<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
EUPHONIX, INC.
(Name of Registrant as Specified in its Charter)
_______________________
(Name of Person Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
__________________________________________
(2) Aggregate number of securities to which transaction applies:
__________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
__________________________________________
(4) Proposed maximum aggregate value of transaction:
__________________________________________
(5) Total fee paid:
__________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: _____________________
(2) Form, Schedule or Registration Statement No.:___________________
(3) Filing Party:_______________________
(4) Date Filed:_________________________
Page 1 of 1
<PAGE>
EUPHONIX, INC.
220 Portage Avenue
Palo Alto, California 94306
___________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 26, 1997
_______________
The Annual Meeting of Shareholders of Euphonix, Inc., a California
corporation (the "Company"), will be held at the Company's offices located at
220 Portage Avenue, Palo Alto, California 94306 on Thursday, June 26, 1997 at
9:00 a.m. California time, for the following purposes.
1. To elect three directors to serve for the ensuing two years
or until their successors are duly elected and qualified.
2. To ratify the appointment of Ernst & Young LLP as independent
auditors for the Company for the fiscal year ending December
31, 1997.
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only shareholders of record at the close of business on April 28,
1997 are entitled to notice of and to vote at this meeting and any adjourn-
ment or postponement thereof. A list of such shareholders is kept at the
office of the Company's transfer agent, ChaseMellon Shareholer Services,L.L.C.
All shareholders are cordially invited to attend the meeting. However, to
assure your representation at the meeting, you are urged to mark, sign and
return the enclosed proxy card as promptly as possible in the postage-prepaid
envelope enclosed for that purpose.
Any shareholder attending the meeting may vote in person even if he
or she has returned a proxy.
By Order of the Board of Directors,
/s/ JAMES DOBBIE
James Dobbie
Chief Executive Officer and
Chairman of the Board of Directors
Palo Alto, California
May 22, 1997
IMPORTANT: Whether or not you plan to attend the meeting, you are
requested to complete and promptly return the enclosed proxy in the envelope
provided.
Page 1 of 1
<PAGE>
EUPHONIX, INC.
220 Portage Avenue
Palo Alto, California 94306
____________
PROXY STATEMENT
____________
Notice of Annual Meeting of Shareholders
June 26, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
Date, Time and Place
This Proxy Statement is furnished to the shareholders of Euphonix,
Inc., a California corporation (the "Company"), in connection with the soli-
citation of Proxies by the Board of Directors of the Company for use at the
Annual Meeting of Shareholders to be held at 9:00 a.m. on Thursday, June 26,
1997, and any and all postponements or adjournments thereof. These proxy
solicitation materials were first mailed on or about May 22, 1997 to all
shareholders entitled to vote at the Annual Meeting.
Purposes of the Annual Meeting
The purposes of the Annual Meeting are to (1) elect a Board of Direc-
tors of the Company, (2) ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for the current fiscal year and (3) transact
such other business as may properly come before the meeting or any and all
postponements or adjournments thereof.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
Record Date and Share Ownership
Shareholders of record at the close of business on April 28, 1997
(the "Record Date") are entitled to notice of and to vote at the meeting. At
the Record Date, 5,568,455 shares of the Company's Common Stock were issued
and outstanding. For information regarding security ownership by management
and by 5% shareholders, see "Stock Ownership Table."
Voting and Solicitation; Quorum
Each share has one vote. The required quorum for the transaction of
business at the Annual Meeting is a majority of the shares of Common Stock
issued and outstanding on the Record Date. Shares that are voted "FOR",
"AGAINST" or "WITHHELD FROM" a matter are treated as being present at the
-1-
<PAGE>
meeting for the purposes of establishing a quorum and are also treated as
shares "represented and voting" at the Annual Meeting (the "Votes Cast")
with respect to such matter.
The Company believes that abstentions should be counted for the pur-
pose of determining the presence or absence of a quorum for the transaction of
business, but should not be counted as Votes Cast with respect to a proposal
as to which the shareholder has expressly abstained from voting.
