UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
(Mark One)
         [X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                THE SECURITIES EXCHANGE ACT OF 1934.
                FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

         [ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934.
                FOR THE TRANSITION PERIOD FROM __________TO___________
                           Commission File Number 0-26516

                                 EUPHONIX, INC.
             (Exact name of registrant as specified in its charter)
  California                                                   77-0189481
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                     220 Portage Avenue, Palo Alto, CA 94306
                   (Address of principal executives, zip code)

                                (650) 855-0400
               (Registrant's telephone number, including area code)

               Securities  registered pursuant to Section 12(b) of the Act:
                                      None
               Securities  registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.001 Par Value
                                (Title of class)

         Indicate by check mark whether the registrant has filed (1) all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. YES X NO ____

--------------------------------------------------------------------------------
         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained  herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information state-
ments incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [X]
--------------------------------------------------------------------------------

         The  aggregate  market  value  of the  voting  stock  held  by non-
affiliates  of the  Registrant,  based  upon the  closing  sale price of the
Common Stock on February 15, 2000,  as reported on the Nasdaq  National  Market,
was  approximately  $16,721,374.  Shares of Common Stock held by each  executive
officer and director  and by each person who owns 5% or more of the  outstanding
Common  Stock  have  been  excluded  in that  such  persons  may  under  certain
circumstances be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

         The number of shares of the  Registrant's  Common  Stock as of February
15, 2000 was 11,595,974.


                       DOCUMENTS INCORPORATED BY REFERENCE

--------------------------------------------------------------------------------
         Portions of the Proxy  Statement for the Registrant's 2000 Annual
Meeting of Stockholders to be held on June 30, 2000 are incorporated by
reference in Part III of this Form 10-K.
--------------------------------------------------------------------------------

================================================================================

<PAGE>




                                TABLE OF CONTENTS



                                                                           Page
PART 1

Item 1.    Business...........................................................3
Item 2.    Properties........................................................20
Item 3.    Legal Proceedings.................................................20
Item 4.    Submission of Matters to a Vote of Security Holders...............20

PART II

Item 5.    Market for the Registrant's Common Equity and Related Stockholder
           Matters...........................................................21
Item 6.    Selected Financial Data...........................................22
Item 7.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations.............................................22
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk........29
Item 8.    Financial Statements and Supplementary Data.......................30
Item 9.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure..............................................52

PART III

Item 10.   Directors and Executive Officers of the Registrant................53
Item 11.   Executive Compensation............................................53
Item 12.   Security Ownership of Certain Beneficial Owners and Management....53
Item 13.   Certain Relationships and Related Transactions....................53

PART IV

Item 14.   Exhibits, Financial Statements and Reports on Form 8-K............54

SIGNATURES...................................................................57






                                      2
<PAGE>

                                     PART I

The  Business  section and other parts of this  Report  contain  forward-looking
statements that involve risks and  uncertainties.  The Company's  actual results
may differ  significantly  from the  results  discussed  in the  forward-looking
statements.  Factors  that might cause such a  difference  include,  but are not
limited to, those discussed in the section entitled "Management's Discussion and
Analysis of Financial  Condition and Results of Operations -- Factors  Affecting
Future Operating Results."

Item 1.   Business.

      Euphonix develops, manufactures and supports networked digital audio
systems for music, film & TV post-production, broadcast, sound reinforcement and
multimedia applications. Its core products today consist of high  performance
digital audio consoles,  digital-control  analog audio consoles,  disk-based
multi-track  recorders and audio format converters. The  Company's  products
are used to produce  audio  content for  entertainment industry   markets
including  music  and  CD's,  film  and  television   audio post-production,
television  and radio  broadcast,  concert and  theater  sound reinforcement,
multimedia and the Internet. The Company is an industry leader in providing
software-driven  functionality that serves to automate and streamline the audio
production  process,  while providing high quality audio and extended
functionality  relative to the current audio industry  standards.  Euphonix high
performance  audio systems play a major role in the production of popular music,
motion picture and television  projects.  Award winning  artists,  producers and
composers such as Carter Burwell,  Steve Miller,  Kenny G. David Foster,  George
Duke, Teddy Riley and Glen Ballard have benefited from the power and versatility
of the Company's series of mixing console in their studios. Many current feature
films  and   television   programs  are  scored  and  mixed  on  the   Company's
digital-control  analog CS Series and the new System 5 high-performance  digital
audio console. The Company's business strategy is to supply digital solutions to
meet the  entertainment  industry's needs as they convert from analog to digital
production and distribution  methods.  Euphonix  produces a variety of software,
scalable  hardware,  and services for recording,  editing,  and mixing audio for
high end professional use.

      During  the past  fiscal  year,  the  Company  introduced  a number of new
products.  In April 1999, Euphonix launched a family of  high-performance  audio
format converters at the National  Association of Broadcasters  (NAB) Trade Show
in Las Vegas.  These products were specifically  designed to serve the demanding
needs of Broadcast customers.  In September 1999, Euphonix debuted the System 5,
a 24-bit 96kHz all-digital  recording and mixing system,  and the 48-track 96kHz
version of the R-1 Multitrack  Recorder System at the Audio Engineering  Society
(AES)  Trade  Show in New York.  The  System 5 and the R-1 are the  professional
audio industry's first products to offer a user-friendly  transition from analog
or 16-bit 48 kHz  digital to 24-bit 96 kHz  recording  and  mixing.  The product
received "Best in Show" awards at the New York AES, and Paris SATIS Trade Shows.
The Company  believes this  innovative  product will establish new benchmarks in
price-performance, sound quality and ease of use. See "--Products."*

      The Company was  incorporated  in California  on July 1988.  The Company's
principal  executive  offices  are  located at 220  Portage  Avenue,  Palo Alto,
California 94306, and its telephone number is (650) 855-0400.

*    This paragraph contains forward-looking statements reflecting current ex-
     pectations. There can be no assurance that the Company's actual future
     performance will meet the Company's current expectations. Investors are
     strongly encouraged to review the section entitled "Factors Affecting
     Future Operating Results" commencing on page 27 for a discussion of factors
     that could affect future performance.


                                       3
<PAGE>


Industry Overview

      Audio content for the entertainment  industry is produced by professionals
in four primary applications:  music (CD's, DVD-Audio, tapes, music for film and
television),  post  production  (sound  for film,  video,  DVD and  television),
broadcast (sound for broadcast television),  and live sound reinforcement (sound
for live  concerts and  theater).  The market  requiring  audio  production  for
computer-based audio such as Internet web pages, interactive CD-ROM, DVD-ROM and
games,  has  developed  and, the Company  believes,  may continue to grow in the
future.*

      Mixing consoles serve as the central component of most professional  audio
production  studios,  and are used by all applications of the professional audio
market throughout the production process, which includes recording,  editing and
mixing. A mixing console  electronically  blends, routes and enhances sound from
musical  instruments,  voices, sound effects and pre-recorded  material.  Mixing
consoles that are used in each market during the different  stages of production
share a high degree of common  functionality.  Professional  mixing consoles are
used to process,  combine,  and reduce a large number of individual audio inputs
(typically  20-100) to produce a smaller number of outputs  (typically  2-8) for
the audio  engineer  to hear or  record.  Audio  inputs  and  outputs  to mixing
consoles  have   traditionally   been   transmitted  via  analog  methods.   The
entertainment industry is rapidly replacing analog methods with digital methods.
Euphonix  provides  solutions  for both  analog  and  digital  transmission  and
processing  as well as  products  to convert  audio  between  analog and digital
formats. The Company also produces digital disk-based  multi-track  recorders to
replace  tape-based  systems used to record the many  channels of sound that are
subsequently  fed through the mixing console during typical  professional  audio
productions.  The Company  expects that as the  complexity  of audio  production
increases in all market  segments due to consumer  demand for higher quality and
more  captivating  sound,  including the audio  requirements  of High Definition
Television  (HDTV),  there will be an  increased  need for  larger-scale  mixing
consoles.*

Strategy

      The Company's goal is to become the leading  provider of sound  production
tools for the entertainment industry through developing innovative,  high value,
user  oriented  products.  The  Company's  strategy  includes the  following key
elements:

Develop a family of products

      The  Company's  goal  is  to  leverage  its  reputation  and   substantial
investment  in  digital  control  technology,   digital  signal  processing  and
distributed computer processing to develop a family of digital product offerings
to support recording,  editing and mixing functions.  The Company plans to focus
on the needs of the high-end  professional music recording,  short and long form
post production and on-air broadcast  facilities.  In the long term, the Company
intends to develop,  internally or through acquisitions or licensing, a range of
compatible  audio  production  products that will enable the Euphonix  system to
become the control center for automating and streamlining  significant  portions
of the audio production process.*

*    This paragraph contains forward-looking statements reflecting current ex-
     pectations. There can be no assurance that the Company's actual future
     performance will meet the Company's current expectations. Investors are
     strongly encouraged to review the section entitled "Factors Affecting
     Future Operating Results" commencing on page 27 for a discussion of factors
     that could affect future performance.

                                       4
<PAGE>


Capitalize on Leading Edge Technology

      Since its inception in 1988, the Company has dedicated  itself to bringing
cost-effective  digital and software technology to professional audio mixing. In
1991, the Company brought to market the first digitally  controlled audio mixing
console with performance  which the Company  believes rivaled high-end  products
from other  manufacturers  at a significantly  lower price. In 1999, the Company
launched  the System 5 high  performance  digital  console and a 48-track 96 kHz
version of the R-1 Multitrack  Recorder.  The Company's product architecture and
technology  have been designed to enable the  professional  user to express more
easily creative talents while reducing labor and time-intensive operations, at a
more favorable price-performance ratio than existing mixing systems.

Provide Complete Scalable Solutions

      The Company  offers  modular  systems  that  provide  customers a range of
functionality and flexibility,  allowing them to configure the Company's systems
to meet their  professional  needs and financial  resources.  A key focus of the
Company's product  development  efforts is to maintain  compatibility of its new
products and features with its current products,  enabling  customers to make an
initial  investment in a Euphonix system, and then upgrade their system as their
needs and finances permit.

Leverage Brand Name Recognition

      The Company seeks to enhance its reputation for technical innovation, high
quality and superior  price-performance.  To date,  as a result of the Company's
product architecture,  customer  satisfaction,  excellent  price-performance and
significant  industry  visibility,  the Company  believes it has generated brand
name  recognition  and  loyalty,  which will  benefit the Company as it seeks to
increase its share of its target market.*

Increase Penetration into Other Market Segments

      The Company  seeks to leverage its success in the music market to continue
to expand into  complementary  market  applications  of the  professional  audio
market,  including post  production,  broadcast,  live sound  reinforcement  and
multimedia.  The Company believes that the key features of the Euphonix systems,
including 24 bit 96 kHz resolution, its time-based automation,  SnapShot Recall,
flexible architecture,  compact design, and high fault tolerance are well-suited
to meet  the  needs  of such  complementary  market  segments.  The  Company  is
increasing marketing efforts to aggressively target these market segments.

Build Global Presence

      The Company's sales strategy is to build a worldwide  presence in order to
fully  address its target  markets  and to serve  customers  that  operate on an
international  basis.  The  Company's  sales  outside  the  United  States  as a
percentage of its net revenues were  approximately  33%, 43%, and 39%, in fiscal
years  1999,  1998 and 1997,  respectively.  In  addition  to its New York,  Los
Angeles,  Nashville and Palo Alto offices in the United States,  the Company has
offices in London and Tokyo and a network  of sales  representatives  outside of
the United States.


*    This paragraph contains forward-looking statements reflecting current ex-
     pectations. There can be no assurance that the Company's actual future
     performance will meet the Company's current expectations. Investors are
     strongly encouraged to review the section entitled "Factors Affecting
     Future Operating Results" commencing on page 27 for a discussion of factors
     that could affect future performance.


                                       5
<PAGE>

Products

      The Company's  products include the new System 5 High Performance  Digital
Audio  Console and the 48-track R-1  Multi-track  Recorder,  both  introduced in
1999,  the  CS3000  Series  Digital-Control  Analog  Console  and  a  family  of
high-performance multi-channel audio format converters as described below.

SYSTEM 5 HIGH-PERFORMANCE DIGITAL AUDIO CONSOLE

         Introduced  in  September  1999  at  the  Audio   Engineering   Society
convention  in New  York  City,  the  System  5 is the  Company's  new  flagship
high-performance  digital audio console.  In development  for over 3 years,  the
System 5 is the first  digital  console to provide  the  following  benefits  to
customers: 24-bit, 96 kHz digital audio interfacing and processing,  simple user
interface, and high degrees of modularity, scalability, and fault tolerance. The
Company  believes  that the  adoption  rate of digital  technology  by the audio
industry has been slow due to the perceived reduction in audio quality,  ease of
use,  and fault  tolerance  brought on by early  generations  of  digital  audio
consoles.  System 5 was  designed  from  inception  to  directly  address  these
concerns as  significant  investments  were made in producing  breakthroughs  in
sound quality, ease of use, and fault tolerance.

      The System 5 offers a modular,  scalable architecture that is configurable
to a broad range of sizes and applications for the production of audio for music
CD's and DVD's, film and television soundtracks, live television broadcasts, and
live auditorium  performances.  Since the product's  introduction,  Euphonix has
delivered  System 5's to customers  for  applications  in all major  segments of
professional audio production.

       The System 5 is the only  large-scale  audio  console to employ  multiple
pentium-based   computers  connected  with  an  Internet  Protocol  network  and
Microsoft's  Windows NT operating system. The Company believes this architecture
will benefit over time with performance  increases and price reductions  brought
on by the rapid  technology  development  of standard  computing and  networking
platforms.  The  Company's  most  significant  competitors'  products use a high
degree of proprietary  hardware and software to accomplish  similar tasks to the
System 5.

CS3000 SERIES DIGITAL-CONTROL ANALOG CONSOLE

      The Euphonix  CS3000 has been designed for operational  speed,  high sound
quality and flexible  configuration  control and processing.  CS3000 options and
upgrades may be factory installed or added in the field,  allowing  customers to
tailor the product to their exact  requirements and then to subsequently  modify
and upgrade  their CS3000 as their needs  change.  The Company  offers  specific
features developed for individual market  applications to all customers in order
to ensure  compatibility  between each CS3000 and to provide  customers with the
ability to change  applications across market  applications.  The CS3000 can use
the same  version of  software  for  various  applications.  The base CS3000 may
currently be specified with hardware  variations to  accommodate  differences in
application  of the product by the music ("D" & "M"  Systems),  post  production
("P" & "F" Systems), and broadcast ("B" Systems) market applications.



                                       6
<PAGE>

      CS3000  Options

      The modular form of the Euphonix CS3000 System  provides  customers with a
range of  functionality  and  flexibility  that allows them to  configure  their
System to meet their professional  needs and financial  resources and to upgrade
their  Systems as their needs  change.  Euphonix  offers two primary  options to
increase the amount of audio  processing  provided by the overall  System -- the
Audio Cube and the Dynamics processors. The Company plans to continue developing
a range of options to allow the Systems to meet the changing needs in its market
applications.*

              Audio  Cube.  The Audio Cube is a hardware  option  that  provides
         additional output capability to the base System. The flexible nature of
         the System  software  allows the customer to determine  the feature set
         provided by the Audio Cube. Music  applications  typically  require the
         Audio Cube to expand the base  system's Aux Send  capability  (allowing
         more special effects).  Post production  applications require the Audio
         Cube to be configured as a panning and stemming device  (allowing users
         to  separate  music,  effects  and  dialog  mixes  with 4 or 6  channel
         surround sound outputs).  Broadcast customers can use the Audio Cube to
         provide remote "mix minus" feeds to reporters and commentators  through
         telecom  or  satellite  links.  The  Audio  Cube  is both  modular  and
         scaleable  so that it may be  specified  or upgraded  according  to the
         number of channels  required  (4-48) and the number of outputs  desired
         for each channel (4-48).

              Dynamic  Processors.  This option adds Dynamics to the base System
         in  sections of 8 channels at a time,  up to 120  additional  channels.
         Traditional  high-end  consoles have been marketed with Dynamics  built
         into every channel as a standard  feature.  This practice has served to
         increase the price of a standard console and forces the customer to pay
         for a feature that is typically  not used on every  channel at the same
         time. By providing Dynamics as a modular option, Euphonix has helped to
         provide customers with a basic high-end System at a lower price.

      CS3000 Packages

      The Company also offers System packages  configured for particular  market
        segments, including the following:

          CS3000M Systems. The Company created the "M" (Music) System package to
         provide  commercial  music  customers the ability to offer a consistent
         feature set to their  clients when moving  projects  between  different
         Euphonix  equipped  studios.  The Audio Cube and  Dynamics  options are
         included in this configuration.

          CS3000P Systems.  The Company created the "P" (Post Production) System
         package to  provide  the TV audio  post  production  customer a totally
         automated mixing System which is easily locked to video sources.

          CS3000F  Systems.  The  Company  has  designed  the "F" (Film)  System
         package to provide multiple operator functionality as required for film
         dubbing  applications.  The "F" System is designed as one, two or three
         "P" Systems which can be physically  joined together to allow for usage
         by one, two or three operators.

          CS3100B Systems. The Company added the "3100B" (Broadcast) System
         package to provide broadcast  customers the ability to increase the
         quality of on-air and taped programming  audio. With Euphonix digital
         control technology, broadcast facilities can meet the demands of
         multiple  studios from a single audio  control  room. In remote broad-

*    This paragraph contains forward-looking statements reflecting current ex-
     pectations. There can be no assurance that the Company's actual future
     performance will meet the Company's current expectations. Investors are
     strongly encouraged to review the section entitled "Factors Affecting
     Future Operating Results" commencing on page 27 for a discussion of factors
     that could affect future performance.


                                       7
<PAGE>

         casting,  the compact  lightweight digital control surface provides
         increased control in less space.  Broadcast specific options such as
         the MX464 add GPI  (programmable  relay closures),  listenback,
         multiple  studio  monitoring,  and an input routing  matrix to the base
         system.  Redundant  power supplies are available to meet the demands of
         live on-air broadcasting.

R-1 MULTI-TRACK RECORDER

         The  Company  debuted  the  24-track  version  of the  R-1  Multi-track
Recorder (the "R-1") at the AES show in San Francisco during September 1998. The
R-1  shipments  began in the first  quarter of 1999. At the AES show in New York
during September 1999, the Company  announced  Version two of the R-1 Multitrack
Recorder  in a  48-track  96 kHz  configuration.  It is the  professional  audio
industry's  first  product to offer a  user-friendly  transition  from analog or
16-bit  digital tape  recording to 24-bit disk  recording.  The R-1 provides the
users of over 50,000 professional  multi-track tape recorders with a replacement
product that significantly improves sound quality,  reliability, and operational
efficiency  while  maintaining  a  user-interface  that has remained an industry
standard since the early 1970's. Key features include:

         Improved Sound Quality results from 24-bit,  96 kHz domain  conversion,
         transmission,  and storage  combined with 40-bit floating point Digital
         Signal  Processing.  Almost 100% of the  installed  tape  recorders are
         either analog or 16-bit  digital,  providing  significantly  less audio
         resolution than the R-1.

         Operational Feel and Efficiency surpasses tape recorders where possible
         yet  emulates  tape  recorders  where  tradition  dictates,  to provide
         recording  engineers  with a zero  learning  curve  transition  to disk
         recording.

         Solid  Reliability  is an essential  attribute  for  equipment  that is
         required  to  capture  performances  that  may  only  happen  once in a
         lifetime. The R-1 has been designed for equal or better fault tolerance
         and endurance when compared with tape recorders.

         Non-Degrading  Storage  has long been a desire for the audio  industry.
         Extremely  low  wear  and tear  and  long  shelf  life  are well  known
         attributes  of  hard-disk  technology.  Tape  technology  suffers  from
         constant  media and  component  wear that  occurs  every  time audio is
         recorded and played back. Tape has a  significantly  shorter shelf life
         than disk storage products.

         Random Access to audio anywhere in a recording reduces waiting time for
         recording artists and engineers.  The R-1 provides instant locating and
         looping  capabilities.  Tape is rewound and fast-forwarded  hundreds of
         times in a typical  recording  session  while  recording  engineers and
         artists wait.

         Cut  and  Paste  Editing  is  provided  on  the  R-1  to  permit  sound
         manipulation  not possible on tape recorders.  Basic editing  functions
         are provided so recording engineers do not have to spend time and money
         transferring  to  editing  equipment  in  order  to  implement  a basic
         adjustment or correction to a recorded track.

         Non-Destructive  Recording is possible on the R-1. When  enabled,  this
         feature  allows more than one take of a recording  to be kept for every
         track.  In comparison,  tape  technology  requires the destruction of a
         previous recording every time an existing track is used to record a new
         take.  The R-1 reduces the risk of  accidentally  erasing or  recording
         over a once in a lifetime performance.



                                       8
<PAGE>

         Modular, Scalable, and Open Architecture provides the ability to expand
         or  re-purpose  systems over time in much the same way computer  owners
         can  increase the size,  performance,  or feature sets of their PC's as
         new technology and product offerings permit.

FUTURE INTERNET-BASED PRODUCTS

      Euphonix  announced in February 2000,  plans to incorporate  features into
future versions of the System 5 and R-1 to allow project and workflow  transfers
and collaboration  via the Internet.  The Company believes it is well positioned
to take  advantage  of new  opportunities  offered by the Internet as one of the
only companies to employ an Internet Protocol based architecture.*

Technology

      The Company's  proprietary  technology is central to its product  offering
and its business  strategy.  The key elements of its  technology  are  described
below.

Digital Signal Processing

      The Company's products employ state-of-the-art digital signal processing
techniques  and software in their  digital  subsystems.  The Company  intends to
continue to develop  digital  signal  processing  technology in order to improve
fidelity,  simplify  interfaces  and reduce costs  involved  with digital  audio
transmission and processing.

Digital Control of Analog Audio Processing

      Traditionally,  the predominant  mode of audio processing and transmission
has been analog due to its  simplicity,  cost-effectiveness,  high sound quality
and  the  extensive  analog   infrastructure   which  currently  exists  in  the
professional  audio  market.  Euphonix is a market  leader in providing  digital
control  in  conjunction  with  analog  processing  and  transmission.  Euphonix
believes  that its  hybrid  digital  control/analog  processing  technology  has
allowed  the  acceptance  of  digital  control  because  it is  compatible  with
potential customers' existing studio design and peripheral equipment.

      The Company utilizes an architecture that physically  separates the mixing
control  surface from the audio  processing  hardware.  The Company has replaced
manual (mechanically coupled) control methods with digital control technology so
that the audio  processing  hardware may be  controlled  remotely over a digital
link  by the  separated  control  surface.  Because  of this  separation,  it is
possible  to  insert a  computer  in the link  between  the  controller  and the
processing  circuit so that audio may be  manipulated  either by the operator or
the computer. A high degree of computer automation can then be provided with the
appropriate  software.   The  elimination  of  bulky  and  expensive  mechanical
controls,  the ability to share digital controls for different functions and the
relocation of the audio processing  hardware to a separate enclosure has allowed
a substantial reduction in size, weight, heat generation and cost of the console
surface.

Hard Disk Recording and Editing

     The   Company   utilizes   technology   to  record  and  edit  sound  using
off-the-shelf computer hard disks.

Scalable, Distributed Computer Processing

     The computer power required to instantly reconfigure and automate a mixing
console is  proportional  to the console's  size (number of controls per channel
times the number of channels).  Two  approaches may be taken in order to provide
adequate computer power to reset and automate a large-scale mixing console.  The
first is to use a large,  fast and powerful central computer that has sufficient

*    This paragraph contains forward-looking statements reflecting current ex-
     pectations. There can be no assurance that the Company's actual future
     performance will meet the Company's current expectations. Investors are
     strongly encouraged to review the section entitled "Factors Affecting
     Future Operating Results" commencing on page 27 for a discussion of factors
     that could affect future performance.

                                       9
<PAGE>


capacity to manipulate all of the console's  controls in the required  period of
time  for  the  largest  possible  console.  The  second  is to  distribute  the
processing load over multiple processors that have sufficient capacity to handle
their  share  of the  processing  load.  Euphonix  has  chosen  the  distributed
processing  method  because  it has the added  benefit  to being  scalable.  The
Euphonix system may be configured in and upgraded to a range of sizes.  Euphonix
customers  benefit because they only pay for computer power that is proportional
to the size of their  systems,  yet more  computer  power  can be added as their
systems are upgraded.  Because of the lighter  demand placed on each  individual
microprocessor  in a  distributed  system,  the use of  low-cost  components  is
possible to further leverage price performance. Another benefit of the Company's
distributed  processing   architecture  is  its  systemwide   SnapShot(TM)Recall
performance within one video frame (1/30 of a second) which the Company believes
is superior to competitive commercial offerings.

Multi-Processor Communications and Real-time Operating Systems

     Euphonix  has  developed   real-time   operating  system  technologies  for
interfacing  the  multiple   microprocessors   required  to  support  its  large
distributed  processing system. A typical large Euphonix console will contain as
many as 125 independent microprocessors of different varieties and functions all
working  together as one system.  In  addition,  the  Euphonix  system  provides
interfaces to microprocessors in third-party  peripheral studio equipment.  This
seamless  networking of internal processors  (Euphonix  components) and external
equipment  (third-party  digital  audio  workstations,  tape  machines  and MIDI
devices) provides a powerful  foundation to encourage new product development by
both Euphonix and third-party manufacturers.

Audio Format Conversion

     The Company has developed  proprietary  technology to convert audio between
the  various  signal  transmission  formats  that  are used in  Broadcast,  Post
Production,  and Music Studios.  Euphonix has focused development on the primary
formats that are endorsed by the Audio Engineering  Society  including:  Analog,
AES/EBU digital, and MADI (Multi-channel  Audio Digital Interface).  Sample Rate
Conversion  technology is employed to convert digital audio between formats that
are operating at different  sampling  frequencies  such as 44.1kHz for CD-Audio,
48kHz for professional audio production and 96kHz for emerging standards such as
DVD-Audio.

Advanced User Interface Methods for Audio Processing

      Euphonix's  digitally  controlled system gives the user real-time feedback
of the system's  performance,  thereby enabling the user to evaluate and improve
the audio mix more effectively and efficiently.  Euphonix has developed  several
user interface  methods for the  professional  audio market that are designed to
simplify  and  improve  the user's  understanding  of how the mixing  console is
affecting the sound.  The Company's  interface  techniques are designed to allow
the operator to harness the power of digital control in a user-friendly  manner.
For example,  graphical user  interfaces  are used  extensively to show views of
settings  and  parameters,  enabling a "what you see is what you hear"  display.
Such graphical  comparisons and various archival,  marking and retrieval methods
allow for greater operator efficiency.


Customers
      The  Euphonix  product line has been  adopted by many  professional  audio
facilities worldwide,  with more than 456 Euphonix consoles currently installed.
The following table sets forth a partial list of Euphonix customers:




                                       10
<PAGE>


--------------------------------------------------------------------------------
           CUSTOMER                  LOCATION            SAMPLE PROJECT/OTHER
--------------------------------------------------------------------------------
                                      Music
--------------------------------------------------------------------------------
The Hit Factory                      New York  The world's largest commercial
                                               recording facility
--------------------------------   ----------  ---------------------------------
The Hit Factory Criteria - Miami     Miami     Part of The Hit Factory family

--------------------------------    --------   ---------------------------------
Brandon's Way                     Los Angeles  Ubiquitous producer, song writer
                                             and artist, Babyface's commercial
                                            studio houses four Euphonix consoles
--------------------------------  -----------  ---------------------------------
Fleetwood Mobile                    London     Mobile unit for concert recording
--------------------------------  -----------  ---------------------------------
Jon Kelly                           London     Independent music producer (Paul
                                               McCartney, Kate Bush, Tori Amos)
-------------------------------   -----------  ---------------------------------
Emerald Entertainment Group        Nashville   One of the largest recording and
                                               production companies in the world
                                               Twice named Billboard Magazine's
                                               Country Recording Studio of the
                                               Year
-------------------------------   -----------  ---------------------------------
Cia. dos Technicos                  Brazil     High end commercial recording
                                               facility
------------------------------    -----------  ---------------------------------
Realsongs                         Los Angeles  Studio of multiple Grammy-winning
                                               songwriter, Diane Warren. (How Do
                                               I Live, Because You Loved Me)
------------------------------    -----------  ---------------------------------
143 Records                       Los Angeles  Studio of producer, arranger,
                                               composer and  musician, David
                                               Foster  (Because You Loved Me,
                                               The Power of Love)
------------------------------    -----------  ---------------------------------
Banff Centre for the Arts          Canada      Music recording facility
------------------------------    -----------  ---------------------------------
Tiger Recording                   Australia    High profile commercial music
                                               facility
------------------------------    -----------  ---------------------------------
Seal                             Los Angeles   Internationally renowned musician
                                              purchased a CS3000 for home studio
------------------------------    -----------  ---------------------------------
Blow Torch Flats               Los Angeles   Studio of composer Basil Poledouris
                                               For the Love of the Game and
                                               Mickey Blue Eyes
------------------------------ ----------  -------------------------------------
Thrill Hill Recording          New Jersey  Studio of superstar Bruce Springsteen
------------------------------ ----------  -------------------------------------
Carter Burwell                  New York       Film scores for Being John
                                               Malkovich, Three Kings and The
                                               General's Daughter. Upgraded
                                               Euphonix CS series with System 5
------------------------------ ----------      ---------------------------------
Curb Records                   Nashville       Second largest Country Music
                                               record label in the USA
--------------------------     ----------      ---------------------------------




                                       11
<PAGE>




--------------------------------------------------------------------------------
           CUSTOMER           LOCATION            SAMPLE PROJECT/OTHER

--------------------------------------------------------------------------------
                               Music

--------------------------------------------------------------------------------
John Debney Productions      Burbank         Award winning film scorer,credits
                                             include End of Days and Dick

--------------------------   ------------   ------------------------------------
Soundproof Studios           Los Angeles    First commercial recording facility
                                            to install System 5 in Southern
                                            California

--------------------------   -----------    ------------------------------------
Laurent Voulzy               France         Internationally acclaimed vocalist

--------------------------   -----------    ------------------------------------
Hans Zimmer/Media Ventures   Los Angeles    Academy Award Winning film scorer
                                            whose credits include: Gladiator,
                                           The Lion King and The Prince of Egypt

--------------------------   -----------    ------------------------------------
James Newton Howard          Los Angeles    Academy Award Nominee film composer.
                                            Scores include Dinosaur, The Sixth
                                            Sense and Snow Falling on Cedars

--------------------------   -----------    ------------------------------------
Snuffy Walden Productions    Los Angeles    BMI Film & TV  Music  Award   winner
                                            television scores include The West
                                            Wing, Once and Again and Felicity

--------------------------   -----------    ------------------------------------
Thomas Newman                Los Angeles    Dual 1996 Academy Award Nominee.
                                            Scored Films such as The Green Mile
                                            and American Beauty

--------------------------   -----------    ------------------------------------
LDS Motion Pictures         Salt Lake City  Motion Picture facility houses two
                                            CS series mixing consoles and one
                                            System 5

--------------------------- --------------  ------------------------------------


--------------------------------------------------------------------------------
                               Post Production
--------------------------------------------------------------------------------
The Idea Room at Warner Bros.  Burbank      Post Production for feature films
                                            and film trailers
---------------------------  -----------    ------------------------------------
Cool Beans Digital Audio       New York     Largest Post Facility in NYC.
                                            Installed three Euphonix System 5's
---------------------------  -----------    ------------------------------------

Sound Lounge                   New York     Short form post production facility
---------------------------  -----------    ------------------------------------

Avenue Edit                    Chicago      Post production facility. Installed
                                          two Euphonix CS series mixing consoles
---------------------------  -----------   -------------------------------------
Deluxe Laboratories            Toronto      World's first dual operator System 5
                                            for feature film dubbing.
---------------------------  -----------    ------------------------------------
Aoi Studio Company, Ltd        Tokyo        Short-form post production facility
                                            first in Japan to install System 5
                                            and 48-track R-1

---------------------------  ------------   ------------------------------------
Intersound Inc.               Los Angeles   TV post production facility

---------------------------  -------------  ------------------------------------
One Union Recorders          San Francisco  High profile post production
                                            facility clients include  Microsoft,
                                            Sattchi & Sattchi and Hal Riney.
---------------------------  -------------  ------------------------------------
Brian Boyd Productions (BBP)  Los Angeles   Post production facility for TV
                                            commercials. Clients include
                                            Emusic.com, Radioshack and Nestle
--------------------------------------------------------------------------------




                                       12
<PAGE>



--------------------------------------------------------------------------------
    CUSTOMER                 LOCATION                SAMPLE PROJECT/OTHER
--------------------------------------------------------------------------------
                        Post Production (Cont)

--------------------------------------------------------------------------------
SPG Studios                    Burbank      International post facility who
                                            installed a second post-production
                                           mixing console for expanded facility.

-----------------------------  ------------ ------------------------------------
Monterey Post Sound            Los Angeles  Audio Post for Warner Bros.
                                            Animation, DVD production, expanding
                                            facility and adding a System 5

-----------------------------  ------------ ------------------------------------
Damien                         France       Post production facility
-----------------------------  ------------ ------------------------------------
Warner Hollywood               Los Angeles  ADR/Foley on various Films

-----------------------------  ------------ ------------------------------------
Music Annex                  San Francisco  Post production facility with
                                            multi-Euphonix studios
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                                Broadcast
--------------------------------------------------------------------------------
WWF Entertainment              Connecticut  World Wrestling Federation Enter-
                                            tainment installed System 5 for
                                            rigorous post and ON-AIR broadcast
                                            schedule
------------------------------ -----------  ------------------------------------

China Television       People's Republic of China   Various TV productions
-----------------------------  ------------ ------------------------------------
KCNC CBS                       Denver       On-Air Broadcaster
-----------------------------  ------------ ------------------------------------
WPTV                        West Palm Beach On-Air Broadcaster
-----------------------------  ------------ ------------------------------------

WDVR                           Denver       On-Air Broadcaster
-----------------------------  ------------ ------------------------------------
Fisher Broadcasting - KOMO TV  Seattle      Full Digital On-Air Broadcast Studio
----------------------------- ------------- ------------------------------------
NBC                            Los Angeles  TV show Tonight Show with Jay Leno

----------------------------- ------------- ------------------------------------
KTVT                        Dallas/Fort Worth   On-Air Broadcaster
----------------------------- ------------- ------------------------------------
Tokyo Arvic                    Japan        On-Air Broadcaster
----------------------------- ------------- ------------------------------------
WMUR                          New Hampshire On-Air Broadcaster
----------------------------- ------------- ------------------------------------
Sky DTH Television             Florida      Direct TV for South America
----------------------------- ------------- ------------------------------------
--------------------------------------------------------------------------------
                          Live Sound Reinforcement
--------------------------------------------------------------------------------

The Gothenburg Opera House     Sweden       Live sound reinforcement
----------------------------- ------------  ------------------------------------
Royal Caribbean Cruise Lines   Finland      Live sound reinforcement
----------------------------- ------------  ------------------------------------
--------------------------------------------------------------------------------
                                Multimedia
--------------------------------------------------------------------------------
Bull Frog Music Studios          France     Sound for multimedia games
(a division of Electronic Arts)
-------------------------------  ----------- -----------------------------------
Interplay                       California  Sound for multimedia games
------------------------------- ----------- ------------------------------------
SEGA                             Tokyo      Sound for multimedia games
--------------------------------------------------------------------------------
                                   Other
--------------------------------------------------------------------------------
Eastman School of Music     University of Rochester    Sound recording education
-----------------------------   -------------          -------------------------
Launch Media                    Los Angeles Internet Music Magazine
-----------------------------   ----------- ------------------------------------
University of Michigan          Ann Arbor   Sound recording education
-----------------------------   ----------- ------------------------------------
Citrus College             Southern California  Sound recording education
-----------------------------   ----------- ------------------------------------

The Art Institute of Seattle     Washington            Sound recording education
-----------------------------   ----------- ------------------------------------

Alchema College of the Arts       London               Sound recording education
-------------------------------------------------------------------------------


                                       13
<PAGE>


Marketing
      The  Company's  marketing  strategy  has been to create  awareness  of its
products and to  differentiate  its products from its  competitors'  products in
terms of performance and  cost-effectiveness.  The Company participates in trade
shows,   direct-mail  advertising  and  selective   advertisements  in  industry
publications.  The Company  believes that its high quality  products,  technical
innovation,  support and service result in significant industry awareness of its
products,  and numerous word of mouth  referrals  for its products.  The Company
differentiates  its products through  one-on-one  sessions with the key decision
makers of its current  and  prospective  customers  during  which the  Company's
trained engineers and distributors perform product demonstrations.

      Historically,  the Company has focused its marketing  efforts on the music
market  application.  In  this  market,  most  of the  Company's  sales  were to
individual  recording  artists,  composers,  producers  and  independent  record
companies  who  purchase the  Company's  systems for their own  professional  or
personal use.  While the Company  believes  that there is continued  substantial
opportunity  for growth of the Company's  sales in the music  application of the
market,  the Company's  strategy is to continue to expand into post production,
broadcast,  live sound reinforcement and multimedia. The past year proved to be
a successful year in  selling  the  new  System  5 to  the  on-air broadcasters,
post-production facilities  as well as the  Company's traditional music  market.
The CS3000's flexible architecture,  high performance and high quality at an
affordable price continues to make it the choice of many high profile end users
in these segments as well.

      To  address all markets during  1999 the  Company produced market specific
product literature,  broadened its base of publications in which it  advertises,
attended trade shows and  communicated  through direct mail communications. *

Sales and Distribution

      Euphonix sells its consoles  through its direct sales  organization in the
United  States,  the  United  Kingdom  and  Japan,  and  manages  a  network  of
international sales  representatives  for sales in other countries.  The Company
conducts its direct sales  activity in the United  States from its sales offices
in Los Angeles, New York and Nashville.

      The  Company's  international  distributors  typically  cover an exclusive
geographic  region.  Distributors  generally order and purchase systems from the
Company  based on orders  they  receive  for  Euphonix  systems.  Certain of the
Company's  distributors provide direct customer support and installation,  while
the other  distributors  receive  customer  support  and  installation  from the
Company's international sales offices. There were no customers who accounted for
10.0% or more of the Company's net revenues in fiscal 1999, 1998 or 1997.

      A key  element  of the  Company's  strategy  is to  continue  to  build  a
worldwide  presence through its international  sales presence and its network of
sales  representatives in order to address fully its target markets and to serve
customers  that operate on an  international  basis.  The Company  believes that
revenues  from  customers  outside the United States will begin to account for a
greater portion of its revenues,  due to improving  economic  conditions in many
international  countries. The Company will continue to maintain sales efforts of
the Company's console in international  markets through its international  sales
presence and its network of international distributors.


*    This paragraph contains forward-looking statements reflecting current ex-
     pectations. There can be no assurance that the Company's actual future
     performance will meet the Company's current expectations. Investors are
     strongly encouraged to review the section entitled "Factors Affecting
     Future Operating Results" commencing on page 27 for a discussion of factors
     that could affect future performance.


                                       14
<PAGE>

Customer Service and Support

       Providing  excellent customer service and support is a key element of the
Company's  strategy to maintain  and build its  reputation  for high quality and
enhance brand name loyalty.  The Company provides service,  support and training
to its  customers  and sales  representatives  through a wide  range of  support
services, including on-site and telephone support and training in the use of the
Company's consoles.

