DEF 14A 1 ddef14a.txt NOTICE & PROXY UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A 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 14A-6(E)(2)) [X] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12 Dauphin Technology, Inc. -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) -------------------------------------------------------------------------------- (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)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------- (5) Total fee paid: ------------------------------------------------------------------------- [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------------- (3) Filing Party: ------------------------------------------------------------------------- (4) Date Filed: ------------------------------------------------------------------------- Notes: Reg. (S) 240.14a-101. SEC 1913 (3-99) DAUPHIN TECHNOLOGY, INC. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held June 13, 2001 To The Shareholders of Dauphin Technology, Inc.: You are cordially invited to attend the Annual Meeting of the Shareholders of Dauphin Technology, Inc. (the "Company"), which will be held at the Cotillion Banquet Hall, 360 Creekside (Routes 14 and 53) in Palatine, Illinois on Wednesday, June 13, 2001, at 2:00 p.m., Central Standard Time, to consider and act upon the following matters: 1. The election of four Directors. 2. Ratification of the appointment of Grant Thornton LLP as the Company's independent auditors for the fiscal year ending December 31, 2001. 3. Such other business as may come before the Meeting or any adjournments thereof. Only Shareholders of record at the close of business as of April 23, 2001, are entitled to notice of and to vote at the Annual Meeting and any adjournment of the Meeting. The Annual Report of the Company for the fiscal year ended December 31, 2000 is being mailed to all Shareholders of record and accompanies this Notice and related Proxy Statement. Demonstrations of the Company's products will begin at 1:30 p.m. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. YOU ARE INVITED TO ATTEND THE MEETING IN PERSON, BUT WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON. By Order of the Board of Directors of Dauphin Technology, Inc. /s/ Luke Lukens Luke Lukens Assistant Secretary Dated: April 23, 2001 DAUPHIN TECHNOLOGY, INC. PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS To Be Held June 13, 2001 This Proxy Statement is furnished in connection with the solicitation of Proxies by the Board of Directors of DAUPHIN TECHNOLOGY, INC., an Illinois corporation (the "Company"), to be voted at the Annual Meeting of Shareholders to be held June 13, 2001, as stated in the foregoing notice. Solicitations will be made by mail and all expenses incurred in connection with the solicitations will be borne by the Company. Each outstanding share of common stock of the Company is entitled to one vote on each matter submitted to a vote at the Meeting, without cumulative voting. Votes may be cast by mail by signing and returning the enclosed Proxy or by voting in person at the Meeting. If you intend to vote in person at the Meeting and your shares are held in the name of your broker or other nominee, you will need to bring a Proxy from your broker or nominee authorizing you to vote your shares. The Board of Directors has fixed April 23, 2001, as the record date for the determination of Shareholders entitled to notice of, and to vote at, the Annual Meeting, or any adjournment or adjournments thereof. If the enclosed Proxy is properly executed and returned to American Stock Transfer & Trust Company, 6201 15th Avenue, Brooklyn, N.Y. 11219, all shares represented thereby will be voted for the Proposals described in this Proxy Statement. Anyone giving a Proxy may revoke it at any time before it is exercised. A Proxy may be revoked by signing and returning another Proxy at a later date, providing written notice of revocation to the Company's Secretary or attending the Meeting and voting in person. The Company had 61,886,069 shares of $0.001 par value common stock outstanding on April 18, 2001. A quorum, which is a majority of the outstanding shares entitled to vote as of the record date, must be present to hold the Meeting and to conduct business. Shares are counted as present at the Meeting if you appear in person or if you vote your shares by mailing a properly executed Proxy. If shares are held in the name of a broker and you do not return a Proxy, your broker may leave your shares un-voted or may vote your non-voted shares on routine matters such as those contained in Proposals 1 and 2. To the extent your broker votes your shares on Proposals 1 and 2, your shares will be counted as present for purposes of determining a quorum. If your vote is withheld for any Proposal, it will be counted for purposes of determining a quorum, but not for voting on the Proposal. It is anticipated that the mailing to Shareholders of this Proxy Statement and the enclosed Proxy will commence on or about April 27, 2001. The Annual Report of the Company for the fiscal year ended December 31, 2000, is being mailed to all Shareholders of record and accompanies this Proxy Statement. Matters to be Considered at the Meeting The Company's Shareholders are being asked to consider and act upon the following Proposals: 1. The election of four Directors. 