Broker non-votes will be counted for the purpose of determining the
presence or absence of a quorum for the transaction of business, but will not
be counted for the purpose of determining the number of Votes Cast with respect
to the proposal on which the broker has expressly not voted. Thus, absten-
tions and broker non-votes will not affect the outcome of the voting on a
proposal that requires a majority of the Votes Cast.
The cost of this solicitation will be borne by the Company. In addi-
tion, the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain
of the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone, telegram or facsimile.
Shareholder Proposals for the Next Annual Meeting
Any proposal to be presented at the Company's next Annual Meeting of
Shareholders must be received at the Company's principal office no later than
January 22, 1998 in order to be considered for inclusion in the Company proxy
materials for such meeting. Any such proposals must be submitted in writing
and addressed to the attention of the Company's Corporate Secretary at 220
Portage Avenue, Palo Alto, California 94306.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
There are currently authorized six seats on the Company's Board of
Directors (the "Board"). The Board is divided into two classes with each direc-
tor serving a two-year term and one class being elected at each year's annual
meeting of shareholders. Directors Kuhling, Nohra and Silfvast are in the
class of directors whose terms expire at the annual meeting of shareholders to
be held June 26, 1997, and Directors Chang, Dobbie and Kamath are in the class
of directors whose terms will expire at the 1998 annual meeting of shareholders.
The three nominees receiving the highest number of affirmative votes of the
shares present in person or represented by proxy and entitled to vote for them,
shall be elected as directors. Only votes cast for a nominee will be counted
in determining whether that nominee has been elected as director. Shareholders
may withhold authority to vote for the entire slate as nominated or, by writing
the name of an individual nominee in the space provided on the proxy card, with-
hold the authority to vote for any individual nominee. Votes withheld from any
director are counted for purposes of determining the presence or absence of a
quorum, but have no other legal effect under California law.
The following three persons have been selected and appointed by the
Board of Directors as nominees for election to the Board: Robert F. Kuhling,
Jr., Guy Paul Nohra and Scott W. Silfvast. All of the nominees are incumbent
directors. If any of the nominees should decline or be unable to serve as a
director, the proxies will be voted for any nominee who shall be designated
by the present Board of Directors to fill the vacancy. It is not expected
that any nominee will be unable or will decline to serve as a director.
-2-
<PAGE>
The names of the directors of the Company, including the nominees,
and certain information about them, are set forth below.
Director Principal Occupation
Name Age Since or Employment
- -------------------------- ----- ------- -------------------------------
Milton M.T. Chang, Ph.D.(1) 54 1988 Chairman of the Board of New
Focus, Inc.
James Dobbie 66 1991 Chief Executive Officer and
Chairman of the Board
B. Yeshwant Kamath(2) 49 1996 Division President of the KUB
division of Videonics, Inc.
Robert F. Kuhling, Jr.(1) 48 1990 General Partner of several
venture capital partnerships
managed by ONSET Ventures
Services Corp.
Guy Paul Nohra(2) 37 1991 General Partner of certain
venture capital funds affiliated
with Burr, Egan, Deleage & Co.
Scott W. Silfvast 34 1988 President of the Company
_____________________
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Milton M.T. Chang, Ph.D. has served on the Board of Directors since
the Company's inception in July 1988. Since April, 1996, Dr. Chang has
served as Chairman of the Board of New Focus, Inc., a privately held manufac-
turer of optic components which he co-founded, and from May 1990 to April,
1996, Dr. Chang has served as its President. From 1988 to May 1990, Dr. Chang
was self-employed as a consultant. Dr. Chang also serves on the board of direc-
tors of a number of privately held companies.
James Dobbie has served as Chief Executive Officer and Chairman of
the Board of the Company since March 1991. From 1988 to February 1991, Mr.
Dobbie was a self-employed consultant and consulted for the Company from Novem-
ber 1990 to February 1991. From 1984 to 1987, Mr. Dobbie was Chairman of the
Board of Akashic Memories, a privately held supplier of high density computer
disks. From 1979 to 1983, Mr. Dobbie was President of Avantek, an electronic
component company.