The Company's customer service organization provides the following services:

       Systems  Installation and Training.  The Company's  systems  installation
personnel  assist  customers in the  configuration,  installation and testing of
Euphonix systems at the customer's site. The systems can usually be installed in
less than one day, which the Company believes to be considerably  less time than
required for other  manufacturers'  large format consoles.  The Company provides
demonstration  equipment for use by customers as well as prospective  purchasers
at each of the Company's  sales  offices.  The Company may also provide  on-site
training  following  installation of its system, as well as advanced  operations
documentation regarding the Euphonix system.

      Technical  Support.  The Company's  technical  support  personnel  provide
telephone  assistance to customers and sales  representatives.  These  personnel
assist  customers in the use of their systems,  and diagnose and solve technical
hardware  and  application  problems  with the aid of  self-diagnostic  programs
within the  Euphonix  system.  The Company  provides a one-year  warranty on the
Euphonix  system  covering  defects in materials  and  workmanship.  Such policy
provides that the Company may, at its option, repair, replace or refund the full
purchase  price  of any  defective  products  sold to the  customers.  Technical
support  personnel  maintain a supply of similar or spare  modules to deliver to
customers if  necessary  for repair,  and in more  complicated  situations  will
dispatch an on-site  technician to assist the customer.  The Company also offers
an on-line 24-hour computer bulletin board to maintain  communications  with its
customers.

Research and Development

      The Company's research and development strategy is to develop high-quality
enhancements to its products,  focusing on modularity and upgradeability of such
products, as well as new products for its target market segments.  The Company's
research  and  development  and  engineering  staff  consists of highly  trained
software,  electronic and mechanical  engineers and  technicians  with technical
backgrounds in computer software design, digital signal processing, analog audio
processing and high speed audio communications.

     The Company's research and development expenses for the years ended Decem-
ber 31, 1999,  1998, and 1997 were $4.5 million, $4.6 million, and $3.7 million,

Proprietary Rights

      The Company generally relies on a combination of trade secrets,  copyright
law and trademark law, contracts and technical measures to establish and protect
its proprietary  rights in its products and technologies.  However,  the Company
believes that such measures  provide only limited  protection of its proprietary
information,  and there is no assurance  that such  measures will be adequate to
prevent misappropriation. The Company currently has two United States registered
trademarks,  four issued  United  States  patents and several  applications  for
United States patents  pending with respect to certain  elements of its hardware
and  software.  The  Company  has  no  foreign  patents  nor  has it  filed  any
applications for any foreign patents.




                                       15
<PAGE>


      The  Company  believes  that,  due  to  the  rapid  proliferation  of  new
technologies in the audio, video and general software  industries,  intellectual
property  protection  of the  Company's  proprietary  technology  will  be  less
influential  on the Company's  ability to compete in its target markets than the
ability of the Company's  research and development  personnel to design products
that  continue to address  evolving  customer  requirements,  the ability of the
Company  to enter new  markets  and the  ability  of  Euphonix  to  service  its
customers. *

Manufacturing and Suppliers

      The Company  focuses its  manufacturing  efforts on producing high quality
products in a cost-effective manner. The Company's manufacturing  operations for
mixing  consoles,  located in Palo Alto,  consist  primarily  of  materials  and
procurement  management,   testing  and  final  assembly  of  products,  quality
assurance and shipping. The Company subcontracts other functions,  including the
production of printed  circuit  boards,  specialized  metal  finishing and other
subassemblies,  which  currently  are  not  cost-effective  for the  Company  to
perform.  The Company's systems undergo complete testing and quality  inspection
at the board level and final assembly stages of production.

      The Company and its  manufacturing  vendors are  dependent  upon single or
limited source  suppliers,  such as Analog  Devices,  Inc. and Maxim  Integrated
Products,  Inc.,  for  numerous  components  and  parts  used  in the  Company's
products.  Currently,  the Company uses many sole or limited  source  suppliers,
certain  of  which  are  critical  to  the  Company's  continued   uninterrupted
production  because they supply key  components,  such as  integrated  circuits,
included in the Company's base system.  Major delays or terminations in supplies
of such components  could  significantly  adversely  affect the Company's timely
shipment of its  products,  which in turn would  adversely  affect the Company's
business  and  results  of  operations.  There can be no  assurance  that  these
suppliers   will  continue  to  be  able  and  willing  to  meet  the  Company's
requirements for any sole-sourced  components.  The Company generally  purchases
these single or limited source components pursuant to purchase orders and has no
guaranteed   supply   arrangements  with  such  suppliers.   In  addition,   the
availability of many components to the Company's  subcontractors is dependent in
part on the  Company's  ability to provide its  subcontractors,  and in turn the
subcontractor's  ability to provide their suppliers,  with accurate forecasts of
their future requirements.  The process of qualifying suppliers or designing out
certain  parts  could  be  lengthy,  and no  assurance  can be  given  that  any
additional  sources or product  redesign  would be  available  to the Company or
implemented  on a  timely  basis.  In the  past,  the  Company  has  experienced
interruptions  in the supply of certain  key  components  from  suppliers  which
delayed  product  shipments and there can be no assurance  that the Company will
not experience  significant  shortages for these  components in the future.  The
Company  does not maintain an extensive  inventory  of such  components  and any
extended  interruption  or reduction in the future supply or increases in prices
of any key components  currently  obtained from a single limited source supplier
could have a material  adverse  effect on the Company's  business and results of
operations for any given period.*

---------------------------
*        This paragraph contains  forward-looking  statements reflecting current
         expectations.  There  can be no  assurance  that the  Company's  actual
         future  performance  will  meet  the  Company's  current  expectations.
         Investors  are  strongly  encouraged  to review  the  section  entitled
         "Factors Affecting Future Operating Results"  commencing on page 27 for
         a discussion of factors that could affect future performance.


                                       16
<PAGE>



Competition

      The markets for the Company's  mixing  products are intensely  competitive
and  characterized  by  significant  price  competition.  The markets for mixing
consoles  can be  classified  based on price,  as  follows:  (1)  low-end  range
products  with prices up to $30,000;  (2)  mid-range  products  with prices from
$30,000 to $100,000;  and (3) high end range products with prices over $100,000.
Prices for mixing  consoles  generally  vary based on the number of channels and
the  processing  power per channel,  which  directly  affects the quality of the
sound output of the particular mixing consoles.  The Company's  products compete
primarily  with  other  mixing  consoles  in the  high  end  price  range of the
Company's  targeted market  segments,  although they may also compete with lower
priced products with fewer features.  Competing  companies in the high-end price
range include,  among others,  Solid State Logic,  Ltd.  (Owned by 3i, a venture
capital  company),  AMS Neve, GLW a.k.a.  Harrison,  Amek Technology Group, plc,
Sony Corporation,  Calrec Ltd.,  Soundtracs,  D&R, Trident,  Cantus,  Fairlight,
Studer,  and Otari  Corporation.  In addition,  the Company  believes  that,  as
technology  in the  professional  audio  industry  advances,  prices  for mixing
consoles and other audio  equipment,  including  the  Company's  products,  will
decrease,  and as a result  the  Company's  products  may  increasingly  compete
against lower priced products,  as well as products in the high-end price range.
There are numerous companies, in addition to those listed above, that compete in
the  low-end  and  mid-range  of the  professional  audio  market.  Many  of the
Company's  competitors  are  larger  and  have  greater  financial,   technical,
manufacturing and marketing resources, broader product offerings, more extensive
distribution  networks and larger installed bases than the Company.  A number of
the Company's  competitors  currently offer all digital mixing consoles, as well
as analog  control/analog  processing mixing consoles,  at least two competitors
(Harrison & Calrec) currently offer a hybrid digital  control/analog  processing
mixing console,  and all such competitors are likely to have additional products
under  development.  The Company  believes that companies  with large  installed
bases,  in  particular,  may have a competitive  advantage  since many potential
customers  in the  Company's  targeted  markets  are often  reluctant  to commit
significant resources to replace their current products and to retrain operators
to use new products  despite  technological  advantages of such new  alternative
products.  Certain of the Company's  competitors also offer customers leasing or
refinancing  packages in connection with the purchase of their mixing  consoles,
which financing alternatives the Company does not generally offer.  Furthermore,
the Company  competes with  resellers of used mixing  consoles and equipment who
are able to sell high-end price range products at generally lower prices.*

      The  introduction  of the R-1  brings on new  competitive  issues  for the
Company.  The R-1 allows the Company to sell to largely the same  customer  base
that  purchases the Company's  large format  consoles.  Some of the  traditional
console manufacturers sell traditional tape based multi-track tape machines. The
primary competing  companies in the traditional tape based multi-track  recorder
market  segment  include,  among  others,  Studer,  Otari and  Sony.  The R-1 is
targeted  as  a  direct   replacement  of  traditional   tape  based   products.
Additionally,  the R-1  will  face  competition  from a  number  of  disk  based
competitors,  that while  technically  similar,  are less  focused on the direct
replacement  of a multi-track  recorder and more focused on editing of the audio
than pure recording. These competitors include Digidesign,  Fairlight and Augan.
Otari  has been  shipping  the Radar  and the  Radar II disk  based  multi-track
recorder   replacement  and  has  helped  establish  a  market  for  disk  based
multi-track recorders.

---------------------------
*        This paragraph contains  forward-looking  statements reflecting current
         expectations.  There  can be no  assurance  that the  Company's  actual
         future  performance  will  meet  the  Company's  current  expectations.
         Investors  are  strongly  encouraged  to review  the  section  entitled
         "Factors Affecting Future Operating Results"  commencing on page 27 for
         a discussion of factors that could affect future performance.


                                       17
<PAGE>


      The Company  believes that its ability to compete depends on elements both
within and outside its control,  including the success and timing of new product
development  and  introduction  by the  Company  and  its  competitors,  product
performance  and price,  distribution,  availability of lease or other financing
alternatives,  resale of used  systems  and  customer  support.  There can be no
assurance that the Company will be able to compete  successfully with respect to
these  factors.  In addition,  there can be no  assurance  that the Company will
successfully  differentiate its products from the products of its competitors or
that the  marketplace  will  consider the  Company's  products to be superior to
competing products. Moreover, the Company's competitors may introduce additional
products  that are  competitive  with those of the Company,  and there can be no
assurance  that the  Company's  products  would  compete  effectively  with such
products.  Although  the  Company  believes  that its audio  mixing  console has
certain  technological   advantages  over  its  competitors,   maintaining  such
advantages  will  require  continued  investment  by the Company in research and
development,  sales and marketing and customer service and support. There can be
no  assurance  that the Company  will have  sufficient  resources  to be able to
maintain such competitive advantages. *

Backlog

      An order is booked  into  backlog  when a deposit or a  purchase  order is
received from the customer.  The Company's  products are typically  delivered to
customers  two to three  months  after  receipt  of an order.  However,  because
shipment  of the  product is  dependent  upon  other  customer  requirements  or
changing situations, the product may not be delivered for more than a year after
the receipt of the order. All orders are subject to cancellation or rescheduling
by the customer. The Company does not believe that its backlog at any particular
point in time is indicative of future sales levels.

Employees

      As of December  31,  1999,  the Company had 113  full-time  employees  and
consultants.  None of the Company's  employees are  represented by a labor union
and the Company has never experienced a work stoppage,  slowdown or strike.  The
Company considers its employee relations to be good.





---------------------------
*        This paragraph contains  forward-looking  statements reflecting current
         expectations.  There  can be no  assurance  that the  Company's  actual
         future  performance  will  meet  the  Company's  current  expectations.
         Investors  are  strongly  encouraged  to review  the  section  entitled
         "Factors Affecting Future Operating Results"  commencing on page 27 for
         a discussion of factors that could affect future performance.



                                       18
<PAGE>

                                   MANAGEMENT
Executive Officers

      The  executive  and other  officers  of the  Company  and their ages as of
December 31, 1999 are as follows:

      Name              Age                   Position
      ----              ---                   --------
Paul L. Hammel           54      Senior Vice President of Operations

Barry L. Margerum        48      President, Chief Executive Officer and Director

Steven H. Milne          41      Vice President of Engineering

Piers Plaskitt           45      President of Worldwide Sales and Marketing

Scott W. Silfvast        37      Chief Product Officer and Director


      Paul L. Hammel joined the Company in February  1998 as Senior Vice
President of  Operations.  From 1994 to 1998, he was employed at Plantronics,
Inc. as Vice President  Customer  Services and President of Walker Equipment
Division of Plantronics,  Inc. From 1989 to 1994, Mr. Hammel was Vice President
of Operations and Customer Services for GO Corporation.

      Barry L. Margerum was appointed Chief  Executive  Officer and President of
the  Company  in June 1997 and has  served as a director  of the  Company  since
August 1997.  From 1994 to June 1997,  he served as Vice  President of Marketing
and then as President  and General  Manager of the CMS Division of  Plantronics,
Inc. From 1989 to 1994, Mr. Margerum was President and Chief  Executive  Officer
of MITEM  Corporation,  a  provider  of  middleware  technology  for  enterprise
distributed systems. From 1980 to 1988, Mr. Margerum held a variety of executive
sales and marketing executive positions for GRiD Systems Corporation,  a pioneer
in the field of lap-top  computers.  Prior to that, Mr. Margerum was employed by
Apple  Computer,  Inc.,  Epsilon  Data  Management  and  International  Business
Machines Corporation.

      Steven H. Milne  joined the  Company in April 1996 as Vice  President  of
Engineering.  From 1992 to 1996,  he was  employed  at Taligent,  Inc.,  most
recently as  Director,  Media  Software  Development.  Taligent,  Inc.  is a
software  joint  venture  owned by International  Business Machines Corporation,
Hewlett-Packard  Company, and Apple Computer,  Inc. From 1986 to 1992, Mr. Milne
was an engineer  and  manager  working on audio for Apple  Computer,  Inc. Prior
to that,  Mr.  Milne was  employed by Sydis,  Inc.  and Wang Laboratories,
working on voice recording products.

      Piers  Plaskitt  joined the Company in August 1999 as President  of
Worldwide  Sales and  Marketing.  From 1998 to 1999,  he was employed at The New
York Media Group,  Inc. as Vice President,  Director Sales and Marketing.  From
1997 to 1998, Mr. Plaskitt was Vice President,  Worldwide  Sales and Marketing
for Montage  Group,  Inc. From August 1983 to May 1997,  Mr.  Plaskitt was the
President and Chief Executive  Officer of the US operation of Solid State Logic,
Inc..  Solid State Logic,  Inc. is a manufacturer of audio consoles for the
broadcast, post-production, film and music industries.


                                       19
<PAGE>




      Scott W. Silfvast founded the Company in July 1988. He has been a director
of the Company since its  inception,  has served as Chief Product  Officer since
August 1999,  Senior Vice President since June 1997 and served as President from
March 1990 until May 1997.  Mr.  Silfvast  also  served as Chairman of the Board
from July 1988 until February  1991.  From 1983 to July 1988, he was an engineer
for SRS, a measurement instrumentation company.


Item 2.  Properties.

      The  Company  leases  approximately  a  40,000  square-feet  space  at its
headquarters  located on Portage Avenue in Palo Alto,  California,  under leases
expiring in September  2004.  Activities at this facility  include  engineering,
manufacturing,  management information systems,  customer service,  distribution
and general administration. Euphonix also leases space for its sales and service
offices in Los Angeles,  New York,  Nashville and London,  and its subsidiary in
Seattle. In addition, the Company rents an office for its subsidiary in Japan on
a month to month basis.

Item 3.  Legal Proceedings.

       The Company is not currently involved in any material legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders.

      Not applicable.

















                                       20
<PAGE>



                                  PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
        Matters.

      The Company  effected the initial  public  offering of its Common Stock on
August 22,  1995,  at a price to the public of $8.00 per  share.  The  following
table sets forth, for the periods indicated, the high and low closing prices for
the Company's common stock:
<TABLE>
<CAPTION>
<S>                                           <C>                 <C>


Fiscal 1998                                       High                 Low
First quarter......................... $          1.88     $           1.06
Second quarter........................            1.94                 1.38
Third quarter.........................            1.38                 0.94
Fourth quarter........................            1.50                 1.00
Fiscal 1999
First quarter.........................            1.44                 1.03
Second quarter........................            1.25                 0.63
Third quarter.........................            2.13                 0.75
Fourth quarter........................            1.69                 0.75
</TABLE>



      As of February 15, 2000, there were  approximately 88 holders of record of
the Company's  Common Stock.  The Company's Common Stock is listed for quotation
in the Nasdaq National Market under the Symbol "EUPH".

      The  Company  has not paid any cash  dividends  on its  Common  Stock  and
currently  intends  to  retain  any  future  earnings  for use in its  business.
Accordingly,  the Company does not  anticipate  that any cash  dividends will be
declared or paid on the Common Stock in the foreseeable future. *

     Recent Sales of Unregistered Securities

      In November 1999 the Company issued 1,581,796 shares of common stock to
private investors at a price of $1.1064 per share for total proceeds of
$1,750,000.

      All of the securities were issued pursuant to exemptions from registration
under Section 4(2) of the Securities Act.  The Company made no public solicita-
tion in connection with the issuance of the above mentioned securities nor were
there any other offerees.  The Company made no public solicitation in connection
with the issuance of the above mentioned securities nor were there any other
offerees.  The Company relied on representations from the recipients of the
securities that they purchased the securities for investment for their own
account and not with a view to, or for resale in connection with, any distribu-
tion thereof.  The investors also indicated to the Company that they were aware
of the Company's business affairs and financial condition and had sufficient
information to reach an informed and knowledgeable decision regarding their
acquisition of the securities.


---------------------------
*        This paragraph contains  forward-looking  statements reflecting current
         expectations.  There  can be no  assurance  that the  Company's  actual
         future  performance  will  meet  the  Company's  current  expectations.
         Investors  are  strongly  encouraged  to review  the  section  entitled
         "Factors Affecting Future Operating Results"  commencing on page 27 for
         a discussion of factors that could affect future performance.


                                       21
<PAGE>



Item 6.  Selected Financial Data.

      The  following  selected  financial  data for the  five-year  period ended
December 31, 1999,  should be read in conjunction  with the Company's  Financial
Statements  and notes  thereto  and  "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operation" included in Item 7 of this report.
<TABLE>
<CAPTION>
<S>                           <C>    <C>       <C>      <C>        <C>

                                         Year Ended December 31,
                            ----------------------------------------------------
                               1999      1998      1997      1996       1995
                               ----      ----      ----      ----       ----
                                   (In thousands, except per share data)
Statement of Operations Data:
  Net revenues..............$ 13,806  $ 15,614  $ 18,093  $ 18,237  $  14,681
  Gross margin..............   5,697     7,014     8,859     9,396      7,482
  Operating income (loss)...  (5,675)   (5,306)   (2,304)   (1,836)     1,436
  Net income (loss).........$ (6,329) $ (5,240) $ (1,932) $ (1,398) $   1,346

  Net income (loss) per share:
    Basic...................$  (0.74) $  (0.82) $  (0.35) $  (0.25) $    0.50
    Diluted.................$  (0.74) $  (0.82) $  (0.35) $  (0.25) $    0.28
  Shares used in computing net
  income (loss) per share:
       Basic................    8,541    6,404     5,576      5,515     2,702
       Diluted..............    8,541    6,404     5,576      5,515     4,827


                            ----------------------------------------------------
                                              December 31,
                            ----------------------------------------------------
                               1999      1998       1997      1996      1995
                               ----      ----       ----      ----      ----
                                             (In thousands)
Balance Sheet Data:
  Working capital            $6,993     $5,922     $9,095    $11,035   $12,937
  Total assets               12,300     11,031     13,208     15,466    18,279
  Long-term obligations       2,166        ---         32         66       ---
  Shareholders' equity        6,797      7,375     10,487     12,338    13,602

</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations.

Overview

      Euphonix develops, manufactures and supports networked digital audio
systems for music, film & TV post-production, broadcast, sound reinforcement
and multimedia applications. As of December 31, 1999, the Company has shipped
over 456 of its mixing consoles worldwide.

      The price of the Company's mixing consoles  generally ranges from $100,000
to $1 million, and is often the most expensive piece of equipment in the studio.
The Company  performs  ongoing credit  evaluations  of its customers'  financial
condition  and prior to shipping the product,  generally  requires a substantial
deposit  anywhere  from  $10,000  up to 50% of the  console's  value  and a firm
purchase  order.  From time to time and depending on the financial  condition of
the customer,  the Company may require  payment of a substantial  portion of the
purchase  price,  an  irrevocable  letter of credit,  or a purchase order from a
third-party lessor. The Company usually relies on new orders in the same quarter

                                       22
<PAGE>


to achieve its net  revenues.  The Company  generally  recognized  revenue  upon
shipment.

     In December 1999, the SEC staff issued Staff  Accounting  Bulletin  ("SAB")
 No. 101, "Revenue  Recognition."  The SEC staff  addresses several  issues in
SAB No.  101,  including  the  timing for  recognizing  revenue  derived  from
selling  arrangements  that  involve contractual  customer acceptance provisions
and  installation  of the product  occurs  after  shipment  and  transfer of
title.  The Company's existing revenue  recognition  policy is to recognize
revenue at the time the customer takes title to the product,  generally
at the time of  shipment,  because the Company has  routinely  met its
installation  obligations  and  obtained  customer  acceptance. Applying  the
requirements  of SAB No. 101 to the present  selling  arrangements  used by the
Company  for the sale of  equipment  may require a change in the Company's
accounting  policy for revenue  recognition and the deferral of the recognition
of revenue from such equipment sales until  installation is complete and
accepted by the customer.  The effect of such a change,  if any, must be
recognized as a cumulative  effect of a change in accounting no later than the
Company's second quarter of its fiscal year ending on December 31, 2000. At
the current time it is not possible to determine the effect this change will
have on the results of operations of the Company.

Annual Results of Operations

      The following  table sets forth certain  operating data as a percentage of
net revenues for the periods indicated:
<TABLE>
<CAPTION>
<S>                              <C>           <C>               <C>


                                          Year Ended December 31,
                                          -----------------------
                                    1999            1998            1997
                                    ----            ----            ----
Net revenues...................     100.0%         100.0%           100.0%

Cost of revenues...............      58.7           55.1             51.0
                                 -----------    -------------    ------------
     Gross margin..............      41.3           44.9             49.0
                                 -----------    -------------    ------------
Operating expenses:
   Research and development....      32.5           29.4             20.4
   Sales and marketing.........      40.4           34.9             30.0
   General and administrative..       9.5           14.6             11.3
                                 -----------    -------------    ------------
       Total operating expenses      82.4           78.9             61.7
                                 -----------    -------------    ------------
Operating loss.................     (41.1)         (34.0)           (12.7)
Interest income/(expense), net       (4.7)           0.4              0.8
                                 -----------    -------------    ------------
Loss before income taxes.......     (45.8)         (33.6)           (11.9)
Benefit for income taxes.......       ---            ---             (1.2)
                                 -----------    -------------    ------------
Net loss.......................     (45.8)%        (33.6)%          (10.7)%
                                 =============   ============    ============
</TABLE>

Net Revenues

      Net revenues decreased to $13.8 million in 1999 down from $15.6 million in
1998 and $18.1  million in 1997,  representing  a decrease of 11.6% in 1999 from
1998 and a decrease of 13.7% in 1998 from 1997.  The  decrease  in net  revenues
from  1998 to 1999  and  from  1997 to 1998 was  primarily  due to not  having a
digital  product  and to  weakness  in  sales  in the  Pacific  Rim  and  Europe
respectively.  The  decline in Asian  sales in 1999 is due to a weakness  in the
Asian  economy.  The decline in European  sales in 1998 was the direct result of

                                   23
<PAGE>

employee  turnover  within the  international  sales  department and the loss of
sales representatives,  which limited the Company's ability to maintain existing
market  share and  penetrate  new markets  abroad.  In 1999 the Company  sold 16
System 5 digital consoles and 36 R-1 Multitrack recorders.

      Sales of the  Company's  products in the United  States were $9.2 million,
$8.9 million,  and $11.0 million,  comprising  approximately  66.6%,  57.0%, and
60.9%,  of the Company's net revenues for 1999,  1998,  and 1997,  respectively.
Export sales were $4.6  million,  $6.7  million,  and $7.1  million,  comprising
approximately  33.4%,  43.1%, and 39.1%, of the Company's net revenues for 1999,
1998, and 1997 respectively.

Gross Margin

       The  Company's  gross margin  decreased to $5.7 million in 1999 from $7.0
million in 1998, and down from $8.9 million in 1997,  representing a decrease of
18.8% from 1998 to 1999 and 21.3% from 1997 to 1998.  Gross  margin as a percent
of net revenue was 41.3% down from 44.9% in 1998 and 49.4% in 1997. The decrease
in the margin from 1998 to 1999 was primarily  associated  with  start-up  costs
related to the R-1 recorder  which began  shipping in the first quarter of 1999,
and the new System 5 digital  console which began shipping in the second quarter
of 1999.  The  decrease  in the margin  from 1997 to 1998 was  primarily  due to
selling off older/used  inventory at lower margins, a $238,000 charge for excess
and obsolete inventories,  and to manufacturing  overhead investments associated
with the new R-1 Recorder and other product development activities.

Research and Development

               Research and  development  expenses  decreased to $4.5 million in
1999 down from $4.6 million in 1998 up from $3.7 million in 1997, representing a
decrease in  research  and  development  expenses of 2.2% in 1999 as compared to
1998,  and an  increase  of 24.3% in 1998 as  compared  to  1997.  Research  and
development expenses as a percentage of net revenues increased to 32.5% in 1999,
up from 29.4% in 1998,  and up from 20.4% in 1997.  The decrease in research and
development  expenses in absolute  dollars and as a  percentage  of net revenues
from 1998 to 1999 was primarily due to a winding down of the new R-1  Multitrack
Recorder and new System 5 digital console,  both of which were under development
in 1998 and began shipment in the first and second quarter of 1999 respectively.
The increase in research and development  expenses in absolute  dollars and as a
percentage of net revenues  from 1997 to 1998 was  primarily due to  substantial
investment in the development of next generation products.

 Sales and Marketing

      Sales and  marketing  expenses  increased  to $5.6 million in 1999 up from
$5.5 million in 1998 and $5.4 million in 1997, representing an increase in sales
and marketing expenses of 1.8% in 1999 as compared with 1998 and 1.8% in 1998 as
compared with 1997. Sales and marketing  expenses also increased as a percentage
of net  revenues to 40.6% in 1999 from 34.6% in 1998 and from 30.0% in 1997.  In
1999, the Company increased it's spending for advertising,  tradeshows,  travel,
other  professional  fees,  and  product  demonstrations  to support the new R-1
recorder and System 5 digital console  introductions.  In late 1998, the Company
increased  it's   expenditures   for   advertising,   trade  shows  and  product
demonstrations  to support the  introduction  of the R-1 Multitrack  Recorder in
1999. This increase during 1998 was partially  offset by allocating a management
fee for support  services of the  Company's  subsidiary  in Japan to general and
administrative expenses.



                                       24
<PAGE>

General and Administrative

      General and  administrative  expenses  were $1.3 million in 1999 down from
$2.3  million in 1998 and $2.0  million  in 1997,  representing  a  decrease  in
general and  administrative  expenses of 43.5% in 1999 from 1998 and an increase
in general and  administrative  expenses of 15.0% in 1998 from 1997. General and
administrative  expenses as a percent of net revenues decreased to 9.4% in 1999
from 1998 and increased to 14.7% in 1998 from 11.1% in 1997,  respectively.  The
decrease in general  and  administrative  expenses in absolute  dollars and as a
percentage  of net  revenues in 1999 is due to a decrease in the  allowance  for
doubtful  accounts reserve due to the collection of  previously reserved for
balances and a reduction in payroll expenses. The increase in general and
administrative expenses in absolute dollars and as a percentage of net revenues
in 1998 is due to increases in the allowance for doubtful accounts reserve to
cover  inherent risk of carrying higher receivable balances and selling to new
customers.

Interest expense and other charges

      Interest expense and other charges were $748,000 in 1999 up from $8,000 in
1998 and  $209,000 in 1997,  representing  an  increase in interest  expense and
other charges of 9,250% in 1999 from 1998 and a decrease in interest expense and
other charges of 96% in 1998 from 1997.  Interest expense and other charges as a
percent of net  revenues  increased  to 5.4% in 1999 from 1998 and  decreased to
0.005%  in 1998  from  1.2% in 1997,  respectively.  Interest  expense  for 1999
included a charge of  $613,000  related  to the  beneficial  conversion  feature
associated with the convertible promissory note issued in July 1999.

Provision / (benefit) for Income Taxes

      The deferred tax assets valuation allowance at December 31, 1999 and 1998
is attributable to federal and state deferred tax assets.  Management believes
that sufficient uncertainty exists with regard to the realizability of these
tax assets such that a full valuation allowance is necessary.  These factors
include the lack of a significant history of consistent profits and the lack
of carryback capacity to realize these assets.  Based on this absence of objec-
tive evidence, management is unable to assert that it is more likely than not
that the Company will generate sufficient taxable income to realize the
Company's net deferred tax assets.

Liquidity and Capital Resources

      The Company has funded its  operations  primarily  through cash flows from
operations,  the  private  sale of equity  securities,  and the  initial  public
offering of Common Stock completed in September 1995. In March 1998, the Company
received  proceeds of  $1,950,000  from  existing  investors in exchange for the
issuance  of  1,040,000  shares of $0.001 par value  common  stock at $1.875 per
share, the closing price of the Company's common stock on the NASDAQ on the date
the common stock purchase agreement was executed.

      In January 1999, the Company received proceeds of $1,304,000 from new and
existing  investors in exchange  for the issuance of 1,320,446  shares of $0.001
par value common stock at $0.987 per share.

      On April 23, 1999, the Company  executed a promissory note with certain
new and existing investors for  $2,000,000  due at April 23, 2001 that accrues
interest at 7.75% per annum. In October 1999, the Company converted the April
1999 promissory note of $2,000,000  principal and $67,000 accrued  interest into
1,981,014 shares of common stock of the Company at $1.03 per share.



                                       25
<PAGE>

      On July  30,  1999,  the  Company  executed  a  promissory  note with an
existing investor and other parties under which the Company was  authorized to
draw up to $2,100,000  through  October 31, 1999. The note accrues interest at
7.75% per annum with principal and accrued interest due at July 30, 2001. The
assets of the Company are pledged as  collateral. The conversion feature of the
note allowed the holder to convert the note into common stock of the Company at
a rate of $0.75 per share, and was subject to shareholders' approval which was
obtained on October 22, 1999. At the date of issuance of the note, the quoted
market price of the Company's common stock was $0.969 per share, resulting in a
beneficial conversion feature of $613,000. The beneficial conversion was
recorded as a credit to equity and a charge to interest expense at the time of
shareholder approval.

      On November 9, 1999,  the Company  entered into an agreement with existing
and new investors  who, for  $1,750,000,  purchased  1,581,706  shares of common
stock of the Company at $1.1064 per share.

      During  1999 the  Company  issued  72,558  shares  upon  exercise of stock
options and stock purchase rights of employees.

      For  the  year  ended  December  31,  1999,  cash,  cash  equivalents  and
short-term investments decreased by $1.4 million to approximately $838,000. Also
during this period,  working capital  increased by $1.0 million to approximately
$6.9 million.

      The Company's operating activities used cash of approximately $7.5 million
in 1999, $2.6 million in 1998 and $2.8 million in 1997, respectively.  Cash used
in operating  activities  for 1999 was  comprised  primarily  of a net loss,  an
increase  in  inventory,  an  increase  in  accounts  receivable,  a decrease in
allowance for doubtful accounts,  and a decrease in accrued liabilities,  offset
partially  by higher  depreciation  and  amortization  expense,  an  increase in
accounts  payable,  an increase in customer  deposits  and a decrease in prepaid
expenses  and other  assets.  Cash  used in  operating  activities  for 1998 was
comprised  primarily  of a net loss,  a decrease  in  customer  deposits  and an
increase  in prepaid  expenses  and other  assets,  offset  partially  by higher
depreciation and amortization expense, a decrease in income tax receivable and a
decrease in accounts receivable.

      The  Company's  investing  activities  used cash of  $530,000  in 1999 and
provided cash of $452,000 in 1998. In 1998 the Company  received $1.1 million in
proceeds  from the sales of short term  investments  as  compared to $601,000 in
proceeds  received  in 1999.  In 1999 the  Company  purchased  $1.1  million  of
property and equipment as compared to $657,000 in 1998.

      The Company's financing  activities provided $7.2 million in 1999 and $1.9
million in 1998. Proceeds from the sale of common stock provided $3.1 million in
1999 and $1.9 million  in 1998.  Proceeds  from the  issuance  of  convertible
promissory notes provided $4.2 million in 1999.

     Management  intends to rely upon internally  generated  cashflows  however
should there be a decline in revenues the Company would either have to cut
expenses or go to outside sources of financing.  There can be no assurance that
outside sources of financing would be available to the Company.



                                       26
<PAGE>


Year 2000 Risks

      We have addressed  computer  networks year 2000 compliance in our systems,
accounting  software,   computer  hardware  and  existing  products,   and  have
communicated  with our  significant  third party  vendors  with respect to their
respective  states of readiness.  In order to assess year 2000 compliance of our
products and systems, we identified those systems critical to our operations and
the  operations of our  technologies  and, based upon tests to such products and
systems,  believed  that all of our  systems  and  technologies,  to the  extent
developed, were materially compliant. We expended approximately $5,000 to assess
and address the year 2000  problem.  Although it is now past January 1, 2000, we
cannot assure you that we or our suppliers and customers  have not been affected
in a manner that is not yet apparent.  In addition,  some computer programs that
were date sensitive to the year 2000 may not have been programmed to process the
Year 2000 as a leap year, and any negative consequential effects remain unknown.
As a result,  we will continue to monitor our Year 2000  compliance and the year
2000 compliance of our suppliers and customers.

Impact of Recently Issued Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities"  ("SFAS 133"), which is required to be adopted in years
beginning  after June 15,  1999.  The  adoption  of SFAS 133 is not  expected to
materially  impact the Company's  results of operations,  financial  position or
cash flows.

      The American Institute of Certified Public Accountants issued Statement of
Position  98-1,  "Accounting  For the Costs of Computer  Software  Developed  or
Obtained for Internal  Use" ("SOP  98-1"),  on March 4, 1998.  SOP 98-1 provides
guidelines for accounting for costs of computer software  developed for internal
use. SOP 98-1 is effective for financial  statements for fiscal years  beginning
after  December 15, 1998. The adoption of SOP 98-1 is not expected to materially
impact the Company's results of operations, financial position or cash flow

Factors Affecting Future Operating Results

      Historically,  the Company has derived  virtually all of its revenues from
sales of its digitally  controlled audio mixing console system,  which system is
based  upon its  hardware  platform.  The  Company  believes  that sales of this
system,  along with enhancements  thereof, and the R-1 recorder and new System 5
digital  console  will  continue  to  constitute  a  significant  portion of the
Company's  revenues.  It is expected for the  foreseeable  future that a greater
portion  of the  Company's  revenue  will  come  from the new  System 5  digital
console.  Accordingly, any factor adversely affecting the Company's base system,
whether  technical,  competitive  or  otherwise,  could have a material  adverse
effect on the Company's business and results of operations.

      The Company has expended and will continue to expend  substantial funds to
launch its new System 5 digital console in the first quarter of fiscal 2000. The
Company's ability to fund operations through December 31, 2000 is dependent upon
achievement  of its operating  plan. If the Company did not attain its operating
plan it would obtain additional financing or cut expenses.  The Company believes
that  additional  debt or  equity  financing  will be  available  from  existing
investors  and others.  However,  there can be no  assurance as to the terms and
conditions of any such  financing and no certainty that funds would be available
when needed. The inability to obtain additional  financing,  if needed, would be
likely to have a material adverse effect on the Company.  To the extent that any
future  financing  involves the sale of the  Company's  equity  securities,  the
Company's then existing shareholders could be substantially diluted.



                                       27
<PAGE>

      A limited  number of the Company's  system sales  typically  account for a
substantial  percentage  of  the  Company's  quarterly  revenue  because  of the
relatively  high average  sales price of such systems.  Moreover,  the Company's
expense  levels  are  based  in  part on its  expectations  of  future  revenue.
Therefore, if revenue is below expectations, the Company's operating results are
likely  to be  adversely  affected.  In  addition,  the  timing  of  revenue  is
influenced  by a number of other  factors,  including  the timing of  individual
orders and shipments,  industry trade shows,  seasonal customer buying patterns,
changes in product  development  and sales and  marketing  expenditures,  custom
financing arrangements, production limitations and international sales activity.
Because the Company's operating expenses are based on anticipated revenue levels
and a high  percentage of the  Company's  expenses are  relatively  fixed in the
short  term,  variations  in the timing of  recognition  of revenue  could cause
significant  fluctuations  in operating  results from quarter to quarter and may
result in unanticipated quarterly earnings shortfalls or losses.

      The  markets  for the  Company's  system  are  characterized  by  changing
technologies  and new product  introductions.  The Company's future success will
depend in part upon its  continued  ability  to  enhance  its base  system  with
features  including new software and hardware  add-ons and to develop or acquire
and  introduce  new  products  and  features  which meet new market  demands and
changing  customer  requirements  on a timely  basis.  The Company is  currently
designing  and  developing  new  products,  primarily in the areas of recording,
editing  and mixing  functions  of sound  production  as well as  digital  audio
processing and networking systems.  In addition,  there can be no assurance that
products  or  technologies  developed  by others  will not render the  Company's
products or technologies non-competitive or obsolete. See "Business."

      Historically,  the Company's  primary market success has been in the music
segment of the professional  audio market. In order for the Company to grow, the
Company  believes that it must continue to gain market share in the music market
segment,  as well as in its  other  targeted  markets.  There can be no
assurance  that the  Company  will be able to  compete favorably in all markets.
segments.  The Company's  inability to compete  favorably  could have a material
adverse  effect on its business and results of  operations.  The markets for the
Company's  products are intensely  competitive and  characterized by significant
price  competition.  The Company believes that its ability to compete depends on
elements  both within and outside its control,  including the success and timing
of new product  development and introduction by the Company and its competitors,
product  performance  and price,  distribution,  availability  of lease or other
financing  alternatives,  resale  of used  systems  and  customer  support.  See
"Business--Competition".

      Currently, the Company uses many sole or limited source suppliers, certain
of which are critical to the integrated  circuits included in the Company's base
system. Major delays or terminations in supplies of such components could have a
significant  adverse  effect on the Company's  timely  shipment of its products,
which in turn would  adversely  affect the  Company's  business  and  results of
operations.  The Company  also  relies on single  vendors to  manufacture  major
subassemblies for its products.  Any extended  interruption in the future supply
or increase in the cost of  subassemblies  manufactured  by its primary or other
third  party  vendors  could have a  material  adverse  effect on the  Company's
business and results of operations. See "Business--Manufacturing and Suppliers".

      In  addition,  as  different  electrical,  radiation  or  other  standards
applicable  to the Company's  products are adopted in  countries,  including the
United  States,  or groups of countries in which the Company sells its products,
the failure of the Company to modify its products, if necessary,  to comply with
such standards would likely have an adverse effect on the Company's business and
results of operations. See "Business--Sales and Distribution".



                                       28
<PAGE>

      The Company  generally relies on a combination of trade secret,  copyright
law and trademark law, contracts and technical measures to establish and protect
its proprietary  rights in its products and technologies.  However,  the Company
believes that such measures  provide only limited  protection of its proprietary
information,  and there is no assurance  that such  measures will be adequate to
prevent misappropriation. In addition, significant and protracted litigation may
be necessary to protect the Company's intellectual property rights, to determine
the scope of the  proprietary  rights of others or to defend  against  claims of
infringement.  There  can  be no  assurance  that  third-party  claims  alleging
infringement  will not be asserted  against the Company in the future.  Any such
claims  could have a  material  adverse  effect on the  Company's  business  and
results of operations. See "Business--Proprietary Rights".

