 $ 8,320
February 2002 and the Bank
Since May 2001
Todd J. James(6) -Executive 2003 $ 100,883 $ 2,000 $ 1,167 8,000 $ 1,513
Vice President and Chief 2002 $ 85,865 $ 15,000 $ -0- 16,000 $ 714
Financial Officer
(1) Annual bonus amounts are earned and accrued during the years
indicated and paid at the beginning of the next calendar year. Mr.
Bastian's bonus for 2001 was paid upon the commencement of his
employment with the Bank. Mr. James' bonus in 2003 was paid upon
successful completion of the DunC Corp merger. $5,000 of Mr. James'
bonus for 2002 was paid upon the commencement of his employment with
the Bank.
(2) Represents taxable value of company provided automobile in the
amount of $4,375, $4,375 and $2,188 for Mr. Bastian in the years
2003, 2002 and 2001, respectively and country club memberships for
Mr. Bastian of $7,584 in 2003, $4,346 in 2002 and $2,502 in 2001,
respectively and for Mr. James of $1,167 in 2003.
(3) In 2003, Mr. Bastian received stock appreciation rights relating to
3,750 shares and non-qualified executive stock options to purchase
7,500 shares, and Mr. James received stock appreciation rights
relating to 1,000 shares and non-qualified executive stock options
to purchase 7,000 shares. In 2002 and 2001 the amounts shown consist
entirely of non-qualified executive stock options.
(4) Includes: (a) employer contributions to each named executive's
account under a 401(k) profit sharing plan in the amounts of $2,339
and $4,542 for Mr. Bastian and $1,513 and $714 for Mr. James in the
years 2003 and 2002, respectively; (b) premiums paid for life
insurance in the amount of $4,510 annually on behalf of Mr. Bastian;
and (c) additional insurance benefits in the amount of $2,490 and
$3,810 for Mr. Bastian in 2003 and 2001.
(5) Mr. Bastian became employed by the Corporation in May 2001.
(6) Mr. James became employed by the Corporation in February 2002.
EXECUTIVE STOCK OPTIONS
Prior to its expiration on January 24, 1995, the Corporation maintained the
Blackhawk Bancorp, Inc. 1990 Executive Stock Option Plan (the "1990 Executive
Plan"), which provided an incentive for executive officers of the Corporation or
any of its subsidiaries to improve corporate performance on a long-term basis.
To replace the expired 1990 Executive Plan, the Board of Directors of the
Corporation adopted, and on May 11, 1994 the shareholders approved, the
Blackhawk Bancorp, Inc. 1994 Executive Stock Option Plan (the "1994 Executive
Plan"), which is substantially similar in all material respects to the 1990
Executive Plan. The 1994 Executive Plan provides for the granting of incentive
stock options ("ISOs") intended to qualify as such within the meaning of Section
422 of the Internal Revenue Code of 1986, nonqualified stock options ("NSOs")
and stock appreciation rights ("SARs"). The 1994 Executive Plan has 405,000
shares of the Corporation's Common Stock reserved for issuance.
Options for 76,250 shares were granted in 2003 and at December 31, 2003
there were outstanding under this Plan options for the purchase of a total of
200,500 shares. The 1994 Executive Plan expired on December 31, 2003,
therefore, no more options will be granted under that Plan.
OPTIONS OF NAMED EXECUTIVES
Options to purchase shares of the Corporation's Common Stock were granted
to the named executive officers as reflected in the table below. Pursuant to the
terms of the 1994 Executive Plan, such options will become exercisable in equal
thirds on each of the first three anniversaries of the date of grant.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SHARE) DATE(3)
---- ------------ ------------ ---------- ------------
R. Richard Bastian, III 7,500 8.5% $11.77(1) November 2013
R. Richard Bastian, III 3,750 4.2% $11.77(2) November 2013
Todd J. James 7,000 7.9% $11.77(1) November 2013
Todd J. James 1,000 1.1% $11.77(2) November 2013
(1) Represents the option exercise price, based upon the fair market
value (determined under provisions of 1994 Executive Plan) of the
Corporation's Common Stock as of the date of grant.
(2) Represents the stock appreciation rights' base price, based upon the
fair market value (determined under the provision of the 1994
Executive Plan) of the Corporation's Common Stock as of the date of
grant.
(3) Options and SARs generally expire three months following named
executive officer's death, disability, retirement or termination of
his employment with the Corporation and/or the Bank.