2. The ratification of the appointment of Grant Thornton LLP as the Company's independent auditors for the fiscal year ending December 31, 2001. 3. Such other business as may come before the Meeting or any adjournments thereof. 1 PROPOSAL 1 ELECTION OF DIRECTORS At the Meeting, four Directors will be elected for a term of one year, or until their successors have been elected and qualified. The nominees are Andrew J. Kandalepas; Jeffrey L. Goldberg; Gary E. Soiney; and Mary Ellen Conti, M.D. Each of the nominees is currently a member of the Board of Directors. The shares represented by each Proxy given pursuant to this solicitation will be voted in the manner authorized by the laws of the state of Illinois for the nominees listed below, unless such authorization is withheld in the Proxy. Each share is entitled to one vote on each matter addressed at the Meeting, including the election of Directors. Shares do not provide cumulative voting on any matter. In the absence of contrary direction, the Proxies will cast votes in such manner as to elect all or as many nominees as possible. If any nominee becomes unavailable for any reason presently unknown, the Proxies will be voted for substitute nominees. Information with respect to each nominee is set forth below.
Name of Nominee Age Principal Position with the Company --------------- --- ----------------------------------- Andrew J. Kandalepas..... 49 Chairman of the Board; Chief Executive Officer; President Jeffrey L. Goldberg...... 48 Secretary; Director Gary E. Soiney........... 60 Director Mary Ellen Conti, M.D.... 56 Director
Mr. Kandalepas joined the Company as Chairman of the Board in February 1995. He was named CEO and President in November 1995. In addition, Mr. Kandalepas is the founder and President of CADserv Corporation, a Schaumburg, Illinois electronics design services firm ("CADserv"). Mr. Kandalepas graduated from DeVry Institute in 1974 with a Bachelor's Degree in Electronics Engineering Technology. He then served as a product engineer at GTE for two years. Mr. Kandalepas left GTE to serve ten years as a supervisor of PCB design for Motorola prior to founding CADserv. Mr. Goldberg has served as Secretary and Director since June of 1995. He is also a member of the Audit Committee. Mr. Goldberg is a principal with Essex LLC., a financial planning firm, and is currently Chief Executive Officer and Chairman of the Board of Stamford International, a Canadian company. He is a former principal of FERS Personal Financial, LLC, an accounting and financial planning firm. He formerly served as President of Financial Consulting Group, Ltd., a lawyer at the Chicago law firm of Goldberg and Goodman, and prior to that, was a tax senior with Arthur Andersen LLP. Mr. Goldberg is an attorney, CPA and a Certified Financial Planner. Mr. Soiney has served as a Director since November 1995. He is also a member of the Audit Committee. He graduated from the University of Wisconsin in Milwaukee as a marketing major with a degree in Business Administration. He is currently a 75% owner in Pension Design & Services, Inc., a Wisconsin corporation that performs administrative services for qualified pension plans to business primarily in the Midwest, a position he has held for the past five years. Dr. Conti was appointed to the Board of Directors and to the Audit Committee in September, 2000. Dr. Conti is a Radiation Oncologist and owns and operates four Radiation Therapy Clinics in the St. Louis, Missouri area. She has practiced in the medical field since 1974 and has been a member of the Planning and Budget Committee of Memorial Hospital in Belleville, Illinois. Dr. Conti currently serves as a member of the Board of Directors of Creighton University, FirstStar Bank Health Care Board, Association of Freestanding Radiation Oncology Centers and the Accreditation Association for Ambulatory Health Care. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES LISTED ABOVE. 