       The  Company's  success  depends,  in part,  on its ability to retain key
management  and technical  employees  and its  continued  ability to attract and
retain highly skilled  personnel.  In addition,  the Company's ability to manage
any growth will  require it to  continue  to improve and expand its  management,
operational and financial systems and controls.  If the Company's  management is
unable to manage growth effectively, its business and results of operations will
be adversely affected.

      As a result  of these and  other  factors,  the  Company  has  experienced
significant  quarterly  fluctuations in operating  results and anticipates  that
these  fluctuations  will continue in future periods.  There can be no assurance
that  the  Company  will  be   successful  in   maintaining   or  improving  its
profitability  or avoiding  losses in any future period.  Further,  it is likely
that in some future period the Company's net revenues or operating  results will
be below the expectations of public market securities analysts and investors. In
such event,  the price of the Company's  Common Stock would likely be materially
adversely affected. See "Factors Affecting Future Operating Results."


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      As of December 31, 1998, the Company's  investment  portfolio consisted of
money  market  funds.  The Company  does not invest for  speculative  or trading
purposes.  The Company's primary  objective with its investment  portfolio is to
invest available cash while preserving principal and meeting liquidity needs. In
accordance with the Company's  investment policy, the Company places investments
with high credit quality  institutions  and limits the amount of credit exposure
to any one  issuer.  Interest  income for the year ended  December  31, 1999 was
approximately  $47,000.  A decrease  in  interest  rates  could  result in lower
interest income earned from its money market and other cash deposit investments.
However,  based on the investment portfolio contents,  the Company believes that
if a  significant  change in interest  rates were to occur,  it would not have a
material effect on the Company's results of operations,  financial condition, or
cash flows, although there can be no assurance of this.

      Sales  through  the  Company's  Japanese  subsidiary  are  denominated  in
Japanese  Yen.  The  Company's  receivables  denominated  in Yen are  subject to
foreign  exchange risk. The Company does not enter into hedging  arrangements to
mitigate the foreign currency risk with respect to such arrangements. An adverse
change  in the  foreign  exchange  rate  would  have an  effect on the price the
Company  ultimately  sells its consoles for in Japan and could result in foreign
currency  transaction  losses. An adverse change of 10% in the Yen exchange rate
would result in a decline in income before taxes of approximately $77,000.




                                       29
<PAGE>




Item   8.  Financial Statements and Supplementary Data

Index to Financial Statements
                                                                           Page
Report of Independent Accountants...............................             31
Report of Independent Auditors..................................             32
Consolidated Balance Sheets as of December 31, 1999 and 1998 ...             33
Consolidated Statements of Operations for the years ended December
31, 1999, 1998, and 1997 .......................................             34
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997................................             35
Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997.........................................             36
Notes to Consolidated Financial Statements......................             37



























                                       30
<PAGE>





                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Euphonix Inc.

         In our opinion,  the  accompanying  consolidated  balance sheet and the
related  consolidated  statements of operations,  of shareholders' equity and of
cash flows present fairly, in all material  respects,  the financial position of
Euphonix,  Inc.  and its  subsidiaries  at December  31, 1999 and the results of
their operations and their cash flows for the year then ended in conformity with
accounting  principles  generally accepted in the United States. These financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our  audit.  We  conducted  our audit of these  statements  in  accordance  with
auditing standards  generally accepted in the United States,  which require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates made by management,  and evaluating the overall financial
statement  presentation.  We believe that our audit provides a reasonable  basis
for the opinion expressed above.



/s/ PricewaterhouseCoopers LLP


San Jose, California
March 1, 2000






















                                       31
<PAGE>



                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


The Board of Directors and Shareholders
Euphonix, Inc.

We have audited the accompanying consolidated balance sheet of Euphonix, Inc. as
of December 31, 1998,  and the related  consolidated  statements of  operations,
shareholders'  equity, and cash  flows for each of the two years in the  period
ended  December  31,  1998. These financial  statements  are the responsibility
of the Company's management. Our  responsibility  is to  express  an opinion on
these financial statements based on our audits.

We conducted  our audits in  accordance  with  generally  accepted in the United
States auditing standards.  Those standards require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Euphonix,  Inc.  at  December  31,  1998,  and the  consolidated  results of its
operations  and its cash  flows  for each of the two years in the  period  ended
December 31, 1998, in conformity with accounting  principles  generally accepted
in the United  States.


                                                      /s/ ERNST & YOUNG LLP

Palo Alto, California
March 4, 1999














                                       32
<PAGE>
<TABLE>
<CAPTION>
<S>                                                       <C>          <C>

                               EUPHONIX, INC.
                         CONSOLIDATED BALANCE SHEET
                    (in thousands, except per share data)
                                                                December 31,
                                                            ------------------
                                                             1999        1998
                                                             ----        ----
                    ASSETS
CURRENT ASSETS:
 Cash and cash equivalents..............................   $  838     $  1,637
 Short-term investments.................................       --          601
 Accounts receivable, (net of allowance for doubtful
  accounts of $112 in 1999 and $403 in 1998)                2,354        1,543
 Inventories............................................    6,964        5,559
 Prepaid expenses and other current assets..............      174          238
                                                         --------    ---------
 Total current assets                                      10,330        9,578

 Property and equipment, net............................    1,881        1,360
 Deposits and other assets..............................       89           93
                                                         --------    ---------
  Total assets..........................................  $12,300     $ 11,031
                                                          ========    =========
          LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable.......................................  $ 2,007     $  1,636
 Accrued liabilities....................................    1,090        1,737
 Deferred revenues......................................       --          185
 Customer deposits......................................      240           98
                                                          --------    ---------
Total current liabilities                                   3,337        3,656

Convertible note payable................................    2,166           --
                                                          --------    ---------
  Total liabilities.....................................    5,503        3,656
                                                          --------    ---------

Commitments and contingencies (Note 3)

SHAREHOLDERS' EQUITY:
Preferred stock, $0.001 par value: 2,000,000 authorized
 shares, none issued and outstanding....................       --           --
Common stock, $0.001 par value: 20,000,000 authorized
 shares, 11,591,000 and 6,635,000 shares issued and
 outstanding in 1999 and 1998, respectively.............       12            7
Additional paid-in capital..............................   21,402       15,673
Accumulated other comprehensive income..................       42           75
Accumulated deficit.....................................  (14,659)      (8,330)
Deferred compensation...................................       --          (50)
                                                          --------    ---------
Total shareholders' equity..............................    6,797        7,375
                                                          --------    ---------
 Total liabilities and shareholders' equity.............  $12,300      $11,031
                                                          ========    =========
</TABLE>


 The  accompanying  notes are an  integral  part of these consolidated financial
 statements.





                                       33
<PAGE>


                                EUPHONIX, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands except per share amounts)

<TABLE>
<CAPTION>
<S>                                   <C>           <C>              <C>

                                               Years Ended December 31,
                                -----------------------------------------------
                                        1999            1998            1997
                                        ----            ----            ----


Net revenues.........................$ 13,806         $15,614         $18,093
Cost of revenues.....................   8,109           8,600           9,234
                                     ---------       ---------       ---------
Gross margin.........................   5,697           7,014           8,859
                                     ---------       ---------       ---------

Operating expenses:
    Research and development.........   4,485           4,587           3,683
    Sales and marketing..............   5,588           5,450           5,443
    General and administrative.......   1,299           2,283           2,037
                                    ----------       ---------       ---------
Total operating expenses............   11,372          12,320          11,163
                                    ----------       ---------       ---------
Operating loss.....................    (5,675)         (5,306)         (2,304)

Interest and other income...........       94              74             359
Interest expense and other charges       (748)             (8)           (209)
                                    ----------       ---------       ----------

Loss before income taxes ...........   (6,329)         (5,240)         (2,154)
Provision (benefit) for income taxes     ----             ----           (222)
                                    ----------       ---------       ----------

Net loss............................  $(6,329)        $(5,240)        $(1,932)
                                   ============    ============     ============

Basic and diluted net loss per share  $ (0.74)        $ (0.82)        $ (0.35)
                                   ============    ============     ============

Shares used in computing
    basic and diluted net loss.....     8,541           6,404           5,576
                                   ============    ============     ============

</TABLE>



   The  accompanying  notes are an  integral  part of these consolidated
financial statements.




                                       34
<PAGE>

                                 EUPHONIX, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  Years ended December 31, 1999, 1998 and 1997
                                 (in thousands)
<TABLE>
<CAPTION>
<S>                                  <C>    <C>      <C>         <C>

                                                     Additional
                                       Common Stock   Paid-In      Deferred
                                     Shares   Amount  Capital    Compensation
--------------------------------------------------------------------------------

Balance at January 1, 1997            5,565    $ 6    $ 13,719     $ (230)
Exercise of stock options                25    ---           4        ---
Amortization of deferred compensation   ---    ---         ---         90
Net loss                                ---    ---         ---        ---
Foreign currency translation adjustment ---    ---         ---        ---
Comprehensive loss
                                     ------------------------------------------
Balance at December 31, 1997          5,590      6      13,723       (140)
Sale of common stock                  1,040      1       1,949        ---
Exercise of stock options                 5    ---           1        ---
Amortization of deferred compensation   ---    ---         ---         90
Net loss                                ---    ---         ---        ---
Foreign currency translation adjustment ---    ---         ---        ---
Comprehensive loss
                                     ------------------------------------------
Balance at December 31, 1998          6,635      7      15,673        (50)
Beneficial conversion on issuance of
 convertible note payable               ---    ---         613        ---
Sale of common stock                  2,903      3       3,051        ---
Conversion of note payable            1,981      2       2,065        ---
Exercise of stock options                72    ---         ---        ---
Amortization of deferred compensation   ---    ---         ---         50
Net loss                                ---    ---         ---        ---
Foreign currency translation adjustment ---    ---         ---        ---
Comprehensive loss
                                   =============================================
Balance at December 31, 1999         11,591   $ 12    $ 21,402      $   -
                                   =============================================

(continued)

<S>                                   <C>                <C>          <C>
                                           Other
                                       Comprehensive     Accumulated
                                       Income (Loss)       Deficit       Total
                                      ------------------------------------------

Balance at January 1, 1997                    $ ---        $ (1,158)  $ 12,337
Exercise of stock options                       ---             ---          4
Amortization of deferred compensation           ---             ---         90
Net loss                                        ---          (1,932)
Foreign currency translation adjustment         (12)            ---
Comprehensive loss                                                      (1,944)
                                       -----------------------------------------
Balance at December 31, 1997                    (12)         (3,090)    10,487
Sale of common stock                             ---            ---      1,950
Exercise of stock options                        ---            ---          1
Amortization of deferred compensation            ---            ---         90
Net loss                                         ---         (5,240)
Foreign currency translation adjustment          87             ---
Comprehensive loss                                                      (5,153)
                                       -----------------------------------------

Balance at December 31, 1998                     75          (8,330)     7,375
Beneficial conversion on issuance of
 convertible note payable                       ---             ---        613
Sale of common stock                            ---             ---      3,054
Conversion of note payable                      ---             ---      2,067
Exercise of stock options                       ---             ---        ---
Amortization of deferred compensation           ---             ---         50
Net loss                                        ---          (6,329)
Foreign currency translation adjustment         (33)            ---
Comprehensive loss                                                      (6,362)
                                   =============================================
Balance at December 31, 1999                   $ 42       $ (14,659)   $ 6,797
                                   =============================================


</TABLE>

       The  accompanying  notes are an  integral  part of these consolidated
    financial statements.


                                       35
<PAGE>



                                 EUPHONIX, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
<S>                                      <C>            <C>           <C>


                                             1999           1998          1997
                                             ----           ----          ----
Cash flows from operating activities:
Net loss                                   ($6,329)        ($5,240)    ($1,932)
                                          --------------------------------------
Adjustments to reconcile net loss to net cash
 used in operating activities:
 Depreciation and amortization                 625             595         422
 Deferred income taxes                         ---              81         322
 Loss on disposal of fixed assets              ---             161          10
 Allowance for doubtful accounts              (291)            180         103
 Beneficial conversion on convertible
  note payable                                 613             ---         ---
 Deferred compensation amortization             50              90          90
 Changes in operating assets and liabilities:
  Accounts Receivable                         (520)            187        (387)
  Inventory                                 (1,405)           (248)       (636)
  Prepaid expenses and other assets             53             (50)        167
  Income tax                                   ---             544        (544)
  Accounts payable                             371             712         188
  Accrued liabilities                         (799)            482        (415)
  Customer deposits                            142            (140)       (247)
                                        ---------------------------------------
Total adjustments                           (1,161)          2,594        (927)
                                        ----------------------------------------

Net cash used in operating activities       (7,490)         (2,646)     (2,859)
                                        ----------------------------------------

Cash flows from investing activities:
Proceeds from sales of available-for-sale
 securities                                    601           1,109       4,926
Purchases of available-for-sale securities     ---             ---      (1,045)
Purchase of property and equipment, net
 of retirements                             (1,131)           (657)       (574)
                                       -----------------------------------------
Net cash provided by (used in) investing
 activities                                   (530)            452       3,307
                                       -----------------------------------------

Cash flows from financing activities:
Proceeds from issuance of convertible notes  4,167             ---         ---
Proceeds from sale of common stock           3,054           1,951           4
Proceeds from short-term borrowings            ---             500         287
Repayment of short-term borrowings             ---            (500)       (287)
                                      ------------------------------------------
Net cash provided by (used in) financing
 activities                                  7,221           1,951           4
                                      ------------------------------------------

Net increase (decrease) in cash and cash
 equivalents                                  (799)           (243)        452
Cash and cash equivalents at beginning
 of year                                     1,637           1,880       1,428
                                     -------------------------------------------
Cash and cash equivalents at end of year     $ 838         $ 1,637      $1,880
                                     ===========================================

Supplemental schedules of noncash investing
and financing activities:

    Conversion of notes payable into common
    stock                                    $2,000        $   ---         ---
                                          ============   ===========  =========
</TABLE>


     The  accompanying notes are an integral part of these consolidated
financial statements.





                                       36
<PAGE>

                                 EUPHONIX, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  The Company and Summary of Significant Accounting Policies

      The Company

        Euphonix,  Inc. (the "Company") was  incorporated on July 6, 1988 in the
state of California. Euphonix develops, manufactures and supports networked
digital audio systems for music, film & TV post-production, broadcast, sound
reinforcement and multimedia applications.

      Basis of Presentation

         The  consolidated  financial  statements  include  the  accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated on  consolidation.  The preparation of the
consolidated   financial   statements  in  conformity  with  generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities  at the date of the  consolidated  financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.

      Foreign Currency Translation

         The functional  currency for the Company's  Japanese  subsidiary is the
Yen.  Assets and liabilities are translated at exchange rates prevailing
at the balance sheet dates.  Revenues,  costs and expenses are  translated  into
United States dollars at average exchange rates for the period. Gains and losses
resulting  from  translation  are  accumulated  as a component of  shareholders'
equity.

      Foreign Currency Risk

         The  Company  does not enter into  hedging  arrangements  to mitigate
the foreign currency risk with respect to foreign currency  denominated assets
and  liabilities.  An adverse  change in the foreign  exchange rate could
result in foreign currency  transaction  losses that could materially affect the
Company's operations,  financial position and cash flows. Foreign exchange gains
were  $48,000, $14,000 and $6,000 for the years  ended  December  31,  1999,
1998, and 1997 respectively.


     Cash, Cash Equivalents, and Short-Term Investments

        Cash equivalents  consist of short-term  financial  instruments that are
readily  convertible into cash with original maturities of less then ninety days
from the date of acquisition. The carrying amount reported in the balance sheets
for cash and cash  equivalents  approximates  fair  value.  The fair  values for
short-term investments are based on quoted market prices.



                                       37
<PAGE>



                                 EUPHONIX, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

         The  Company  accounts  for its  investments  in  accordance  with  the
provisions of Statement of Financial  Accounting  Standards No. 115, "Accounting
for Certain  Investments in Debt and Equity  Securities."  At December 31, 1998,
the Company has categorized its short term investments,  which are substantially
money  market  funds,  that  invest  in  government  obligations  and  corporate
securities,   as  available-for-sale,   and  has  included  them  in  short-term
investments.  Available-for-sale  securities  are  carried  at fair  value  with
unrealized gains and losses,  reported in a separate  component of shareholders'
equity.  Unrealized  holding  gains and  losses at  December  31,  1998 were not
material.  Amortization  is included in investment  income.  Realized  gains and
losses   and   declines   in  value   judged  to  be   other-than-temporary   on
available-for-sale  securities  are  included  in interest  income.  The cost of
securities  sold is based on the specific  identification  method.  Interest and
dividends  on  securities  classified  as  available-for-sale  are  included  in
interest income.

     Inventories

        Inventories are stated at the lower of standard cost (which approximates
first-in, first-out) or market (net realizable value).

    Property and Equipment, net

      Property  and  equipment  are carried at cost.  The Company  provides  for
depreciation by charges to expense which are sufficient to write off the cost of
the assets over their estimated useful lives on the straight-line basis.

   Revenue Recognition

        The Company generally  recognizes revenue upon shipment. A provision for
the estimated cost of installation  and warranty is recorded at the time revenue
is recognized.

Concentration of Credit Risk

      Financial   instruments   that   potentially   subject   the   Company  to
concentrations  of credit risk consist  principally of cash and cash equivalents
and accounts  receivables.  The Company's investments consist of certificates of
deposits and money market  funds,  which invest in  government  obligations  and
corporate  securities.  The  Company is exposed to credit  risks in the event of
default by the financial institutions or issuers of investments to the extent of
amounts  recorded on the balance sheet.  The Company  manufactures and sells its
products to end-users, sales representatives, distributors and leasing companies
in the music, post production (film and television),  and broadcast  industries.
The Company  performs  ongoing credit  evaluations  of its customers'  financial
condition  and prior to shipping the product,  generally  requires a substantial
deposit anywhere from $10,000 up to 50% of the mixing console's value and a firm
purchase  order.  From time to time and depending on the financial  condition of
the customer,  the Company may require  payment of a substantial  portion of the
purchase  price,  an  irrevocable  letter of credit,  or a purchase order from a
third-party  lessor.  The  Company is  exposed  to credit  risks in the event of
insolvency  by its  customers  to the extent of amounts  recorded on the balance
sheet.  The Company  maintains  reserves for potential  credit losses,  and such
losses have historically been within management's expectations.





                                       39
<PAGE>

                                 EUPHONIX, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Warranty Accrual

        The  Company  provides  a  one-year  parts  and  labor  warranty  on its
products. The Company accrues for estimated warranty costs upon shipment.


  Comprehensive Income

         As of January 1, 1998,  the Company  adopted  SFAS No. 130,  "Reporting
Comprehensive  Income"  ("SFAS  130").  SFAS 130  establishes  new rules for the
reporting and display of comprehensive  income and its components;  however, the
adoption  of  the  Statement  had  no  impact  on  the  Company's  net  loss  or
shareholders'  equity.  SFAS 130  requires  unrealized  gains or  losses  on the
Company's   available-for-sale   securities  and  foreign  currency  translation
adjustments,  which prior to adoption were reported  separately in shareholders'
equity,  to be  included in other  comprehensive  income.  Prior year  financial
statements have been reclassified to conform to the requirements of SFAS 130.

 Advertising Costs

         The Company expenses advertising costs as incurred. Advertising expense
was approximately $457,000, $504,000 and $435,000 in 1999, 1998 and 1997
respectively.

Stock-Based Compensation

       The Company  accounts for  stock-based  compensation  in accordance  with
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees"  ("APB 25") and complies with the disclosure  provisions of Statement
of  Financial   Accounting   Standards  No.  123,  "Accounting  for  Stock-Based
Compensation"  ("SFAS  No.  123").  Under APB No.  25,  compensation  expense is
recognized  based on the  difference,  if any, on the date of grant  between the
fair value of the Company's stock and the amount an employee must pay to acquire
the stock.  The  compensation  expense  is  recognized  over the option  vesting
period.

      The Company  accounts for equity  instruments  issued to  non-employees in
accordance with the provisions of SFAS No. 123 and the Emerging  Issues  Task
Force in Issue No.  96-18,  "Accounting  for Equity  Instruments  That Are
Issued to Other Than  Employees for Acquiring, or In Conjunction with Selling,
Goods or Services."

Net loss per share

      Basic and diluted net loss per share is computed by dividing the net loss
available to holders of Common Stock for the period by the weighted average
number of shares of common stock outstanding during the period.  The calcula-
tion of diluted net loss per share excludes potential shares of common stock
if their effect is anti-dilutive. Potential common stock consists of shares of
common stock issuable upon the exercise of stock options and shares issuable
upon the conversion of the convertible note payable.



                                       39
<PAGE>

                                  EUPHONIX, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The following table sets forth potential shares of Common Stock that are
not included in the diluted net loss per share calculation above because to do
so would be anti-dilutive for the period indicated (in thousands):

<TABLE>
<CAPTION>
<S>                              <C>           <C>             <C>

                                                  December 31,
                                  -----------------------------------------
                                    1999             1998        1997
                                    ----             ----        ----
Convertible note payable           2,888              ---          ---
Common stock options               2,558            1,800        1,166
                                  --------       ---------    ---------
                                   5,446            1,800        1,166
                                  ========       =========    =========
</TABLE>


  Segment Information

      The Company  follows the  provisions of Statement of Financial  Accounting
Standards No. 131,  "Disclosures  about  Segments of an  Enterprise  and Related
Information"  ("SFAS  No.131").  The Company  identifies its operating  segments
based  on  business  activities,   management  responsibility  and  geographical
location. During the periods presented the Company operated in a single business
segment.


  Reclassifications

     The Company has reclassified the presentation of certain 1998 balance
sheet and 1998 and 1997 statement of cash flows information to conform to
current year presentation.  The reclassifications had no effect on the previous-
ly reported financial position or results of operations.

  Recently Issued Accounting Pronouncements

      In June 1998, the Financial  Accounting  Standards Board issued Statement
of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which is required to be
adopted in years  beginning  after June 15,  1999.  The adoption of SFAS 133 is
not  expected to  materially  impact the Company's results of operations,
financial position or cash flows.

      The American Institute of Certified Public  Accountants issued Statement
of Position 98-1,  "Accounting For the Costs of Computer Software  Developed or
Obtained for Internal Use" ("SOP 98-1"),  on March 4, 1998.  SOP 98-1 provides
guidelines  for  accounting  for costs of computer  software  developed  for
internal use. SOP 98-1 is effective for  financial  statements  for fiscal years
beginning after December 15, 1998. The adoption of SOP 98-1 is not expected to
materially  impact the Company's  results of operations,  financial position or
cash flow.

      In  December  1999,  the SEC staff  issued  Staff  Accounting  Bulletin
("SAB") No. 101,  "Revenue  Recognition."  The SEC staff addresses several
issues in SAB No. 101,  including the timing for recognizing  revenue derived
from selling  arrangements that involve contractual  customer  acceptance
provisions  and  installation  of the product  occurs  after  shipment  and
transfer of title.  The Company's existing revenue  recognition  policy is to
recognize revenue at the time the customer takes title to the product,
generally at the time of  shipment,  because the Company has  routinely  met its
installation  obligations  and  obtained  customer  acceptance. Applying  the
requirements  of SAB No. 101 to the present  selling  arrangements  used by the



                                       40
<PAGE>


                              EUPHONIX, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Company  for the sale of  equipment  may require a change in the Company's
accounting  policy for revenue  recognition and the deferral of the recognition
of revenue from such equipment sales until  installation is complete and
accepted by the customer.  The effect of such a change,  if any, must be
recognized as a cumulative  effect of a change in accounting no later than the
Company's  second quarter of its fiscal year ending on December 31, 2000.


2.       Balance Sheet Components (in thousands):
<TABLE>
<CAPTION>
<S>                                                <C>               <C>

      (a) Inventories:
                                                           December 31,
                                             -----------------------------------
                                                      1999                1998
                                                      ----                ----
       Raw materials.............................. $ 2,878             $ 2,112
       Work-in-process............................   1,494               1,391
       Finished goods.............................   2,592               2,056
                                             ---------------     ---------------
                                                   $ 6,964             $ 5,559
                                             ===============     ===============

      (b) Property and equipment:

       Furniture and fixtures.....................$    248            $    225
       Computer equipment and purchased software..   2,226               1,849
       Leasehold improvements.....................     326                 321
       Demonstration equipment....................   1,059                 333
                                              --------------     ---------------
                                                     3,859               2,728
       Accumulated depreciation...................  (1,978)             (1,368)
                                              --------------     ---------------
       Property and equipment, net................ $ 1,881             $ 1,360
                                              ==============     ===============

</TABLE>

         Depreciation expense was $610,000, $536,000, and $359,000 for the three
years ended December 31, 1999,  1998 and 1997.  The capital cost of assets
acquired under capital leases was $170,000 for the years ended December 31,
1999, 1998, and 1997.  The accumulated depreciation for the assets acquired uner
capital lease was $168,000, $138,000 and $112,000 for the years ended December
31, 1999, 1998 and 1997, respectively.


(c)      Accrued liabilities:
<TABLE>
<CAPTION>
<S>                                                 <C>                 <C>
                                                           December 31,
                                              ----------------------------------
                                                      1999                1998
                                                      ----                ----
       Accrued compensation and related......     $    429            $    549
       Accrued warranty......................          244                 440
       Accrued commissions...................           83                 126
       Sales tax payable.....................           91                 188
       Other.................................          243                 434
                                             ---------------     ---------------
                                                   $ 1,090             $ 1,737
                                             ===============     ===============
</TABLE>


                                       41
<PAGE>


                                   EUPHONIX, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(d)      Convertible long-term note payable:

          On July 30, 1999, the Company  executed a promissory  note  with an
          existing  investor  and other  parties  under  which the  Company  was
          authorized to draw up to $2,100,000 through October 31, 1999. The note
          accrues  interest  at 7.75%  per  annum  with  principal  and  accrued
          interest due at July 30,  2001.  The assets of the Company are pledged
          as  collateral.  The  conversion  feature  of the note allows the
          holder to convert the note into common stock of the Company at a rate
          of $0.75 per share, and was subject to shareholders' approval which
          was obtained on October 22, 1999.   At the date of  issuance of the
          note,  the quoted  market price of the stock was $0.969 per share,
          resulting  in  a  beneficial  conversion  feature in the amount of
          $613,000.  The beneficial  conversion was recorded as a credit to
          equity and a charge to interest expense at the time of shareholder
          approval.

3.   Commitments and contingencies

        Contingencies

         From time to time, the Company may have certain contingent  liabilities
that  arise in the  ordinary  course of its  business  activities.  The  Company
accrues contingent liabilities when it is probable that future expenditures will
be made and such  expenditures  can be reasonably  estimated.  In the opinion of
management,  there are no pending  claims of which the  outcome is  expected  to
result in a material  adverse  effect in the  financial  position  or results of
operations of the Company.

        Lease Commitments

        The  Company  leases  facilities  for its  headquarters  in  Palo  Alto,
California, its subsidiary in Woodinville,  Washington, and its sales offices in
Los  Angeles,  Nashville,  New York,  London and Tokyo.  These  operating  lease
agreements  expire at various dates through  August 2004, and all leases contain
renewal options.  Certain leases contain  provisions for rental  adjustments and
require the Company to pay property  taxes,  insurance,  and normal  maintenance
costs. In September 1998, the Company  sub-leased  portions of its facilities in
Palo Alto, California and New York.

The  aggregate  future  minimum lease  payments  under  operating  leases are as
follows (in thousands):
<TABLE>
<CAPTION>
<S>                              <C>                <C>            <C>

                                                                       Net
                                  Facilities          Subleases     Commitments
                2000....         $    1,002           $    286        $    716

                2001....                939                 72             867

                2002....                966               ----             966

                2003....                960               ----             960

              Thereafter                704               ----             704
                               --------------     ---------------   ------------
               Total             $    4,571          $     358        $  4,213
                               ==============     ===============   ============
</TABLE>


                                       42
<PAGE>


                                   EUPHONIX, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Total rent expense was  approximately  $967,000,  $744,000 and $652,000 in 1999,
1998 and 1997, respectively.

4.  Shareholders' Equity

      Preferred Stock

         The Company is authorized  to issue  2,000,000  shares of  undesignated
preferred stock.  Preferred stock may be issued from time to time in one or more
series.   The  Board  of  Directors  is  authorized  to  determine  the  rights,
preferences, privileges, and restrictions granted to and imposed upon any wholly
unissued series of preferred stock and to fix the number of shares of any series
of preferred  stock and the  designation  of any such series without any vote or
action by the Company's shareholders.

      Common Stock

         In January 1999, the Company  received  proceeds of $1,304,000 from new
and existing  investors  in exchange  for the  issuance of  1,320,000  shares of
$0.001  par value  common  stock.  On April 23,  1999,  the  Company  executed a
convertible  promissory  note  with  certain  new  and  existing  investors  for
$2,000,000,  which was due on April 23, 2001,  accrued  interest at 7.75% per
annum, and was convertible at the rate of $1.03 per share.  In October  1999,
the  holders  of the note  converted  the  $2,000,000 principal  amount and
$67,000 accrued  interest into 1,981,000  shares of common stock.  On  Novem-
ber  9,  1999,  the  Company entered  into an  agreement  with  existing  and
new  investors  who  purchased 1,583,000  shares  of  common  stock of the
Company  at  $1.1064  per share for aggregate  proceeds of $1,750,000.  During
1999 the Company issued 72,000 shares upon exercise of stock options and stock
purchase rights of employees.

       1990 Stock Plan

        The  1990  Stock  Plan  (the  "1990  Plan")  provides  for the  grant of
incentive  stock  options to  employees  of the Company and  nonstatutory  stock
options and stock purchase  rights to employees of the Company.  The Company has
authorized 2,042,281 shares of common stock for issuance under the 1990 Plan. At
December 31, 1999,  7,652 stock option shares were available for grant under the
Plan. Options issued under the 1990 Plan are exercisable upon vesting,  which is
generally four to five years.


      1995 Performance Based Stock Option Plan

        The 1995 Performance  Based Stock Option Plan (the "1995 Plan") provides
for the grant of incentive stock options and  nonstatutory  options to employees
of the Company.  A total of 50,000  shares of common stock has been reserved for
issuance  under the 1995 Plan. At December 31, 1999,  24,750 stock option shares
were available to grant under the Plan. Prior to 1997, options granted under the
1995 Plan  during  1995 vest at the rate of  one-third  of the  shares  one year
following the vesting  commencement  date,  with one  thirty-sixth of the shares
vesting each month  thereafter.  All options  granted under the 1995 Plan during
1997 shall vest on December 11, 2000; provided,  however, that if any time prior
to December 11, 2000 the  optionee  meets the  performance  targets set for such



                                       43
<PAGE>


                              EUPHONIX, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

optionee by the Board of Directors for fiscal year 1998,  1999 or 2000, then all
of the shares  subject to the option  shall vest upon the date such  targets are
met.

    1995 New Director Option Plan

        The 1995 New Director Option Plan (the "Directors' Plan") authorizes the
Company to issue  nonstatutory  stock options to purchase up to 50,000 shares of
the Company's  common stock at an exercise  price equal to the fair market value
of the common stock on the grant date. At December 31, 1999, 28,500 stock option
shares were available to grant under the Plan. The Directors' Plan provides that
each person who is an outside  director on the effective  date of the Directors'
Plan and each outside director who subsequently becomes a member of the Board of
Directors  shall be  automatically  granted an option to purchase  5,000 shares.
Additionally,  each outside director shall be automatically granted an option to
purchase 5,000 shares on the date of each annual shareholders'  meeting provided
he is an outside director as of the date of such meeting and is reelected to the
Board of Directors at such meeting.  Options under the plan are fully vested and
exercisable as of the date of grant.

       1997 Nonstatutory Stock Option Plan

        The 1997  Nonstatutory  Stock  Plan (the  "1997  Plan")  authorizes  the
Company to issue nonstatutory stock options to employees of the Company. A total
of 750,000 shares of common stock have been reserved for issuance under the 1997
Plan. At December 31, 1999,  11,500 stock option shares were  available to grant
under the Plan.  Prior to 1998,  options granted under the 1997 Plan during 1997
vest on December 11, 2000; provided, however, that if any time prior to December
11, 2000 the optionee meets the performance targets set for such optionee by the
Board of Directors for fiscal year 1998,  1999, or 2000,  then all of the shares
subject to the option shall vest upon the date such targets are met.

     1999  Stock Plan

        The  1999  Stock  Plan  (the  "1999  Plan")  provides  for the  grant of
incentive  stock  options to  employees  of the Company and  nonstatutory  stock
options and stock purchase  rights and common stock  equivalents to employees of
the  Company.  The Company has  authorized  750,000  shares of common  stock for
issuance under the 1999 Plan. At December 31, 1999,  143,183 stock option shares
were available for grant under the Plan.  Options issued under the 1999 Plan are
exercisable upon vesting, which is generally four years.




                                       44
<PAGE>



                                 EUPHONIX, INC.
                  NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS--(Continued)

A summary of the  Company's  stock  option  activity for all of its stock option
plans, is as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
<S>                              <C>           <C>           <C>

                                                Outstanding
                                                 Options
                                               ---------------------------------

                                    Shares       Number of
                                  Available       Shares
                                  For Grant    Outstanding    Price per share
                                 -----------------------------------------------
Balance at January 1, 1997           722          654         $0.10 - $5.375
   Options authorized                750          ---              ---
   Granted                          (731)         731         $1.125 - $3.00
   Exercised                         ---          (25)         $0.10 - $1.25
   Canceled                          194         (194)         $0.10 - $5.375
                                 -----------------------------

Balance at December 31, 1997         935        1,166          $0.10 - $5.375
   Granted                          (654)         654        $0.9375 - $2.50
   Exercised                         ---           (5)         $0.15 - $0.20
   Canceled                           15          (15)         $0.15 - $5.375
                                 -----------------------------

Balance at December 31, 1998         296        1,800          $0.10 - $5.375
   Authorized                        750          ---               ---
   Granted                          (938)         938          $0.001 - $1.25
   Exercised                         ---          (72)         $0.001 - $0.20
   Canceled                          108         (108)          $0.20 - $5.375
                                ------------------------------
Balance at December 31, 1999         216        2,558          $0.001 - $5.375

                                 =============================
(continued)

<S>                                                     <C>


                                               ---------------------------------
                                                               Weighted
                                                               Average
                                                              Exercise
                                                                Price
                                 -----------------------------------------------
Balance at January 1, 1997                                      $4.08
   Options authorized                                             ---
   Granted                                                       1.59
   Exercised                                                     0.16
   Canceled                                                      3.06


Balance at December 31, 1997                                     2.77
   Granted                                                       1.27
   Exercised                                                     0.18
   Canceled                                                      2.13


Balance at December 31, 1998                                     2.25
   Authorized                                                     ---
   Granted                                                       0.93
   Exercised                                                    0.003
   Canceled                                                      1.88


Balance at December 31, 1999                                    $2.77


</TABLE>

The following table summarizes  information  about stock options  outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
<S>                              <C>              <C>               <C>

                                     Options          Outstanding
                                -----------------------------------
                                                      Weighted
                                     Number of         Average         Weighted
               Range of                 Shares        Remaining         Average
              Exercise            Outstanding        Contractual       Exercise
              Prices             (in thousands)     Life (in years)      Price
                                ------------------ ----------------- -----------
            $0.10-$0.15                     13            2.3            $0.14
            $0.16-$1.25                  1,389            9.1             1.01
            $1.26-$2.00                    732            7.9             1.65
            $2.01-$4.00                     74            5.5             3.00
            $4.01-$5.38                    350            5.8             5.37
                                ------------------
         Total                           2,558            8.2            $1.84
                                ==================

(continued)
<S>                                <C>              <C>
                                     Options          Exercisable
                                 ----------------------------------

                                      Number of       Weighted
               Range of               Options          Average
               Exercise             Exercisable       Exercise
               Prices              (in thousands)     Price
                                ------------------  ----------------
            $0.10-$0.15                   13            $0.14
            $0.16-$1.25                  241             0.99
            $1.26-$2.00                  339             1.77
            $2.01-$4.00                   69             3.00
            $4.01-$5.38                  304             5.37
                                 ------------------
         Total                           966            $2.77
                                 ==================
</TABLE>

There were  528,000 and 244,000  outstanding  options that were  exercisable  at
December 31, 1998 and 1997, respectively.


                                       45
<PAGE>

                                    EUPHONIX, INC.
                  NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS--(Continued)


     Pro  forma  information  regarding  net loss  and net  loss  per  share is
required by FAS 123,  which also requires that the  information be determined as
if the Company has accounted for its employee stock options  granted  subsequent
to  December  31, 1994 under the fair value  method.  The fair value for options
granted prior to the initial public  offering was estimated at the date of grant
using the minimum value method. The fair value for options granted subsequent to
the  initial  public  offering  was  estimated  at the date of grant  using  the
Black-Scholes  option-pricing  model.  The minimum value method differs from the
Black-Scholes  option-pricing  model  because it does not consider the effect of
expected  volatility.  The following weighted average  assumptions were used for
1999, 1998, and 1997,  respectively:  risk-free interest rates of 6.44%,  5.59%,
and 6.27%; a dividend  yield of 0%;  volatility  factors of the expected  market
price of the Company's  common stock of 78% in 1999, 90.0 % in 1998 and 80.0% in
1997; and a weighted average expected life of the option of 6 years.

      The  weighted-average  grant-date fair value of options granted during the
years  ended  December  31,  1999,  1998 and 1997 were  $0.93,  $0.94 and $1.18,
respectively.  The effects on pro forma  disclosures of applying FAS 123 are not
likely to be  representative  of the effects on pro forma  disclosures in future
years.

      The  Black-Scholes  option  valuation  model  was  developed  for  use  in
estimating the fair value of traded options,  which have no vesting restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because the Company's  employee stock options have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

      For purposes of pro forma  disclosures,  the  estimated  fair value of the
options is amortized to expense over the options' vesting period.  The Company's
pro forma information follows:
<TABLE>
<CAPTION>
<S>                                 <C>            <C>               <C>

                                               Year Ended December 31,
                                               -----------------------
                                        1999             1998             1997
                                        ----             ----             ----
                                      (in thousands, except per share amounts)
Pro forma net loss.................$   (7,213)      $   (6,220)      $   (2,501)
Pro forma net loss per share:
 Basic and diluted.................$    (0.84)      $    (0.97)      $    (0.45)

</TABLE>


5.  Income Taxes

       No  provision  for federal or state income  taxes was  recorded  for the
years ended  December 31, 1999 and 1998 as the Company incurred net operating
losses during the period. The provision for taxes in 1997 represents current
federal taxes.



                                       46
<PAGE>

                                 EUPHONIX, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
<S>                                              <C>                  <C>

                                                            December 31,
                                                 -------------------------------
                                                        1999               1998
 Deferred tax assets:
  Net operating loss carryforwards............... $      4,185          $ 2,200
  Credit carryforwards...........................          862              500
  Capitalized research and development...........          514              400
  Reserves and other.............................          737              500
                                                 --------------     ------------
 Deferred tax assets.............................        6,298            3,600
 Deferred tax liabilities:
  Depreciation...................................          ---             (200)
                                                 --------------     ------------
 Net deferred tax assets.........................        6,298            3,400
 Valuation allowance.............................       (6,298)          (3,400)
                                                 --------------     ------------
 Total...........................................  $      ----           $ ----
                                                 ==============     ============
</TABLE>

      The deferred tax assets valuation allowance at December 31, 1999 and 1998
is attributable to federal and state deferred tax assets.  Management believes
that sufficient uncertainty exists with regard to the realizability of these
tax assets such that a full valuation allowance is necessary.  These factors
include the lack of significant history of consistent profits and the lack of
carryback capacity to realize these assets.  Based on this absence of objective
evidence, management is unable to assert that it is more likely than not that
the Company will generate sufficient taxable income to realize the Company's
net deferred tax assets.