The following table sets forth certain information concerning individual
exercises of stock options by the named executive officers during 2003 including
the number and value of options outstanding at the end of 2003 for each of the
named executive officers. Value is calculated using the difference between the
exercise price and the market price on the day of exercise, for those options
exercised in fiscal year 2003, or year-end market price, for all other options,
multiplied by the number of shares underlying the option.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
----------------------------- ---------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Richard Bastian, III 0 $ 0 30,000 31,250 $95,167 $66,308
Todd J James 0 0 5,333 18,667 $16,812 $37,308
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes share information, as of December 31, 2003, for
Blackhawk's equity compensation plans. The option plans have been approved by
Blackhawk's shareholders.
NUMBER OF COMMON NUMBER OF SECURITIES
SHARES TO BE ISSUED WEIGHTED-AVERAGE REMAINING AVAILABLE FOR
UPON EXERCISE OF EXERCISE PRICE OF FUTURE ISSUANCE UNDER
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, EQUITY COMPENSATION
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS PLANS
------------- --------------------- -------------------- ----------------------
Equity compensation plans
approved by shareholders 272,350 $10.32 -0-
Equity compensation plans
not approved by
shareholders -0- N/A -0-
------- ----- ---
Total 272,350 $10.32 -0-
------- ----- ---
------- ----- ---
SEVERANCE PAYMENT AGREEMENTS
The Bank has agreements with potential severance amounts payable in excess
of $100,000 per individual currently in effect with three officers, R. Richard
Bastian, III, Richard J. Rusch and Dale Blachford. Messrs. Bastian's and
Blachford's provisions are in their employment agreements; Mr. Rusch's in a
severance agreement. The agreements remain in effect until the earliest to occur
of the officer's: (i) death; (ii) disability; (iii) retirement; (iv)
termination of employment (whether voluntary or involuntary); or (v) termination
in connection with a change in control of the Bank or the Corporation. In
addition, Mr. Blachford's agreement terminates on September 30, 2005, the second
anniversary of the DunC acquisition. When Todd James, Executive Vice President
and Chief Financial Officer of the Corporation, accepted employment it was, in
part, on the condition that he be provided with a change in control severance
agreement, similar to those described herein, with a term of 3 years, subject to
extension only at the option of the Corporation, and providing for payment, in
the event of a change in control of the Bank or the Corporation, of an amount
equal to his average annual compensation. While a change in control severance
agreement has not been formalized, it is the intention of the Corporation to
negotiate and formalize an agreement with Mr. James.
The agreements with Messrs. Bastian and Rusch provide that, in the event of
termination of his employment in connection with a change in control of the Bank
or the Corporation, the officer would receive a severance payment in an amount
equal to his average annual compensation (defined to include his then current
base annual salary plus the average bonus, if any, received by him in the three
years preceding termination) multiplied by three, plus an amount equal to the
dollar equivalent of all contributions by the Bank on behalf of and for the
benefit of the officer to any pension, profit sharing or employee stock benefit
plan, including the Corporation's ESOP, during the three years prior to the
termination. Mr. Bastian's agreement provides for payment within 15 days of
termination. Mr. Rusch's agreement requires payment of one-third of the
severance payment in a lump sum within 30 days of termination with the remaining
two-thirds to be paid in monthly installments commencing in the thirteenth month
following termination. In addition to this severance payment, the officer would
also be entitled to continue receiving, for three years following termination,
medical, life and disability insurance benefits and vested benefits otherwise
payable to him under any Bank plan or agreement relating to retirement or
deferred compensation benefits, if any. In the event Mr. Rusch finds other
full-time employment, his severance payment in the second and third year
following termination would be reduced by an amount equal to salary and other
benefits received from his new employer during the period for which he is
entitled to receive payments under his Severance Payment Agreement; Mr.
Bastian's agreement is not subject to that adjustment. Mr. Rusch's Severance
Payment Agreement provides that, in the event the officer is under the age of 55
and physically and medically able to perform duties with another employer
comparable to those performed by him with the Bank at the time of his
termination, he must take reasonable steps to obtain such employment within 50
miles of the Bank's main office.