2 Compensation of Directors No Directors have received Directors' fees for any Director's or Committee Meeting attended. Directors are entitled to reimbursement of reasonable expenses incurred in attending Meetings of the Board of Directors and any Committee of the Board of Directors. Meetings and Committees of the Board of Directors The Board of Directors held eight Meetings during the fiscal year ended December 31, 2000, each of which were attended by all of the Directors then in office. The Board of Directors has an Audit Committee, which consists of the following independent Directors: Jeffrey L. Goldberg, Gary E. Soiney and Mary Ellen Conti, M.D. The Audit Committee meets with the Company's independent public accountants, reviews the scope and results of their audit, reviews management response to advisory comments and inquiries into various matters such as adequacy of internal controls and security, application of new regulatory policies and accounting rules and other issues that may from time to time be of concern to the Committee or its members. The Audit Committee met three times for the fiscal year 2000. The Audit Committee's Report is set forth later in this Proxy Statement. The Board of Directors does not have a Compensation Committee. The full Board is responsible for reviewing and approving compensation paid to Executive Officers of the Company, including salaries and bonuses. The full Board also administers the Company's employee benefits plans, including the Company's 401(k) Plan. The Board's Report on Executive Compensation is set forth later in this Proxy Statement. PROPOSAL 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS The Board of Directors has selected Grant Thornton LLP to audit the financial statements of the Company for the fiscal year ending December 31, 2001. Grant Thornton LLP has audited the Company's financial statements since the fiscal year ending December 31, 1999. A representative of Grant Thornton LLP is expected to be present at the Meeting, will have the opportunity to make a statement and is expected to be available to respond to appropriate questions. Ratification of the appointment of the Company's independent auditors requires the affirmative vote of a majority of the shares present and eligible to vote at the Meeting. In the event that appointment of Grant Thornton LLP is not ratified, the appointment of independent auditors will be reconsidered by the Board of Directors. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL. 3 SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT The following table sets forth as of April 18, 2001, the number and percentage of outstanding shares of the Company's common stock beneficially owned by (i) each Executive Officer and Director, (ii) all Executive Officers and Directors as a group, (iii) all persons known by the Company to own beneficially more than 5% of the Company's common stock. Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option or warrant) within 60 days of the date as of which the information is provided; in computing the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the person's actual voting power at any particular date.
Amount and Nature Percent of of Beneficial Shares of Name Title Ownership Common Stock ---- ----- ------------- ------------ Andrew J. Kandalepas**.. Chairman, Chief Executive Officer & President 3,444,719(1) 5.6% Harry L. Lukens, Jr..... Chief Financial Officer, Asst. Secretary 430,000(2) * Jeffrey L. Goldberg**... Secretary, Director 80,000(3) * Christopher L. Geier.... Executive Vice-President 1,000,000(4) 1.6% Gary E. Soiney**........ Director 80,000(5) * Andrew Prokos........... Director 344,000(6) * Mary Ellen Conti, M.D.**................. Director 126,000(7) * --------- --- Executive Officers and Directors as a group (7 persons)............................................. 5,374,637(8) 8.7% ========= ===
-------- *Less than 1% **Nominee for election to the Board (1) Includes options to purchase 1,150,000 shares under options immediately exercisable. (2) Includes options to purchase 430,000 shares under options immediately exercisable. (3) Includes options to purchase 80,000 shares under options immediately exercisable. (4) Includes options to purchase 1,000,000 shares under options immediately exercisable. (5) Includes options to purchase 80,000 shares under options immediately exercisable. (6) Includes options to purchase 80,000 shares under options immediately exercisable. (7) Includes options to purchase 20,000 shares under options immediately exercisable. (8) Includes options to purchase 2,840,000 shares under options immediately exercisable. 4 COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth in the format required by applicable regulations of the Securities and Exchange Commission the compensation for Executive Officers of the Company who served in such capacities as of December 31, 2000. SUMMARY COMPENSATION TABLE