B. Yeshwant Kamath has served as a director of the Company since
October 1996. Dr. Kamath is the Division President of the KUB division of
Videonics, Inc. KUB Systems, a company that manufactures video special effects
equipment was founded by Dr. Kamath in February 1992 and acquired by Videonics
in May 1996. Previously, Dr. Kamath was a founder of Abekas Video Systems,
Inc., a subsidiary of Carlton Communications PLC, where he was President from
1982 to August 1990. Dr. Kamath is also a director of Elantec Semiconductor,
Inc.
Robert F. Kuhling, Jr. has served as a director of the Company since
October 1990. Since 1987, Mr. Kuhling has been a general partner of several
venture capital partnerships managed by ONSET Ventures Services Corp., a venture
capital firm. From 1985 to 1987, he was director of Design Automation Marketing
for Sun Microsystems, Inc. Mr. Kuhling also serves on the board of directors
of Conceptus, Inc. and serves as a director for a number of privately held
companies.
-3-
<PAGE>
Guy Paul Nohra has been a member of the Board of Directors since Novem-
ber 1991. Since 1992, Mr. Nohra has been a general partner of certain venture
capital funds affiliated with Burr, Egan, Deleage & Co., a venture capital firm,
and was an associate of Burr, Egan, Deleage & Co. from 1989 to 1992. From 1982
to 1989, he was a product manager of Medical Products of Securities Pacific
Trading Corp., a United States based export trading company. Mr. Nohra also
serves on the Board of Directors of InnerDyne, Inc. and Interpore International,
both publicly held companies, and several privately held companies.
Scott W. Silfvast founded the Company in July 1988. He has been a
director of the Company since its inception and has served as President since
March 1990. 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.
Vote Required; Recommendation of Board of Directors
The three nominees receiving the highest number of affirmative votes
of the shares entitled to be voted for them shall be elected as directors.
Votes withheld from any director are counted for purposes of determining the
presence or absence of a quorum, but have no other legal effect under California
law.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE
Board Meetings and Committees
The Board of Directors of the Company held a total of five meetings
during 1996. Each director attended or participated in at least 75% of the
aggregate of (i) the total number of meetings of the Board of Directors (held
during the period for which such director has been a director) and (ii) the
total number of meetings of committees of the Board of Directors on which such
person served (during the period that such director served).
Audit Committee. The Audit Committee held one meeting during 1996.
The Audit Committee currently consists of Dr. Kamath and Mr. Nohra. Christopher
Stone also served on the Audit Committee until his resignation from the Board
on December 3, 1996. The Audit Committee reviews both audit and non-audit
services performed by the Company's independent accountants for the preceding
year and recommends engagement of the Company's independent auditors. The
Audit Committee also reviews and evaluates the Company's accounting principles
and its systems of internal accounting controls.
Compensation Committee. The Compensation Committee, consisting of
Dr. Chang and Mr. Kuhling, makes recommendations to the Board of Directors
regarding all forms of compensation to executive officers, and performs such
other duties as may from time to time be determined by the Board of Directors.
The Compensation Committee met once during the fiscal year.
Nominating Committee. The Company does not have a nominating committee
or a committee performing the functions of a nominating committee.
-4-
<PAGE>
Compensation of Directors
Non-employee directors of the Company currently do not receive compen-
sation for each Board meeting attended. Reimbursement of expenses is allowed.
Officers of the Company do not receive additional compensation for attendance
at Board of Directors meetings or committee meetings. In addition, all non-
employee directors elected for the first time after July 20, 1995 are eligible
to participate in the Company's 1995 New Director Option Plan (the "Director
Plan"). The Director Plan provides for the automatic grant of a nonstatutory
stock option to purchase 10,000 shares of Common Stock of the Company to each
non-employee director of the Company's on the date which such person first
becomes a director and an additional grant of a nonstatutory stock option to
purchase 2,000 shares of Common Stock of the Company on the date of each annual
meeting of the shareholders. All options granted under the Director Plan are
subject to a four-year vesting schedule. During the fiscal year ended December
31, 1996, Dr. Kamath was automatically granted an option to purchase 10,000
shares of Common Stock under the Director Plan at a per share exercise price of
$6.00 upon joining the Board of Directors.