The agreements with Messrs. Bastian and Rusch define a change in control to
include: (i) acquisition of beneficial ownership of securities of the Bank or of
the Corporation in a transaction subject to the notice provisions of the Change
in Bank Control Act of 1978 or approval under the Bank Holding Company Act of
1956; (ii) someone other than the Corporation becoming owner of more than 25% of
the voting securities of the Bank; (iii) the persons constituting the Board of
Directors of the Bank or the Corporation at any particular time ceasing, during
any two-year period thereafter, to constitute at least a majority thereof; (iv)
a person or group of persons or entity succeeding to all or substantially all of
the business and/or assets of the Bank or the Corporation as a result of a
purchase, merger, consolidation or similar transaction; or (v) the filing by the
Corporation of a report or proxy statement with the Securities and Exchange
Commission disclosing that a change in control of the Corporation has or may
have occurred pursuant to any contract or transaction. A termination of an
officer is deemed to have occurred in connection with a change in control if,
following an event defined as a change in control, either the officer's
employment is terminated by the Bank or a successor other than for death,
disability, retirement or certain wrongful conduct by the officer, or the
officer terminates his employment on 90 days prior written notice following such
change in control and the occurrence of specified events, including: (i)
demotion in his position or reduction in his duties or responsibilities; (ii)
reduction in compensation; (iii) transfer to a remote location; (iv) a good
faith determination by the officer that he is unable, and it would not be in the
best interests of the Bank for him to carry out the authorities, powers,
functions, responsibilities or duties attached to his position; or (v) failure
on the part of the Bank to obtain a commitment from a successor to assume the
Bank's duties and obligations under the agreements. If an officer is terminated
within six months prior to a change in control for reasons other than death,
disability or cause, such termination will be treated as being in anticipation
of the change in control and the officer will be entitled to receive the
benefits he would have received had the termination occurred after and in
connection with a change in control.
The agreement with Mr. Blachford provides that, in the event of termination
of his employment in connection with a change in control of the Bank or the
Corporation, the officer would receive a severance payment in an amount equal to
150% of his then current base salary reduced by bonuses paid to him on September
30, 2004 and 2005. Mr. Blachford is also eligible to participate in the Bank's
health, dental and life insurance plans over the payout period. The agreement
provides for payment over 18 months or in a lump sum at the election of the
officer. Mr. Blachford is restricted from obtaining employment within a 25 mile
radius of his principal place of business for either 6 months or one year of
termination.
The agreement with Mr. Blachford defines a change in control to include the
sale of all or substantially all of the assets of Blackhawk or the Bank or a
transaction resulting in fifty percent or more of its voting stock being owned
by a person or entity (other than Blackhawk or its affiliates) that does not own
fifty percent of such stock on September 30, 2003. A termination of an officer
is deemed to have occurred in connection with a change in control if, the
Executive's Employment with the Bank (or its successor) is the result of: (1)
the Executive's voluntary resignation following any Change in Duties during the
sixty (60) day period prior to a Change in Control, provided such resignation
occurs within thirty (30) days of the Change in Control, (2) the Executive's
voluntary resignation due to a Change in Duties within twelve (12) months
following a Change in Control; and (3) the termination of the Executive's
employment by the Bank (or its successor) other than death, disability,
retirement or for cause within twelve (12) months following a Change in Control.
Mr. Bastian's employment agreement provides that he shall receive the
severance amounts described above, regardless of whether or not a change in
control has occurred, if he is terminated by the Corporation or the Bank without
cause or if he terminates his employment for cause. The employment agreement
further provides a base salary of $160,000 (subject to annual change by the
board), specified benefits and a term of three years, commencing on August 1,
2002, subject to annual extensions. The Board granted Mr. Bastian a one year
extension on August 1, 2003.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the Securities Exchange Act of 1934, as amended (the "1934 Act"), the
Corporation's directors, executive officers and any person holding more than 10%
of the Corporation's Common Stock are required to report their initial ownership
of the Corporation's Common Stock and any subsequent changes in that ownership
to the Securities and Exchange Commission. Specific due dates for these reports
have been established and the Corporation is required to disclose in this Proxy
Statement any failure to file such reports by these dates during 2003. Based
solely on a review of copies of such reports furnished to the Corporation, or
written representations that no reports were required, the Corporation believes
that during 2003 all filing requirements applicable to its directors and
executive officers were satisfied with the following exception. On December 10,
2003 Mr. Hendricks purchased 36,200 shares. Due to an administrative error, the
broker did not inform us of the purchase until December 15, 2003. The proper
Form 4 was filed three days late on December 15, 2003.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Bank occasionally extends home mortgage loans, home improvement loans,
home equity loans, consumer loans and commercial loans to its directors,
officers and employees, and affiliates of the foregoing. Such loans are made in
the ordinary course of business and do not, in the opinion of management of the
Bank, involve more than the normal risk of collectability or present other
unfavorable features, and are made on substantially the same terms, including
interest rate and collateral, as those prevailing at the time for comparable
transactions with other persons. Where the borrower is also a director of the
Bank or the Corporation, it is the policy of the Bank that the director must
leave the meeting of the Bank's Board of Directors while his loan is being
considered and the director neither participates in that consideration nor votes
on approval of the loan. Messrs. Bastian, James, Hendricks, Clark and Bryden
and Mrs. Holt or their affiliates, each had one or more loans with the Bank with
an aggregate outstanding balance at December 31, 2003 in excess of $60,000. As
of that date, those loans aggregated $5,937,217, which represented approximately
15.26% of the capital of the Bank at December 31, 2003. Those loans were all
made in accordance with the policy described above.