Annual Long-Term Compensation Compensation (1) ---------------- -------------------- Awards Payouts ---------- --------- Long-Term Securities Incentive Fiscal Year Underlying Plan All Other Ended Options Payouts Compensation Name and Title Dec. 31 Salary Bonus (#) ($) (2) -------------- ----------- ------ ------- ---------- --------- ------------ --- Andrew J. Kandalepas... 2000 $195,000 $50,000 -0- -0- $5,000 Chairman, CEO and President 1999 84,000 -0- -0- -0- 5,000 1998 84,000 -0- -0- -0- 5,000 Christopher L. Geier (3)................... 2000 $185,000 -0- -0- -0- -0- Executive Vice- President 1999 65,585 -0- -0- -0- -0- 2000 Harry L. Lukens, Jr. (4)................... 2000 106,000 -0- -0- -0- -0- Chief Financial Officer, Assistant Secretary
-------- (1) The Company presently has no long-term compensation arrangements and had no such plans during fiscal years 1998 through 2000. (2) The amounts disclosed in this column consist of Company discretionary contributions to the Company's 401(k) Plan and insurance premiums paid by the Company. The Company made no discretionary contributions to the 410(k) Plan in fiscal years 1998 through 2000. (3) Mr. Geier commenced employment in March 1999 and therefore, the compensation shown for him for 1999 is for the period from March 1999 through December 1999. (4) Mr. Lukens commenced employment in May 2000 and therefore, the compensation shown for him for 2000 is for the period from May 2000 through December 2000. 401(k) PLAN Effective January 1, 1996, the Company adopted the Dauphin Technology, Inc. 401(k) Plan ("Plan"), covering substantially all employees. The Plan is administered by the Board of Directors of the Company and the trustees are Andrew J. Kandalepas, Christopher L. Geier and Harry L. Lukens, Jr. The Plan is a defined contribution plan that permits participants to contribute up to 15% of pretax annual compensation, as defined in the Plan, in addition to discretionary contributions that may be made by the Company, at the discretion of the Company's Board of Directors. Plan participants are provided forty-six optional forms of direct investment under the Plan. The Company made no discretionary contributions to the Plan for fiscal years 1998 through 2000. STOCK OPTION GRANTS The following table sets forth certain information regarding options to acquire shares of common stock granted during the fiscal year ended December 31, 2000 to the named Executive Officers. 5 STOCK OPTIONS GRANTED IN LAST FISCAL YEAR
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation For Number of % of Total Options Option Term Shares Under- Granted Exercise Expiration ---------------- Name lying Options During Fiscal Year Price Date 5% 10% ---- ------------- ------------------ -------- ---------- ------- -------- Andrew J. Kandalepas.... 500,000 12.75% $ 0.50 01/20/03 $39,400 $ 82,750 Andrew J. Kandalepas.... 50,000 1.27% 1.00 01/20/03 7,900 16,550 Andrew J. Kandalepas.... 600,000 15.30% 0.7812 12/20/03 73,900 155,100 Harry L. Lukens, Jr..... 30,000 0.76% 3.59 05/08/03 16,900 35,600 Harry L. Lukens, Jr..... 50,000 1.27% 3.59 06/01/03 28,300 59,400 Harry L. Lukens, Jr..... 50,000 1.27% 3.59 09/01/03 28,300 59,400 Harry L. Lukens, Jr..... 50,000 1.27% 3.59 12/01/03 28,300 59,400 Harry L. Lukens, Jr..... 250,000 6.37% 0.7812 12/20/03 30,800 64,600 Jeffrey L. Goldberg..... 50,000 1.27% 1.00 01/20/03 7,900 16,550 Jeffrey L. Goldberg..... 30,000 0.76% 0.7812 12/20/03 3,700 7,800 Christopher L. Geier.... 500,000 12.75% 0.50 01/20/03 39,400 82,750 Christopher L. Geier.... 500,000 12.75% 0.7812 12/20/03 61,600 129,200 Gary E. Soiney.......... 50,000 1.27% 1.00 01/20/03 7,900 16,550 Gary E. Soiney.......... 30,000 0.76% 0.7812 12/20/03 3,700 7,800 Andrew Prokos........... 50,000 1.27% 1.00 01/20/03 7,900 16,550 Andrew Prokos........... 30,000 0.76% 0.7812 12/20/03 3,700 7,800 Mary Ellen Conti........ 20,000 0.76% 0.7812 12/20/03 3,700 7,800
All options granted during the last fiscal year have an exercise price equal to 100% of the fair market value of the Company's stock on the grant date. All options are immediately exercisable. According to Securities and Exchange Commission rules, the potential realizable value information columns set forth gains that may exist for the respective options, assuming that the market price for the Company's shares appreciates from the date of grant over a period equal to the term of the option at the annual rates of 5% and 10%, respectively. If the Company's shares do not increase in price above the exercise price, no value will be realizable from these options. AGGREGATED 2000 OPTION EXERCISES/ YEAR-END 2000 OPTION VALUES TABLE
Option Shares Underlying Value of Unexercised Exercises in 2000 Unexercised Options In-the-Money Options (1) Held at Dec. 31, 2000 Held at Dec. 31, 2000 (2) ------------------- ------------------------- ------------------------- Shares Underlying Value Name Options Realized Exercisable Unexercisable Exercisable Unexercisable ---- ---------- -------- ----------- ------------- ----------- ------------- Andrew J. Kandalepas.... -- -- 1,150,000 -- $668,780 $-- Harry L. Lukens, Jr..... -- -- 430,000 -- 117,200 -- Jeffrey L. Goldberg..... -- -- 80,000 -- 26,564 -- Christopher L. Geier.... -- -- 1,000,000 -- 609,400 -- Gary E. Soiney.......... -- -- 80,000 -- 26,564 -- Andrew Prokos........... -- -- 80,000 -- 26,564 -- Mary Ellen Conti........ -- -- 20,000 -- 9,376 --