PROPOSAL NO. 2--RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP ("Ernst & Young")
as the Company's independent public accountants for the fiscal year ending
December 31, 1997. Ernst & Young (or one of its predecessor firms) has been
the Company's independent auditors since 1988. Audit services of Ernst & Young
during the last fiscal year included the examination of the consolidated finan-
cial statements of the Company and services related to filings with the Secur-
ities and Exchange Commission and other regulatory bodies in connection with
the Company's initial public offering.
A representative of Ernst & Young is expected to be present at the
Annual Meeting of Shareholders and will have an opportunity to make a state-
ment if such representative so desires. Moreover, Ernst & Young's representa-
tive will be available to respond to appropriate questions from the share-
holders.
Vote Required; Recommendation of Board of Directors
The affirmative vote of a majority of the Votes Cast will be required
to ratify the selection of Ernst & Young as the Company's independent auditors.
In the event that the shareholders do not approve the selection of Ernst &
Young, the appointment of the independent auditors will be reconsidered by the
Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL NO. 2
-5-
<PAGE>
OTHER INFORMATION
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, the Company's direc-
tors, executive officers, and any persons holding more than ten percent of the
Company's Common Stock ("Reporting Persons") are required to report, to the
Securities and Exchange Commission (the "SEC") and to the exchange upon which
the Common Stock is traded, their initial ownership of the Company's stock and
any subsequent changes in that ownership. Specific due dates for these reports
have been established, and the Company is required to disclose in this
Proxy Statement any failure to file these reports on a timely basis.
Based solely on its review of the copies of such reports received by
it or written representations from certain Reporting Persons that no Forms 3, 4
or 5 were required, the Company believes that during fiscal 1996, all Reporting
Persons complied with all applicable filing requirements, except that the Form 3
required to be filed on behalf of B. Yeshwant Kamath was filed late by the
Company.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee was formed in April 1992 to review
and approve the compensation and benefits for the Company's key executive offi-
cers, administer the Company's stock option plans and make recommendations to
the board of directors regarding such matters. The committee is currently
composed of Dr. Chang and Mr. Kuhling, neither of whom is an officer of the
Company. No interlocking relationship exists between any member of the
Company's Board of Directors or Compensation Committee and any member of the
board of directors or compensation committee of any other company, nor has any
such interlocking relationship existed in the past.
Stock Ownership Table
The table below indicates the number of shares of the Company's Common
Stock beneficially owned as of March 31, 1997 by: (i) each person or entity
known by the Company to be the beneficial owner of more than 5% of the Company's
outstanding stock, (ii) each of the Company's directors, (iii) each of the
executive officers named in the Summary Compensation Table (the "Named Offi-
cers"), and (iv) all directors and executive officers as a group. Except as
otherwise indicated, each person has sole investment and voting powers with
respect to the shares shown as beneficially owned. Ownership information is
based upon information furnished by the respective individuals.
Number of Shares
Beneficially Owned(1)
Directors, Executive Officers and 5% Shareholders Number Percent
- ------------------------------------------------- ------ -------
Robert F. Kuhling, Jr. (2)............................ 944,922 17.0%
c/o ONSET Enterprise Associates
2490 Sand Hill Road
Menlo Park, CA 94025
ONSET Enterprise Associates........................... 944,335 17.0%
2490 Sand Hill Road
Menlo Park, CA 94025
-6-
<PAGE>
Number of Shares
Beneficially Owned(1)
Directors, Executive Officers and 5% Shareholders Number Percent
- ------------------------------------------------- ------ -------
Venture Capital Funds managed by or affiliated with.. 462,675 8.3%
Burr, Egan, Deleage & Company (3)
One Post Office Square
Suite 3800
Boston, MA 02109
Guy Paul Nohra (4)................................... 462,675 8.3%
c/o Burr, Egan, Deleage & Co.