OTHER INFORMATION
INDEPENDENT AUDITORS
On August 27, 2002, the Audit and Compliance Committee of the Board of
Directors of the Corporation approved a change in auditors. The Board of
Directors ratified the Audit Committee's engagement of McGladrey & Pullen, LLP
to serve as the Corporation's independent public accountants and replacement of
Wipfli Ullrich Bertelson LLP ("Wipfli") as the Corporation's independent public
accountants, effective August 28, 2002.
Wipfli performed audits of the consolidated financial statements for the
two years ended December 31, 2001 and 2000. Their reports did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope, or accounting principles.
During the two years ended December 31, 2001, and from December 31, 2001
through the effective date of the Wipfli termination, there were no
disagreements between the Corporation and Wipfli on any matter of accounting
principles or practice, financial statement disclosure, or auditing scope or
procedure, which disagreements would have caused Wipfli to make reference to the
subject matter of such disagreements in connection with this report.
During the two years ended December 31, 2001, and from December 31, 2001
until the effective date of the dismissal of Wipfli, Wipfli did not advise the
Corporation of any of the following matters:
1. That the internal controls necessary for the Corporation to develop
reliable financial statements did not exist;
2. That information had come to Wipfli's attention that had lead it to no
longer be able to rely on management's representations, or that had made it
unwilling to be associated with the financial statements prepared by management;
3. That there was a need to expand significantly the scope of the audit of the
Corporation, or that information had come to Wipfli's attention that if further
investigated: (i) may materially impact the fairness or reliability of either a
previously-issued audit report or underlying financial statements, or the
financial statements issued or to be issued covering the fiscal periods
subsequent to the date of the most recent financial statements covered by an
audit report (including information that may prevent it from rendering an
unqualified audit report on those financial statements) or (ii) may cause it to
be unwilling to rely on management's representation or be associated with the
Corporation's financial statements and that, due to its dismissal, Wipfli did
not so expand the scope of its audit or conduct such further investigation;
4. That information had come to Wipfli's attention that it had concluded
materially impacted the fairness or reliability of either: (i) a previously-
issued audit report or the underlying financial statements or (ii) the financial
statements issued or to be issued covering the fiscal period subsequent to the
date of the most recent financial statements covered by an audit report
(including information that, unless resolved to the accountant's satisfaction,
would prevent it from rendering an unqualified audit report on those financial
statements), or that, due to its dismissal, there were no such unresolved issues
as of the date of its dismissal.
Wipfli furnished a letter to the SEC stating that it agrees with the above
statements.
During the two years ended December 31, 2001, and from December 31, 2001
through engagement of McGladrey & Pullen, LLP as the Corporation's independent
accountant, neither the Corporation nor anyone on its behalf had consulted
McGladrey & Pullen, LLP with respect to any accounting or auditing issues
involving the Corporation. In particular, there was no discussion with the
Corporation regarding the application of accounting principles to a specified
transaction, the type of audit opinion that might be rendered on the financial
statements, or any related item.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit and Compliance Committee, with the concurrence of the Board of
Directors, has appointed the firm of McGladrey & Pullen, LLP as independent
public accountants to audit the books and accounts of the Corporation for fiscal
2004. They have audited the Corporation since 2002. Services provided to the
Corporation and its subsidiaries by McGladrey & Pullen, LLP in fiscal 2003 and
2002 are described under "Audit and Non-Audit Fees" above.
Representatives of McGladrey & Pullen, LLP are expected to be present at
the annual meeting to respond to appropriate questions and to make a statement
if they so desire.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF MCGLADREY & PULLEN, LLP AS THE CORPORATION'S INDEPENDENT
ACCOUNTANTS FOR FISCAL 2004.
In the event shareholders do not ratify the appointment, the appointment
will be reconsidered by the Audit and Compliance Committee and Board of
Directors.