-------- (1) No options were exercised in 2000 by any Executive Officer or Director of the Company. (2) Represents the closing price for Dauphin common stock on December 31, 2000 of $1.25 less the exercise price for all outstanding exercisable and unexercisable options for which the exercise price is less than the closing price. 6 COMPARATIVE PERFORMANCE GRAPH The following graph shows a comparison of the five-year cumulative total shareholder returns for the Company's common stock with the Russell 2000 Index and a peer group of companies engaged in the hand-held computer and set-top box industries comprised of: Symbol Technologies, Inc., Eagle Wireless International, TVIA, Inc. and Urbana.ca Inc. COMPARE 5-YEAR CUMULATIVE TOTAL RETURN AMONG DAUPHIN TECHNOLOGY, INC., RUSSELL 2000 INDEX AND PEER GROUP INDEX [Performance Graph] ASSUMES $100 INVESTED ON DEC. 31, 1995 ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING DEC. 31, 2000 FISCAL YEAR
COMPANY 1995 1996 1997 1998 1999 2000 ------- ------- ------- ------- ------- ------- ------- Dauphin Technology, Inc......... $100.00 $165.29 $187.31 $103.96 $ 46.80 $220.26 Peer Group...................... 100.00 112.02 143.51 364.87 544.51 458.41 Russell 2000 Index.............. 100.00 116.61 142.66 138.66 165.82 158.66
The comparison of total return on investment is based on changes in year-end price plus reinvestment of all dividends for each period and assumes that $100 was invested on December 31, 1995, in Company common stock, and in common stock of the companies which comprise the Russell 2000 Index and the selected peer group companies. 7 BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION Compensation Philosophy and Objectives The Board of Directors is responsible for reviewing and approving the compensation paid to the Executive Officers of the Company, including salaries and bonuses. It is the philosophy of the Company to ensure that executive compensation be linked directly to continuous improvements in corporate performance and increases in shareholder value. The Board believes that corporate performance includes, in addition to stock market and financial performance, such factors as the quality of the Company's products and the timeliness of its services, monitoring and improving the Company's environmental performance and maintaining equitable opportunities for the Company's employees. The following objectives have been adopted by the Board as guidelines for compensation decisions: . provide a competitive total compensation program that enables the Company to attract and retain key executives. . provide variable compensation opportunities that are directly linked with the performance of the Company and align executive remuneration with the interests of the Shareholders. . integrate all pay programs with the Company's annual and long-term business strategies and objectives and focus executive behavior on the fulfillment of those objectives. The Board does not use a quantitative method or use mathematical formulas exclusively in setting any element of compensation. The Board uses discretion, guided in large part by the concept of pay for performance, and considers all elements of an executive's compensation package when setting each portion of compensation. Further, the focus on pay for performance may cause individual compensation amounts to change significantly from year to year. The key elements of the Company's executive compensation program presently consists of salary, non-qualified stock options and the use of a 401(k) Plan, in lieu of a defined benefit pension plan, which ties the retirement income of the Executive Officers closely to the long-term performance of the Company. The Board's philosophy on each of these key elements, including the basis for the compensation awarded to the CEO, is discussed below. Salaries Salaries for Executive Officers are determined by evaluating the responsibilities of the position held and the experience of the individual, and by reference to the comparative marketplace for executive talent, including a comparison to base salaries for comparable positions at comparable companies. The Board receives the recommendations of the CEO for the compensation to be paid to Executive Officers (other than himself) and after due deliberations determines the compensation of such Executive Officers and the CEO. Each year recommendations for future salary levels for Executive Officers (other than himself) are prepared by the CEO and are reviewed with, modified where appropriate, and approved by the Board. Compensation of the Chief Executive Officer The Board of Directors reviews the total annual compensation of Mr. Kandalepas and takes into account his role and responsibilities as President and Chief Executive Officer of the Company, taking into consideration those factors described in the preceding paragraph. During fiscal year 2000, the Board approved an increase in his annual salary to $195,000. 