One Post Office Square
Suite 3800
Boston, MA 02109
Milton M. T. Chang, Ph.D............................. 288,800 5.2%
c/o New Focus, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Scott W. Silfvast (5)................................ 254,723 4.6%
James Dobbie (5)..................................... 159,730 2.9%
Jeffrey A. Chew (5).................................. 55,124 1.0%
B. Yeshwant Kamath................................... -- --
All executive officers and directors as a group
(7 persons) (5).................................. 2,165,974 38.6%
_______________________
* Less than one percent.
(1) Based on 5,568,455 shares of Common Stock outstanding as of March 31, 1997.
(2) Includes 944,335 shares held by ONSET Enterprise Associates ("ONSET").
Mr. Kuhling is a general partner of OEA Management, L.P. ("OEA"), which is
the general partner of ONSET, and, together with the other general partners
of OEA, shares voting and investment power with respect to such shares.
Mr. Kuhling disclaims beneficial ownership of the shares held by ONSET
except to his proportionate partnership interest therein. Also includes
587 shares held by a trust for the benefit of Mr. Kuhling and his spouse.
(3) Includes 391,285 shares held by Alta IV Limited Partnership ("Alta") and
71,390 shares held by C.V. Sofinnova Partners Five ("Sofinnova" and,
together with Alta, the "BED Funds"). The principals of Burr, Egan, Deleage
& Co. are general partners of Alta IV Management Partners, L.P. ("Alta IV
MP") (which is a general partner of Alta). As general partners of Alta IV
MP, they may be deemed to share voting and investment power for the shares
held by Alta. Burr, Egan, Deleage & Co. serves as an advisor to Sofinnova.
The principals of Burr, Egan, Deleage & Co. disclaim beneficial ownership
of all such shares held by the BED Funds, except to the extent of their
proportionate pecuniary interests therein.
-7-
<PAGE>
(4) Includes 462,675 held by the BED Funds. Mr. Nohra is a general partner
of certain venture funds affiliated with Burr, Egan, Deleage & Co. Mr.
Nohra disclaims beneficial ownership of all such shares held by the BED
Funds.
(5) Includes 14,375, 14,375, 22,625 and 51,375 shares which Messrs. Silfvast,
Dobbie and Chew and all present directors and executive officers as a
group, respectively, have the right to acquire within 60 days of March 31,
1997 upon the exercise of stock options.
COMPENSATION OF EXECUTIVE OFFICERS
Executive Compensation
The following table sets forth information concerning the compensa-
tion paid by the Company during the fiscal years ended December 31, 1996, 1995
and 1994, to the Named Officers.
Long-Term
Compensation
------------
Annual Compensation Awards
------------------- ------------
Securities
Name and Principal Position Year Salary($) Bonus($)(1) Underlying Options(#)
- --------------------------- ---- --------- ----------- ---------------------
James Dobbie............... 1996 179,168 12,500 0
Chief Executive Officer
and Chairman of the Board 1995 160,024 72,000 30,000
1994 156,686 15,000 0
Scott W. Silfvast.......... 1996 131,284 12,500 0
President 1995 115,155 46,888 30,000
1994 103,317 5,000 0
Jeffrey A. Chew............ 1996 119,167 12,500 0
Vice President Finance, 1995 93,978 35,000 30,000
Chief Financial Officer 1994 83,958 10,000 0
___________________
(1) Includes bonus amounts earned in a fiscal year and paid
in the subsequent fiscal year.
Option Grants in Last Fiscal Year
There were no options granted to the Named Officers during the
fiscal year ended December 31, 1996.
-8-
<PAGE>
Aggregated Option Exercises in Fiscal 1996 and Fiscal 1996 Year-End Values
The following table sets forth for each of the Named Officers certain
information concerning the number of shares subject to both exercisable and
unexercisable stock options as of December 31, 1996. Also reported are values
for "in-the-money" options that represent the positive spread between the
respective exercise prices of outstanding stock options and the fair market
value of the Company's Common Stock as of December 31, 1996.