SHAREHOLDER PROPOSALS
Shareholder proposals must be received by the Corporation no later than
December 10, 2004 in order to be considered for inclusion in next year's annual
meeting proxy materials. Shareholders who intend to present a proposal at next
year's annual meeting of shareholders without inclusion of such proposal in the
Corporation's proxy materials, or who propose to nominate a person for election
as a director at the annual meeting, are required by the Bylaws to provide
notice of such proposal containing the information described in the
Corporation's Bylaws to the Secretary of the Corporation not later than 90 days
in advance of next year's annual meeting.
OTHER AGENDA ITEMS
The Board of Directors has not been informed and is not aware that any
other matters will be brought before the meeting. However, proxies may be voted
with discretionary authority with respect to any other matters that may properly
be presented at the meeting or any adjournment thereof.
A COPY (WITHOUT EXHIBITS) OF THE CORPORATION'S ANNUAL REPORT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON FORM 10-KSB FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2003 IS AVAILABLE WITHOUT CHARGE TO EACH RECORD OR BENEFICIAL OWNER
OF SHARES OF THE CORPORATION'S COMMON STOCK AS OF APRIL 1, 2004 ON THE WRITTEN
REQUEST OF SUCH PERSON DIRECTED TO: TODD J. JAMES, EXECUTIVE VICE PRESIDENT-
SECRETARY AND TREASURER, BLACKHAWK BANCORP, INC., 400 BROAD STREET, BELOIT,
WISCONSIN 53511.
ANNEX I
BLACKHAWK BANCORP, INC.
AUDIT AND COMPLIANCE COMMITTEE CHARTER
PURPOSE
-------
The Audit Committee ("Committee") is appointed by the Blackhawk Bancorp, Inc.
("Bank") Board of Directors ("Board"), and is formed for the purpose of
assisting the Board in performing its oversight responsibilities. While the
Audit Committee has the authority and responsibilities outlined below, it is not
responsible for performing audits to ensure the accuracy of the financial
statements, in accordance of Generally Accepted Accounting Principles. Nor is
it the duty of the Committee to conduct investigations, resolve disagreements
between management and the auditors, or provide assurance of compliance with
laws and regulations.
COMPOSITION
-----------
The Committee shall be composed of at least 3 members of the Board, who meet the
independence and financial literacy guidelines as outlined by the National
-------------
Association of Securities Dealers and the Securities and Exchange Commission.
-----------------------------------------------------------------------------
AUTHORITY
---------
The Committee has the authority to initiate any investigations or consultations
it deems necessary to fulfill its oversight function on behalf of the Board
including retaining legal counsel, consulting with accounting and other
applicable professionals, and requesting assistance from any officer or employee
of the Bank.
RESPONSIBILITIES
----------------
In performing the oversight function, the Committee shall:
o FINANCIAL REPORTING: Review with management and the independent auditor(s)
matters relating to the Bank's interim and annual financial statements, as
indicated by auditing/accounting standards or securities laws. This could
include review of footnotes and any significant reserves, accruals and
estimates used in preparing the financial statements.
o INDEPENDENT/EXTERNAL AUDITOR: Recommend the independent auditors to the
Board, based on review of the independent auditors' independence;
performance with the Bank in prior years, if possible; fees charged in the
past and proposed for the current year; and, the independent auditors'
reputation within the community.
o INTERNAL AUDIT: Oversee the Bank's Internal Audit function, including
review of the appointment of the Auditor, review and approval of the Bank's
Risk Assessment and Annual Internal Audit Plan; review the reports on
internal audits performed, including management's responses; and monitor
any material or sensitive projects assigned to the Auditor by Management,
the Board, or the Committee.
o REGULATORY COMPLIANCE: Oversee the Bank's Regulatory Compliance function,
including review of the appointment of the Compliance Officer, review and
approval of the Compliance Program; review the reports on compliance
testing performed, including management's responses; and review any
material reports received from the Examiners.
MEETINGS
--------
The Committee shall meet regularly, at least 4 times annually, or more often as
needed. Additionally, the Committee shall meet with the independent auditor(s),
the internal auditor, or the Compliance Officer, without the presence of
management, when/if privacy is deemed necessary.
OTHER
-----
The Audit Committee shall review and update this Charter, as needed, and submit
it to the Board for approval, annually.
Adopted July 14, 2003
Prudence A. Harker, Committee Chairman George Merchant
John B. Clark Merritt Mott
Stephen P. Carter