      Reconciliation of the statutory federal income tax to the Company's
effective tax:

<TABLE>
<CAPTION>
<S>                                               <C>       <C>       <C>
                                                          December 31,
                                                    ------------------------
                                                    1999       1998     1997
                                                    ----       ----     ----
            Tax at federal statutory rate          (34)%       (34)%    (34)%
            State taxes                             (6)%        (6)%     ---
            Research and development credits        ---        (10)%     ---
            Beneficial conversion of note payable    3 %        ---      ---
            Other                                   ---         (4)%     ---
            Non recognition of tax benefit          37%         54%      24%
                                                   ------     ------    -----
                                                     0%          0%     (10)%
                                                   ======     ======    =====
</TABLE>


     As of December  31,  1999,  the Company  had  federal net  operating  loss
carryforwards  of  approximately  $11,947,000.  The  Company  also  had  federal
research and development tax credit carryforwards of approximately $435,000. The
net  operating  loss and  credit  carryforwards  will  expire at  various  dates
beginning on 2005 through 2018, if not utilized.


                                       47
<PAGE>


                                 EUPHONIX, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Utilization  of the net  operating  losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of the
Internal  Revenue  Code  of  1986  and  similar  state  provisions.  The  annual
limitation  may result in the  expiration  of net  operating  losses and credits
before utilization.

6.  Segment Disclosures

       The Company operates in a single industry segment, designing, developing,
manufacturing  and marketing of digitally  controlled  audio mixing consoles for
use in the production of audio content for the music,  post production (film and
television)  and  broadcast  industries.  Net revenue from the sale of digitally
controlled audio mixing consoles accounted for 75%, 82%, and 78% of consolidated
revenues for the years ended  December 31,  1999,  1998 and 1997,  respectively.
These  revenues were generated  primarily  from the CS3000 (which  accounted for
51%,  93% and 45% of mixing  console  revenue for the years ended  December  31,
1999, 1998 and 1997),  and the System 5 digital console (which accounted for 47%
of mixing console revenue for 1999),  and CS2000 (which accounted for 2%, 7% and
55% of mixing console  revenue for the years ended  December 31, 1999,  1998 and
1997).  The  Company  also  derives  revenues  from  the  sale of  it's  new R-1
multitrack  recorder which  accounted for 10% of  consolidated  revenues for the
year ended  December  31,1999,  and it's  discontinued  PC-based  digital  audio
workstations, which accounted for 1%, 4% and 7% of consolidated revenues for the
years ended December 31, 1999, 1998 and 1997, respectively. The remainder of the
Company's  revenues for the years ended  December  31, 1999,  1998 and 1997 were
derived from the sale of accessories to the consoles.

         The Company  markets its  products in the United  States and in foreign
countries through its sales personnel,  sales  representatives and distributors.
The Company's geographic information is as follows:
<TABLE>
<CAPTION>
<S>                     <C>               <C>                  <C>

Revenues (in thousands):
-----------------------
                                         Year ended  December 31,
                        --------------------------------------------------------
                              1999                1998                1997
                              ----                ----                ----
United States          $   9,196   67 %      $  8,903   57 %   $  11,009   61 %

Export:
 Europe                    1,739   13           1,025    7         2,021   11
 Japan                     1,594   11           3,361   21         1,817   10
 Other international       1,277    9           2,325   15         3,246   18
                       ---------  -----        ------- ----      -------- -----
Total                  $  13,806  100%       $ 15,614  100%    $  18,093  100%
                       ========== =====       ======== ====      ======== =====
</TABLE>
<TABLE>
<CAPTION>
<S>                    <C>                  <C>

Long-lived assets (in thousands):
---------------------------------
                                  December 31,
                        ------------------------------
                            1999              1998
                            ----              ----
United States          $   1,772            $  1,342
Europe                       163                  71
Japan                         35                  40
                       ----------          ----------
Total                  $   1,970            $  1,453
                      ===========          ==========

</TABLE>



                                       48
<PAGE>

                                 EUPHONIX, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7.  Concentration of Other Risks

      Products

        The Company has derived  substantially  all of its revenues to date from
sales of its  digitally  controlled  audio mixing  console  system.  The Company
expects  that its ability to  maintain or expand its current  levels of revenues
and profits,  if any, in the future will depend upon,  among other  things,  its
success in selling its new System 5 digital console and R-1 multitrack recorder,
enhancing its new System 5 digital  system with features  including new software
and hardware  add-ons and  developing  and  marketing  new products and features
which meet new market  demands and changing  customer  requirements  on a timely
basis.

      Markets

        The markets for the  Company's  products  are  characterized  by rapidly
changing  technologies,  significant  price competition and frequent new product
introductions.  The Company  believes that it must continue to gain market share
in all markets. If, in the future,  there should be a significant downturn in
any of the markets, the Company's business could be materially and adversely
affected.

      Inventories

        The  Company  makes  inventory  provisions  for  potentially  excess and
obsolete  inventory based on backlog and forecasted  demand.  Actual demand will
inevitably differ from such anticipated  demand, and such differences may have a
material effect on the financial statements.

      Customers

        The Company markets and sells its products  primarily to a broad base of
customers comprised of end-users and sales  representatives.  No one end-user or
distributor constituted 10% or more of net revenues in 1999, 1998, and 1997.

      Export Sales

        If in  the  future,  there  should  be a  downturn  in the  music,  post
production  (film and  television) or broadcast  industries,  or in the economic
conditions  abroad,  the Company's  business  could be materially  and adversely
affected. A substantial decline in export sales has occurred in Europe and Japan
over the last three years.  With the exception of sales to customers through the
Japanese  subsidiary,  sales in all foreign  countries are  denominated  in U.S.
dollars. Sales through the Japanese subsidiary are denominated in Yen.

      Materials

      Currently, the Company uses many sole or limited source suppliers, certain
of which are critical to  integrated  circuits  included in the  Company's  base
system.  If there were to be major  delays or  terminations  in supplies of such
components,  the  Company  could  experience  a  delay  in the  shipment  of its
products,  which  could  have a  materially  adverse  affect  on  its  financial
statements.  The Company  generally  purchases  these  single or limited  source


                                       49
<PAGE>

                                 EUPHONIX, INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

components pursuant to purchase orders and has no guaranteed supply arrangements
with such suppliers.

9.  Benefit Plans

      Defined Contribution Plan

        The Company has an employee  401(k)  salary  deferral  plan (the "Plan")
that allows voluntary  contributions by all full-time U.S.  employees.  Eligible
employees may contribute from 1% to 20% of their  respective  compensation.  The
Company does not contribute to the Plan.

10.  Related Party Transactions

        On April 23, 1999, the Company issued a convertible  promissory  note
with certain new and existing  investors for $2,000,000. As more fully described
in note 4, in October 1999, the note was converted into 1,981,000 shares of
common stock.

        In connection with this transaction, a director who had loaned $400,000,
as part of the issuance of the note, converted his portion of the note into
395,741 shares of common stock.

        Onset Enterprises  Associates III L.P. also  participated in this
convertible  promissory note, and received 991,051 shares of common stock upon
conversion of its portion of the note.  The managing  director of Onset
Enterprises  Associates  III L.P. is also a director of the Company.

        In December  1999,  the Company  sold a System 5 digital  console  and
R-1  multitrack  recorder  for  $481,000 to  Soundproof Studios,  of which a
shareholder  is the majority  owner.  A  corresponding  receivable  for the same
amount is included on the balance sheet at December 31, 1999.

11.  Subsequent Events

         Joint Venture

         On February  18, 2000,  Euphonix,  Inc.  entered into a  Shareholders
Agreement  with Audio  Exports and Euphonix UK Ltd. to set-up  Euphonix  Europe,
whose objective will be to carry on the business of  distribution  of Euphonix
products  within Europe.  In connection  with the above,  Euphonix Inc.  entered
into an  International  Distributor  Agreement  with Audio  Exports.  Both of
these agreements will become effective on April 1, 2000.

      Financing

      In connection with the joint venture with Audio Exports,  the President of
Audio Exports purchased 240,000 shares of common stock for $300,000.


                                       50
<PAGE>


                                   EUPHONIX, INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


      On February 22, 2000, the Company executed a promissory note with existing
investors under which the Company is authorized to draw up to $1,500,000 through
February 22, 2001.  The note accrues interest at 10% per annum with principal
and accrued interest due at February 22, 2001.  The assets of the company are
pledged as collateral.  The note contains a conversion feature, which is
subject to shareholder approval, and if approved, will allow the holder to
convert the note into common stock of the Company at a rate of $2 17/32
per share. Shareholder approval had not been obtained as of March 1, 2000.
In addition this note provides that upon conversion, if such conversion occurs,
the Company will issue warrants to purchase 1,185,185 shares of common stock at
prices ranging from $3 to $5. The warrants, if issued, will be exercisable at
any time and from time to time in part or in full on or before February 1, 2003.






















                                       51
<PAGE>


Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

      On November 15, 1999 the Company  dismissed  Ernst and Young LLP as its
independent  accountants.  The reports of Ernst & Young LLP on the  financial
statements of the Company for each of the past two fiscal years  contained no
adverse  opinion or disclaimer of opinion and were not  qualified  or modified
as to  uncertainty,  audit  scope or  accounting  principle.  The  decision to
change  independent accountants  was approved by the Company's  Audit  Committee
and the Board of  Directors.  During the Company's two most recent fiscal
years and  through  the date of this  Report, the  Company  has no disagreements
with Ernst & Young LLP on any matter of  accounting principles or practices,
financial statement disclosure,  or auditing scope or procedures,  which
disagreements if not resolved to the satisfaction  of Ernst & Young LLP would
have caused it to make  reference  thereto in its report on the financial
statements,  of the Company for such years.  During the  Company's  two most
recent  fiscal years and through the date of this Report,  the Company has had
not reportable events (as defined in Item 304(a)(1)(v) of the Regulation S-K).

      The Company engaged PricewaterhouseCoopers LLP as its new independent
accountants as of November 15, 1999.


























                                       52
<PAGE>



                                   PART III

         Certain information required by Part III is omitted from this Report on
Form 10-K in that the Registrant  will file its definitive  Proxy  Statement for
its Annual  Meeting of  Stockholders  to be held on June 26,  2000,  pursuant to
Regulation  14A of the  Securities  Exchange Act of 1934, as amended (the "Proxy
Statement"), not later than 120 days after the end of the fiscal year covered by
this  Report,  and  certain  information  included  in the  Proxy  Statement  is
incorporated herein by reference.

Item 10.  Directors and Executive Officers of the Registrant.
(a)      Executive Officers -- See the section entitled "Management--Executive
      Officers" in Part I, Item 1 hereof.

(b)      Directors  --  The  information   required  by  this  Item  is
      incorporated by reference to the section entitled "Election of  Directors"
      in the Proxy Statement.

Item 11.  Executive Compensation.

         The  information  required by this Item is incorporated by reference to
the sections entitled  "Compensation of Executive Officers" and "Compensation of
Directors" in the Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

         The information  requested by this Item is incorporated by reference to
the Section  entitled " Principle  Share  Ownership" and "Security  Ownership of
Management" in the Proxy Statement.

Item 13.  Certain Relationships and Related Transactions.

The  information  requested  by this Item is  incorporated  by  reference to the
section entitled "Certain Transactions" in the Proxy Statement.


















                                       53
<PAGE>




                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 10-K.

      (a) 1.  List of Financial Statement Schedules audited by Pricewaterhouse-
              Coopers LLP

              The following financial statements of Euphonix, Inc., are included
              in Item 8:

              Consolidated Balance Sheet as of December 31, 1999

              Consolidated Statement of Operations for the year ended December
              31, 1999

              Consolidated Statement of Shareholders' Equity for the year ended
              December 31, 1999

              Consolidated Statement of Cash Flows for the year ended December
              31, 1999

              Notes to Consolidated Financial Statements

          2. List of Financial Statement Schedules audited by Ernst & Young LLP

              The following financial statements of Euphonix, Inc., are included
              in Item 8:

              Consolidated Balance Sheet as of December 31, 1998

              Consolidated Statements of Operations for each of the two years in
              the period ended December 31, 1998

              Consolidated Statements of Shareholders' Equity for each of the
              two years in the period ended December 31, 1998

              Consolidated Statements of Cash Flows for each of the two years in
              the period ended December 31, 1998

              Notes to Consolidated Financial Statements

           3.  Supplemental Schedule

              Financial statement Schedules  have been  omitted because  the
              information required to be set forth therein is not applicable or
              is shown in the financial statements or notes thereto.



                                       54
<PAGE>



3. Exhibits,
Exhibit
Number            Description Of Document

3.1(1)                Amended and Restated Articles of Incorporation of the
                      Registrant.
3.2(1)                Bylaws of the Registrant.
10.1(1)               Form of Indemnification Agreement between the Registrant
                      and each of its directors and officers.
10.2(3)               1990 Stock Plan and forms of stock option agreement and
                      restricted stock purchase agreement thereunder.
10.3(1)               1995 Performance Based Stock Option Plan and form of stock
                      option Agreement thereunder.
10.4(1)               1995 New Director Option Plan and form of stock option
                      agreement thereunder.
10.5(4)               1997 Nonstatutory Stock Option Plan and form of stock
                      option agreement thereunder.
10.6                  1999 Stock Option Plan and form of agreements thereunder.
10.7(1)               Modification Agreement dated November 6, 1991, among the
                      Registrant and certain shareholders of the Registrant.
10.8(1)               Credit Agreement dated September 30, 1994 between the
                      Registrant and Bank of the West, as amended.
10.9(1)               Lease Agreement dated December 31,1990, as amended May 14,
                      1993, by and between the Registrant and El Camino Center.
10.10(2)              Agreement  and Plan of  Reorganization  dated  January 15,
                      1996 by and among the Registrant,  Spectral, Incorporated,
                      Euphonix Acquisition  Corporation and certain shareholders
                      of Spectral, Incorporated.
10.11(6)              Common Stock Purchase Agreement dated March 16, 1998
                      between the Registrant and the purchasers thereunder.
10.12(6)              Common Stock Purchase Agreement dated January 26, 1999
                      between the Registrant, Dieter Meier and Stephen D.
                      Jackson
10.13                 Amendment dated October 11, 1999 to Common Stock Purchase
                      Agreement dated January 26, 1999 between Registrant,
                      Dieter Meier, Stephen D. Jackson, Onset Enterprise
                      Associates, Linda Wei-Lee Chang 1998 Trust, Michael M.
                      Chang 1998 Trust, Milton M.T. Chang, Scott Silfvast and
                      Amy Silfast.
10.14(6)              Registration  Rights  Agreement  dated  January 26,  1999
                      between the Registrant and the purchasers thereunder.10.15
                      Amendment dated October 11, 1999 to Registration Rights
                      Agreement dated January 26, 1999 between the Registrant
                      and purchasers thereunder.
10.16(5)              Secured Promissory Note dated April 23, 1999 between the
                      Registrant and the investors thereunder.
10.17                 Secured Promissory Note dated July 30, 1999 between the
                      Registrant and investors thereunder.
10.18                 Common Stock Purchase Agreement dated November 9, 1999
                      between the Registrant and D. Meier, Onset Enterprise
                      Associates, Stephen D. Jackson and Walter Bosch.
10.19                 Registration Rights Agreement dated November 9, 1999
                      between the Registrant and Dieter Meier, Onset Enterprise
                      Associates, Stephen D. Jackson and Walter Bosch.
23.1                  Consent of PricewaterhouseCoopers, LLP, Independent
                      Accountants
23.2                  Consent of Ernst & Young LLP, Independent Auditors
24.1                  Power of Attorney (see page 57)
27.1                  Financial Data Schedule


(1) Incorporated  by  reference  to the exhibit  filed with the  Registrant's
    Registration  Statement on Form SB-2 (File No.  33-994898-LA),  effective
    August 21, 1995.

(2) Incorporated by reference to the exhibit filed with the Registrant's current
    report on Form 8-K filed on February 7, 1996.

(3) Incorporated  by reference to the exhibit filed with the Registrant's
    Registration Statement on From S-8 (File No.333-17545), effective December
    10, 1996.

(4) Incorporated  by  reference  to the exhibit  filed with the  Registrant's
    Registration  Statement  on Form  S-8  (File  No.  333-68425),  effective
    December 4, 1998.


                                     55
<PAGE>


(5) Incorporated by reference to the exhibit filed with the Registrant's current
    report on Form 10-K filed on April 26, 1999.

(6) Incorporated by reference to the exhibit filed with the Registrant's current
    report on Form 10-K/A filed on May 10, 1999.























                                       56
<PAGE>


                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to
be signed on its behalf by the undersigned,  thereunto duly  authorized,  in the
City of Palo Alto, State of California, on the 15th day of March, 2000.

                                 EUPHONIX, INC.

                             /s/ BARRY L. MARGERUM
                           -------------------------
                                 Barry Margerum
                 Chief Executive Officer, President and Director


                                POWER OF ATTORNEY

      KNOW ALL  PERSON BY THESE  PRESENTS,  that  each  person  whose  signature
appears below hereby  constitutes  and appoints James Dobbie and Barry Margerum,
and each of them acting individually,  as his  attorney-in-fact,  each with full
power of  substitution,  for him in any and all capacities,  to sign any and all
amendments  to this  Report on Form 10-K,  and to file the same,  with  exhibits
thereto and other  documents in connection  therewith,  with the  Securities and
Exchange Commission,  hereby ratifying and confirming our signatures as they may
be signed by our said attorney to any and all amendments to said Report.

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
Registration  Statement  has  been  signed  by  the  following  persons  in  the
capacities and on the date indicated:
<TABLE>
<CAPTION>
<S>    <C>                   <C>                               <C>

      Signature                          Title                           Date
      ---------                          -----                           ----
 /s/ JAMES DOBBIE              Chairman                          March 15, 2000
---------------------------
     James Dobbie

/s/ BARRY L. MARGERUM          Chief Executive Officer,          March 15, 2000
---------------------------    President, Director, (Principal
   Barry L. Margerum           Executive and Financial Officer)


/s/ SCOTT W. SILFVAST          Director, Senior Vice President   March 15, 2000
---------------------------
   Scott W. Silfvast

/s/MILTON M.T. CHANG PH.D.     Director                          March 15, 2000 .
---------------------------
   Milton M.T. Chang, Ph.D.

/s/ ROBERT F. KUHLING          Director                          March 15, 2000
---------------------------
    Robert F. Kuhling

/s/ HARRIET N. DIETZ           Controller, (Principal Accounting  March 15, 2000
---------------------------    Officer)
    Harriet N. Dietz
</TABLE>


                                     57

<PAGE>



                                 EUPHONIX, INC.

                                 1999 STOCK PLAN

1. Purposes of the Plan. The purposes of this 1999 Stock Plan are:
o  to  attract  and  retain  the  best  available  personnel  for  positions  of
substantial  responsibility,  o to provide  additional  incentive to  Employees,
Directors  and  Consultants,  and o to  promote  the  success  of the  Company's
business.

Options  granted under the Plan may be Incentive  Stock Options or  Nonstatutory
Stock Options,  as determined by the  Administrator at the time of grant.  Stock
Purchase  Rights and  Common  Stock  Equivalents  may also be granted or awarded
under thePlan.

2. Definitions. As used herein, the following definitions shall apply:

"Administrator"   means  the  Board  or  any  of  its  Committees  as  shall  be
administering the Plan, in accordance with Section 4 of the Plan.

"Applicable Laws" means the requirements relating to the administration of stock
option plans under U.S. state corporate laws, U.S.  federal and state securities
laws, the Code, any stock exchange or quotation system on which the Common Stock
is  listed  or  quoted  and  the  applicable  laws  of any  foreign  country  or
jurisdiction where Awards are, or will be, granted under the Plan.

"Award"  means an award of  Options,  Stock  Purchase  Rights  or  Common  Stock
Equivalents pursuant to the terms of the Plan.

"Board" means the Board of Directors of the Company. "Code" means the Internal
Revenue Code of 1986, as amended.

"Committee" means a committee of Directors  appointed by the Board in accordance
with Section 4 of the Plan.

"Common Stock" means the common stock of the Company.

"Common  Stock  Equivalent"  means an unfunded  and  unsecured  right to receive
Shares in the  future  that may be  granted to a Service  Provider  pursuant  to
Section  12.  "Common  Stock  Equivalent  Agreement"  means a written  agreement
between the Company and a Service  Provider  evidencing the terms and conditions
of an  individual  Common  Stock  Equivalent  grant or Award.  The Common  Stock
Equivalent  Agreement  is  subject  to the  terms  and  conditions  of the Plan.
"Company" means Euphonix, Inc., a California corporation.

"Consultant" means any person, including an advisor, engaged by the Company or a
Parent or Subsidiary to render services to such entity.

"Director" means a member of the Board.

"Disability" means total and permanent disability as defined in Section 22(e)(3)
 of the Code.

"Employee" means any person,  including Officers and Directors,  employed by the
Company or any Parent or Subsidiary of the Company. A Service Provider shall not
cease to be an Employee in the case of (i) any leave of absence  approved by the
Company or (ii)  transfers  between  locations  of the  Company  or between  the


                                       59
<PAGE>

Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive
Stock Options,  no such leave may exceed ninety (90) days,  unless  reemployment
upon  expiration  of such  leave  is  guaranteed  by  statute  or  contract.  If
reemployment  upon  expiration of a leave of absence  approved by the Company is
not so  guaranteed,  on the 181st day of such leave any  Incentive  Stock Option
held by the Optionee shall cease to be treated as an Incentive  Stock Option and
shall be treated  for tax  purposes  as a  Nonstatutory  Stock  Option.  Neither
service as a Director  nor payment of a director's  fee by the Company  shall be
sufficient to constitute "employment" by the Company.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Fair Market Value" means, as of any date, the value of Common Stock  determined
as follows:
If the Common Stock is listed on any  established  stock  exchange or a national
market system,  including  without  limitation the Nasdaq National Market or The
Nasdaq SmallCap  Market of The Nasdaq Stock Market,  its Fair Market Value shall
be the closing  sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such  exchange or system for the last market  trading day
prior to the time of  determination,  as reported in The Wall Street  Journal or
such other source as the Administrator deems reliable;

If the Common Stock is regularly  quoted by a recognized  securities  dealer but
selling  prices are not  reported,  the Fair  Market  Value of a Share of Common
Stock shall be the mean between the high bid and low asked prices for the Common
Stock on the last  market  trading  day  prior to the day of  determination,  as
reported in The Wall Street  Journal or such other  source as the  Administrator
deems reliable; or

In the absence of an  established  market for the Common Stock,  the Fair Market
Value shall be determined in good faith by the Administrator.

"Incentive  Stock  Option"  means an Option  intended to qualify as an incentive
stock option  within the meaning of Section 422 of the Code and the  regulations
promulgated thereunder.

"Nonstatutory  Stock  Option"  means an Option  not  intended  to  qualify as an
Incentive Stock Option.

"Notice of Grant" means a written or electronic notice evidencing  certain terms
and conditions of an Award.

"Officer"  means a person who is an officer of the Company within the meaning of
Section  16 of the  Exchange  Act  and the  rules  and  regulations  promulgated
thereunder.

"Option" means a stock option granted pursuant to the Plan.

"Option  Agreement"  means an  agreement  between  the  Company  and an Optionee
evidencing  the terms and conditions of an individual  Option grant.  The Option
Agreement is subject to the terms and  conditions  of the Plan and the Notice of
Grant.

"Option  Exchange  Program"  means a program  whereby  outstanding  Options  are
surrendered in exchange for Options with a lower exercise price.

"Optioned Stock" means the Common Stock subject to an Option or Stock Purchase
Right.

"Optionee"  means the holder of an  outstanding  Option or Stock  Purchase Right
granted under the Plan.

"Parent" means a "parent  corporation,"  whether now or hereafter  existing,  as
defined in Section 424(e) of the Code.

                                       60
<PAGE>

"Plan" means this 1999 Stock Plan.

"Restricted  Stock" means shares of Common Stock acquired pursuant to a grant of
Stock Purchase Rights under Section 11 of the Plan.

"Restricted  Stock Purchase  Agreement"  means a written  agreement  between the
Company and the Optionee evidencing the terms and restrictions applying to stock
purchased under a Stock Purchase Right. The Restricted Stock Purchase  Agreement
is subject to the terms and conditions of the Plan and the Notice of Grant.

"Rule  16b-3"  means Rule 16b-3 of the  Exchange  Act or any  successor  to Rule
16b-3, as in effect when discretion is being exercised with respect to the Plan.

"Section 16(b) " means Section 16(b) of the Exchange Act.

"Service Provider" means an Employee, Director or Consultant.

"Share"  means a share of the Common  Stock,  as  adjusted  in  accordance  with
Section 14 of the Plan.

"Stock  Purchase  Right" means the right to purchase  Common  Stock  pursuant to
Section 11 of the Plan, as evidenced by a Notice of Grant.

"Subsidiary"  means  a  "subsidiary  corporation",   whether  now  or  hereafter
existing, as defined in Section 424(f) of the Code.

3. Stock  Subject to the Plan.  Subject to the  provisions  of Section 14 of the
Plan, the maximum aggregate number of Shares available under the Plan is 750,000
Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.
                  If an  Option  or Stock  Purchase  Right  expires  or  becomes
unexercisable  without having been exercised in full, is surrendered pursuant to
an Option Exchange  Program,  or if a Common Stock Equivalent is forfeited prior
to conversion,  the  unpurchased or unissued  Shares which were subject  thereto
shall become  available for future grant or sale under the Plan (unless the Plan
has terminated);  provided,  however, that Shares that have actually been issued
under the  Plan,  whether  upon  exercise  of an  Option or Right,  shall not be
returned  to the Plan and shall not become  available  for  future  distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future award under the Plan.

                                       61
<PAGE>

4. Administration of the Plan.

         Procedure.

Multiple  Administrative  Bodies.  The Plan may be  administered by different
Committees  with respect to different  groups of Service Providers.

Section  162(m).  To the  extent  that  the  Administrator  determines  it to be
desirable  to  qualify   Options   granted   hereunder   as   "performance-based
compensation"  within the meaning of Section  162(m) of the Code, the Plan shall
be  administered  by a Committee of two or more "outside  directors"  within the
meaning of Section 162(m) of the Code.

Rule 16b-3. To the extent desirable to qualify transactions  hereunder as exempt
under Rule 16b-3, the transactions contemplated hereunder shall be structured to
satisfy the requirements for exemption under Rule 16b-3.

 Other  Administration.  Other  than  as  provided  above,  the  Plan  shall  be
administered  by (A) the  Board or (B) a  Committee,  which  committee  shall be
constituted to satisfy Applicable Laws.

Powers of the  Administrator.  Subject to the provisions of the Plan, and in the
case of a Committee,  subject to the specific  duties  delegated by the Board to
such Committee, the Administrator shall have the authority, in its discretion:

o        to determine the Fair Market Value;

o       to select the Service Providers to whom Awards may be granted hereunder;

o        to determine the number of shares of Common Stock to be covered by each
         Award granted hereunder;

o        to approve forms of agreement for use under the Plan;

o    to determine the terms and conditions,  not inconsistent  with the terms of
     the Plan,  of any  Award  granted  hereunder.  Such  terms  and  conditions
     include, but are not limited to, the exercise price, the time or times when
     Options or Stock  Purchase  Rights may be exercised  (which may be based on
     performance criteria),  the time or times when Common Stock Equivalents may
     be converted to Shares,  any vesting  acceleration  or waiver of forfeiture
     restrictions,  and any restriction or limitation regarding any Award or the
     shares of Common Stock relating thereto, based in each case on such factors
     as the Administrator, in its sole discretion, shall determine;

o    to reduce the exercise  price of any Option or Stock  Purchase Right to the
     then current Fair Market Value,  or to adjust the number of Shares  subject
     to a Common Stock Equivalent,  if the Fair Market Value of the Shares shall
     have declined since the date the Award was granted;

o        to institute an Option Exchange Program;

o        to construe and interpret the terms of the Plan and Awards granted
         pursuant to the Plan;

o    to prescribe, amend and rescind rules and regulations relating to the Plan,
     including rules and regulations  relating to sub-plans  established for the
     purpose of qualifying for preferred tax treatment under foreign tax laws;


                                       62
<PAGE>

o    to modify or amend  each  Award  (subject  to  Section  16(c) of the Plan),
     including  the  discretionary  authority  to  extend  the  post-termination
     exercisability  period of Options longer than is otherwise  provided for in
     the Plan;

o    to allow  Optionees to satisfy  withholding  tax obligations by electing to
     have the Company  withhold from the Shares to be issued upon exercise of an
     Option or Stock  Purchase  Right that number of Shares having a Fair Market
     Value equal to the amount required to be withheld. The Fair Market Value of
     the Shares to be withheld  shall be  determined on the date that the amount
     of tax to be withheld is to be determined.  All elections by an Optionee to
     have Shares  withheld for this purpose shall be made in such form and under
     such conditions as the Administrator may deem necessary or advisable;

o        to authorize  any person to execute on behalf of the Company any
     instrument  required to effect an Award  previously  made by
     the Administrator;

o        to make all other determinations deemed necessary or advisable for
     administering the Plan.

     Effect  of  Administrator's   Decision.   The  Administrator's   decisions,
determinations and  interpretations  shall be final and binding on all Optionees
and any other holders of Awards.

5. Eligibility.  Nonstatutory  Stock Options,  Stock Purchase Rights and Common
Stock Equivalents may be granted to Service  Providers.
Incentive Stock Options may be granted only to Employees.

6.  Limitations.

         Each Option shall be  designated  in the Option  Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However,  notwithstanding
such  designation,  to the extent that the  aggregate  Fair Market  Value of the
Shares with respect to which  Incentive  Stock Options are  exercisable  for the
first time by the  Optionee  during any  calendar  year  (under all plans of the
Company and any Parent or Subsidiary)  exceeds  $100,000,  such Options shall be
treated as  Nonstatutory  Stock  Options.  For  purposes of this  Section  6(a),
Incentive  Stock  Options shall be taken into account in the order in which they
were granted.  The Fair Market Value of the Shares shall be determined as of the
time the Option with respect to such Shares is granted.

         Neither the Plan nor any Award shall  confer upon an Optionee any right
with respect to continuing the  Optionee's  relationship  as a Service  Provider
with the Company,  nor shall they interfere in any way with the Optionee's right
or the  Company's  right to terminate  such  relationship  at any time,  with or
without cause.

         The following limitations shall apply to grants of Options:
                  No Service  Provider  shall be granted,  in any fiscal year of
the  Company,  Options to purchase  more than  400,000 Shares.

                  In  connection  with his or her  initial  service,  a  Service
Provider may be granted  Options to purchase up to an additional  200,000 Shares
which shall not count against the limit set forth in subsection (i) above.

                  The foregoing limitations shall be adjusted proportionately in
connection  with any change in the  Company's  capitalization  as  described  in
Section 14.

                  If an  Option  is  cancelled  in the same  fiscal  year of the
Company in which it was granted  (other than in  connection  with a  transaction
described  in Section  14),  the  cancelled  Option will be counted  against the

                                       63
<PAGE>


limits set forth in  subsections  (i) and (ii) above.  For this purpose,  if the
exercise  price of an Option is reduced,  the  transaction  will be treated as a
cancellation of the Option and the grant of a new Option.

7. Term of Plan.  Subject  to  Section  20 of the Plan,  the Plan  shall  become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 16 of the Plan.

8.  Term of  Option.  The term of each  Option  shall be  stated  in the  Option
Agreement.  In the case of an Incentive Stock Option, the term shall be ten (10)
years  from the date of grant or such  shorter  term as may be  provided  in the
Option Agreement.  Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive  Stock Option is granted,  owns stock
representing  more than ten percent (10%) of the total combined  voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive  Stock  Option  shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.

9.  Option Exercise Price and Consideration.

         Exercise  Price.  The per  share  exercise  price for the  Shares to be
issued  pursuant  to  exercise  of an Option  shall be determined by the
Administrator, subject to the following:

                         In the case of an Incentive Stock Option

      granted to an Employee  who,  at the time the  Incentive  Stock  Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all  classes of stock of the  Company or any  Parent or  Subsidiary,  the per
Share  exercise  price shall be no less than 110% of the Fair  Market  Value per
Share on the date of grant.

      granted to any Employee other than an Employee  described in paragraph (A)
immediately  above,  the per Share  exercise price shall be no less than 100% of
the Fair Market Value per Share on the date of grant.

                  In the case of a  Nonstatutory  Stock  Option,  the per  Share
exercise  price  shall  be  determined  by the  Administrator.  In the case of a
Nonstatutory   Stock   Option   intended   to  qualify   as   "performance-based
compensation"  within the meaning of Section  162(m) of the Code,  the per Share
exercise  price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

                 Notwithstanding  the  foregoing,  Options may be granted with a
per Share exercise price of less than 100% of the Fair Market Value per Share on
the date of grant pursuant to a merger or other corporate transaction.

Waiting  Period  and  Exercise  Dates.  At the time an  Option is  granted,  the
Administrator  shall fix the period within which the Option may be exercised and
shall determine any conditions  which must be satisfied before the Option may be
exercised.

Form of Consideration.  The Administrator shall determine the acceptable form of
consideration for exercising an Option,  including the method of payment. In the
case of an  Incentive  Stock  Option,  the  Administrator  shall  determine  the
acceptable form of consideration at the time of grant.  Such  consideration  may
consist entirely of:
                                        cash;

                                       check;

                                      promissory note;

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<PAGE>

                          other Shares which (A) in the case of Shares  acquired
upon  exercise of an option,  have been owned by the Optionee for more than six
months on the date of surrender,  and (B) have a Fair Market Value on the date
of surrender  equal to the aggregate  exercise price of the Shares as to which
said Option shall be exercised;

                         consideration  received  by the Company under a cash-
less  exercise  program implemented  by the Company in connection with the Plan;

                        a reduction in the amount of any Company  liability to
the Optionee,  including any liability  attributable  to the Optionee's partici-
pation in any Company-sponsored deferred compensation program or arrangement;

                         any combination of the foregoing methods of payment; or

                         such other  consideration  and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.

10. Exercise of Option.

           Procedure for Exercise;  Rights as a Shareholder.  Any Option granted
hereunder shall be exercisable  according to the terms of the Plan and at such
times and under such  conditions as determined by  the  Administrator  and  set
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence.  An Option may not be exercised for a fraction of a Share.

      An Option  shall be deemed  exercised  when the Company  receives:  (i)
written  or  electronic  notice  of  exercise  (in  accordance  with the  Option
Agreement)  from the person  entitled  to  exercise  the  Option,  and (ii) full
payment  for the Shares  with  respect to which the  Option is  exercised.  Full
payment may consist of any consideration and method of payment authorized by the
Administrator  and permitted by the Option Agreement and the Plan. Shares issued
upon  exercise of an Option  shall be issued in the name of the  Optionee or, if
requested  by the  Optionee,  in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate  entry on the books
of the Company or of a duly authorized transfer agent of the Company),  no right
to vote or receive  dividends or any other rights as a  shareholder  shall exist
with respect to the Optioned Stock,  notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares  promptly  after the
Option is exercised.  No  adjustment  will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued,  except as
provided in Section 14 of the Plan.

           Exercising  an Option in any  manner  shall  decrease  the  number of
Shares  thereafter  available,  both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

         Termination  of  Relationship  as a Service  Provider.  If an  Optionee
ceases  to be a  Service  Provider,  other  than  upon the  Optionee's  death or
Disability,  the Optionee  may exercise his or her Option  within such period of
time as is  specified  in the Option  Agreement to the extent that the Option is
vested on the date of termination  (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option  Agreement,  the Option shall remain  exercisable
for three (3) months  following the Optionee's  termination.  If, on the date of
termination,  the  Optionee  is not vested as to his or her entire  Option,  the
Shares  covered by the unvested  portion of the Option shall revert to the Plan.
If, after  termination,  the Optionee does not exercise his or her Option within
the time specified by the  Administrator,  the Option shall  terminate,  and the
Shares covered by such Option shall revert to the Plan.

         Disability of Optionee.  If an Optionee ceases to be a Service Provider
as a result of the Optionee's  Disability,  the Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement to the


                                       65
<PAGE>


extent the Option is vested on the date of  termination  (but in no event  later
than  the  expiration  of the term of such  Option  as set  forth in the  Option
Agreement).  In the absence of a  specified  time in the Option  Agreement,  the
Option shall remain  exercisable for twelve (12) months following the Optionee's
termination.  If, on the date of  termination,  the Optionee is not vested as to
his or her entire  Option,  the Shares  covered by the  unvested  portion of the
Option shall revert to the Plan.  If, after  termination,  the Optionee does not
exercise his or her Option within the time  specified  herein,  the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

         Death of Optionee.  If an Optionee dies while a Service  Provider,  the
Option may be exercised within such period of time as is specified in the Option
Agreement  (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant),  by the  Optionee's  estate or by a person
who  acquires the right to exercise  the Option by bequest or  inheritance,  but
only to the  extent  that the  Option is  vested  on the date of  death.  In the
absence of a specified  time in the Option  Agreement,  the Option  shall remain
exercisable for twelve (12) months following the Optionee's termination.  If, at
the time of death,  the  Optionee is not vested as to his or her entire  Option,
the Shares  covered by the  unvested  portion  of the Option  shall  immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s)  entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution.  If the
Option is not so exercised  within the time specified  herein,  the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

         Buyout  Provisions.  The Administrator may at any time offer to buy out
for a payment in cash or Shares an Option previously granted based on such terms
and  conditions as the  Administrator  shall  establish and  communicate  to the
Optionee at the time that such offer is made.

11.  Stock Purchase Rights.

         Rights to Purchase.  Stock Purchase  Rights may be issued either alone,
in addition  to, or in tandem with other  Awards  granted  under the Plan and/or
cash awards made outside of the Plan. After the Administrator determines that it
will offer Stock Purchase  Rights under the Plan, it shall advise the offeree in
writing  or  electronically,  by means  of a  Notice  of  Grant,  of the  terms,
conditions and restrictions related to the offer, including the number of Shares
that the offeree  shall be entitled to purchase,  the price to be paid,  and the
time  within  which the  offeree  must  accept  such  offer.  The offer shall be
accepted by  execution  of a  Restricted  Stock  Purchase  Agreement in the form
determined by the Administrator.

         Repurchase Option. Unless the Administrator  determines otherwise,  the
Restricted Stock Purchase  Agreement shall grant the Company a repurchase option
exercisable  upon the voluntary or involuntary  termination  of the  purchaser's
service with the Company for any reason  (including  death or  Disability).  The
purchase price for Shares repurchased  pursuant to the Restricted Stock Purchase
Agreement  shall be the original  price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at a rate determined by the Administrator.

         Other Provisions. The Restricted Stock Purchase Agreement shall contain
such other terms,  provisions and conditions not  inconsistent  with the Plan as
may be determined by the Administrator in its sole discretion.

         Rights as a  Shareholder.  Once the Stock  Purchase Right is exercised,
the purchaser  shall have the rights  equivalent to those of a shareholder,  and
shall be a  shareholder  when his or her purchase is entered upon the records of
the duly  authorized  transfer agent of the Company.  No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
Stock Purchase Right is exercised, except as provided in Section 14 of the Plan.

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<PAGE>

12.  Common Stock Equivalents.

         Award of Common  Stock  Equivalents.  Common Stock  Equivalents  may be
awarded to Service  Providers  either  alone,  in addition to, or in tandem with
other awards granted under the Plan and/or cash awards made outside of the Plan.
An Award of Common Stock  Equivalents  shall be made  pursuant to a Common Stock
Equivalent Agreement in such form as is determined by the Administrator.