8 Bonuses Mr. Kandalepas received a bonus in 2000 in the amount of $50,000 for his extraordinary efforts is assisting the Company through its successful private placement, completing the common stock purchase agreement and equity line financing with Techrich and the successful negotiations and completion of the set-top box contract with Estel S.A. No other Executive Officer received a bonus during fiscal years 1998 and 1999 due to the difficult business and financial circumstances then facing the Company. Deductibility of Certain Executive Compensation Section 162(m) added to the federal Internal Revenue Code by the Omnibus Budget Reconciliation Act of 1993 (the "Act"), denies publicly held corporations a deduction for compensation in excess of $1 million per year paid or accrued with respect to certain executives in taxable years beginning on or after January 1, 1994, except to the extent that such compensation qualifies for an exemption from that limitation. Exempt compensation includes only the following: (a) performance-based compensation (provided that certain outside directors, shareholder approval, and certification requirements are met); (b) commissions; (c) payments from certain tax-qualified retirement plans; (d) health and other fringe benefits that are reasonably believed to be excludable from gross income; and (e) compensation payable under a binding written contract in effect February 17, 1993. The new deduction limitation has no effect on the Company's ability to deduct payments made (or deemed made for tax purposes) in fiscal years 1998, 1999 and 2000 to the named Executive Officers listed in the Summary Compensation Table. The new limitation, however, could affect the ability of the Company to deduct compensation paid to such officers in subsequent years. The Company intends to take appropriate action to comply with the Act so that deductions will be available to it for all compensation paid to its Executive Officers. Board Interlocks and Insider Participation In respect of deliberations concerning Executive Officers' compensation, all members of the Board of Directors participated in its deliberations, except that no Executive Officer participated in votes concerning his own compensation or related deliberations. There are no interlocking relationships, as defined in the regulations of the Securities and Exchange Commission, involving members of the Board of Directors and its determination of compensation payable to any Executive Officer. AUDIT COMMITTEE REPORT The members of the Audit Committee are independent as that term is defined in Rule 4200(a)(15) of the National Association of Securities Dealers listing standards. On September 22, 2000, the Audit Committee adopted a written Audit Committee Charter, a copy of which is provided herewith as Exhibit A to this Proxy Statement. The Audit Committee has reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2000 with the management of the Company. Additionally, the Audit Committee has discussed with the independent auditors the matters required by Statement of Auditing Standards No. 61. The Audit Committee has received the written disclosures and the letter from the independent auditors required by the Independent Standards Board Standard No. 1 and has discussed with the independent auditor the independent auditor's independence. Based on the discussions and reviews noted above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year 2000. AUDIT COMMITTEE: Jeffrey L. Goldberg, Chairman Gary E. Soiney Mary Ellen Conti, M.D. 9 OTHER MATTERS Section 16 (a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires the Company's Directors, Executive Officers, and any persons holding more than 10% of the Company's common stock to file with the Securities and Exchange Commission initial reports and reports of changes in ownership of common stock and other equity securities of the Company. Such Directors, Executive Officers and 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file. SEC regulations require us to identify in this Proxy Statement anyone who failed to file or filed a required report late during the most recent fiscal year. Based on our review of forms that we received, or written representations from reporting persons stating that they were not required to file these forms, we believe that, during the fiscal year, all Section 16(a) reports were satisfied on a timely basis except only for the failure to timely file the Annual Report on Form 5 by each of the Directors, except for Mr. Kandalepas. Shareholder Proposals Shareholders are entitled to present proposals for action at a forthcoming meeting if they comply with the requirements of the proxy rules and the Company's Bylaws. If you would like us to consider including a proposal in our Proxy Statement next year, you must deliver said proposal to our offices on or before January 31, 2001. As of the date of this Proxy Statement, the Board of Directors is not aware of any business which will be presented for consideration at the Meeting other than the matters set forth in this Proxy Statement. However, if other matters not now known properly come before the Meeting it is intended that the persons named as proxies, or their substitutes, will vote the stock in accordance with their best judgment on such matters. By Order of the Board of Directors, /s/ Andrew J. Kandalepas Andrew J. Kandalepas, President and Chief Executive Officer Palatine, Illinois April 23, 2001 10 EXHIBIT A Dauphin Technology, Inc. AUDIT COMMITTEE OF THE BOARD OF DIRECTORS CHARTER I. PURPOSE The primary purpose of the Audit Committee is to assist the Board of Directors of Dauphin Technology, Inc. in fulfilling its oversight responsibilities by reviewing the financial reports and other financial information provided by the Corporation to any governmental body or the public; the Corporation's system of internal controls regarding finance, accounting, legal compliance and ethics that management and the Board have established; and the Corporation's auditing, accounting and financial reporting process generally. Consistent with this function, the Audit Committee should encourage continuous improvement of, and should foster adherence to, the corporation's policies, procedures and practices at all levels. The Audit Committee's primary duties and responsibilities are to: . Serve as an independent and objective party to monitor the Corporation's financial reporting process and internal control system. . Review and appraise the audit efforts of the Corporation's independent accountants. . Provide an open avenue of communication among the independent accountants, financial and senior management, and the Board of Directors. The Audit Committee will primarily fulfill these responsibilities by carrying out the activities enumerated in Section IV of this Charter. II. COMPOSITION The Audit Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be independent directors, and free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Committee. All members of the Committee shall have a working familiarity with basic finance and accounting practices, and at least one member of the committee shall have accounting or related financial management expertise. Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by outside consultants. The members of the Committee shall be elected by the Board at the annual organizational meeting of the Board of Directors or until their successors shall be duly elected and qualified. Unless a Chair is elected by the full Board of Directors, the members of the Committee may designate a Chair by majority vote of the full Committee membership. III. MEETINGS The Committee shall meet at least four times annually, or more frequently as circumstances dictate. As part of its job to foster open communication, the Committee should meet at least annually with management, and the independent accountants in separate executive sessions to discuss any matters that the Committee or each of the groups believe should be discussed privately. In addition, the Committee or at least its Chair should meet with the independent accountants and management quarterly to review the Corporation's financial statements consistent with IV.3 below. A-1 IV. RESPONSIBILITIES AND DUTIES To fulfill its responsibilities and duties, the Audit Committee shall: Documents/Reports Review 1. Review and update this Charter periodically, at least annually, as conditions dictate. 2. Review the organization's annual financial statements and any reports or other financial information submitted to any governmental body, or the public, including any certification, report, opinion, or review rendered by the independent accountants. 3. Review with financial management and the independent accountants the 10-Q quarterly reports prior to its filing or prior to the release of earnings. The Chair of the Committee may represent the entire Committee for purposes of this review. Independent Accountants 4. Recommend to the Board of Directors the selection of the independent accountants, considering independence and effectiveness and approve the fees and other compensation to be paid to the independent accountants. On an annual basis, the Committee should review and discuss with the accountants all significant relationships the accountants have with the Corporation to determine the accountants; independence. 5. Review the performance of the independent accountants and approve any proposed discharge of the independent accountants when circumstances warrant. 