         Bookkeeping  Account;  Nontransferability.  The number of Common  Stock
Equivalents  awarded pursuant to Section 12(a) to each Service Provider shall be
credited  to a  bookkeeping  account  established  in the  name  of the  Service
Provider. The Company's obligation with respect to such Common Stock Equivalents
shall not be funded or  secured in any  manner.  A Service  Provider's  right to
receive Common Stock Equivalents may not be assigned or transferred, voluntarily
or involuntarily, except as expressly provided herein.

         Dividends.  If the Company  pays a cash  dividend  with  respect to the
Shares at any time while  Common  Stock  Equivalents  are  credited to a Service
Provider's  account,  there shall be credited to the Service  Provider's account
additional  Common Stock  Equivalents equal to (a) the dollar amount of the cash
dividend the Service  Provider would have received had he or she been the actual
owner of the Shares to which the Common Stock  Equivalents  then credited to the
Service Provider's  account relate,  divided by (b) the Fair Market Value of one
Share on the dividend  payment date. The Company will pay the Service Provider a
cash payment in lieu of fractional  Common Stock Equivalents on the date of such
dividend payment.

         Conversion.  The Company shall deliver to the Service  Provider (or his
or her  designated  beneficiary or estate) a number of Shares equal to the whole
number of Common  Stock  Equivalents  then  credited to the  Service  Provider's
account,  at such time or times as  specified in the Service  Provider's  Common
Stock Equivalent Agreement, or as otherwise provided herein.

         Shareholder  Rights.  A  Service  Provider  (or  his or her  designated
beneficiary or estate) shall not be entitled to any voting or other  shareholder
rights as a result of the  credit of Common  Stock  Equivalents  to the  Service
Provider's account, until certificates  representing Shares are delivered to the
Service  Provider  (or  his  or  her  designated  beneficiary  or  estate)  upon
conversion  of the  Service  Provider's  Common  Stock  Equivalents  pursuant to
Section 12(d).

13.   Non-Transferability   of  Awards.   Unless  determined  otherwise  by  the
Administrator,  an  Award  may not be  sold,  pledged,  assigned,  hypothecated,
transferred,  or disposed of in any manner  other than by will or by the laws of
descent  or  distribution  and may be  exercised,  during  the  lifetime  of the
Optionee,   only  by  the  Optionee.   If  the  Administrator   makes  an  Award
transferable,  such Award shall contain such additional  terms and conditions as
the Administrator deems appropriate.

14.  Adjustments Upon Changes in  Capitalization,  Dissolution,  Merger or Asset
Sale.

         Changes  in  Capitalization.  Subject  to any  required  action  by the
shareholders  of the Company,  the number of shares of Common  Stock  covered by
each  outstanding  Award, the number of Common Stock  Equivalents  credited to a
Service  Provider's  account  under  Section  12(b) and the  number of shares of
Common Stock which have been  authorized  for issuance  under the Plan but as to
which no Awards  have yet been  granted or which have been  returned to the Plan
upon  cancellation,  forfeiture or expiration of an Award,  as well as the price
per share of Common  Stock  covered  by each such  outstanding  Award,  shall be
proportionately  adjusted  for any  increase or decrease in the number of issued
shares of Common Stock resulting from a stock split,  reverse stock split, stock
dividend,  combination  or  reclassification  of the Common Stock,  or any other
increase  or decrease in the number of issued  shares of Common  Stock  effected
without  receipt  of  consideration  by the  Company;  provided,  however,  that
conversion of any  convertible  securities of the Company shall not be deemed to


                                       67
<PAGE>

have been "effected without receipt of consideration."  Such adjustment shall be
made by the Board, whose  determination in that respect shall be final,  binding
and conclusive.  Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities  convertible into shares of stock
of any class,  shall affect,  and no adjustment by reason  thereof shall be made
with  respect  to, the number or price of shares of Common  Stock  subject to an
Award.

         Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation  of the Company,  the  Administrator  shall notify each holder of an
Award  as soon as  practicable  prior  to the  effective  date of such  proposed
transaction. The Administrator in its discretion may provide (i) for an Optionee
to have the right to  exercise  his or her  Option  until ten (10) days prior to
such  transaction  as to all of the Optioned  Stock covered  thereby,  including
Shares as to which the Option would not otherwise be exercisable;  (ii) that any
Company repurchase option applicable to any Shares purchased upon exercise of an
Option or Stock Purchase  Right shall lapse as to all such Shares,  provided the
proposed  dissolution or  liquidation  takes place at the time and in the manner
contemplated;  and (iii) that any Common Stock Equivalents credited to a Service
Provider's account under Section 12(b) shall convert into Shares (as provided in
Section 12(d))  immediately prior to the consummation of any such dissolution or
liquidation.  To the extent not exercised or converted,  an Award will terminate
immediately prior to the consummation of such proposed action.

         Merger or Asset Sale.  In the event of a merger of the Company  with or
into another corporation,  or the sale of substantially all of the assets of the
Company,  each  outstanding  Award  shall  be  assumed  or an  equivalent  award
substituted  by the  successor  corporation  or a Parent  or  Subsidiary  of the
successor  corporation.  In the event that the successor  corporation refuses to
assume or substitute  for the Award,  (i) each Optionee  shall fully vest in and
have the right to exercise the Option or Stock  Purchase  Right as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested or
exercisable,  (ii)  any  Company  repurchase  option  applicable  to any  Shares
acquired  upon exercise of an Option or Stock  Purchase  Right shall lapse as to
all such  Shares,  and (iii)  Common  Stock  Equivalents  credited  to a Service
Provider's account under Section 12(b) shall convert into Shares (as provided in
Section 12(d))  immediately  prior to the merger or sale of assets. If an Option
or  Stock  Purchase  Right  becomes  fully  vested  and  exercisable  in lieu of
assumption  or  substitution  in the  event of a merger or sale of  assets,  the
Administrator  shall notify the Optionee in writing or  electronically  that the
Option or Stock  Purchase  Right  shall be fully  vested and  exercisable  for a
period of  fifteen  (15) days from the date of such  notice,  and the  Option or
Stock  Purchase Right shall  terminate upon the expiration of such period.  If a
Common  Stock  Equivalent  converts to Shares in such event,  the  Administrator
shall  notify  the  holder  thereof  at least  fifteen  (15)  days  prior to the
consummation of the proposed transaction. For the purposes of this paragraph, an
Award shall be  considered  assumed if,  following the merger or sale of assets,
the award  confers the right to purchase or receive,  for each Share of Optioned
Stock  subject to the Option or Stock  Purchase  Right or for each Common  Stock
Equivalent, immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger or
sale of assets by holders of Common  Stock for each Share held on the  effective
date of the transaction (and if holders were offered a choice of  consideration,
the type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or
sale of assets is not solely  common stock of the successor  corporation  or its
Parent,  the Administrator  may, with the consent of the successor  corporation,
provide for the  consideration to be received upon the exercise of the Option or
Stock Purchase Right,  for each Share of Optioned Stock subject to the Option or
Stock Purchase Right, or upon conversion of each Common Stock Equivalent,  to be
solely  common stock of the  successor  corporation  or its Parent equal in fair
market value to the per share consideration  received by holders of Common Stock
in the merger or sale of assets.

15. Date of Grant. The date of grant of an Award shall be, for all purposes, the
date on which the Administrator makes the determination  granting such Award, or
such  other  later date as is  determined  by the  Administrator.  Notice of the
determination  shall be provided to each Optionee within a reasonable time after
the date of such grant.

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<PAGE>

16. Amendment and Termination of the Plan.

         Amendment and Termination.  The Board may at any time amend, alter,
suspend or terminate the Plan.

         Shareholder Approval.  The Company shall obtain shareholder approval
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.

         Effect  of  Amendment  or   Termination.   No  amendment,   alteration,
suspension or  termination  of the Plan shall impair the rights of the holder of
any Award, unless mutually agreed otherwise between the holder of such Award and
the  Administrator,  which agreement must be in writing and signed by the holder
of such  Award and the  Company.  Termination  of the Plan  shall not affect the
Administrator's  ability to exercise  the powers  granted to it  hereunder  with
respect to Awards granted under the Plan prior to the date of such termination.

17.  Conditions Upon Issuance of Shares.

         Legal  Compliance.  Shares shall not be issued pursuant to the exercise
or  conversion  of an Award unless the exercise or  conversion of such Award and
the issuance and delivery of such Shares shall comply with  Applicable  Laws and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.

         Investment   Representations.   As  a  condition  to  the  exercise  or
conversion  of an Award,  the  Company  may  require  the person  exercising  or
converting  such Award to represent and warrant at the time of any such exercise
or  conversion  that the  Shares are being  purchased  only for  investment  and
without  any  present  intention  to sell or  distribute  such Shares if, in the
opinion of counsel for the Company, such a representation is required.

18.  Inability  to Obtain  Authority.  The  inability  of the  Company to obtain
authority  from any  regulatory  body having  jurisdiction,  which  authority is
deemed by the Company's  counsel to be necessary to the lawful issuance and sale
of any Shares  hereunder,  shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

19.  Reservation of Shares.  The Company,  during the term of this Plan, will at
all  times  reserve  and  keep  available  such  number  of  Shares  as shall be
sufficient to satisfy the requirements of the Plan.

20  Shareholder  Approval.  The  Plan  shall  be  subject  to  approval  by  the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted.  Such  shareholder  approval shall be obtained in the manner and to the
degree required under Applicable Laws.



                                       69
<PAGE>


                                 EUPHONIX, INC.

                                 1999 STOCK PLAN

                             STOCK OPTION AGREEMENT

Unless  otherwise  defined herein,  the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.

I.       NOTICE OF STOCK OPTION GRANT

         [Optionee's Name and Address]

         You have  been  granted  an  option  to  purchase  Common  Stock of the
Company,  subject  to the  terms  and  conditions  of the Plan  and this  Option
Agreement, as follows:

         Grant Number:                               _________________________

         Date of Grant:                              _________________________

         Vesting Commencement Date:                  _________________________

         Exercise Price per Share:                   $________________________

         Total Number of Shares Granted:             _________________________

         Total Exercise Price:                       $________________________

         Type of Option:                             ___  Incentive Stock Option

                                                   ___ Nonstatutory Stock Option

         Term/Expiration Date:                 ___ Years/_______________, _____*


o        Or earlier, pursuant to the termination period set forth below.

Vesting Schedule:

         This Option may be exercised,  in whole or in part, in accordance  with
the following schedule:

[Set forth vesting schedule here].

Termination Period:

         This Option may be exercised for thirty (30) days after Optionee ceases
to be a Service  Provider.  Upon the death or Disability  of the Optionee,  this
Option  may be  exercised  for one year  after  Optionee  ceases to be a Service


                                       70
<PAGE>

Provider.   In  no  event  shall  this  Option  be  exercised   later  than  the
Term/Expiration Date as provided above.

II.      AGREEMENT

A.       Grant of Option.

         The Plan  Administrator  of the Company  hereby  grants to the Optionee
named  in the  Notice  of  Grant  attached  as  Part I of  this  Agreement  (the
"Optionee")  an option (the  "Option") to purchase the number of Shares,  as set
forth in the Notice of Grant,  at the exercise  price per share set forth in the
Notice of Grant (the "Exercise  Price"),  subject to the terms and conditions of
the Plan, which is incorporated herein by reference. Subject to Section 15(c) of
the Plan,  in the event of a conflict  between the terms and  conditions  of the
Plan and the  terms  and  conditions  of this  Option  Agreement,  the terms and
conditions of the Plan shall prevail. If designated in the Notice of Grant as an
Incentive  Stock  Option  ("ISO"),  this  Option is  intended  to  qualify as an
Incentive Stock Option under Section 422 of the Code. However, if this Option is
intended  to be an  Incentive  Stock  Option,  to the extent that it exceeds the
$100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock
Option ("NSO").

B.       Exercise of Option.

                  (a) Right to Exercise.  This Option is exercisable  during its
term in accordance with the Vesting  Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement.
                  (b) Method of Exercise. This Option is exercisable by delivery
of an  exercise  notice,  in the  form  attached  as  Exhibit  A (the  "Exercise
Notice"),  which shall state the election to exercise the Option,  the number of
Shares  in  respect  of which  the  Option is being  exercised  (the  "Exercised
Shares"),  and such other  representations  and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
completed by the  Optionee  and  delivered  to  Controller  of the Company.  The
Exercise Notice shall be accompanied by payment of the aggregate  Exercise Price
as to all  Exercised  Shares.  This Option shall be deemed to be exercised  upon
receipt by the Company of such fully  executed  Exercise  Notice  accompanied by
such aggregate Exercise Price.

                  No Shares  shall be issued  pursuant  to the  exercise of this
Option unless such issuance and exercise complies with Applicable Laws. Assuming
such  compliance,  for  income  tax  purposes  the  Exercised  Shares  shall  be
considered  transferred to the Optionee on the date the Option is exercised with
respect to such Exercised Shares.

C.       Method of Payment.

         Payment  of  the  aggregate  Exercise  Price  shall  be by  any  of the
following, or a combination thereof, at the election of the Optionee:

1.       cash; or

2.       check; or

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<PAGE>

3.  consideration  received by the  Company  under a cashless  exercise  program
implemented by the Company in connection with the Plan; or


4.  surrender  of other  Shares  which (i) in the case of Shares  acquired  upon
exercise  of an option,  have been owned by the  Optionee  for more than six (6)
months on the date of  surrender,  and (ii) have a Fair Market Value on the date
of surrender equal to the aggregate  Exercise Price of the Exercised  Shares. D.
Non-Transferability of Option.

         This Option may not be transferred in any manner otherwise than by will
or by the laws of  descent  or  distribution  and may be  exercised  during  the
lifetime of Optionee only by the Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.

E.       Term of Option.

         This Option may be exercised only within the term set out in the Notice
of Grant, and may be exercised during such term only in accordance with the Plan
and the terms of this Option Agreement.

F.       Tax Consequences.

         Some of the federal tax consequences relating to this Option, as of the
date  of  this  Option,  are  set  forth  below.  THIS  SUMMARY  IS  NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE  EXERCISING  THIS OPTION OR DISPOSING OF THE
SHARES.

G.       Exercising the Option.

1.   Nonstatutory  Stock Option.  The Optionee may incur regular  federal income
     tax  liability  upon  exercise of a NSO.  The  Optionee  will be treated as
     having received  compensation income (taxable at ordinary income tax rates)
     equal to the  excess,  if any, of the Fair  Market  Value of the  Exercised
     Shares on the date of exercise over their aggregate  Exercise Price. If the
     Optionee is an Employee or a former Employee,  the Company will be required
     to withhold from his or her  compensation  or collect from Optionee and pay
     to  the  applicable  taxing  authorities  an  amount  in  cash  equal  to a
     percentage  of this  compensation  income at the time of exercise,  and may
     refuse  to  honor  the  exercise  and  refuse  to  deliver  Shares  if such
     withholding amounts are not delivered at the time of exercise.

2.   Incentive  Stock Option.  If this Option  qualifies as an ISO, the Optionee
     will have no  regular  federal  income  tax  liability  upon its  exercise,
     although  the excess,  if any, of the Fair  Market  Value of the  Exercised
     Shares on the date of exercise over their aggregate  Exercise Price will be
     treated as an adjustment to alternative  minimum taxable income for federal
     tax purposes and may subject the Optionee to alternative minimum tax in the
     year of exercise.  In the event that the Optionee  ceases to be an Employee
     but remains a Service Provider,  any Incentive Stock Option of the Optionee
     that  remains  unexercised  shall  cease to qualify as an  Incentive  Stock
     Option and will be treated for tax purposes as a Nonstatutory  Stock Option
     on the date  three (3)  months  and one (1) day  following  such  change of
     status.

                                       72
<PAGE>

3.       Disposition of Shares.

         (a)      NSO. If the Optionee  holds NSO Shares for at least one year,
any gain realized on  disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes.

         (b)      ISO.  If the  Optionee  holds ISO Shares for at least one year
after  exercise  and two years after the grant date,  any gain realized on
disposition of the Shares will be treated as  long-term  capital  gain for
federal  income tax  purposes.  If the Optionee disposes  of ISO Shares  within
one year after  exercise  or two years after the grant  date,  any  gain
realized  on  such   disposition  will  be  treated  as compensation  income
(taxable  at ordinary  income  rates) to the extent of the excess,  if any,  of
the lesser of (A) the  difference  between  the Fair Market Value of the Shares
acquired on the date of exercise and the aggregate  Exercise Price,  or (B) the
difference  between  the sale  price of such  Shares and the aggregate  Exercise
Price.  Any additional  gain will be taxed as capital gain, short-term or long-
term depending on the period that the ISO Shares were held.

        (c)      Notice of Disqualifying  Disposition of ISO Shares. If the
Optionee sells or otherwise  disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years  after the grant  date,  or (ii)
one year  after the  exercise  date,  the Optionee shall  immediately  notify
the Company in writing of such  disposition. The Optionee agrees that he or she
may be subject to income tax  withholding by the Company on the compensation
income recognized from such early disposition of ISO  Shares  by  payment  in
cash  or out of the  current  earnings  paid to the Optionee.

         H.       Entire Agreement; Governing Law.

         The Plan is incorporated herein by reference.  The Plan and this Option
Agreement  constitute  the entire  agreement  of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements  of the  Company and  Optionee  with  respect to the  subject  matter
hereof, and may not be modified  adversely to the Optionee's  interest except by
means of a  writing  signed by the  Company  and  Optionee.  This  agreement  is
governed by the internal  substantive  laws, but not the choice of law rules, of
California.

         I.       NO GUARANTEE OF CONTINUED SERVICE.

         OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE VESTING  SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE  PROVIDER
AT THE WILL OF THE  COMPANY  (AND NOT  THROUGH  THE ACT OF  BEING  HIRED,  BEING
GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES
AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS  CONTEMPLATED HEREUNDER AND THE
VESTING  SCHEDULE  SET FORTH  HEREIN DO NOT  CONSTITUTE  AN  EXPRESS  OR IMPLIED
PROMISE OF CONTINUED  ENGAGEMENT AS A SERVICE  PROVIDER FOR THE VESTING  PERIOD,
FOR ANY PERIOD,  OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE  OPTIONEE'S  RELATIONSHIP AS A SERVICE  PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.

         By your  signature and the  signature of the  Company's  representative
below,  you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement.  Optionee has

                                       73
<PAGE>

reviewed  the Plan and  this  Option  Agreement  in their  entirety,  has had an
opportunity  to obtain the  advice of counsel  prior to  executing  this  Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding,  conclusive and final all decisions
or  interpretations of the Administrator upon any questions relating to the Plan
and Option  Agreement.  Optionee  further  agrees to notify the Company upon any
change in the residence address indicated below.

OPTIONEE:                                          EUPHONIX, INC.


Signature                                          By


Print Name                                         Title


Residence Address

------------------------------------

















                                       74
<PAGE>




                                CONSENT OF SPOUSE

         The  undersigned  spouse of Optionee  has read and hereby  approves the
terms and conditions of the Plan and this Option Agreement.  In consideration of
the  Company's  granting  his or her spouse the right to purchase  Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably  bound by the  terms  and  conditions  of the  Plan and this  Option
Agreement  and further  agrees that any  community  property  interest  shall be
similarly bound.  The undersigned  hereby appoints the  undersigned's  spouse as
attorney-in-fact  for the undersigned  with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.



                                                              Spouse of Optionee




















                                       75
<PAGE>




                                    EXHIBIT A

                                 1999 STOCK PLAN

                                 EXERCISE NOTICE



Euphonix, Inc.
220 Portage Avenue
Palo Alto, CA  94306
Attention:  Controller
1.  Exercise of Option.  Effective  as of today,  ________________,  _____,  the
undersigned  ("Purchaser") hereby elects to purchase  ______________ shares (the
"Shares")  of the Common  Stock of  Euphonix,  Inc.  (the  "Company")  under and
pursuant  to the 1999 Stock Plan (the  "Plan")  and the Stock  Option  Agreement
dated ___________,  _____ (the "Option  Agreement").  The purchase price for the
Shares shall be $_________,  as required by the Option Agreement.

2. Delivery of Payment.
  Purchaser herewith delivers to the Company the full purchase price for
the  Shares.

3.  Representations  of  Purchaser.  Purchaser  acknowledges  that
Purchaser has received,  read and understood  the Plan and the Option  Agreement
and agrees to abide by and be bound by their terms and conditions.

 4. Rights as Shareholder.
  Until the issuance (as evidenced by the  appropriate  entry on the
books of the Company or of a duly  authorized  transfer agent of the Company) of
the  Shares,  no right to vote or  receive  dividends  or any other  rights as a
shareholder shall exist with respect to the Optioned Stock,  notwithstanding the
exercise of the Option.  The Shares so acquired  shall be issued to the Optionee
as soon as practicable  after exercise of the Option. No adjustment will be made
for a dividend  or other right for which the record date is prior to the date of
issuance,  except as  provided in Section 13 of the Plan.

5. Tax  Consultation.
  Purchaser understands that Purchaser may suffer adverse tax  consequences as a
result  of  Purchaser's  purchase  or  disposition  of  the  Shares.   Purchaser
represents that Purchaser has consulted with any tax consultants Purchaser deems
advisable in connection  with the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.

6. Entire Agreement;
Governing  Law.  The  Plan and  Option  Agreement  are  incorporated  herein  by
reference.  This  Agreement,  the Plan and the Option  Agreement  constitute the
entire  agreement of the parties with respect to the subject  matter  hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Purchaser with respect to the subject matter hereof, and may not be modified

                                       76
<PAGE>


adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser.  This  agreement is governed by the internal  substantive
laws, but not the choice of law rules, of California.



Submitted by:                                                 Accepted by:

PURCHASER:                                                    EUPHONIX, INC.



Signature                                                     By


Print Name                                                    Its

Address:                                                      Address:

                                                            Euphonix, Inc.
                                                            220 Portage Avenue
                                                            Palo Alto, CA  94306


Date Received











                                       77
<PAGE>



                                 EUPHONIX, INC.

                                 1999 STOCK PLAN

                     NOTICE OF GRANT OF STOCK PURCHASE RIGHT

         Unless  otherwise  defined herein,  the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.

[Grantee's Name and Address]

         You have  been  granted  the  right  to  purchase  Common  Stock of the
Company, subject to the Company's Repurchase Option and your ongoing status as a
Service  Provider (as  described in the Plan and the attached  Restricted  Stock
Purchase Agreement), as follows:

         Grant Number:                               _________________________

         Date of Grant:                              _________________________

         Price Per Share:                            $________________________

         Total Number of Shares Subject
              to This Stock Purchase Right:          _________________________

         Expiration Date:                            __________________, ______


         YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION  DATE
OR IT WILL  TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
By your signature and the signature of the Company's  representative  below, you
and the  Company  agree that this  Stock  Purchase  Right is  granted  under and
governed by the terms and  conditions of the 1999 Stock Plan and the  Restricted
Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are made
a part of this  document.  You further agree to execute the attached  Restricted
Stock  Purchase  Agreement  as a condition to  purchasing  any shares under this
Stock Purchase Right.

GRANTEE:                                                      EUPHONIX, INC.



Signature                                                     By


Print Name                                                    Title



                                       78
<PAGE>




                                   EXHIBIT A-1

                                 1999 STOCK PLAN

                       RESTRICTED STOCK PURCHASE AGREEMENT

         Unless  otherwise  defined herein,  the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.

         WHEREAS the Purchaser named in the Notice of Grant,  (the  "Purchaser")
is a Service Provider, and the Purchaser's continued participation is considered
by the Company to be important for the Company's continued growth; and

         WHEREAS in order to give the  Purchaser  an  opportunity  to acquire an
equity  interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company,  the Administrator has granted to the Purchaser a
Stock  Purchase  Right  subject to the terms and  conditions of the Plan and the
Notice of Grant,  which are  incorporated  herein by reference,  and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").

         NOW THEREFORE, the parties agree as follows:
1. Sale of Stock.  The Company  hereby  agrees to sell to the  Purchaser and the
Purchaser  hereby agrees to purchase  shares of the Company's  Common Stock (the
"Shares"),  at the per Share  purchase  price and as otherwise  described in the
Notice of Grant.

2. Payment of Purchase Price. The purchase price for the Shares
may be paid  by  delivery  to the  Company  at the  time  of  execution  of this
Agreement of cash, a check, or some combination  thereof.

3. Repurchase Option.
(a) In the event the  Purchaser  ceases to be a Service  Provider  for any or no
reason  (including  death or  disability)  before all of the Shares are released
from the Company's  Repurchase  Option (see Section 4), the Company shall,  upon
the date of such termination (as reasonably fixed and determined by the Company)
have an irrevocable,  exclusive option (the "Repurchase Option") for a period of
sixty (60) days from such date to  repurchase  up to that number of shares which
constitute  the  Unreleased  Shares (as  defined  in Section 4) at the  original
purchase price per share (the "Repurchase  Price").  The Repurchase Option shall
be exercised by the Company by delivering written notice to the Purchaser or the
Purchaser's  executor  (with a copy to the Escrow  Holder) AND, at the Company's
option,  (i) by delivering to the Purchaser or the Purchaser's  executor a check
in the amount of the aggregate Repurchase Price, or (ii) by cancelling an amount
of the Purchaser's indebtedness to the Company equal to the aggregate Repurchase
Price,  or (iii) by a combination  of (i) and (ii) so that the combined  payment
and cancellation of indebtedness  equals the aggregate  Repurchase  Price.  Upon
delivery of such notice and the payment of the aggregate  Repurchase  Price, the
Company  shall  become  the  legal  and  beneficial  owner of the  Shares  being
repurchased and all rights and interests  therein or relating  thereto,  and the
Company  shall have the right to retain and  transfer to its own name the number
of Shares being repurchased by the Company.


                                       79
<PAGE>

(b)  Whenever the Company shall have
the right to repurchase Shares  hereunder,  the Company may designate and assign
one or more  employees,  officers,  directors or  shareholders of the Company or
other  persons  or  organizations  to  exercise  all or a part of the  Company's
purchase  rights under this Agreement and purchase all or a part of such Shares.
If the Fair  Market  Value of the Shares to be  repurchased  on the date of such
designation  or  assignment  (the   "Repurchase   FMV")  exceeds  the  aggregate
Repurchase  Price of such Shares,  then each such designee or assignee shall pay
the Company  cash equal to the  difference  between the  Repurchase  FMV and the
aggregate  Repurchase Price of such Shares.

4. Release of Shares From Repurchase Option.

 (a)  _______________________  percent  (______%) of the Shares shall be
released from the Company's Repurchase Option [one year] after the Date of Grant
and __________________ percent (______%) of the Shares [at the end of each month
thereafter], provided that the Purchaser does not cease to be a Service Provider
prior to the date of any such  release.

 (b) Any of the Shares that have not yet
been released from the  Repurchase  Option are referred to herein as "Unreleased
Shares."

(c) The Shares that have been released from the Repurchase Option shall
be delivered to the  Purchaser  at the  Purchaser's  request (see Section 6).

5. Restriction on Transfer. Except for the escrow  described in Section 6 or the
transfer  of the Shares to the  Company or its  assignees  contemplated  by this
Agreement,  none of the  Shares  or any  beneficial  interest  therein  shall be
transferred,  encumbered  or otherwise  disposed of in any way until such Shares
are  released  from the  Company's  Repurchase  Option  in  accordance  with the
provisions  of this  Agreement,  other than by will or the laws of  descent  and
distribution.

6. Escrow of Shares.

(a) To ensure the availability for delivery
of the Purchaser's  Unreleased Shares upon repurchase by the Company pursuant to
the Repurchase  Option,  the Purchaser shall,  upon execution of this Agreement,
deliver and deposit with an escrow holder designated by the Company (the "Escrow
Holder") the share  certificates  representing the Unreleased  Shares,  together
with the stock  assignment  duly endorsed in blank,  attached  hereto as Exhibit
A-2.  The  Unreleased  Shares and stock  assignment  shall be held by the Escrow
Holder,  pursuant to the Joint Escrow  Instructions of the Company and Purchaser
attached  hereto as Exhibit  A-3,  until such time as the  Company's  Repurchase
Option expires.  As a further condition to the Company's  obligations under this
Agreement,  the Company may require the spouse of Purchaser,  if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.

(b) The  Escrow  Holder  shall not be liable for any act it may do or omit to do
with  respect to holding the  Unreleased  Shares in escrow  while acting in good
faith and in the  exercise of its  judgment.

(c) If the Company or any assignee
exercises the Repurchase  Option hereunder,  the Escrow Holder,  upon receipt of
written  notice of such  exercise from the proposed  transferee,  shall take all
steps necessary to accomplish such transfer.


                                       80
<PAGE>

(d) When the Repurchase Option has
been  exercised  or  expires  unexercised  or a portion  of the  Shares has been
released  from the  Repurchase  Option,  upon  request the Escrow  Holder  shall
promptly cause a new  certificate to be issued for the released Shares and shall
deliver the certificate to the Company or the Purchaser, as the case may be.

(e)Subject to the terms  hereof, the Purchaser shall  have all the  rights of a
shareholder with respect to the Shares while they are held in escrow,  including
without  limitation,  the  right  to vote the  Shares  and to  receive  any cash
dividends  declared  thereon.  If,  from  time to time  during  the  term of the
Repurchase Option, there is (i) any stock dividend,  stock split or other change
in the  Shares,  or (ii) any merger or sale of all or  substantially  all of the
assets or other  acquisition  of the Company,  any and all new,  substituted  or
additional  securities  to which  the  Purchaser  is  entitled  by reason of the
Purchaser's ownership of the Shares shall be immediately subject to this escrow,
deposited  with the Escrow  Holder  and  included  thereafter  as  "Shares"  for
purposes of this  Agreement and the  Repurchase  Option.

7. Legends.  The share
certificate  evidencing the Unreleased Shares, if any, issued hereunder shall be
endorsed with the  following  legend (in addition to any legend  required  under
applicable  state securities  laws): THE SHARES  REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN  RESTRICTIONS  UPON  TRANSFER AND RIGHTS OF REPURCHASE AS
SET FORTH IN AN  AGREEMENT  BETWEEN THE COMPANY AND THE  SHAREHOLDER,  A COPY OF
WHICH IS ON FILE WITH THE  SECRETARY OF THE  COMPANY.

 8.  Adjustment for Stock Split.
  All  references  to the number of Shares and the  purchase  price of the
Shares in this Agreement  shall be  appropriately  adjusted to reflect any stock
split,  stock  dividend or other  change in the Shares  which may be made by the
Company after the date of this Agreement.

9. Tax Consequences. The Purchaser has
reviewed with the  Purchaser's  own tax advisors the federal,  state,  local and
foreign tax consequences of this investment and the transactions contemplated by
this Agreement.  The Purchaser is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents. The Purchaser
understands  that the Purchaser (and not the Company)  shall be responsible  for
the Purchaser's own tax liability that may arise as a result of the transactions
contemplated by this Agreement. The Purchaser understands that Section 83 of the
Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income
the  difference  between the  purchase  price for the Shares and the Fair Market
Value of the Shares as of the date any restrictions on the Shares lapse. In this
context,  "restriction" includes the right of the Company to buy back the Shares
pursuant to the Repurchase Option. The Purchaser  understands that the Purchaser
may elect to be taxed at the time the Shares are purchased  rather than when and
as the  Repurchase  Option  expires by filing an election under Section 83(b) of
the Code with the IRS within  thirty  (30) days from the date of  purchase.  The
form for making this election is attached as Exhibit A-5 hereto.
                 THE  PURCHASER  ACKNOWLEDGES  THAT IT IS THE  PURCHASER'S  SOLE
RESPONSIBILITY  AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION  UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS  FILING  ON THE  PURCHASER'S  BEHALF.

                                       81
<PAGE>

10.  General  Provisions.

(a)  This
Agreement shall be governed by the internal substantive laws, but not the choice
of law rules of California. This Agreement,  subject to the terms and conditions
of the Plan and the Notice of Grant, represents the entire agreement between the
parties with respect to the purchase of the Shares by the Purchaser.  Subject to
Section  15(c) of the Plan,  in the event of a  conflict  between  the terms and
conditions of the Plan and the terms and conditions of this Agreement, the terms
and conditions of the Plan shall prevail.  Unless otherwise defined herein,  the
terms  defined  in the  Plan  shall  have  the  same  defined  meanings  in this
Agreement.

(b) Any notice,  demand or request required or permitted to be given
by either the Company or the Purchaser  pursuant to the terms of this  Agreement
shall be in writing  and shall be deemed  given  when  delivered  personally  or
deposited in the U.S. mail, First Class with postage  prepaid,  and addressed to
the  parties  at the  addresses  of the  parties  set  forth  at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
    Any notice to the Escrow Holder shall be sent to the Company's
address  with a copy to the other  party  hereto.

(c) The rights of the Company
under  this  Agreement  shall  be  transferable  to any one or more  persons  or
entities,  and all covenants and agreements hereunder shall inure to the benefit
of, and be enforceable by the Company's  successors and assigns.  The rights and
obligations of the Purchaser  under this Agreement may only be assigned with the
prior written consent of the Company.

(d) Either party's failure to enforce any
provision of this Agreement shall not in any way be construed as a waiver of any
such  provision,  nor prevent  that party from  thereafter  enforcing  any other
provision of this  Agreement.  The rights  granted both  parties  hereunder  are
cumulative  and shall not  constitute a waiver of either party's right to assert
any other legal remedy available to it.

(e) The Purchaser agrees upon request to
execute any further documents or instruments necessary or desirable to carry out
the purposes or intent of this Agreement.

(f) PURCHASER ACKNOWLEDGES AND AGREES
THAT THE  VESTING  OF SHARES  PURSUANT  TO  SECTION  4 HEREOF IS EARNED  ONLY BY
CONTINUING  SERVICE AS A SERVICE  PROVIDER AT THE WILL OF THE  COMPANY  (AND NOT
THROUGH  THE ACT OF  BEING  HIRED OR  PURCHASING  SHARES  HEREUNDER).  PURCHASER
FURTHER   ACKNOWLEDGES   AND  AGREES  THAT  THIS  AGREEMENT,   THE  TRANSACTIONS
CONTEMPLATED  HEREUNDER  AND  THE  VESTING  SCHEDULE  SET  FORTH  HEREIN  DO NOT
CONSTITUTE  AN EXPRESS OR IMPLIED  PROMISE OF CONTINUED  ENGAGEMENT AS A SERVICE
PROVIDER  FOR THE  VESTING  PERIOD,  FOR ANY  PERIOD,  OR AT ALL,  AND SHALL NOT
INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S
RELATIONSHIP  AS A SERVICE  PROVIDER  AT ANY TIME,  WITH OR  WITHOUT  CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is familiar
with the terms and  provisions of the Plan,  and hereby  accepts this  Agreement
subject to all of the terms and provisions  thereof.  Purchaser has reviewed the
Plan and this Agreement in their entirety,  has had an opportunity to obtain the
advice of counsel prior to executing  this Agreement and fully  understands  all
provisions of this Agreement.  Purchaser agrees to accept as binding, conclusive
and  final  all  decisions  or  interpretations  of the  Administrator  upon any
questions arising under the Plan or this Agreement.  Purchaser further agrees to
notify the Company upon any change in the  residence  indicated in the Notice of
Grant.

                                       82
<PAGE>


DATED:


PURCHASER:                                                    EUPHONIX, INC.




Signature                                                     By


Print Name                                                    Title















                                       83
<PAGE>




                                   EXHIBIT A-2

                      ASSIGNMENT SEPARATE FROM CERTIFICATE




         FOR VALUE RECEIVED I,  __________________________,  hereby sell, assign
and transfer unto_________________________________________________  (__________)
shares of the Common Stock of Euphonix, Inc. standing in my name of the books of
said  corporation  represented by  Certificate  No. _____ herewith and do hereby
irrevocably constitute and appoint  ________________________________ to transfer
the said stock on the books of the within named  corporation  with full power of
substitution  in the  premises.  This  Stock  Assignment  may be  used  only  in
accordance  with the  Restricted  Stock  Purchase  Agreement  (the  "Agreement")
between________________________ and the undersigned dated ______________, _____.


Dated: _______________, _____


                                                              Signature:























INSTRUCTIONS:  Please do not fill in any blanks other than the  signature  line.
The  purpose  of this  assignment  is to enable  the  Company  to  exercise  the
Repurchase Option, as set forth in the Agreement,  without requiring  additional
signatures on the part of the Purchaser.



                                       84
<PAGE>




                                   EXHIBIT A-3

                            JOINT ESCROW INSTRUCTIONS
                                                               ----------, ----
Corporate Secretary
Euphonix, Inc.
220 Portage Avenue
Palo Alto, CA  94306

Dear ______________:

     As Escrow Agent for both  Euphonix,  Inc., a  California  corporation  (the
"Company"),  and  the  undersigned  purchaser  of  stock  of  the  Company  (the
"Purchaser"),  you are hereby  authorized  and  directed  to hold the  documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement  ("Agreement") between the Company and the undersigned,  in accordance
with the following instructions:

1. In the event the Company  and/or any  assignee of the  Company  (referred  to
collectively  as the "Company")  exercises the Company's  Repurchase  Option set
forth in the  Agreement,  the Company  shall give to Purchaser and you a written
notice  specifying  the number of shares of stock to be purchased,  the purchase
price,  and the time for a  closing  hereunder  at the  principal  office of the
Company.  Purchaser and the Company hereby irrevocably  authorize and direct you
to close the  transaction  contemplated  by such notice in  accordance  with the
terms of said notice.

2. At the closing, you are directed (a) to date the stock assignments  necessary
for the  transfer  in  question,  (b) to  fill in the  number  of  shares  being
transferred,  and (c) to deliver same, together with the certificate  evidencing
the shares of stock to be transferred,  to the Company or its assignee,  against
the  simultaneous  delivery to you of the purchase  price (by cash, a check,  or
some  combination  thereof)  for the number of shares of stock  being  purchased
pursuant to the exercise of the Company's Repurchase Option.

3.  Purchaser  irrevocably  authorizes  the  Company  to  deposit  with  you any
certificates  evidencing  shares  of stock to be held by you  hereunder  and any
additions  and  substitutions  to  said  shares  as  defined  in the  Agreement.
Purchaser  does hereby  irrevocably  constitute  and appoint you as  Purchaser's
attorney-in-fact  and agent for the term of this escrow to execute  with respect
to  such  securities  all  documents  necessary  or  appropriate  to  make  such
securities  negotiable  and to complete  any  transaction  herein  contemplated,
including  but not  limited to the  filing  with any  applicable  state blue sky
authority of any required applications for consent to, or notice of transfer of,
the  securities.  Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and  privileges  of a  shareholder  of the Company while the
stock is held by you.

4. Upon  written  request of the  Purchaser,  but no more than once per calendar
year,  unless the  Company's  Repurchase  Option has been  exercised,  you shall
deliver to Purchaser a certificate or  certificates  representing so many shares
of stock as are not then  subject to the  Company's  Repurchase  Option.  Within
ninety  (90) days after  Purchaser  ceases to be a Service  Provider,  you shall
deliver to Purchaser a certificate or  certificates  representing  the aggregate
number of shares held or issued  pursuant to the  Agreement and not purchased by
the Company or its assignees  pursuant to exercise of the  Company's  Repurchase
Option.


                                       85
<PAGE>

5.   If at the time of termination of this escrow you should have in your
     possession any documents, securities, or other property  belonging  to
     Purchaser,  you shall  deliver  all of the same to Purchaser and shall be
     discharged of all further obligations hereunder.

6.   Your duties  hereunder  may be altered,  amended,  modified  or revoked
     only by a writing  signed by all of the parties hereto.

7.   You  shall be  obligated  only for the  performance  of such  duties as are
     specifically  set  forth  herein  and may rely and  shall be  protected  in
     relying or refraining from acting on any instrument  reasonably believed by
     you to be genuine and to have been signed or  presented by the proper party
     or parties.  You shall not be  personally  liable for any act you may do or
     omit to do hereunder as Escrow Agent or as  attorney-in-fact  for Purchaser
     while acting in good faith,  and any act done or omitted by you pursuant to
     the advice of your own attorneys shall be conclusive  evidence of such good
     faith.

8.   You are hereby expressly authorized to disregard any and all warnings given
     by  any of the  parties  hereto  or by any  other  person  or  corporation,
     excepting only orders or process of courts of law, and are hereby expressly
     authorized  to comply  with and obey  orders,  judgments  or decrees of any
     court. In case you obey or comply with any such order,  judgment or decree,
     you  shall  not be  liable  to any of the  parties  hereto  or to any other
     person,  firm or corporation by reason of such compliance,  notwithstanding
     any such order, judgment or decree being subsequently  reversed,  modified,
     annulled,  set  aside,  vacated  or  found  to have  been  entered  without
     jurisdiction.

9.   You  shall  not be  liable  in any  respect  on  account  of the  identity,
     authorities or rights of the parties  executing or delivering or purporting
     to execute or deliver the Agreement or any documents or papers deposited or
     called for hereunder.

10.  You shall not be liable for the  outlawing  of any rights under the statute
     of  limitations  with  respect to these Joint  Escrow  Instructions  or any
     documents deposited with you.


11.  You shall be entitled to employ such legal counsel and other experts as you
     may  deem  necessary  properly  to  advise  you  in  connection  with  your
     obligations  hereunder,  may rely upon the advice of such counsel,  and may
     pay such counsel reasonable compensation therefor.

12.  Your  responsibilities  as Escrow Agent  hereunder  shall  terminate if you
     shall cease to be an officer or agent of the Company or if you shall resign
     by written notice to each party. In the event of any such termination,  the
     Company shall appoint a successor Escrow Agent.


13.  If you reasonably  require other or further  instruments in connection with
     these Joint Escrow  Instructions  or  obligations  in respect  hereto,  the
     necessary parties hereto shall join in furnishing such instruments.

14.  It is  understood  and agreed that should any dispute arise with respect to
     the delivery and/or ownership or right of possession of the securities held
     by you  hereunder,  you are  authorized  and  directed  to  retain  in your
     possession  without  liability to anyone all or any part of said securities
     until  such  disputes  shall  have been  settled  either by mutual  written

                                       86
<PAGE>


     agreement of the parties concerned or by a final order,  decree or judgment
     of a court of competent  jurisdiction after the time for appeal has expired
     and no appeal has been perfected, but you shall be under no duty whatsoever
     to institute or defend any such proceedings.


15.  Any notice  required or permitted  hereunder  shall be given in writing and
     shall be deemed effectively given upon personal delivery or upon deposit in
     the United States Post Office, by registered or certified mail with postage
     and fees prepaid, addressed to each of the other parties thereunto entitled
     at the  following  addresses  or at such  other  addresses  as a party  may
     designate by ten days' advance  written notice to each of the other parties
     hereto.

            COMPANY:                                    Euphonix, Inc.
                                                        220 Portage Avenue
                                                        Palo Alto, CA  94306
            PURCHASER:


            ESCROW AGENT:                               Corporate Secretary
                                                        Euphonix, Inc.
                                                        220 Portage Avenue
                                                        Palo Alto, CA  94306

16.  By signing these Joint Escrow Instructions,  you become a party hereto only
     for the  purpose of said  Joint  Escrow  Instructions;  you do not become a
     party to the Agreement.

17.  This  instrument  shall be  binding  upon and inure to the  benefit  of the
     parties hereto, and their respective successors and permitted assigns.

18.  These Joint Escrow  Instructions  shall be governed by, and  construed  and
     enforced in accordance  with,  the internal  substantive  laws, but not the
     choice of law rules, of California.

                                                              Very truly yours,

                                                       EUPHONIX, INC.



                                                       By


                                                       Title


                                                       PURCHASER:


                                                       Signature


                                       87
<PAGE>

                                                       Print Name
ESCROW AGENT:




Corporate Secretary





                                   EXHIBIT A-4

                                CONSENT OF SPOUSE



         I, ____________________,  spouse of ___________________,  have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement").  In
consideration  of the  Company's  grant to my spouse  of the  right to  purchase
shares of Euphonix,  Inc., as set forth in the  Agreement,  I hereby  appoint my
spouse as my attorney-in-fact in respect to the exercise of any rights under the
Agreement and agree to be bound by the provisions of the Agreement  insofar as I
may have any rights in said  Agreement  or any shares  issued  pursuant  thereto
under the community  property laws or similar laws relating to marital  property
in effect in the state of our  residence  as of the date of the  signing  of the
foregoing Agreement.


Dated: _______________, _____




Signature of Spouse















                                       88
<PAGE>


                                   EXHIBIT A-5

                          ELECTION UNDER SECTION 83(b)
                      OF THE INTERNAL REVENUE CODE OF 1986

The  undersigned  taxpayer  hereby  elects,  pursuant  to  Section  83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation  taxable to taxpayer
in connection with his or her receipt of the property described below:

1. The name,  address,  taxpayer  identification  number and taxable year of the
undersigned are as follows:

         NAME:                            TAXPAYER:                    SPOUSE:

         ADDRESS:

         IDENTIFICATION NO.:              TAXPAYER:                    SPOUSE:

         TAXABLE YEAR:

2.       The property with respect to which the election is made is described as
         follows:__________  shares  (the  "Shares")  of  the  Common  Stock  of
         Euphonix, Inc. (the "Company").

3.  The date on which  the  property  was  transferred  is:  __________________,
______.

4. The property is subject to the following restrictions:
         The Shares may be  repurchased  by the Company,  or its assignee,  upon
         certain  events.  This  right  lapses  with  regard to a portion of the
         Shares based on the continued  performance  of services by the taxpayer
         over time.

5.       The  fair  market  value at the time of  transfer,  determined  without
         regard to any restriction  other than a restriction  which by its terms
         will never lapse, of such property is:
         $---------------.

6. The amount (if any) paid for such property is:
         $---------------.
The  undersigned  has submitted a copy of this  statement to the person for whom
the services were performed in connection with the undersigned's  receipt of the
above-described  property.  The  transferee  of  such  property  is  the  person
performing the services in connection with the transfer of said property.

The  undersigned  understands  that the  foregoing  election  may not be revoked
except with the consent of the Commissioner.

Dated:___________________, ____
                                    Taxpayer


The undersigned spouse of taxpayer joins in this election.

Dated:___________________, ____
                                                              Spouse of Taxpayer

                                       89
<PAGE>

                             FIRST AMENDMENT TO THE
                         COMMON STOCK PURCHASE AGREEMENT


         THIS FIRST AMENDMENT (the "First  Amendment") is made as of October 11,
1999, to the Common Stock  Purchase  Agreement,  dated as of March 16, 1998 (the
"Original Agreement") by and among Euphonix, Inc., a California corporation (the
"Company")  and the  purchasers  of Common  Stock of the  Company  (the  "Common
Purchasers"). This First Amendment is entered into by and among the Company, the
Common  Purchasers  and certain of the parties to the  Secured  Promissory  Note
issued by the  Company  to such  parties  and  dated as of April  23,  1999 (the
"Note")  (the  "Note  Investors").  All  capitalized  terms  used in this  First
Amendment  not  otherwise  defined  herein  shall be as defined in the  Original
Agreement.


                                   Background

         A.  Pursuant to the terms of the Note,  the Note  Investors may convert
the Note into shares of Common Stock of the Company (the "Common Stock").

         B.  Pursuant to a covenant in the Note,  the  Company is  obligated  to
amend the Original  Agreement to provide for registration  rights for the Common
Stock.

         C. At the time of the  execution  of the  Original  Agreement,  certain
parties  (including  certain  Common  Purchasers)  to a  Modification  Agreement
between   themselves  and  the  Company  dated  as  of  November  6,  1991  (the
"Modification Agreement") waived (with respect to registration rights granted in
the Original  Agreement)  their right to prevent the Company from  entering into
any subsequent agreement granting any holder or prospective holder of securities
of the Company  registration rights that were senior to or on a pari passu basis
with the registration  rights granted to them under the  Modification  Agreement
(the "Waiver").

         D. For  purposes of Section 5 of the  Original  Agreement  (relating to
registration  rights), the Company and the Common Purchasers desire to amend the
Original  Agreement to add the Note Investors as parties  thereto,  and the Note
Investors  desire  to become  parties  to the  Original  Agreement.  The  Common
Purchasers  further  desire to extend the  original  Waiver also to apply to the
registration rights granted to the Note Investors under this First Amendment and
to the future private placement of up to one million dollars ($1,000,000) of the
Company's  Common  Stock,  expected to close on or before  December 1, 1999 (the
"Private Placement").

         NOW, THEREFORE,  for good and valuable  consideration,  the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

         1.       The Common Purchasers hereby extend the Waiver to this First
Amendment and to the Private Placement.

         2.       The term "Holder" in Section 5.1 of the Original Agreement is
hereby amended to include the Note Investors.

                                       90
<PAGE>

         3.       The term  "Registrable  Securities" in Section 5.1 of the
Original Agreement is hereby amended to include the Common Stock issuable to the
Note Investors.

         4.  The  term  "Closing  Date,"  as it is  used in  Section  5.2 of the
Original  Agreement,  shall  mean  October  11,  1999 with  respect  to the Note
Investors exclusively.

         5. The Note Investors  agree to be bound by the terms and conditions of
the Original Agreement, as amended hereby.

         6. Except as set forth herein,  the Original  Agreement shall remain in
full force and effect.

         7.  This  First  Amendment  shall be  governed  by,  and  construed  in
accordance with, the laws of the State of California.

         8. This First  Amendment  may be executed in one or more  counterparts,
each of which shall be deemed an original,  but which shall together  constitute
one and the same instrument.














                                       91
<PAGE>



         IN  WITNESS  WHEREOF,  the  parties  hereto  have  executed  this First
Amendment to the Original Agreement on the date first written above.


                                   EUPHONIX, INC.



                                   By:      Barry Margerum
                                   Title:   Chief Executive Officer & President


                                   COMMON PURCHASERS


                                  /s/ ONSET ENTERPRISE ASSOCIATES
                                  Onset Enterprise Associates
                                  By:      /s/ ROB KUHLING
                                  Title:   /s/ PRINCIPAL

                                  Linda Wei-Lee Chang 1998 Trust:

                                  By:      /s/ MICHAEL MINHALL, TRUSTEE
                                  Michael Minhall, Trustee

                                  By:      /s/ LINDA WEI-LEE CHANG, TRUSTEE
                                  Linda Wei-Lee Chang, Trustee

                                  Michael Minhall Chang 1998 Trust:

                                  By:      /s/ LINDA WEI-LEE CHANG, TRUSTEE
                                  Linda Wei-Lee Chang, Trustee

                                  By:      /s/ MICHAEL MINHALL, TRUSTEE
                                  Michael Minhall, Trustee

                                  /s/ MILTON M. T. CHANG
                                  Milton M. T. Chang

                                 /s/ SCOTT SILFVAST
                                 Scott Silfvast

                                 /s/ AMY SILFVAST
                                 Amy Silfvast

 [10/99 - Signature Page to First Amendment to Common Stock Purchase Agreement]

                                       92
<PAGE>

                                  NOTE INVESTORS


                                 /s/ ONSET ENTERPRISE ASSOCIATES
                                 Onset Enterprise Associates
                                 By:      /s/ ROB KUHLING
                                 Title:   /s/ PRINCIPAL

                                 /s/ MILTON M.T. CHANG
                                 Milton M. T. Chang































[10/99 - Signature Page to First Amendment to Common Stock Purchase Agreement]


                                       93
<PAGE>

                             FIRST AMENDMENT TO THE
                          REGISTRATION RIGHTS AGREEMENT


         THIS FIRST AMENDMENT (the "First  Amendment") is made as of October 11,
1999, to the Registration  Rights  Agreement,  dated as of January 26, 1999 (the
"Original Agreement") by and among Euphonix, Inc., a California corporation (the
"Company")  and the  purchasers  of Common Stock of the Company  pursuant to the
Common  Stock  Purchase  Agreement  dated as of January  26,  1999 (the  "Common
Purchasers"). This First Amendment is entered into by and among the Company, the
Common  Purchasers  and certain of the parties to the  Secured  Promissory  Note
issued by the  Company  to such  parties  and  dated as of April  23,  1999 (the
"Note")  (the  "Note  Investors").  All  capitalized  terms  used in this  First
Amendment  not  otherwise  defined  herein  shall be as defined in the  Original
Agreement.


                                   Background

         A.  Pursuant to the terms of the Note,  the Note  Investors may convert
the Note into shares of Common Stock of the Company (the "Common Stock").

         B.  Pursuant to a covenant in the Note,  the  Company is  obligated  to
amend the Original  Agreement to provide for registration  rights for the Common
Stock.

         C. The Company and the Common  Purchasers  desire to amend the Original
Agreement to add the Note Investors as parties  thereto,  and the Note Investors
desire to become parties to the Original Agreement.

         NOW, THEREFORE,  for good and valuable  consideration,  the receipt and
sufficiency  of which are hereby  acknowledged,  the  parties  hereby  amend the
Original Agreement as follows:

      1. The term  "Holder" in Section 1.2 of the  Original  Agreement is hereby
amended to include the Note Investors.

      2. The term  "Registrable  Securities"  in Section 1.2 of the Original
Agreement  is hereby  amended to include the Common Stock issuable upon conver-
sion of the Note.

      3. The Note Investors agree to be bound by the terms and conditions of the
Original Agreement, as amended hereby.

      4. Except as set forth herein, the Original Agreement shall remain in full
force and effect.

      5. This First  Amendment shall be governed by, and construed in accordance
with, the laws of the State of California.

      6. This First Amendment may be executed in one or more counterparts,  each
of which shall be deemed an original,  but which shall  together  constitute one
and the same instrument.


                                       94
<PAGE>


         IN  WITNESS  WHEREOF,  the  parties  hereto  have  executed  this First
Amendment to the Original Agreement on the date first written above.


                                   EUPHONIX, INC.


                                   /s/ BARRY MARGERUM
                                   By:      Barry Margerum
                                   Title:   Chief Executive Officer & President


                                   COMMON PURCHASERS
                                   /s/ DEITER MEIER
                                   Deiter Meier

                                   /s/ STEPHEN D. JACKSON
                                   Stephen D. Jackson

                                   NOTE INVESTORS

                                   /s/ DIETER MEIER
                                   Deiter Meier

                                  /s/ STEPHEN D. JACKSON
                                  Stephen D. Jackson

                                  /s/ PEGASUS CAPITAL II. L.P.
                                  Pegasus Capital II, L.P.
                                  By: /s/ MARK LANIER
                                  Title: Principal










   [10/99 - Signature Page to First Amendment to Registration Rts Agreement]

                                       95
<PAGE>

THE SECURITY EVIDENCED BY THIS NOTE AND THE SECURITIES  ISSUABLE UPON CONVERSION
OF THIS  NOTE HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS
AMENDED,  AND MAY NOT BE  SOLD,  TRANSFERRED  OR  ASSIGNED  UNLESS  THERE  IS AN
EFFECTIVE  REGISTRATION  STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES,  THE
SALE,  TRANSFER OR ASSIGNMENT IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT,
OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY  SATISFACTORY  TO THE COMPANY,  STATING  THAT SUCH SALE,  TRANSFER OR
ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY  REQUIREMENTS
OF SUCH ACT.

                             SECURED PROMISSORY NOTE
Two Million One Hundred Thousand Dollars
($2,100,000.00)                                                  July 30, 1999
             FOR VALUE RECEIVED, the undersigned, Euphonix, Inc., a California
corporation ("Borrower"), hereby promises to pay to Taurean  Investments  AG,
a Swiss  corporation  and  Pegasus  Capital  II,  L.P.
(individually an "Investor" and collectively,  the "Investors" or "Lender"),  or
registered  assigns,  the  principal  sum of Two Million  One  Hundred  Thousand
Dollars  ($2,100,000)  or so much of such principal sum as may from time to time
have been  advanced by each investor and be  outstanding,  together with accrued
interest,  as provided herein,  with the maximum principal sum hereof (or lesser
amount,  to the extent that less than the full amount of such  principal  sum is
advanced and outstanding) allocable among the Investors as follows:

<TABLE>
<CAPTION>
<S>                                                   <C>

  Name of Investor                                     Maximum Principal Amount
----------------------------------                    -------------------------
Taurean Investments AG                                    $      2,000,000
Pegasus Capital II, L.P.                                  $        100,000
                                                          ---------------------
                                              Total       $      2,100,000
</TABLE>

A. Principal.

1.  Advances.  From the date hereof  until 5:00 p.m.  Pacific  Standard  Time on
October 31, 1999,  Borrower may from time to time request  advances  from Lender
(individually  an "Advance" and  collectively  the "Advances") by giving written
notice to the Investors in accordance with the terms hereof,  which notice shall
indicate the amount of the Advance requested; provided, however, that no advance
shall be in the aggregate less than  $525,000.  Subject to the  satisfaction  or
waiver of the conditions  set forth in Section A.3 below,  and provided that the
requested  Advance  would not cause an Event of Default (as defined in Section E
below) to occur,  Lender  shall make the  Advance to Borrower  within  three (3)
business days of receipt of Borrower's notice for each Advance. Lender shall not
be obligated to make an Advance to the extent that such Advance, when aggregated
with all prior Advances,  would exceed Two Million One Hundred  Thousand Dollars
($2,100,000).

2. Commitments.  Each Investor shall advance to Borrower its pro rata portion of
each Advance  based on its  proportionate  share of the principal sum hereof set
forth above besides its name.  Each Investor  shall be severally but not jointly
liable to make its pro rata  portion of the Advances  hereunder.  Failure by any
Investor to fund its pro rata portion of any Advance shall not relieve any other
Investor from its obligation to fund its pro rata portion thereof.

3. Conditions to Advances.  Borrower's right to request, and Lender's obligation
to make, each Advance shall be subject, in each case, to the satisfaction of the
following  conditions,  any or all of which may be waived by Lender, in its sole
and exclusive discretion, to the extent permitted by law:

      (a) The  representations  and warranties  contained in Section D.2 and D.3
shall be true and correct in all material respects on and as of the date of such
request for an Advance and on the effective  date of each Advance as though made


                                       96
<PAGE>

at and as of each such date,  and no Event of Default shall have occurred and be
continuing, or would result from such Advance.

      (b) There shall be no law, order,  rule or regulation of any  governmental
authority  in effect  which has the effect of  prohibiting,  making  unlawful or
hindering any of the transactions contemplated by this Note.

      (c) There shall be no outstanding Event of Default and no condition which,
with notice or passage of time or both would constitute an Event of Default.

      (d) The Board of Directors of Borrower  shall have  approved this Note and
the  transactions   evidence  by  this  Note,  including  without  limiting  the
conversion feature of this Note.

      (e) Certain  shareholders  of Borrower  shall have signed and delivered to
Lender a written  agreement  in a form  acceptable  to Lender  evidencing  their
agreement  to vote  their  shares of common  stock of  Borrower  in favor of the
approval of the convertibility of this Note as set forth below.

4. Use of Proceeds. The proceeds of Advances shall be used for general corporate
purposes,  including for working capital.  The proceeds of Advances shall not be
used for  payments or  distributions  to  shareholders,  directors,  officers or
affiliates of the Borrower.  Notwithstanding the foregoing, such proceeds may be
used for payment of salaries and accrued  bonuses of officers  and  employees of
the Borrower.

B. Interest. Interest shall accrue with respect to Advances on the principal sum
hereunder at the per annum rate of seven and three quarters percent (7.75%), net
of any deductions or withholding  taxes.  Interest  payable  hereunder  shall be
calculated  on the basis of a three hundred sixty (360) day year for actual days
elapsed. Interest shall be due and payable (or converted as set forth in Section
C below) upon payment or  conversion  of the principal sum of this Note pursuant
to Section C below.  Notwithstanding  the foregoing to the contrary,  during any
period for which an Event of  Default  shall have  occurred  and be  continuing,
interest shall accrue with respect to Advances on the principal sum hereunder at
the per annum rate of eleven and three  quarters  percent  (11.75%),  net of any
deductions or withholding taxes.

C.  Payment or Conversion.

     1.  Scheduled  Payment.  Subject  to other  provisions  of this  Note,  the
outstanding  principal  sum of this Note,  together  with the  accrued  interest
thereon, shall be due and payable on July 12, 2001.

      2. No Prepayment. Borrower shall not have the right at any time to time to
prepay,  in whole or in part, the outstanding  principal sum of this Note and/or
any accrued interest thereon.

      3.  Form of  Payment.  Unless  converted  pursuant  to the terms set forth
below, the outstanding principal sum and accrued interest thereon are to be paid
in lawful money of the United States of America in federal or other  immediately
available funds.

       4. Immediate Payment. Notwithstanding anything herein to the contrary, in
the event that all  necessary  shareholder,  regulatory  and other  approvals or
consents for the convertibility of this Note as set forth below are not obtained
by October 31, 1999, (i) the  outstanding  principal sum from all Advances as of
the date thereof and all future  Advances from the date thereof and (ii) accrued
interest  thereon,  shall  be  repaid  in  full  upon  demand  by the  Investors
representing  two-thirds  (2/3) of the then  outstanding  principal  sum of this
Note;  provided,  however, no such demand may be made until January 1, 2000; and
provided,  further, that the Investors must provide at least one (1) month prior
written notice to the Borrower prior to such demand. To the extent the approvals
or consents  contemplated  herein are obtained after October 31, 1999, this Note
shall not be subject to repayment  upon demand as set forth herein but rather in

                                       97
<PAGE>

accordance  with the  scheduled  payment as set forth in Section  C.1 above.  In
addition,  such  demand  may  not  be  made  if  shareholder  approval  for  the
convertibility of this Note is not obtained as a result of the Investors failing
to vote or consent for such convertibility.

       5.         Conversion.

         (a) Subject to obtaining all  necessary  shareholders,  regulatory  and
other approvals or consents and further  subject to Section C.5 (c) hereof,  all
or part of the  principal sum of this Note,  together with the accrued  interest
thereon (including any principal amounts which have not been advanced under this
Note),  shall be  convertible  at the option of the Lender into shares of common
stock of the Borrower (the "Common Stock"). The number of shares of Common Stock
to be issued upon such conversion(s)  shall be equal to the quotient obtained by
dividing (i) such part (or all) of the principal sum of this Note (including any
principal  amounts  which have not been  advanced  under this Note) plus accrued
interest thereon by (ii) Seventy-Five  Cents ($.75). In the event that Investors
(or  either of them)  exercise  this  conversion  right  and the full  amount of
principal  under  this  Note  has  not  been  advanced,  then  as  part  of such
conversion,  such Investor(s)  shall pay to Borrower such Investor's  unadvanced
portion of the principal amount of this Note.

         (b) No  fractional  share of  Common  Stock  will be  issued  upon such
conversion(s)  of this Note. In lieu of any fractional share to which the Lender
would  otherwise  be entitled,  the Borrower  will pay to the Lender in cash the
amount of the unconverted principal and interest balance of this Note that would
otherwise be converted into such fractional share. At its expense, the Borrower,
will as soon as practicable  thereafter,  issue and deliver to each Investor, at
its principal office, or other address notified by each Investor to the Borrower
from  time to time,  a  certificate  or  certificates  for the  number of shares
(representing  its pro rata portion) to which the Investor is entitled upon such
conversion(s).  Upon such  conversion(s)  of this  Note,  the  Borrower  will be
forever released from all of its obligations and liabilities under this Note, to
the extent of the conversion.  Such conversions may be exercised individually by
each Investor but  notwithstanding  anything  herein to the contrary,  each such
conversion must be for the full amount of the outstanding  principal and accrued
interest  thereon payable to the Investor  exercising its rights under Section 5
hereunder at the time of such exercise.

      (c)  Notwithstanding  anything  herein to the contrary,  Section C.5(a) of
this Note shall not apply and this Note shall not be convertible  into shares of
Common Stock as  contemplated  herein upon the occurrence of the following:  the
consummation  of any transaction or series of  transactions  (collectively,  the
"Transaction"),  including without limitation, the sale, transfer or disposition
of all or  substantially  all of the  Borrower's  assets  or the  merger  of the
Borrower  with or into,  or  consolidation  with,  any other  corporate  entity,
whereby the holders of the Borrower's voting securities prior to the Transaction
do not hold more  than 50% of the  voting  securities  of the  surviving  entity
following the  consummation of the  Transaction.  Notice of any such Transaction
shall be provided to the  Investors  fourteen  (14)  calendar  days prior to the
consummation  of any  such  Transaction  and,  notwithstanding  anything  to the
contrary contained  elsewhere in this Note,  Investors may exercise their rights
of conversion during such 14-day period.

D. Security Interest.

         1.  Grant of  Security  Interest.  Upon the  first  Advance  hereunder,
Borrower  grants to Lender a security  interest  in the  Collateral,  as defined
herein, to secure the payment of all of the outstanding  indebtedness  hereunder
(the "Secured Obligations") including,  without limitation,  principal,  accrued
interest,  other advances made under this Note and any attorneys'  fees to which
Lender is entitled under this Note. The amounts  payable under this Note and the
security interest granted hereunder shall be senior in right to payment and lien
priority  to the  rights and  security  interest  granted to the  holders of the
Secured Promissory Note dated April 23, 1999 in the original principal amount of
$2,000,000  (the "April 23, 1999 Note"),  subject to the consent of such holders
as provided in Section G below.

                                       98
<PAGE>

         2. Representations and Warranties Regarding Collateral.  On the date of
this Note and as of the date of each Advance under this Note,  Borrower does and
shall represent and warrant to Lender, that as of each such date:

                  (a) Borrower is the true and lawful  owner of the  Collateral,
having good and marketable  title  thereto,  free and clear of any and all Liens
other  than the Lien and  security  interest  granted  to Lender  hereunder  and
Permitted Liens.

                  (b) The lien against the Collateral  granted  hereunder is and
shall be a first-priority  lien against the collateral and each portion thereof,
subject to Permitted Liens.

                  (c) Borrower shall not create or assume or permit to exist any
such Lien on or against any of the Collateral  except as created or permitted by
this Note and Permitted  Liens, and Borrower shall promptly notify Lender of any
such other Lien against the Collateral and shall defend the Collateral  against,
and take all such action as may be reasonably  necessary to remove or discharge,
any such Lien.

                  (d) Borrower shall take all  commercially  reasonable  actions
necessary to protect and preserve the  Collateral  which is used in its business
in good condition and repair, subject to ordinary wear and tear, and to preserve
its value and usefulness.

                  (e) No part of the Intellectual  Property  Collateral has been
judged invalid or  unenforceable,  in whole or in part.

                  (f) No claim has been  made that any part of the  Intellectual
Property Collateral violates the rights of any third party.

                  (g) The  Collateral  consists of all assets which are required
for the conduct and operation of the business of Borrower as of the date of this
Note.

                  (h) The Intellectual  Property  Collateral includes all of the
technology,  know-how  and  proprietary  information  which are required for the
conduct and operation of the business of borrower as of the date of this Note.

         3. General Representations and Warranties. On the date of this Note and
as of the  date of each  Advance  under  this  Note,  Borrower  does  and  shall
represent and warrant to Lender, that as of each such date:

                  (a) Organization and Qualification.  Borrower is a corporation
duly  organized,  validly  existing and in good  standing  under the laws of the
State of California. Borrower has the requisite corporate power and authority to
own,  operate or lease its  properties and to carry on its business as it is now
being conducted and is duly qualified or licensed to do business, and is in good
standing,  in each  jurisdiction  in which  the  nature of its  business  or the
properties owned,  operated or leased by it makes such qualification,  licensing
or good  standing  necessary,  except  where the  failure  to have such power or
authority,  or  the  failure  to be so  qualified,  licensed  or  good  standing
necessary,  except  where the  failure to have such power or  authority,  or the
failure  to be so  qualified,  licensed  or in good  standing,  would not have a
Material Adverse Effect.

                  The term  "Material  Adverse  Effect",  as used in this  Note,
means any change in or effect (or any development  that is reasonably  likely to
result in any change or effect) on the business, business prospects, properties,
assets,  operations,  financial  condition or results of  operations of Borrower
that is materially adverse to Borrower taken as a whole.

                                       99
<PAGE>

                  (b) Authority  Relative to this Note.  This Note has been duly
and validly  authorized,  executed and  delivered by Borrower and  constitutes a
valid and  binding  obligation  of  Borrower  enforceable  against  Borrower  in
accordance with its terms, except that such enforceability (i) may be limited by
bankruptcy,  insolvency,  moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally and (ii) is subject to general
principles of equity.

                  (c) No Conflict; Required Filings and Consents. Except for the
approval of Shareholders  contemplate under Section C, none of the execution and
delivery  of  this  Note  by  Borrower,  the  consummation  by  Borrower  of the
transactions  contemplated  hereby or  compliance  by  Borrower  with any of the
provisions  hereof  will  (i)  conflict  with  or  violate  the  certificate  of
incorporation or by-laws of Borrower, (ii) conflict with or violate any material
statute,  ordinance,  rule, regulation,  order, judgment or decree applicable to
Borrower,  or by which  Borrower or its  properties  or assets may be bound,  or
(iii)  result in a violation  or breach of or  constitute a default (or an event
which with  notice or lapse of time or both would  become a default)  under,  or
give  to  others  any  rights  of   termination,   amendment,   acceleration  or
cancellation of, or result in any loss of any material benefit,  or the creation
of any  lien on any of the  property  or  assets  of  Borrower  pursuant  to any
material agreement,  a copy of which would be required to be filed as an exhibit
to the Company's  Form 10-K or Form 10-Q filed with the  Securities and Exchange
Commission (the "Commission")  pursuant to the Securities  Exchange Act of 1934,
as amended (the "Exchange Act").

                  (d) Consents.  None of the execution and delivery of this Note
by  Borrower,  the  consummation  by Borrower of the  transactions  contemplated
hereby or compliance by Borrower with any of the provisions  hereof will require
any consent,  waiver,  approval,  authorization or permit of, or registration or
filing with or  notification  to (any of the foregoing  being a "Consent"),  any
government  or  subdivision  thereof,  or any  administrative,  governmental  or
regulatory authority, agency, commission, tribunal or body, domestic, foreign or
supranational  (a  "Governmental  Entity"),  except for  Consents the failure of
which to obtain or make would not have a Material  Adverse  Effect or  adversely
affect the ability of  Borrower  to  consummate  the  transactions  contemplated
hereby;  provided that the  convertibility  feature of this Note as set forth in
Section C which  requires  shareholder  approval  pursuant  to the Nasdaq  Stock
Market's shareholder approval provisions is obtained.

                  (e)  Material  Adverse  Change.  Since the date of the  latest
financial  statements filed by Borrower with the Commission prior to the date of
this Note,  there has not been any event,  occurrence  or  development  that has
resulted or, to the Company's  knowledge,  is  reasonably  likely to result in a
Material Adverse Effect.

         4. Perfection of Security Interest. Borrower agrees to take all actions
required or requested by Lender and reasonably necessary to perfect, to continue
the perfection of, and to otherwise give notice of, the Lien granted  hereunder,
including,  but not limited to, execution and filing of financing statements and
the filing of notices of security  interests  with the United  States Patent and
Trademark Office.

E.       Events of Default.

         1.       Definition  of Event of Default.  The  occurrence  of any one
or more of the  following  events shall constitute  an "Event of Default"
hereunder:

                  (a)  Borrower's  failure  to  perform,  keep  or  observe  any
obligation under this Note or any of the covenants  contained in this Note which
failure is not cured  within 30 days from the notice of the  occurrence  thereof
delivered by Lender to Borrower; or

                  (b) 60 days' lapse  following the  institution  of proceedings
against  Borrower,  or  Borrower's  filing of a  petition  or answer or  consent
seeking  reorganization  or release,  under the federal  Bankruptcy Code, or any


                                      100
<PAGE>

other applicable  federal or state law relating to creditor rights and remedies,
or Borrower's consent to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee or other similar official of Borrower or
of any substantial part of its property,  or Borrower's  making of an assignment
for the benefit of creditors,  or the taking of corporate  action in furtherance
of such action.

                  (c) Any  representation  or warranty of the  Borrower  made in
this Note proves  untrue in any material  respect as of the date of the issuance
or making thereof.

                  (d) The  occurrence  of any default  under the April 23, 1999
Note which is not remedied within any applicable grace period provided therein.

         2.       Rights and Remedies on Event of Default.

                  (a)  During the  continuance  of an Event of  Default,  Lender
shall  have the right,  itself or  through  any of its  agents,  with  notice to
Borrower  (as  provided  below),  as to any or  all  of the  Collateral,  by any
available judicial  procedure,  or without judicial process (provided,  however,
that it is in compliance  with the UCC),  declare all  obligations  evidenced by
this Note immediately due and payable, cease advancing money or extending credit
to or for the benefit of Borrower  under this Note,  and to exercise any and all
rights  afforded  to a  secured  party  under the UCC or other  applicable  law.
Without limiting the generality of the foregoing, Lender shall have the right to
sell or otherwise dispose of all or any part of the Collateral, either at public
or private  sale,  in lots or in bulk,  for cash or for credit,  with or without
warranties  or  representations,  and upon  such  terms and  conditions,  all as
Lender, in its reasonable discretion,  may deem advisable, and it shall have the
right to purchase at any such sale.  Borrower agrees that a notice sent at least
fifteen  (15) days  before the time of any  intended  public sale or of the time
after which any private sale or other  disposition  of the  Collateral  is to be
made shall be reasonable notice of such sale or other disposition.  The proceeds
of any such sale, or other Collateral disposition shall be applied, first to the
expenses of retaking,  holding,  storing,  processing  and  preparing  for sale,
selling,  and the like,  and to Lender's  reasonable  attorneys'  fees and legal
expenses,  and then to the Secured  Obligations  and to the payment of any other
amounts required by applicable law, after which Lender shall account to Borrower
for any  surplus  proceeds.  If,  upon  the  sale or  other  disposition  of the
Collateral,  the proceeds  thereof are  insufficient to pay all amounts to which
Lender  is  legally  entitled,  Borrower  shall be  liable  for the  deficiency,
together with interest thereon,  and the reasonable fees of any attorneys Lender
employs to collect such deficiency;  provided,  however that the foregoing shall
not be deemed to require Lender to resort to or initiate proceedings against the
Collateral  prior to the  collection  of any  such  deficiency  or other  amount
directly from Borrower.

                  (b) Borrower  appoints  Lender,  and any officer,  employee or
agent of Lender, with full power of substitution,  as Borrower's true and lawful
attorney-in-fact,  effective as of the date hereof,  with power, in its own name
or in the name of Borrower,  during the  continuance of an Event of Default,  to
endorse any notes, checks, drafts, money orders, or other instruments of payment
in respect of the Collateral that may come into Lender's possession, to sign and
endorse any drafts against debtors,  assignments,  verifications  and notices in
connection with accounts, and other documents relating to Collateral;  to pay or
discharge  taxes or Liens at any time levied or placed on or threatened  against
the Collateral;  to demand,  collect, issue receipt for, compromise,  settle and
sue for monies due in respect of the Collateral;  to notify persons and entities
obligated  with respect to the  Collateral to make payments  directly to Lender;
and,  generally,  to do, at Lender's  option and at Borrower's  expense,  at any
time, or from time to time, all acts and things which Lender deems  necessary to
protect, preserve and realize upon the Collateral and Lender's security interest
therein  to effect  the intent of this  Note,  all as fully and  effectually  as
Borrower might or could do; and Borrower  hereby ratifies all that said attorney
shall lawfully do or cause to be done by virtue  hereof.  This power of attorney
shall be irrevocable as long as any of the Secured Obligations are outstanding.


                                      101
<PAGE>

         (c) All of Lender's rights and remedies with respect to the Collateral,
whether established hereby or by any other agreements,  instruments or documents
or by law shall be cumulative and may be exercised singly or concurrently.

         (d) The rights of Lender under this Note with respect to any Collateral
and the enforcement of the security  interests and associated  rights  hereunder
may be exercised  jointly by  Investors  or singly by any Investor  representing
two-thirds (2/3) of the then outstanding principal sum of this Note.

         (e) Upon the  occurrence  of an Event of Default,  either  Investor may
bring suit  against  Borrower to collect  amounts due such  Investor  under this
Note.

         (f) Either  Investor  may bring suit  against  Borrower  to enforce the
provisions of this Note.

F.       Restrictions on Transfer and Compliance with Securities Act.

         1. Certificates.  Certificates representing any of the shares of Common
Stock  acquired  pursuant  to the  provisions  of this Note shall have  endorsed
thereon the following legends, as appropriate.

                  (a) Such shares of Common Stock will not be  registered  under
the Securities Act of 1933, as amended (the "Securities Act"), nor qualified (if
necessary) under applicable state securities laws and consequently will have the
following legend:

"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,  TRANSFERRED,  ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE  REGISTRATION  STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER
THE ACT, OR THE  COMPANY  RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES  REASONABLY  SATISFACTORY  TO THE  COMPANY,  STATING  THAT SUCH SALE,
TRANSFER,  ASSIGNMENT  OR  HYPOTHECATION  IS EXEMPT  FROM THE  REGISTRATION  AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."

                  (b) Any legend required to be placed thereon by any applicable
state securities laws.

                  (c) Each Investor, by acceptance hereof, agrees that this Note
and the shares of Common  Stock to be issued  upon  conversion  pursuant  to the
terms hereof are being acquired  solely for its own account and not as a nominee
for any  other  party and not with a view  toward  the  resale  or  distribution
thereof and that it will not offer,  sell or  otherwise  dispose of this Note or
any shares of Common  Stock to be issued upon  conversion  pursuant to the terms
hereof  except under  circumstances  which will not result in a violation of the
Securities Act or of applicable state securities laws.

                  (d) Each Investor, by acceptance hereof, represents that it is
(i) an accredited  investor  within the meaning of Rule 501 under the Securities
Act and has such knowledge and experience in financial and business matters that
it is capable of  evaluating  the merits and risks of the  purchase of the Note;
(ii) aware of the Company's business affairs and financial condition;  and (iii)
aware that the Note has not been registered under the Securities Act of 1933, as
amended, in reliance upon a specific exemption therefrom.

                  (e)  Subject to the  preceding,  this Note may be  transferred
only upon  surrender of the original  Note for  registration  of transfer,  duly
endorsed,  or accompanied by a duly executed  written  instrument of transfer in
form satisfactory to Borrower.  Thereupon,  a new Note for like principal amount


                                      102
<PAGE>

and interest will be issued to, and  registered in the name of, the  transferee.
Interest and principal are payable only to the registered holder of the Note.

G.       Covenants.

                  (a)  Registration   Rights.  Upon  receipt  of  the  necessary
approvals for the  convertibility  feature of this Note set forth in Section C.5
above,  the  Borrower  hereby  covenants  to enter  into a  registration  rights
agreement  substantially  similar to the  Registration  Rights  Agreement  dated
January  26,  1999 with  Deiter  Meier  and  Stephen  Jackson,  with each of the
Investors  to provide for the  registration  of the shares of Common  Stock into
which the Note is then convertible.

                  (b) Subordination.  Borrower shall use commercially reasonable
efforts to obtain the  consent of the  holders of the April 23, 1999 Note to the
subordination  of the right to payment under and the security  interest  granted
pursuant to such promissory  note as described in Section D.1 above.  Failure to
obtain such  consent by October 31,  1999 shall  constitute  an Event of Default
hereunder.  Notwithstanding anything to the contrary contained elsewhere in this
Note,  Lender shall not be required to make any advances  under this Note unless
and until such consent is obtained and delivered to Lender.