6. Periodically consult with the independent accountants out of the presence of management about internal controls and the fullness and accuracy of the organization's financial statements. Financial Reporting Process 7. In consultation with the independent accountants, review the integrity of the organization's financial reporting process, both internal and external. 8. Consider the independent accountants' judgments about the quality and appropriateness of the Corporation's accounting principles as applied in its financial reporting. 9. Consider and approve, if appropriate, major changes to the Corporation's auditing and accounting principles and practices as suggested by the independent accounts or management. Process Improvement 10. Establish regular and separate systems of reporting to the Audit Committee by each of management and the independent accountants regarding any significant judgments made in management's preparation of the financial statements and the view of each as to appropriateness of such judgment. 11. Following completion of the annual audit, review separately with each of management and the independent accountants any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information. 12. Review any significant disagreements among management and the independent accountants in connection with the preparation of the financial statements. 13. Review with the independent accountants and management the extent to which changes or improvements in financial or accounting practices, as approved by the Audit Committee, have been implemented. A-2 Ethical and Legal Compliance 14. Establish, review and update periodically a Code of Ethical Conduct and ensure that management has established a system to enforce this Code. 15. Review management's monitoring of the Corporation's compliance with the organization's Ethical Code, and ensure that management has the proper review system in place to ensure that the Corporation's financial statements, reports and other financials information disseminated to governmental organizations, and the public satisfy legal requirements. 16. Review, with the organization's counsel, legal compliance matters including corporate securities trading policies. 17. Review, with the organization's counsel, any legal matter that could have a significant impact on the organization's financial statements. 18. Perform any other activities consistent with this Charter, the Corporation's By-laws and governing law, as the Committee or the Board of Directors deems necessary or appropriate. A-3 DAUPHIN TECHNOLOGY, INC. The undersigned hereby appoints Andrew J. Kandalepas and Harry L. Lukens, Jr., and either of them, each with the power of substitution, as proxies for the undersigned, to vote all the shares of common stock of DAUPHIN TECHNOLOGY, INC. which the undersigned is entitled to vote, with all powers which the undersigned would possess if personally present, at the Annual Meeting of Shareholders to be held at The Cotillion, 360 Creekside Drive, Palatine, Illinois 60067 on Wednesday, June 13, 2001, at 2:00 p.m., Central Standard Time, and at any adjournment thereof, upon all matters that may be submitted to a vote of Shareholders, including the matters described in the Proxy Statement of the Company dated April 23, 2001, pursuant to the directions indicated on the reverse. (Continued and to be signed on reverse side.) Please date, sign and mail your proxy card back as soon as possible! Annual Meeting of Shareholders DAUPHIN TECHNOLOGY, INC. June 13, 2001 . Please Detach and Mail in the Envelope Provided . A [X] Please mark your votes as in this example. 1. ELECTION OF DIRECTORS: WITHHOLD Nominees: Andrew J. Kandalepas FOR AUTHORITY Jeffrey L. Goldberg all nominees to vote for all Gary E. Soiney listed at right nominees listed at right Mary Ellen Conti, M.D. [_] [_] INSTRUCTION: To withhold authority to vote for any individual nominee, cross out that nominee's name. If no directions are given, the proxies will vote FOR all of the nominees listed in proposal 1. 2. RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2001. FOR AGAINST ABSTAIN [_] [_] [_] In their discretion upon all other matters as may properly come before the Meeting and any adjournment thereof. The undersigned hereby revokes any proxy or proxies heretofore given to vote such shares. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DAUPHIN TECHNOLOGY, INC. AND, EXCEPT AS SPECIFIED TO THE CONTRARY, WILL BE VOTED FOR PROPOSALS 1 AND 2. Please sign, date and return promptly in the enclosed envelope. No postage need be affixed if mailed in the United States. SIGNATURE(S) OF SHAREHOLDER(S) _______________ _______________ DATED: _____ 2001 Note: (Please sign exactly as name(s) appears on this Proxy, including where proper, official position or representative capacity.)