H. Prior Note.  This Note shall  supersede  the  Promissory  Note by Borrower in
favor of Taurean  Investments  AG dated July 13, 1999 in the amount of $500,000,
and the principal amount of $500,000 borrowed  thereunder shall be considered an
Advance pursuant to Section A.1 above.

I. Right of First  Offer:  Subject to the  rights of other  stockholders  of the
Borrower,  Investors  shall  have a right of first  offer to  participate,  on a
pro-rata basis (assuming the conversion of the Note as provided herein),  in all
future private placements of equity securities and debt instruments  convertible
into equity  securities of the Borrower,  in accordance  with the Right of First
Offer Agreement executed concurrently herewith.

J.       Other Provisions.

         1.       Definitions.  As used herein, the following terms shall have
                  the following meanings:

                  "Collateral" means the property described on Exhibit A
attached hereto.

                  "Copyrights"  means any and all  copyright  rights,  copyright
applications,  copyright  registrations  and like  protections  in each  work or
authorship and derivative  work thereof,  whether  published or unpublished  and
whether  or not the same  also  constitutes  a trade  secret,  now or  hereafter
existing, created, acquired or held.

                  "Intellectual Property Collateral" means:

(a)               Copyrights, Trademarks and Patents;

(b)               Any  and all  trade  secrets,  and  any  and all  intellectual
                  property  rights in computer  software and  computer  software
                  products now or hereafter existing, created, acquired or held;

(c)               Any and all design  rights  which may be available to Borrower
                  now or hereafter existing,  created, acquired or held;

                                      103
<PAGE>

(d)               Any and all claims for damages by way of past,  present and
future infringement of any of the rights included above,  with the right, but
not the obligation,  to sue for and collect such damages for said use or
infringement of the  intellectual  property rights identified above;

                  (e) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks,  and all license fees and royalties arising from such use
to the extent permitted by such license or rights;

                  (f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and

                  (g) All  proceeds  and  products of the  foregoing,  including
without  limitation  all payments  under  insurance or any indemnity or warranty
payable in respect of any of the foregoing.

                  "Lien" means any lien (statutory or other), mortgage,  pledge,
hypothecation, assignment, deposit arrangement, security interest, charge, claim
or other  encumbrance of any kind (including any conditional sale or other title
retention agreement,  any lease in the nature thereof, and any agreement to give
any security  interest) and any agreement to give or refrain from giving a lien,
mortgage,  pledge,  hypothecation,  assignment,  deposit  arrangement,  security
interest, charge, claim or other encumbrance of any kind.

                  "Patents"  means all  patents,  patent  applications  and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations in part of the same.

                  "Permitted  Liens"  means:  (i) Liens  imposed by law, such as
carriers', warehousemen's,  materialmen's and mechanics' liens, or Liens arising
out of judgments or awards  against  Borrower with respect to which  Borrower at
the time shall  currently be prosecuting  an appeal or  proceedings  for review;
(ii) Liens for taxes not yet subject to penalties for  nonpayment  and Liens for
taxes the payment of which is being  contested in good faith and by  appropriate
proceedings  and  for  which,  to the  extent  required  by  generally  accepted
accounting principles then in effect, proper and adequate book reserves relating
thereto are established by Borrower; (iii) purchase money security interests and
liens in  connection  with capital  leases  incurred in the  ordinary  course of
business (to the extent such liens are only on the leased  property) or existing
on after acquired property at the time of its acquisition by the Borrower;  (iv)
liens  existing on property as of the date of this Note;  (v) liens securing the
performance of bids,  trade contracts,  leases,  surety bonds and the like; (vi)
leases and  sublicenses  granted to others in the  ordinary  course of business;
(vii)  liens  consisting  of rights of set-off or bankers  liens of a  customary
nature; (viii) liens in connection with the establishment of receivable lines of
credit  with  commercial  banks  or  other  institutional  lenders;  (ix)  liens
consisting of  agreements  to refrain from giving or creating  Liens (other than
the Lien and security  interest granted to Lender  hereunder) in connection with
joint  venture  agreements,  strategic  alliances  and the  like;  and (x) liens
granted in all of the Company's  assets pursuant to the secured  Promissory Note
date April 23, 1999.

                  "Trademarks"  means  any  trademark  and  servicemark  rights,
whether  registered or not,  applications to register and  registrations  of the
same and like  protections,  and the entire goodwill of the business of Borrower
connected with and symbolized by such trademarks.

                  "UCC" means the Uniform Commercial Code in effect from time to
time in the relevant jurisdiction.

         2.       Governing Law;  Venue.  This Note shall be governed by the
laws of the State of California,  without giving effect to
conflicts  of law  principles.  Borrower  and Lender  agree that all  actions or
proceedings  arising in  connection  with this Note shall be tried and litigated
only in the state  and  federal  courts  located  in the City and  County of San
Francisco, State of California or, at Lender's option, any court in which Lender
determines  it is  necessary  or  appropriate  to  initiate  legal or  equitable
proceedings in order to exercise,  preserve, protect or defend any of its rights


                                      104
<PAGE>

and remedies under this Note or otherwise or to exercise,  preserve,  protect or
defend its Lien, and the priority thereof, against the Collateral, and which has
subject matter jurisdiction over the matter in controversy.  Borrower waives any
right it may have to assert the doctrine of forum non conveniens or to object to
such venue,  and consents to any court ordered relief  Borrower  waives personal
service of process and agrees that a summons and complaint  commencing an action
or  proceeding  in any such court  shall be  promptly  served  and shall  confer
personal jurisdiction if served by registered or certified mail to Borrower. The
choice of forum set forth herein shall not be deemed to preclude the enforcement
of any judgment  obtained in such forum,  or the taking of any action under this
Note to enforce the same, in any appropriate jurisdiction.

        3.  Notices.  Any  notice or  communication  required  or  desired to be
served,  given or delivered  hereunder shall be in the form and manner specified
below, and shall be addressed to the party to be notified as follows:

                  If to Investors:    Taurean Investments AG
                                      Grienbachstrasse 17
                                      CH-6300 Zug, Switzerland

                  With a copy to:     Thomas Rinderknecht, Esq.
                                      Rinderknecht Klein & Stadelhoffer
                                      Beethovenstrasse 7
                                      P.O. Box 4451
                                      Ch-8022 Zurich, Switzerland
                                      Fax: 011-41-01-287-24-00

                                      Pegasus Capital II, L.P.
                                      181 Elm Street
                                      New Canaan, CT  06840
                                      Attention: Mark Lanier
                                      Fax: (203) 966-4788

         With a copy to:              Thomas Rinderknecht, Esq.
                                      Rinderknecht Klein & Stadelhoffer
                                      Beethovenstrasse 7
                                      P.O. Box 4451
                                      Ch-8022 Zurich, Switzerland
                                      Fax: 011-41-01-287-24-00

         and to:                      Vern S. Bothwell, Esq.
                                      Feldman, Waldman & Kline
                                      3 Embarcadero Center, 28th Floor
                                      San Francisco, CA 94111
                                      Fax: (415) 981-1350

         If to Borrower:              Euphonix, Inc.
                                      220 Portage Avenue
                                      Palo Alto, California  94306
                                      Attention: Barry Margerum
                                      Fax: (650) 846-1131

         With a copy to:              Wilson Sonsini Goodrich & Rosati,
                                      Professional Corporation
                                      650 Page Mill Road
                                      Palo Alto, California  94304-1050
                                      Attn: John Roos, Esq.
                                      Fax: (650) 493-6811

                                      105
<PAGE>


or to such other address as each party  designates to the other by notice in the
manner  herein  prescribed.  Notice  shall  be  deemed  given  hereunder  if (i)
delivered  personally  or otherwise  actually  received,  (ii) sent by overnight
delivery  service,  (iii) mailed by  first-class  United  States  mail,  postage
prepaid,  registered or certified,  with return receipt requested,  or (iv) sent
via  telecopy  machine  with a  duplicate  signed  copy  sent on the same day as
provided in clause (ii) above.  Notice  mailed as provided in clause (iii) above
shall be effective  upon the  expiration  of three (3)  business  days after its
deposit in the United States mail,  and notice  telecopied as provided in clause
(iv) above shall be  effective  upon receipt of such  telecopy if the  duplicate
signed copy is sent under  clause (iv) above.  Notice  given in any other manner
described in this  section  shall be  effective  upon  receipt by the  addressee
thereof,  provided , however, that if any notice is tendered to an addressee and
delivery  thereof is refused by such  addressee,  such notice shall be effective
upon such tender unless expressly set forth in such notice.

         4. Lender's Rights; Borrower Waivers. Lender's acceptance of partial or
delinquent payment from Borrower hereunder,  or Lender's failure to exercise any
right  hereunder,  shall not  constitute a waiver of any  obligation of Borrower
hereunder, or any right of Lender hereunder, and shall not affect in any way the
right to require full  performance at any time  thereafter.  Except as otherwise
expressly provided herein,  Borrower waives  presentment,  diligence,  demand of
payment,  notice,  protest and all other demands and notices in connection  with
the delivery, acceptance,  performance,  default or enforcement of this Note. In
any action on this Note,  Lender need not  produce or file the  original of this
Note,  but need only file a photocopy of this Note certified by Lender be a true
and correct copy of this Note in all material respects.

         5. Severability. Whenever possible each provision of this Note shall be
interpreted  in such manner as to be effective and valid under  applicable  law,
but if any provision is prohibited by or invalid under  applicable law, it shall
be  ineffective  to the  extent  of  such  prohibition  or  invalidity,  without
invalidating the remainder of the provision or the remaining  provisions of this
Note.

                                      106
<PAGE>

         6. Amendment Provisions.  This Note may not be amended or modified, nor
may any of its terms be waived, except by written instruments signed by Borrower
and Lender.

         7. Binding Effect.  This Note shall be binding upon, and shall inure to
the benefit of, Borrower and the holder hereof and their  respective  successors
and assigns;  provided , however,  that Borrower's  rights and obligations shall
not be assigned or delegated  without Lender's prior written  consent,  given in
its sole  discretion,  and any purported  assignment or delegation  without such
consent shall be void ab initio.

         8. Time of Essence.  Time is of the essence of each and every provision
of this Note.

         9.  Headings.  Section  headings  used in this Note have been set forth
herein for  convenience of reference  only.  Unless the contrary is compelled by
the context, everything contained in each section hereof applies equally to this
entire Note.

         10. No Usury.  This Note is subject to the express condition that at no
time shall the Borrower be obligated or required to pay interest  hereunder at a
rate which  could  subject  Lender to either  civil or criminal  liability  as a
result of being in excess of the maximum rate which the Borrower is permitted by
law to contract or agree to pay. If, by the terms of this Note,  the Borrower is
at any time  required or  obligated  to pay interest at a rate in excess of such
maximum  rate,  the rate of  interest  under  this  Note  shall be  deemed to be
immediately reduced to such maximum rate and interest payable hereunder shall be
computed at such maximum rate and the portion of all prior interest  payments in
excess of such  maximum  rate shall be applied  and shall be deemed to have been
payments in reduction of the principal balance of this Note.

         11. Attorneys' Fees.  Should any litigation,  enforcement or collection
action  be  commenced  between  any of the  parties  to this  Note  under  or in
connection with this Note, the prevailing party in such litigation,  enforcement
or collection action shall be entitled,  in addition to such other relief as may
be  granted,  to a  reasonable  sum as and  for  its  attorneys'  fees  in  such
litigation,  enforcement  or collection  action which shall be determined by the
court in such  litigation,  enforcement  or  collection  action or in a separate
action  brought for that purpose.  The  provisions of this Section shall survive
the entry of any judgement or award and shall  continue to apply with respect to
any action to collect or recover any such judgment or award.



                                      107
<PAGE>



IN WITNESS WHEREOF,  the Borrower and each of the Investors has caused this Note
to be duly executed on the date first written above.



                                                  EUPHONIX, INC.

                                                  By:  /s/ BARRY MARGERUM

                                                  Name: Barry Margerum

                                                  Title: Chief Executive Officer



                                                  "INVESTORS":

                                                  TAUREAN INVESTMENTS AG

                                                  By:  /s/ DIETER MEIER

                                                  Name: Dieter Meier

                                                  Title:  Principal

                                                  PEGASUS CAPITAL II, L.P.

                                                  By:  /s/ MARK LANIER

                                                  Name: Mark Lanier

                                                  Title: Principal





                                      108
<PAGE>



                                   EXHIBIT "A"

                        COLLATERAL DESCRIPTION ATTACHMENT
                           TO SECURED PROMISSORY NOTE

         All personal  property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created,  written, produced or
acquired, including, but not limited to: (1) all accounts receivable,  accounts,
chattel  paper,   contract  rights  (including,   without  limitation,   royalty
agreements,   license  agreements  and  distribution   agreements),   documents,
instruments, money, deposit accounts and general intangibles, including, without
limitation,  returns,  repossessions,  books and records relating  thereto,  and
equipment containing said books and records, all investment property,  including
securities and securities entitlements;  (2) all software, computer source codes
and other computer programs  (collectively,  the "Software  Products"),  and all
common law and statutory  copyrights and copyright  registrations,  applications
for registration,  now existing or hereafter  arising,  United States of America
and foreign,  obtained or to be obtained on or in  connection  with the Software
Products,  or any parts thereof or any  underlying or component  elements of the
Software  Products  together with the right to copyright and all rights to renew
or extend  such  copyrights  and the right  (but not the  obligation)  of Lender
(herein  referred  to as  "Lender"  or  "Secured  Party") to sue in its own name
and/or the name of the  Debtor for past,  present  and future  infringements  of
copyright; (3) all goods, including, without limitation, equipment and inventory
(including,  without limitation,  all export inventory);  (4) all guarantees and
other security  therefor;  (5) all  trademarks,  service marks,  trade names and
service  names  and  the  goodwill  associated  therewith   including,   without
limitation, the following:
                           Reel Feel(TM)
                           Clear Displays(TM)
                           Track Panner(TM)
                           SnapShot Recall(TM)
                           DSC(TM) (Digital Studio Controller)
                           Hyper-Surround(TM)
                           Total Automation(TM)
                           Mixview(TM)
(6) (a) all patents and patent  applications  filed in the United  States Patent
and  Trademark  Office or any similar  office of any foreign  jurisdiction,  and
interests under patent license agreements,  including,  without limitation,  the
inventions and improvements described and claimed therein,  (including,  without
limitation, United States Patents Nos. 5524060, 5402501, 5399820 and 5677959 and
applications  for United States  patents for (i)  Computer-Mirrored  Panel Input
Devices, (ii) Multiple Driver Rotary Control for Audio Processors or Other Uses,
(iii)  Functional  Panel  for Audio  Mixer,  and (iv)  Cont.  and  Amendment  of
"Computer-Mirrored  Panel Input Devices"), (b) licenses pertaining to any patent


                                      109
<PAGE>

whether  Debtor is licensor or  licensee,  (c) all income,  royalties,  damages,
payments,  accounts and accounts  receivable now or hereafter due and/or payable
under and with  respect  thereto,  including,  without  limitation,  damages and
payments for past, present or future  infringements  thereof, (d) the right (but
not the obligation) to sue for past, present and future  infringements  thereof,
(e) all rights  corresponding  thereto throughout the world in all jurisdictions
in which such patents  have been issued or applied  for,  and (f) the  reissues,
divisions,  continuations,  renewals,  extensions and continuations-in-part with
any of the  foregoing  (all  of  the  foregoing  patents  and  applications  and
interests under patent license agreements,  together with the items described in
clauses (a) through (f) in this paragraph are sometimes herein  individually and
collectively  referred  to as the  "Patents");

(7) all rights in and to (i) the
on-air  mixing  consoles of the Series  CS3000B,  (ii) mixer  hardware  software
designs,  (iii) Real Time(TM) software design, and (iv) analog and digital audio
hardware design expertise; and

(8) all products and proceeds, including, without
limitation, insurance proceeds, of any of the foregoing.

Notwithstanding  the  foregoing,  the grant of a security  interest  as provided
herein shall not extend to, and the term  "Collateral"  shall not  include,  any
contractual,  license or lease  rights or  interests  in which  Borrower  is the
grantee,  licensee or lessee thereunder to the extent that Borrower,  whether by
law or by the terms of such  contract,  license or lease,  is not  permitted  to
assign or grant a security  in  interest  in its rights  thereunder  without the
consent of the other party thereto.

























                                      110
<PAGE>



================================================================================
================================================================================














                                 EUPHONIX, INC.



                               220 Portage Avenue
                           Palo Alto, California 94306




                         COMMON STOCK PURCHASE AGREEMENT



                                November 9, 1999


















================================================================================
================================================================================



                                      111
<PAGE>



                                TABLE OF CONTENTS
                                                                           Page

SECTION 1    Authorization and Sale of Common Stock...........................1

         1.1      Authorization...............................................1
         1.2      Purchase and Sale of Shares.................................1

SECTION 2   Closing Date; Delivery............................................1

         2.1      Closing.....................................................1
         2.2      Delivery....................................................1

SECTION 3    Representations and Warranties of the Company....................2

         3.1      Organization and Standing...................................2
         3.2      Corporate Power.............................................2
         3.3      Capitalization..............................................3
         3.4      Authorization...............................................3
         3.5      Financial Statements........................................3
         3.6      No Material Adverse Change..................................3
         3.7      No Undisclosed Liabilities..................................3
         3.8      Title to Assets.............................................4
         3.9      Actions Pending.............................................4
         3.10     Compliance with Law.........................................4
         3.11     Certain Fees................................................4
         3.12     Disclosure..................................................4
         3.13     Material Agreements.........................................4
         3.14     Employees...................................................5
         3.15     Intellectual Property, Trademarks, etc......................5

SECTION 4    Representations and Warranties of the Purchasers.................5

         4.1      Experience; Speculative Nature of Investment................5
         4.2      Investment..................................................5
         4.3      Rule 144....................................................5
         4.4      Access to Data..............................................6
         4.5      Authorization...............................................6
         4.6      Brokers or Finders..........................................6
         4.7      Tax Liability...............................................6
         4.8      Recent Transfers............................................6

SECTION 5    Conditions to Purchasers'Obligations to Close....................6
`        5.1      Representations and Warranties Correct......................7
         5.2      Covenants...................................................7
         5.3      Blue Sky....................................................7
         5.4      Rights Agreement............................................7
         5.5      Compliance with Law.........................................7


                                        -i-

                                      113
<PAGE>

SECTION 6    Conditions to Company's Obligations to Close.....................7

         6.1      Representations.............................................7
         6.2      Covenants...................................................7
         6.3      Blue Sky....................................................7
         6.4      Rights Agreement............................................7
         6.5      Compliance with Law.........................................7

SECTION 7    Miscellaneous....................................................8

         7.1      Governing Law...............................................8
         7.2      Survival....................................................8
         7.3      Successors and Assigns......................................8
         7.4      Entire Agreement; Amendment.................................8
         7.5      Notices, etc................................................8
         7.6      Delays or Omissions.........................................8
         7.7      California Corporate Securities Law.........................9
         7.8      Counterparts................................................9
         7.9      Severability................................................9
         7.10     Titles and Subtitles........................................9
         7.11     Expenses....................................................9
         7.12     Limitation on Liability.....................................9
         7.13     Attorney's Fees.............................................9










                                        -ii-



                                      114
<PAGE>



EXHIBITS
A                 Schedule of Purchasers
B                 Registration Rights Agreement



























                                        -iii-

                                      115
<PAGE>

                                    EUPHONIX, INC.


                         COMMON STOCK PURCHASE AGREEMENT


         THIS COMMON STOCK PURCHASE  AGREEMENT (the  "Agreement")  is made as of
November 9, 1999 by and among  Euphonix,  Inc.,  a California  corporation  (the
"Company"),  and the  individuals  on the  Schedule  of  Purchasers  attached as
Exhibit A hereto (the "Purchasers").


                                    SECTION 1

                     Authorization and Sale of Common Stock

         1.1  Authorization.  The  Company  has  authorized  the sale of up to a
number of shares of Common Stock of the Company (the "Shares"), which shall have
an aggregate market value equal to $1,750,000, based upon a cash price per share
equal  to the  average  closing  bid  price  per  share  for the ten  (10)  days
immediately preceeding the Closing Date ($1.1064) (as defined below), subject to
the  satisfaction  or waiver of the  conditions  set forth in  Sections  5 and 6
below.

         1.2 Purchase and Sale of Shares. Subject to the terms and conditions of
this Agreement, each Purchaser agrees to purchase and the Company agrees to sell
and issue to each  Purchaser the number of Shares set forth opposite its name on
Exhibit A. The Company's  agreement with each Purchaser is a separate agreement,
and the sale of the Shares to each Purchaser is a separate sale.

                                    SECTION 2

                             Closing Date; Delivery

2.1 Closing.  The purchase and sale of the Shares  hereunder shall take place at
one closing  ("the  Closing") on November 9, 1999,  (the  "Closing  Date").  The
Closing shall be held at the offices of Wilson  Sonsini  Goodrich & Rosati,  650
Page Mill Road, Palo Alto,  California,  at 9:00 a.m. local time, on the Closing
Date,  or at such other time and place upon which the Company and the  Purchaser
shall agree.

2.2 Delivery.  At the Closing, the Company will deliver to each Purchaser a
certificate registered in each Purchaser's name representing the number of
Shares that each Purchaser is purchasing  for payment of the purchase price
therefor as set forth in Section 1.2 above,  by check  payable to the Company or
by wire  transfer per the Company's instructions.

                                    SECTION 3

                  Representations and Warranties of the Company

         Except as set forth in writing in the disclosure letter supplied by the
Company to the Purchaser (the  "Disclosure  Letter") the Company  represents and
warrants to the Purchasers as of the date of this Agreement as follows:

         3.1  Organization  and  Standing.  The  Company is a  corporation  duly
organized  and  existing  under,  and by  virtue  of,  the laws of the  State of
California  and is in good standing  under such laws.  The Company has requisite
corporate power and authority to own and operate its properties and assets,  and
to carry on its business. The Company is presently qualified to do business as a

                                        -1-


                                      116
<PAGE>

foreign  corporation in each  jurisdiction  where the failure to be so qualified
would have a material adverse effect on the Company's business.

         3.2 Corporate  Power. The Company has all requisite legal and corporate
power and  authority  to execute and deliver  this  Agreement  and that  certain
Registration  Rights  Agreement  substantially  in the form  attached  hereto as
Exhibit B (the "Rights Agreement"),  to sell and issue the Shares hereunder, and
to carry out and perform its  obligations  under the terms of this Agreement and
the Rights Agreement (together the "Agreements").

         3.3 Capitalization. The authorized capital stock of the Company and the
shares thereof issued and outstanding as of the date hereof are set forth in the
Disclosure  Letter.  All of the outstanding shares of the Company's Common Stock
have been duly and validly authorized. Except as set forth in this Agreement and
the Rights  Agreement and as set forth in the  Company's  most recent Form 10-K,
including the accompanying financial statements, or in the Company's most recent
Form 10-Q, filed with the Securities and Exchange  Commission (the "Commission")
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")
in other public filings made by the Company with the Commission  pursuant to the
Exchange Act (collectively, the "Commission Filings"), or the Disclosure Letter,
no shares of Common  Stock are  entitled to  preemptive  rights or  registration
rights  and  there  are no  outstanding  options,  warrants,  scrip,  rights  to
subscribe to, call or  commitments of any character  whatsoever  relating to, or
securities  or rights  convertible  into,  any  shares of  capital  stock of the
Company.  Furthermore,  except as set  forth in this  Agreement  and the  Rights
Agreement and as set forth in the Commission  Filings, or the Disclosure Letter,
there are no contracts,  commitments,  understandings,  or arrangements by which
the  Company is or may become  bound to issue  additional  shares of the capital
stock of the Company or options, securities or rights convertible into shares of
capital  stock of the  Company.  Except for  registration  rights  contained  in
agreements entered into by the Company in order to sell restricted securities as
provided in the Commission  Filings or the Disclosure Letter, the Company is not
a party to any agreement granting registration rights to any person with respect
to any of its equity or debt  securities.  The Company is not a party to, and it
has no knowledge  of, any  agreement  restricting  the voting or transfer of any
shares  of the  capital  stock  of the  Company.  Except  as  set  forth  in the
Commission  Filings  or in the  Disclosure  Letter,  the  offer  and sale of all
capital  stock,  convertible  securities,  rights,  warrants,  or options of the
Company  issued prior to the Closing  complied with all  applicable  federal and
state  securities  laws, and no stockholder has a right of rescission or damages
with respect thereto which would have a material adverse effect on the Company's
financial condition or operating results.

         3.4 Authorization.  All corporate action on the part of the Company and
its  directors  necessary  for  the  authorization,   execution,   delivery  and
performance of the Agreements by the Company, the authorization,  sale, issuance
and  delivery  of the  Shares,  and  the  performance  of  all of the  Company's
obligations  under the  Agreements  has been taken or will be taken prior to the
Closing.  The  Agreements,  when  executed and  delivered by the Company,  shall
constitute  valid  and  binding  obligations  of  the  Company,  enforceable  in
accordance with their terms,  subject to laws of general application relating to
bankruptcy,  insolvency  and the  relief of debtors  and rules of law  governing
specific performance, injunctive relief or other equitable remedies, except that
the  indemnification  provisions  of  Section  1.9 of the Rights  Agreement  may
further be limited by principles of public  policy.  The Shares,  when issued in
compliance with the provisions of this Agreement,  will be validly issued,  will
be fully paid and nonassessable,  and will be free of any liens or encumbrances,
other  than any  liens  or  encumbrances  created  by the  Purchaser;  provided,
however,  that the Shares are subject to  restrictions  on transfer  under state
and/or federal securities laws as set forth herein and in the Rights Agreement.

         3.5  Financial  Statements.  The  financial  statements  of the Company
included in the Commission  Filings  comply as to form in all material  respects
with applicable accounting  requirements and the published rules and regulations
of the  Commission  or other  applicable  rules  and  regulations  with  respect
thereto.  Such  financial  statements  have been  prepared  in  accordance  with
generally accepted accounting  principles ("GAAP") applied on a consistent basis

                                   -2-


                                      117
<PAGE>

during the periods  involved  (except (i) as may be otherwise  indicated in such
financial  statements  or the  notes  thereto  or (ii) in the case of  unaudited
interim  statements,  to the extent  they may not  include  footnotes  or may be
condensed or summary  statements),  and fairly present in all material  respects
the  financial  position  of the Company  and its  subsidiaries  as of the dates
thereof and the results of operations  and cash flows for the periods then ended
(subject,  in the  case  of  unaudited  statements,  to  normal  year-end  audit
adjustments).

         3.6 No Material  Adverse Change.  Since June 30, 1999, the date through
which the most  recent  quarterly  report of the  Company  on Form 10-Q has been
prepared  and filed with the  Commission,  the  Company has not  experienced  or
suffered  any event or  condition  which has  materially  affected  the business
operations, assets or financial condition of the Company.

         3.7 No Undisclosed  Liabilities.  Except as disclosed in the Commission
Filings or the Disclosure Letter,  the Company has no liabilities,  obligations,
claims or losses that would be required to be  disclosed  on a balance  sheet of
the Company  (including  the notes  thereto),  other than those  incurred in the
ordinary  course  of the  Company's  business  since  June 30,  1999 and  which,
individually  or in the aggregate,  do not or would not have a material  adverse
effect on the Company's financial condition or operating results.

         3.8 Title to Assets.  The Company has good and marketable  title to all
of its property and assets,  free of any  mortgages,  pledges,  charges,  liens,
security  interests  or other  encumbrances,  except for those  indicated in the
Commission Filings or the Disclosure Letter or such that could not reasonably be
expected to cause a material adverse effect on the Company's financial condition
or operating results.

         3.9 Actions Pending. There is no action, suit, claim,  investigation or
proceeding  pending or, to the knowledge of the Company,  threatened against the
Company,  which  questions  the validity of this  Agreement or the  transactions
contemplated  hereby  or any  action  taken or to be taken  pursuant  hereto  or
thereto. Except as set forth in the Commission Filings or the Disclosure Letter,
there is no action, suit, claim,  investigation or proceeding pending or, to the
knowledge of the Company,  threatened,  against or  involving  the Company,  any
subsidiary  or any of their  respective  properties  or  assets  and  which,  if
adversely  determined,  is  reasonably  likely to result in a  material  adverse
effect on the Company's financial condition or operating results.

         3.10 Compliance with Law. To the knowledge of the Company, the business
of the Company has been and is presently  being conducted in accordance with all
applicable  federal,  state and local governmental laws, rules,  regulations and
ordinances,  except as set forth in the  Commission  Filings  or the  Disclosure
Letter, or such that do not cause a material adverse effect. The Company has all
franchises,  permits,  licenses,  consents and other  governmental or regulatory
authorizations  and  approvals  necessary for the conduct of its business as now
being  conducted by it unless the failure to possess such  franchises,  permits,
licenses,  consents and other  governmental  or  regulatory  authorizations  and
approvals,  individual or in the aggregate,  could not reasonably be expected to
have a material adverse effect on the Company's financial condition or operating
results.

         3.11 Certain  Fees. No brokers,  finders or financial  advisory fees or
commissions  will be payable by the  Company  with  respect to the  transactions
contemplated by this Agreement.

         3.12 Disclosure.  To the best of the Company's knowledge,  neither this
Agreement nor any other documents  furnished to the Purchaser by or on behalf of
the Company in connection with the  transactions  contemplated by this Agreement
contain  any untrue  statement  of a material  fact or omits to state a material
fact  necessary in order to make the statements  made herein or therein,  in the
light of the  circumstances  under which they were made  herein or therein,  not
misleading.

                                       -3-

                                      118
<PAGE>

         3.13 Material Agreements. Except as set forth in the Commission Filings
or the  Disclosure  Letter,  the  Company is not a party to any  written or oral
contract, instrument, agreement, commitment,  obligation, plan or arrangement, a
copy of which would be required to be filed with the Commission as an exhibit to
a   registration   statement  or  applicable   form   (collectively,   "Material
Agreements") if the Company were registering securities under the Securities Act
of 1933,  as amended  (the  "Securities  Act").  The Company has in all material
respects performed all the obligations  required to be performed by it under the
foregoing agreements,  has received no notice of default and, to the best of the
Company's  knowledge,  is not in default  under any  Material  Agreement  now in
effect,  the result of which  could  reasonably  be expected to cause a material
adverse effect on the Company's financial condition or operating results.

         3.14  Employees.  Except as set forth in the Commission  Filings or the
Disclosure Letter or as otherwise disclosed by the Company to the Purchaser, the
Company has no collective bargaining  arrangements or agreements covering any of
its employees.

         3.15 Intellectual Property,  Trademarks, etc. The Company has the right
to use,  free and clear of all  liens,  charges,  claims and  restrictions,  all
intellectual  property,  patents,   trademarks,   service  marks,  trade  names,
copyrights,  licenses  and rights  necessary  to the  business of the Company as
presently conducted. To the best of the Company's knowledge,  the Company is not
infringing upon or otherwise  acting  adversely to the right or claimed right of
any other person under or with respect to the foregoing.

                                    SECTION 4

                Representations and Warranties of the Purchasers

         Each Purchaser  hereby  represents  and warrants to the Company,  as to
himself  only and not with respect to any other  Purchaser,  with respect to the
purchase of Shares as follows:

         4.1 Experience;  Speculative  Nature of Investment.  Each Purchaser (or
its  principals  or advisors)  has  substantial  experience  in  evaluating  and
investing in private  placement  transactions of securities in companies similar
to the Company so that it is capable of  evaluating  the merits and risks of its
investment  in the  Company and has the  capacity to protect its own  interests.
Each  Purchaser  acknowledges  that its  investment  in the  Company  is  highly
speculative and entails a substantial  degree of risk and each Purchaser is in a
position to lose the entire amount of such investment.

         4.2  Investment.  Each Purchaser is acquiring the Shares for investment
for its own account, not as a nominee or agent, and not with the view to, or for
resale in connection with, any distribution  thereof. Each Purchaser understands
that  the  Shares  to be  purchased  hereby  have  not  been,  and  will not be,
registered  under the  Securities  Act  (except as  provided in Section 3 of the
Rights  Agreement)  by  reason of a  specific  exemption  from the  registration
provisions of the Securities Act, the  availability of which depends upon, among
other things,  the bona fide nature of the investment intent and the accuracy of
the  Purchasers'  representations  as  expressed  herein.  Each  Purchaser is an
"accredited   investor"  within  the  meaning  of  Regulation  D,  Rule  501(a),
promulgated by the Securities and Exchange Commission.

         4.3 Rule 144. Each Purchaser  acknowledges that the Shares must be held
indefinitely unless  subsequently  registered under the Securities Act or unless
an exemption from such registration is available. Each Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain  conditions,  including,  among other things,  the existence of a public
market for the shares,  the  availability of certain current public  information
about the Company, the resale occurring not less than one year after a party has

                                   -4-

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<PAGE>

purchased and paid for the security to be sold, the sale being effected  through
a "broker's  transaction" or in transactions  directly with a "market maker" and
the number of shares  being sold  during any  three-month  period not  exceeding
specified   limitations.   Each  Purchaser  understands  that  the  certificates
evidencing  the  Shares  will be  imprinted  with a legend  that  prohibits  the
transfer of such securities  unless they are registered or such  registration is
not required.

         4.4 Access to Data.  Each  Purchaser has had an  opportunity to discuss
the Company's  business,  management and financial  affairs with its management.
Each  Purchaser has also had an  opportunity to ask questions of officers of the
Company,  which  questions  were answered to its  satisfaction.  Each  Purchaser
understands that such discussions,  as well as any written information issued by
the Company, were intended to describe certain aspects of the Company's business
and prospects but were not a thorough or exhaustive description.

         4.5 Authorization.  The Agreements,  when executed and delivered by the
Purchasers,  will  constitute  valid and  legally  binding  obligations  of each
Purchaser,   enforceable  in  accordance   with  their  terms,   except  as  the
indemnification provisions of Section 1.9 of the Rights Agreement may be limited
by  principles  of public  policy,  and  subject to laws of general  application
relating to  bankruptcy,  insolvency  and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.

         4.6 Brokers or Finders.  The  Purchasers  have not engaged any brokers,
finders or agents,  and the Company has not,  and will not,  incur,  directly or
indirectly,  as a result of any action taken by  Purchasers,  any  liability for
brokerage  or finders'  fees or agents'  commissions  or any similar  charges in
connection with the Agreements.  In the event that the preceding  sentence is in
any way  inaccurate,  each  Purchaser  agrees to indemnify and hold harmless the
Company  and each other  Purchaser  from any  liability  for any  commission  or
compensation  in the nature of a  finder's  fee (and the costs and  expenses  of
defending against such liability) for which the Company, any other Purchaser, or
any of their officers, directors, employees or representatives, is responsible.

         4.7  Tax  Liability.  Each  Purchaser  has  reviewed  with  its own tax
advisors  the  federal,  state,  local  and  foreign  tax  consequences  of this
investment and the transactions contemplated by the Agreements.  With respect to
such  matters,  each  Purchaser  relies  solely on such  advisors and not on any
statements or representations of the Company or any of its agents other than the
representations and warranties set forth herein. Each Purchaser understands that
it (and not the Company) shall be responsible for its own tax liability that may
arise as a result of this  investment or the  transactions  contemplated  by the
Agreements.

         4.8  Recent  Transfers.  The  Purchasers  have not  purchased,  sold or
transferred  any  security  of the  Company  within the sixty  days  immediately
preceding the date of this Agreement.

                                    SECTION 5

                 Conditions to Purchasers' Obligations to Close

         The  Purchasers'  obligations to purchase the Shares are, unless waived
by the Purchasers, subject to the fulfillment of the following conditions:

                                   -5-

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<PAGE>

         5.1  Representations  and Warranties  Correct.  The representations and
warranties  made by the Company in Section 3 hereof shall be true and correct in
all material respects as of the Closing Date.

         5.2 Covenants.  All covenants,  agreements and conditions  contained in
the  Agreements  to be performed by the Company on or prior to the Closing shall
have been performed or complied with in all material respects.

         5.3 Blue Sky. The Company shall have  obtained all  necessary  Blue Sky
law  permits  and  qualifications,   or  have  the  availability  of  exemptions
therefrom, required by any state for the offer and sale of the Shares.

         5.4      Rights Agreement.  The Company and the Purchasers shall have
executed and delivered the Rights Agreement.

         5.5  Compliance  with  Law.  No  provision  of  any  applicable  law or
regulation and no judgment,  injunction, order or decree shall prohibit the sale
and issuance of the Shares and the consummation of the transactions contemplated
hereby.

                                    SECTION 6

                  Conditions to Company's Obligations to Close

         The Company's obligation to sell and issue the Shares is, unless waived
by the Company, subject to the fulfillment of the following conditions:

6.1  Representations.  The representations and warranties made by the Purchasers
in Section 4 hereof shall be true and correct as of the Closing Date.

6.2  Covenants.  All  covenants,  agreements  and  conditions  contained  in the
Agreements  to be performed by  Purchasers on or prior to the Closing Date shall
have been performed or complied with in all material respects.

6.3  Blue Sky.  The Company shall have obtained all necessary Blue Sky law
permits and qualifications,  or have the availability of exemptions  therefrom,
required by any state for the offer and sale of the Shares.

6.4  Rights Agreement. The Company and the Purchasers shall have executed and
delivered the Rights Agreement.

6.5  Compliance  with  Law.  No  provision  of  any  applicable  law or
regulation and no judgment,  injunction, order or decree shall prohibit the sale
and issuance of the Shares and the consummation of the transactions contemplated
hereby.






                                        -6-

                                      121
<PAGE>



                                    SECTION 7

                                  Miscellaneous

         7.1 Governing Law. This Agreement  shall be governed in all respects by
the internal laws of the State of  California,  without  regard to its choice of
law rules.

         7.2 Survival. The representations, warranties, covenants and agreements
made herein  shall  survive any  investigation  made by the  Purchasers  and the
closing of the transactions contemplated hereby.

         7.3 Successors and Assigns.  Except as otherwise  provided herein,  the
provisions  hereof  shall  inure to the  benefit  of, and be binding  upon,  the
successors,  assigns, heirs, executors and administrators of the parties hereto;
provided,  however,  that the rights of the  Purchasers  to purchase  the Shares
shall not be assignable without the prior written consent of the Company.

         7.4 Entire Agreement; Amendment. This Agreement and the other documents
delivered  pursuant  hereto  at the  Closing  constitute  the  full  and  entire
understanding  and  agreement  between the parties  with regard to the  subjects
hereof and thereof,  and no party shall be liable or bound to any other party in
any  manner  by  any  warranties,   representations   or  covenants   except  as
specifically set forth herein or therein.  Except as expressly  provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written  instrument signed by the Company and holders
of a majority of the Shares.

         7.5  Notices,  etc.  All notices and other  communications  required or
permitted  hereunder  shall be in writing and shall be mailed by  registered  or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to Purchasers,  at each Purchaser's address, as shown below, or
at such other address as such  Purchaser  shall have furnished to the Company in
writing,  or (b) if to any other  holder of any Shares,  at such address as such
holder shall have furnished the Company in writing, or, until any such holder so
furnishes  an address  to the  Company,  then to and at the  address of the last
holder of such Shares who has so furnished an address to the Company,  or (c) if
to the  Company,  one copy  should be sent to its address set forth on the cover
page of this  Agreement and  addressed to the  attention of the Chief  Executive
Officer,  or at such other  address as the Company  shall have  furnished to the
Purchaser.

                  Each such notice or other communication shall for all purposes
of this Agreement be treated as effective or having been given when delivered if
delivered  personally,  or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid.

         7.6 Delays or Omissions.  Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any party to this
Agreement  upon any breach or default of any other party  under this  Agreement,
shall impair any such right,  power or remedy of such  non-defaulting  party nor
shall it be  construed  to be a waiver  of any such  breach  or  default,  or an
acquiescence  therein,  or of or in any  similar  breach or  default  thereafter
occurring;  nor shall any  waiver of any  single  breach or  default be deemed a
waiver of any other breach or default theretofore or thereafter  occurring.  Any
waiver,  permit, consent or approval of any kind or character on the part of any
party of any breach or default under this  Agreement,  or any waiver on the part
of any party of any  provisions  or  conditions  of this  agreement,  must be in
writing and shall be effective only to the extent specifically set forth in such
writing.  All  remedies,  either  under this  Agreement  or by law or  otherwise
afforded  to  any  party  to  this  Agreement,   shall  be  cumulative  and  not
alternative.

         7.7  California  Corporate  Securities  Law. THE SALE OF THE SECURITIES
WHICH  ARE THE  SUBJECT  OF THIS  AGREEMENT  HAS NOT  BEEN  QUALIFIED  WITH  THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH

                                        -7-

                                      122
<PAGE>

SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE  CONSIDERATION  THEREFOR
PRIOR TO SUCH  QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE  QUALIFICATION  BY SECTION  25100,  25102,  OR 25105 OF THE  CALIFORNIA
CORPORATIONS  CODE.  THE RIGHTS OF ALL PARTIES TO THIS  AGREEMENT  ARE EXPRESSLY
CONDITIONED  UPON  SUCH  QUALIFICATION  BEING  OBTAINED,  UNLESS  THE SALE IS SO
EXEMPT.

         7.8  Counterparts.  This  Agreement  may be  executed  in any number of
counterparts,  each of which shall be enforceable  against the parties  actually
executing such  counterparts,  and all of which  together  shall  constitute one
instrument.

         7.9  Severability.  In the event that any  provision of this  Agreement
becomes or is  declared  by a court of  competent  jurisdiction  to be  illegal,
unenforceable  or void,  this Agreement  shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.

         7.10  Titles  and  Subtitles.  The titles  and  subtitles  used in this
Agreement are used for convenience  only and are not considered in construing or
interpreting this Agreement.

         7.11 Expenses.  The Company and the Purchaser shall each bear their own
fees, costs and expenses incurred on their behalf with respect to the Agreements
and the transactions  contemplated  hereby and any amendments or waiver thereto;
provided,  however,  the Company shall pay the attorney's fee of one (1) counsel
to the Purchasers not to exceed $5,000 in the aggregate.

         7.12  Limitation  on  Liability.   Notwithstanding   anything  in  this
Agreement  to the  contrary,  no  Purchaser  shall  have any  liability  for any
misrepresentation,  breaches of  representations  or  warranties  or breaches of
covenants  made  by  any  other  Purchaser  under  or in  connection  with  this
Agreement.

         7.13  Attorney's  Fees.  In any action  brought or maintained by either
party  asserting a cause of action  arising under or relating in any way to this
Agreement,  the  prevailing  party shall be  entitled to recover its  reasonable
costs and attorney's fees.

                                        -8-

                                      123
<PAGE>

The foregoing Agreement is hereby executed as of the date first above written.


                                        EUPHONIX, INC.
                                        a California corporation


                                        By: /s/ BARRY MARGERUM
                                        Barry Margerum, Chief Executive Officer


                                       PURCHASER




                                        By:
                                        Title:
































                  [Signature Page to 11/99 Purchase Agreement]


                                      124
<PAGE>




                                    EXHIBIT A


                             SCHEDULE OF PURCHASERS



   Name                               Number of Shares          Purchase Price
Dieter Meier                             451,916                   $500,000
c/o Soundproof, Inc.
5180 Linwood Drive
Los Angeles, CA 90027

Onset Enterprise Associates III, LP      451,916                   $500,000
c/o Robert Kuhling
Onset Ventures
2490 Sand Hill Road
Menlo Park, CA 94025

Stephen D. Jackson                       225,958                    $250,000
c/o Fashion Magic
1307 East Pine Street
Lodi, CA 95240

Walter Bosch                             451,916                     $500,000
Fraumunsterstr. 9
8001 Zurich
Switzerland

Total                                  1,581,706                   $1,750,000






















                                      125
<PAGE>


================================================================================
================================================================================















                                 EUPHONIX, INC.

                               220 Portage Avenue

                           Palo Alto, California 94306




                          REGISTRATION RIGHTS AGREEMENT




                                November 9, 1999














================================================================================
================================================================================



                                      126
<PAGE>




                                TABLE OF CONTENTS
                                                                           Page

SECTION 1         Restrictions on Transferability of Securities; Compliance with
                  Securities Act; Registration Rights.........................1

         1.1      Restrictions on Transferability.............................1
         1.2      Certain Definitions.........................................1
         1.3      Restrictive Legend..........................................3
         1.4      Restrictions on Transfer; Notice of Proposed Transfers......4

         1.5      Requested Registration......................................5
         1.6      Company Registration........................................6

         (a)      Notice of Registration......................................7
         1.7      Expenses of Registration....................................7

         1.8      Registration Procedures.....................................8

         1.9      Indemnification............................................10
         1.10     Information by Holder......................................10

1.11     Rule 144 Reporting..................................................10
         1.12     Transfer of Registration Rights............................11
         1.13     Termination of Registration Rights.........................11

SECTION 2         Miscellaneous..............................................11

         2.1      Governing Law..............................................11
         2.2      Survival...................................................11
         2.3      Successors and Assigns.....................................11
         2.4      Entire Agreement; Amendment................................11
         2.5      Notices, etc...............................................11
         2.6      Delays or Omissions........................................12
         2.7      Counterparts...............................................12
         2.8      Severability...............................................12
         2.9      Titles and Subtitles.......................................12
         2.10     Attorney's Fees............................................12








                                      127
<PAGE>

                                 EUPHONIX, INC.


                          REGISTRATION RIGHTS AGREEMENT


         This  Registration  Rights  Agreement (the  "Agreement")  is made as of
November  9,  1999  between  Euphonix,   Inc.,  a  California  corporation  (the
"Company")  and the  Purchasers  of the  Company's  Common  Stock  (the  "Common
Purchasers")  pursuant to the Company's  Common Stock Purchase  Agreement  dated
November 9, 1999 (the "Common Stock Agreement").

         The  Common  Purchasers  agree  to be  bound  by all of the  terms  and
conditions of this Agreement.

NOW, THEREFORE, the parties agree as follows:
                                    SECTION 1

                 Restrictions on Transferability of Securities;

               Compliance with Securities Act; Registration Rights

         1.1  Restrictions  on  Transferability.   The  Common  Stock  purchased
pursuant to the Common Stock Agreement shall not be sold, assigned,  transferred
or  pledged  except  upon the  conditions  specified  in this  Section  1, which
conditions  are  intended  to  ensure  compliance  with  the  provisions  of the
Securities Act (as defined below). The Common Purchasers will cause any proposed
purchaser,  assignee,  transferee,  or  pledgee of any such  shares  held by the
Common  Purchasers  to agree to take and hold  such  securities  subject  to the
provisions and upon the conditions specified in this Section 1.

         1.2  Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:

                  "Closing  Date" shall mean the date of the first  purchase and
sale of Common Stock pursuant to the Common Stock Agreement.

                  "Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.

                  "Common Stock" shall mean the Common Stock of the Company, par
value $0.001 per share.

                  "Holder"   shall  mean  (i)  any  Common   Purchaser   holding
Registrable  Securities  and (ii) any person holding  Registrable  Securities to
whom the rights under this Section 1 have been  transferred  in accordance  with
Section 1.12 hereof.

                  "Initiating  Holders" shall mean Holders or transferees of any
Holders  under  Section 1.12 hereof who in the  aggregate are Holders of greater
than 50% of the Registrable Securities.

                  "Registrable  Securities"  means (i) the Common  Stock  issued
pursuant to the Common Stock  Agreement and (ii) any Common Stock of the Company
issued or issuable in respect of such Common Stock upon any stock  split,  stock
dividend,  recapitalization,  or similar  event,  or any Common Stock  otherwise
issuable with respect to such Common Stock;  provided,  however,  that shares of
Common  Stock,  or  other  securities  shall  only  be  treated  as  Registrable
Securities  if and so long as they have not been (A) sold to or through a broker
or  dealer  or  underwriter  in a public  distribution  or a  public  securities
transaction,  whether in a registered  offering,  Rule 144 or otherwise,  or (B)

                                       -1-


                                      128
<PAGE>

sold or are, in the opinion of counsel for the Company,  available for sale in a
single  transaction  exempt  from  the  registration  and  prospectus   delivery
requirements  of the  Securities  Act so  that  all  transfer  restrictions  and
restrictive  legends with respect  thereto are removed upon the  consummation of
such sale.

                  The terms "register," "registered" and "registration" refer to
a  registration  effected by preparing  and filing a  registration  statement in
compliance  with the  Securities  Act,  and the  declaration  or ordering of the
effectiveness of such registration statement.

                  "Registration  Expenses"  shall mean all  expenses,  except as
otherwise  stated below,  incurred by the Company in complying with Sections 1.5
and 1.6 hereof, including,  without limitation, all registration,  qualification
and filing fees,  printing  expenses,  escrow fees,  fees and  disbursements  of
counsel for the Company, blue sky fees and expenses,  the expense of any special
audits  incident to or  required by any such  registration  (but  excluding  the
compensation  of regular  employees  of the  Company  which shall be paid in any
event by the Company),  and the reasonable fees and disbursements if one counsel
for all Holders not to exceed $20,000.

                  "Restricted  Securities"  shall mean the  securities of the
Company  required to bear the legend set forth in Section 1.3 hereof.

                  "Securities  Act" shall mean the  Securities  Act of 1933,  as
amended,  or any similar  federal  statute and the rules and  regulations of the
Commission thereunder, all as the same shall be in effect at the time.

                  "Selling  Expenses"  shall  mean all  underwriting  discounts,
selling  commissions  and stock  transfer  taxes  applicable  to the  securities
registered by the Holders and all reasonable fees and  disbursements  of counsel
for any Holder.

                  "Total  Voting  Power"  of the  Company  shall  mean the total
number  of the votes  which  may be cast in the  election  of  directors  of the
Company at any meeting of  stockholders  if all  securities  entitled to vote in
this election of directors were present and voted at such meeting.

                  "Voting  Securities"  shall mean all securities of the Company
entitled to vote in the election of directors of the Company and all  securities
of the Company  convertible  into,  exchangeable  or  exercisable  for shares of
Common Stock.

         1.3 Restrictive  Legend.  Each certificate  representing (i) the Common
Stock  issued  pursuant  to the  Common  Stock  Agreement  and  (ii)  any  other
securities  issued in respect of such Common Stock upon any stock  split,  stock
dividend,  recapitalization,  merger,  consolidation  or  similar  event,  shall
(unless  otherwise  permitted by the provisions of Section 1.4 below) be stamped
or otherwise  imprinted  with a legend in the following form (in addition to any
legend required under applicable state securities laws):

                  THE SHARES  REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
                  FOR  INVESTMENT  AND  HAVE  NOT  BEEN  REGISTERED   UNDER  THE
                  SECURITIES  ACT OF  1933.  SUCH  SHARES  MAY  NOT BE  SOLD  OR
                  TRANSFERRED  IN THE  ABSENCE OF SUCH  REGISTRATION  UNLESS THE
                  COMPANY RECEIVES AN OPINION OF COUNSEL  REASONABLY  ACCEPTABLE
                  TO IT STATING  THAT SUCH SALE OR  TRANSFER  IS EXEMPT FROM THE
                  REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
                  THE SHARES  REPRESENTED  BY THIS  CERTIFICATE  ARE  SUBJECT TO
                  CERTAIN   RESTRICTIONS   ON  TRANSFER  AS  SET  FORTH  IN  THE
                  REGISTRATION  RIGHTS  AGREEMENT  BETWEEN  THE  ISSUER  AND THE
                  ORIGINAL  HOLDER  OF  THESE  SHARES,  A COPY OF  WHICH  MAY BE
                  OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.  SUCH TRANSFER
                  RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES.

                                        -2-


                                      129
<PAGE>

                  Each Holder  consents to the Company  making a notation on its
records and giving  instructions  to any  transfer  agent of the Common Stock in
order to implement the restrictions on transfer established in this Section 1.

         1.4 Restrictions on Transfer;  Notice of Proposed Transfers. The holder
of each certificate  representing  Restricted  Securities by acceptance  thereof
agrees to comply in all respects with the  provisions of this Section 1.4. Prior
to  any  proposed  sale,  assignment,  transfer  or  pledge  of  any  Restricted
Securities  (other  than (i) a transfer  not  involving  a change in  beneficial
ownership, (ii) in transactions involving the distribution without consideration
of  Restricted  Securities  by the  Holder to any of its  partners,  or  retired
partners, or to the estate of any of its partners or retired partners, (iii) any
transfer  by  any  Holder  to  (A)  any  individual  or  entity  controlled  by,
controlling,  or under common control with, such Holder or (B) any individual or
entity  with  respect  to  which  such  Holder  (or any  person  controlled  by,
controlling,  or under common control with, such Holder) has the power to direct
investment decisions,  (iv) to the spouse of a holder of Restricted  Securities,
or (v) in transactions in compliance with Rule 144, provided, in each case, that
the transferee agrees in writing to be subject to the terms hereof),  and unless
there is in effect a  registration  statement  under the Securities Act covering
the proposed  transfer,  the holder  thereof  shall give  written  notice to the
Company of such holder's intention to effect such transfer,  sale, assignment or
pledge.  Each such notice  shall  describe the manner and  circumstances  of the
proposed  transfer,  sale,  assignment or pledge in sufficient  detail,  and, if
requested by the Company, shall be accompanied,  at such holder's expense, by an
unqualified  written  opinion of legal  counsel  who shall be,  and whose  legal
opinion  shall be,  reasonably  satisfactory  to the  Company  addressed  to the
Company,  to the effect that the proposed transfer of the Restricted  Securities
may be effected  without  registration  under the Securities Act,  whereupon the
holder  of such  Restricted  Securities  shall  be  entitled  to  transfer  such
Restricted  Securities in accordance  with the terms of the notice  delivered by
the holder to the  Company.  It is agreed that the  Company  will not request an
opinion of counsel for the Holder for transactions  made in reliance on Rule 144
under the Securities Act except in unusual circumstances, the existence of which
shall be determined in good faith by the Board of Directors of the Company. Each
certificate  evidencing the Restricted Securities  transferred as above provided
shall  bear,  except  if  such  transfer  is made  pursuant  to  Rule  144,  the
appropriate  restrictive legend set forth in Section 1.3 above, except that such
certificate shall not bear such restrictive  legend if in the opinion of counsel
for  such  holder  and the  Company  such  legend  is not  required  in order to
establish compliance with any provision of the Securities Act.

         1.5      Requested Registration.

                  (a)  Request  for  Registration.  In case  the  Company  shall
receive from  Initiating  Holders a written  request that the Company effect any
registration,  qualification  or  compliance  with  respect  to the  Registrable
Securities, the Company will:

                     (i)      promptly  give written  notice of the proposed
registration,  qualification  or  compliance to all other Holders; and

                    (ii)     as soon as  practicable,  use its best  efforts
to  effect  such  registration,  qualification  or
compliance  (including,  without  limitation,  appropriate  qualification  under
applicable blue sky or other state  securities  laws and appropriate  compliance
with  applicable  regulations  issued  under  the  Securities  Act and any other
governmental  requirements  or  regulations) as may be so requested and as would
permit or facilitate  the sale and  distribution  of all or such portion of such
Registrable  Securities as are  specified in such request,  together with all or
such portion of the  Registrable  Securities of any Holder or Holders joining in

                                        -3-

                                      130
<PAGE>

such  request as are  specified  in a written  request  received  by the Company
within twenty (20) days after receipt of such written notice from the Company;

                  Provided,  however, that the Company shall not be obligated to
take any action to effect any such  registration,  qualification  or  compliance
pursuant to this Section 1.5:

                                    (A)     In any  particular  jurisdiction  in
which  the  Company  would be  required  to  execute a
general   consent  to  service  of  process  in  effecting  such   registration,
qualification or compliance  unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act;

                                    (B)     Prior to six (6) months after the
Closing Date;

                                    (C) During the period starting with the date
sixty (60) days prior to the Company's estimated
date of filing of, and ending on the date six (6) months  immediately  following
the effective date of, any  registration  statement  pertaining to securities of
the Company (other than a registration  of securities in a Rule 145  transaction
or with  respect to an  employee  benefit  plan),  provided  that the Company is
actively   employing  in  good  faith  all  reasonable  efforts  to  cause  such
registration statement to become effective;

                                    (D)     Unless the aggregate  number of
shares of  Registrable  Securities  sought to be registered
by all Initiating Holders and other Holders pursuant to this Section 1.5 is
greater than one (1) million shares;

                                    (E)     After the Company has  effected  one
(1) such  registration  pursuant to this  subparagraph
1.5(a), and such registration has been declared or ordered effective; or

                                    (F)     If the Company shall  furnish to
such Holders a certificate  signed by the President of the
Company  stating  that in the good faith  judgment of the Board of  Directors it
would  be  seriously  detrimental  to  the  Company  or its  shareholders  for a
registration  statement  to be  filed  in the near  future,  then the  Company's
obligation  to use its best  efforts to  register,  qualify or comply under this
Section 1.5 shall be deferred  for a period not to exceed 120 days from the date
of receipt of written  request from the  Initiating  Holders;  provided that the
Company  may not  exercise  this  deferral  right more than once per twelve (12)
month period.

                  Subject to the foregoing  clauses (A) through (F), the Company
shall file a  registration  statement  covering the  Registrable  Securities  so
requested to be registered as soon as practicable,  after receipt of the request
or requests of the Initiating Holders,  but in any event within 120 days of such
request.

                  (b) Underwriting. In the event that a registration pursuant to
Section 1.5 is for a registered public offering  involving an underwriting,  the
Company  shall so advise the  Holders as part of the notice  given  pursuant  to
Section  1.5(a)(i).  In such  event,  the right of any  Holder  to  registration
pursuant to Section 1.5 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 1.5, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.

                           The  Company   shall   (together   with  all  Holders
proposing to distribute their securities through such
underwriting)  enter into an  underwriting  agreement in customary form with the
managing underwriter selected for such underwriting by a majority in interest of
the  Initiating  Holders,  but  subject to the  Company's  reasonable  approval.
Notwithstanding  any  other  provision  of this  Section  1.5,  if the  managing
underwriter  advises the Initiating  Holders in writing that  marketing  factors
require a limitation  of the number of shares to be  underwritten,  then (i) any
securities  requested to be registered by persons other than Holders (as defined

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<PAGE>

herein) or the Holders of  Registrable  Securities (as such terms are defined in
that certain Modification  Agreement,  dated November 6, 1991 (the "Modification
Agreement"),  by and between the  Company,  the First Series A  Purchasers,  the
Second Series A Purchasers, the Series B Purchasers, the Series C Purchasers and
the Affiliates (each as defined in the Modification Agreement)) shall be limited
(or excluded entirely) on a pro rata basis from such  registration,  and (ii) if
the managing underwriter  determines that a further limitation is required,  the
Company  shall so advise  all  Holders  of  Registrable  Securities  under  this
Agreement  and the  Holders of  Registrable  Securities  under the  Modification
Agreement and the number of shares of Registrable  Securities  (including  those
under the  Modification  Agreement) that may be included in the registration and
underwriting  shall be  allocated  among all Holders  under this  Agreement  and
Holders  under  the   Modification   Agreement  in  proportion,   as  nearly  as
practicable,  to the respective  amounts of Registrable  Securities held by such
Holders  at the  time of  filing  the  registration  statement.  No  Registrable
Securities (including those under the Modification  Agreement) excluded from the
underwriting  by  reason  of the  underwriter's  marketing  limitation  shall be
included  in such  registration.  To  facilitate  the  allocation  of  shares in
accordance with the above provisions,  the Company or the underwriters may round
the number of shares  allocated to any Holder (both under this Agreement and the
Modification Agreement) to the nearest 100 shares.

                           If any Holder of Registrable Securities disapproves
of the terms of the underwriting,  such person may elect
to withdraw therefrom by written notice to the Company, the managing underwriter
and the Initiating Holders.  The Registrable  Securities and/or other securities
so withdrawn  shall also be withdrawn from  registration,  and such  Registrable
Securities shall not be transferred in a public  distribution  prior to 120 days
after the effective date of such  registration,  or such other shorter period of
time as the underwriters may require.

         1.6      Company Registration.

(a)      Notice of Registration. If at any time or from time to time the Company
shall determine to register any of its  securities,  either for its own account
or the account of a security holder or holders,  other than a (i) registration
relating solely to employee  benefit plans, or (ii) a registration  relating
solely to a Commission Rule 145 transaction, the Company will:

                  (i)      promptly give to each Holder written notice thereof;
and

                  (ii)   include   in  such   registration   (and  any   related
qualification under blue sky laws or other compliance),  and in any underwriting
involved therein, all the Registrable  Securities specified in a written request
or requests,  made within twenty (20) days after receipt of such written  notice
from the Company, by any Holder.

                  (b)  Underwriting.  If the  registration  of which the Company
gives notice is for a registered public offering involving an underwriting,  the
Company  shall so advise  the  Holders  as a part of the  written  notice  given
pursuant  to  Section  1.6(a)(i).  In such  event,  the  right of any  Holder to
registration  pursuant to Section 1.6 shall be  conditioned  upon such  Holder's
participation in such  underwriting and the inclusion of Registrable  Securities
in the  underwriting to the extent  provided  herein.  All Holders  proposing to
distribute their securities  through such underwriting  shall (together with the
Company  and the  other  holders  distributing  their  securities  through  such
underwriting)  enter into an  underwriting  agreement in customary form with the
managing underwriter selected for such underwriting by the Company.

                  Notwithstanding  any other  provision  of this Section 1.6, if
the managing underwriter  determines that marketing factors require a limitation
of the number of shares to be underwritten,  the managing  underwriter may limit
(or exclude  entirely)  on a pro rata basis the  Registrable  Securities  of the
Affiliates  (as  each  term is  defined  in the  Modification  Agreement)  to be
included in such registration.  If all Registrable  Securities of the Affiliates

                                   -5-

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<PAGE>

(as each term is defined in the Modification  Agreement) have been excluded from
such  registration  and  the  managing  underwriter  determines  that a  further
limitation  is  required,  the  managing  underwriter  may limit  the  remaining
Registrable Securities (including those under the Modification  Agreement) to be
included in such registration;  provided, however, that the managing underwriter
may not reduce the amount of  Registrable  Securities  of the Holders  under the
Modification  Agreement to be included in the  registration  to less than 25% of
the total shares so included;  provided further,  however,  that such percentage
may be  reduced  or waived  by the  Holders  of a  majority  of the  Registrable
Securities under the Modification  Agreement,  excluding Registrable  Securities
held by the Affiliates (each as defined under the Modification  Agreement).  The
Company  shall so  advise  all  Holders  under  this  Agreement  and  under  the
Modification  Agreement and other holders  distributing their securities through
such underwriting and the number of shares of Registrable  Securities (including
those  under  the  Modification  Agreement)  and  other  securities  that may be
included in the registration  and underwriting  shall be allocated among all the
Holders under this Agreement and under the Modification Agreement and such other
holders  exercising  their  registration  rights  in  proportion,  as  nearly as
practicable,  to the respective  amounts of securities  entitled to inclusion in
such registration  held by such Holders and such other holders  exercising their
registration  rights  at the  time of  filing  the  registration  statement.  To
facilitate the allocation of shares in accordance with the above provisions, the
Company may round the number of shares  allocated to any Holder (both under this
Agreement and the Modification Agreement) or holder to the nearest 100 shares.

                  If any Holder or holder  disapproves  of the terms of any such
underwriting,  he may  elect to  withdraw  therefrom  by  written  notice to the
Company and the managing underwriter.  Any securities excluded or withdrawn from
such underwriting  shall be withdrawn from such  registration,  and shall not be
transferred in a public  distribution prior to 120 days after the effective date
of the registration  statement relating thereto, or such other shorter period of
time as the underwriters may require.

                  (c)......Right  to Terminate  Registration.  The Company shall
have the right to terminate or withdraw any  registration  initiated by it under
this Section 1.6 prior to the effectiveness of such registration  whether or not
any Holder has elected to include securities in such registration.

         1.7 Expenses of  Registration.  All Registration  Expenses  incurred in
connection  with (i) one (1)  registration  pursuant to Section 1.5 and (ii) all
registrations  pursuant  to Section  1.6 shall be borne by the  Company.  Unless
otherwise  stated,  all Selling  Expenses  relating to securities  registered on
behalf of the Holders and all other Registration  Expenses shall be borne by the
Holders  of such  securities,  and by the  Company,  in the  event  the  Company
participates in the registration,  pro rata on the basis of the number of shares
so registered.  Notwithstanding  the above, the Company shall not be required to
pay for any expenses of any  registration  proceeding  begun pursuant to Section
1.5 above if the registration  request is subsequently  withdrawn at the request
of the  Holders of a majority of the  Registrable  Securities  to be  registered
(which Holders shall bear such expenses).

         1.8  Registration  Procedures.   In  the  case  of  each  registration,
qualification or compliance  effected by the Company pursuant to this Section 1,
the Company  will keep each Holder  advised in writing as to the  initiation  of
each  registration,  qualification  and  compliance  and  as to  the  completion
thereof. At its expense the Company will:

                  (a)  Prepare  and file  with  the  Commission  a  registration
statement with respect to such securities and use its best efforts to cause such
registration  statement to become and remain  effective for at least one hundred
eighty  (180)  days or until  the  distribution  described  in the  registration
statement has been completed;

                  (b) Furnish to the Holders  participating in such registration
and to the  underwriters  of the securities  being  registered  such  reasonable
number of copies of the registration statement,  preliminary  prospectus,  final

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<PAGE>

prospectus and such other documents as such underwriters may reasonably  request
in order to facilitate the public offering of such securities;

                  (c) Prepare and file with the Commission  such  amendments and
supplements to such registration statement and the prospectus used in connection
with  such  registration  statements  as may be  necessary  to  comply  with the
provisions  of  the  Securities  Act  with  respect  to the  disposition  of all
securities covered by such registration statement;

                  (d)  Use  its  best   efforts  to  register  and  qualify  the
securities covered by such registration statement under such other securities or
blue sky laws of such  jurisdictions  as shall be  reasonably  requested  by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions; and

                  (e) In the event of any underwritten  public  offering,  enter
into and perform its obligations under an underwriting  agreement,  in usual and
customary  form,  with the managing  underwriter of such  offering.  Each Holder
participating  in such  underwriting  shall  also  enter  into and  perform  its
obligations under such an agreement.

         1.9      Indemnification.

                  (a)  The  Company  will  indemnify  each  Holder,  each of its
officers and  directors and partners,  and each person  controlling  such Holder
within the meaning of Section 15 of the  Securities  Act,  with respect to which
registration,  qualification  or compliance  has been effected  pursuant to this
Section  1, and each  underwriter,  if any,  and each  person who  controls  any
underwriter  within the meaning of Section 15 of the Securities Act, against all
expenses,  claims,  losses,  damages  or  liabilities  (or  actions  in  respect
thereof),  including  any  of  the  foregoing  incurred  in  settlement  of  any
litigation,  commenced  or  threatened,  arising  out of or based on any  untrue
statement (or alleged  untrue  statement)  of a material  fact  contained in any
registration statement,  prospectus, offering circular or other document, or any
amendment   or   supplement   thereto,   incident  to  any  such   registration,
qualification or compliance,  or based on any omission (or alleged  omission) to
state therein a material fact required to be stated therein or necessary to make
the statements  therein,  in light of the circumstances in which they were made,
not  misleading,  or any  violation  by the Company of the  Securities  Act, the
Exchange Act, state securities law or any rule or regulation  promulgated  under
such laws  applicable to the Company in connection  with any such  registration,
qualification  or  compliance,  and within a reasonable  period the Company will
reimburse each such Holder, each of its officers and directors,  and each person
controlling such Holder,  each such underwriter and each person who controls any
such underwriter,  for any legal and any other expenses  reasonably  incurred in
connection  with  investigating,  preparing or defending  any such claim,  loss,
damage, liability or action; provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage,  liability or expense
arises out of or is based on any untrue  statement or omission or alleged untrue
statement  or omission,  made in reliance  upon and in  conformity  with written
information  furnished  to the Company by an  instrument  duly  executed by such
Holder,  controlling person or underwriter and stated to be specifically for use
therein.

                  (b) Each Holder will, if Registrable  Securities  held by such
Holder  are  included  in  the   securities  as  to  which  such   registration,
qualification  or compliance is being effected,  indemnify the Company,  each of
its  directors  and  officers,  each  underwriter,  if  any,  of  the  Company's
securities  covered by such a registration  statement,  each person who controls
the  Company  or such  underwriter  within  the  meaning  of  Section  15 of the
Securities  Act, and each other such Holder,  each of its officers and directors
and each person  controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims,  losses, damages and liabilities (or actions
in respect  thereof) arising out of or based on any untrue statement (or alleged
untrue  statement)  of a  material  fact  contained  in  any  such  registration
statement,  prospectus, offering circular or other document, or any omission (or

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<PAGE>

alleged omission) to state therein a material fact required to be stated therein
or  necessary  to make the  statements  therein  not  misleading,  and  within a
reasonable  period will  reimburse the Company,  such Holders,  such  directors,
officers,  persons,  underwriters  or control persons for any legal or any other
expenses  reasonably  incurred in connection with investigating or defending any
such claim, loss,  damage,  liability or action, in each case to the extent, but
only to the extent,  that such untrue statement (or alleged untrue statement) or
omission  (or  alleged  omission)  is  made  in  such  registration   statement,
prospectus,  offering  circular  or  other  document  in  reliance  upon  and in
conformity  with written  information  furnished to the Company by an instrument
duly  executed by such  Holder and stated to be  specifically  for use  therein.
Notwithstanding  the above,  the liability of each Holder under this  subsection
(b) shall not exceed such  Holder's  net  proceeds  from the sale of  securities
pursuant to such registration statement,  unless such liability arises out of or
is based on willful misconduct by such Holder.

                  (c) Each party entitled to indemnification  under this Section
1.9 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the  Indemnifying  Party to assume  the  defense of any such claim or any
litigation  resulting  therefrom,  provided  that  counsel for the  Indemnifying
Party,  who shall  conduct  the  defense of such claim or  litigation,  shall be
approved by the  Indemnified  Party (whose  approval shall not  unreasonably  be
withheld),  and the  Indemnified  Party may  participate in such defense at such
party's expense,  and provided further that the failure of any Indemnified Party
to give notice as provided  herein shall not relieve the  Indemnifying  Party of
its  obligations  under this Section 1 unless the failure to give such notice is
materially  prejudicial to an Indemnifying Party's ability to defend such action
and provided further,  that the Indemnifying  Party shall not assume the defense
for  matters  as to which  there is a  conflict  of  interest  or  separate  and
different  defenses.  No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement  which does not include as an
unconditional  term  thereof  the giving by the  claimant or  plaintiff  to such
Indemnified  Party of a release  from all  liability in respect to such claim or
litigation.  No Indemnifying Party shall be liable for indemnification hereunder
with respect to any  settlement or consent to judgment,  in connection  with any
claim or litigation to which these  indemnification  provisions  apply, that has
been  entered into without the prior  consent of the  Indemnifying  Party (which
consent will not be unreasonably withheld).

         1.10  Information  by Holder.  The  Holder or  Holders  of  Registrable
Securities  included  in any  registration  shall  furnish to the  Company  such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution  proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.

         1.11 Rule 144 Reporting.  With a view to making  available the benefits
of certain rules and regulations of the Commission  which may at any time permit
the sale of the Restricted Securities to the public without registration,  after
such time as a public  market  exists for the Common Stock of the  Company,  the
Company agrees to use its best efforts to:

                  (a) Make and keep public information available, as those terms
are understood  and defined in Rule 144 under the  Securities  Act, at all times
during  which the  Company  is  subject  to the  reporting  requirements  of the
Securities Act or the Exchange Act;

                  (b) File with the  Commission  in a timely  manner all reports
and other  documents  required of the Company under the  Securities  Act and the
Exchange Act; and

                                   -8-

                                      135
<PAGE>


                  (c) So long as a Holder  owns any  Restricted  Securities,  to
furnish to the Holder forthwith upon request a written  statement by the Company
as to its compliance  with the reporting  requirements  of said Rule 144, and of
the  Securities  Act and the Exchange  Act, a copy of the most recent  annual or
quarterly  report of the Company,  and such other  reports and  documents of the
Company and other  information in the possession of or reasonably  obtainable by
the Company as the Holder may reasonably  request in availing itself of any rule
or regulation of the Commission  allowing the Holder to sell any such securities
without registration.

         1.12 Transfer of Registration  Rights.  The rights to cause the Company
to  register  securities  granted  Holders  under  Sections  1.5  and 1.6 may be
assigned to a transferee or assignee reasonably acceptable to the Company (which
consent shall not be  unreasonably  withheld) in connection with any transfer or
assignment  of  Registrable  Securities  by a  Holder,  provided  that  (i) such
transfer may  otherwise be effected in  accordance  with  applicable  securities
laws,  and (ii) such assignee or  transferee  acquires at least 50,000 shares of
Registrable  Securities  (adjusted  for stock  splits,  stock  dividends,  stock
recombinations  and the like after the date of this Agreement).  Notwithstanding
the  above,  the  rights to cause the  Company  to  register  securities  may be
assigned  to any  partner,  shareholder,  equity  holder or  officer of a Holder
without  compliance  with item (ii) above,  provided  written  notice thereof is
promptly given to the Company.

         1.13  Termination  of  Registration  Rights.  The  registration  rights
granted  pursuant to Section 1 shall terminate as to each Holder at such time as
a public  market for the  Company's  Common  Stock  exists  and all  Registrable
Securities  held by such  Holder  may,  in the opinion of counsel to the Company
(which  opinion  shall be addressed  and  rendered to Holder),  be sold within a
given three month period pursuant to Rule 144 or any other applicable  exemption
that allows for resale free of registration.

                                    SECTION 2

                                  Miscellaneous

         2.1 Governing Law. This Agreement shall be governed in all respects by
the internal laws of the State of California.

         2.2 Survival.  The covenants and  agreements  made herein shall survive
any  investigation  made  by  the  Common  Purchasers  and  the  closing  of the
transactions contemplated hereby.

         2.3 Successors and Assigns.  Except as otherwise  provided herein,  the
provisions  hereof  shall  inure to the  benefit  of, and be binding  upon,  the
successors, assigns, heirs, executors and administrators of the parties hereto.

         2.4 Entire  Agreement;  Amendment.  This  Agreement,  the Common  Stock
Agreement and the other documents  delivered pursuant hereto on the Closing Date
constitute the full and entire  understanding  and agreement between the parties
with regard to the subjects hereof and thereof,  and no party shall be liable or
bound to any other  party in any manner by any  warranties,  representations  or
covenants  except  as  specifically  set  forth  herein  or  therein.  Except as
expressly  provided  herein,  neither this  Agreement nor any term hereof may be
amended,  waived,  discharged or terminated  other than by a written  instrument
signed  by the  Company  and  the  holders  of a  majority  of  the  Registrable
Securities.

         2.5  Notices,  etc.  All notices and other  communications  required or
permitted  hereunder  shall be in writing and shall be mailed by  registered  or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to a Common Purchaser,  at such Common Purchaser's  address, as
shown on the stock  records of the  Company,  or at such  other  address as such
Common  Purchaser  shall have furnished to the Company in writing,  or (b) if to

                                   -9-


                                      136
<PAGE>

any other holder of the Common Stock,  at such address as such holder shall have
furnished  the Company in writing,  or,  until any such holder so  furnishes  an
address to the  Company,  then to and at the  address of the last holder of such
Common Stock who has so  furnished  an address to the Company,  or (c) if to the
Company,  one copy  should be sent to its address set forth on the cover page of
this  Agreement  and  addressed  to the  attention  of the  President  and Chief
Executive Officer,  or at such other address as the Company shall have furnished
to the Common Purchasers.

                  Each such notice or other communication shall for all purposes
of this Agreement be treated as effective or having been given when delivered if
delivered  personally,  or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid.

         2.6 Delays or Omissions.  Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any party to this
Agreement  upon any breach or default of any other party  under this  Agreement,
shall  impair any such right,  power or remedy of such  nondefaulting  party nor
shall it be  construed  to be a waiver  of any such  breach  or  default,  or an
acquiescence  therein,  or of or in any  similar  breach or  default  thereafter
occurring;  nor shall any  waiver of any  single  breach or  default be deemed a
waiver of any other breach or default theretofore or thereafter  occurring.  Any
waiver,  permit, consent or approval of any kind or character on the part of any
party of any breach or default under this  Agreement,  or any waiver on the part
of any holder of any  provisions  or conditions  of this  Agreement,  must be in
writing and shall be effective only to the extent specifically set forth in such
writing.  All  remedies,  either  under this  Agreement  or by law or  otherwise
afforded  to  any  party  to  this  Agreement,   shall  be  cumulative  and  not
alternative.

         2.7  Counterparts.  This  Agreement  may be  executed  in any number of
counterparts,  each of which shall be enforceable  against the parties  actually
executing such  counterparts,  and all of which  together  shall  constitute one
instrument.

         2.8  Severability.  In the event that any  provision of this  Agreement
becomes or is  declared  by a court of  competent  jurisdiction  to be  illegal,
unenforceable  or void,  this Agreement  shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.

         2.9  Titles  and  Subtitles.  The  titles  and  subtitles  used in this
Agreement are used for convenience  only and are not considered in construing or
interpreting this Agreement.

         2.10  Attorney's  Fees.  In any action  brought or maintained by either
party  asserting a cause of action  arising under or relating in any way to this
Agreement,  the  prevailing  party shall be  entitled to recover its  reasonable
costs and attorney's fees.


                                   -10-


                                      137
<PAGE>



The foregoing agreement is hereby executed as of the date first above written.


                                  EUPHONIX, INC.



                                  /s/ BARRY L. MARGERUM
                                  By:     Barry L. Margerum
                                  Title:  Chief Executive Officer and President


                                  COMMON PURCHASERS



                                  By:
                                  Title:



























             [Signature Page to 11/99 Registration Rights Agreement]



                                       138
<PAGE>


EXHIBIT 23.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to incorporation by reference in the Registration Statements
on Form S-8 (No. 333-17545, No. 333-98130, No. 333-68425) of Euphonix Inc. of
our report dated March 1, 2000 relating to the financial statements which
appears in this Form 10-K.






/s/ PricewaterhouseCoopers LLP


San Jose, California
March 29, 2000








                                      139
<PAGE>


EXHIBIT 23.2

     CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-17545 pertaining to the 1990 Stock Plan, the Registration
Statement (Form S-8 No. 333-98130) pertaining to the 1990 Stock Plan, 1995
Performance Based Stock Option Plan and 1995 New Director Option Plan, and the
Registration Statement (Form S-8 No. 333-68425) pertaining to the 1997 Non-
statutory Stock Option Plan of our report dated March 4, 1999, with respect to
the consolidated financial statements of Euphonix, Inc. for the two years ended
December 31, 1998 included in its Annual Report (Form 10-K) for the year ended
December 31, 1999, filed with the Securities and Exchange Commission.


                                             /s/ Ernst & Young LLP

San Jose, California
March 29, 2000




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