<TABLE>
<CAPTION>
Number of Securities
<S> Underlying Unexercised
Name Shares Options at Fiscal Year End(#)
- ----- Acquired on Value -----------------------------
<C> Exercise(#) Realized($)(1) Exercisable Unexercisable
----------- -------------- ----------- -------------
James Dobbie $ 0 $ 0 11,250 18,750
Scott W. Silfvast 0 0 11,250 18,750
Jeffrey A. Chew 5,000 41,917 17,417 25,084
Continued: Value of Unexercised
In-the-Money Options at
<S> Fiscal Year End($)(2)
-----------------------
Name Exercisable Unexercisable
- ---- ----------- -------------
<C> <C>
James Dobbie $ 15,469 $ 25,781
Scott W. Silfvast 15,469 25,781
Jeffrey A. Chew 41,624 52,542
- -------------
(1) Market value of underlying securities based on the closing price of the
Company's Common Stock on the date of exercise, minus the exercise price.
(2) Market value of underlying securities based on the closing price of $4.375
of the Company's Common Stock on December 31, 1996, minus the exercise
price.
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
report and the Performance Graph on page 11 shall not be incorporated by
reference into any such filings, nor shall they be deemed to be soliciting
material or deemed filed with the SEC under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended.
Compensation Philosophy. The Committee believes that the primary
goal of the Company's compensation program should be related to creating share-
holder value. The Committee seeks to offer the Company's executive officers
competitive compensation opportunities based upon their personal performance,
the financial performance of the Company and their contribution to that per-
formance. The executive compensation program is designed to attract and retain
executive talent that contributes to the Company's long-term success, to reward
the achievement of the Company's short-term and long-term strategic goals, to
link executive officer compensation and shareholder interests through equity-
based plans, and to recognize and reward individual contributions to Company
performance.
The compensation of the Company's executive officers consists of
three principal components: salary, bonus and long-term incentive compensation.
Salary. Salaries for the Company's executive officers are determined
primarily on the basis of the executive officer's responsibility, general salary
practices of peer companies and the officer's individual qualifications and
experience. The base salaries are reviewed annually and may be adjusted by
the Committee in accordance with certain criteria which include (i) individual
performance, (ii) the functions performed by the executive officer, (iii) the
scope of the executive officer's on-going duties, (iv) general changes in the
-9-
<PAGE>
compensation peer group in which the Company competes for executive talent, and
(v) the Company's financial performance generally. The weight given such fac-
tors by the Committee may vary from individual to individual.
Bonus. In order to increase incentives for outstanding performance,
a portion of each executive officer's compensation may be paid in the form of
contingent cash bonuses which are paid annually. The bonus amounts for execu-
tive officers are dependent in part on the Company's revenue performance, as
well as individualized criteria such as achievement of specified goals for the
department or divisions for which the executive has responsibility and satisfac-
tory completion of special projects supervised by the executive officer.
Long-Term Incentive Awards. Stock options serve to further align the
interests of management and the Company's shareholders by providing executive
officers with an opportunity to benefit from stock price appreciation that can
be expected to accompany improved financial performance. Options also enhance
the Company's ability to attract and retain executives. The number of option
shares granted and the other option terms, such as vesting, are determined by
the Committee, based on recommendations of management in light of, among other
factors, each executive officer's level of responsibility, prior performance
and other compensation. However, the plan does not provide any quantitative
method for weighing these factors, and a decision to grant an award is primar-
ily based upon an evaluation of the past as well as the future anticipated per-
formance and responsibilities of the individual in question. During the 1996
fiscal year, none of the Named Officers received an award of stock options.
Chief Executive Officer Compensation. The compensation of the Chief
Executive Officer is reviewed annually on the same basis as discussed above
for all executive officers. James Dobbie's base salary for fiscal 1996 was
$179,168. Mr. Dobbie's base salary for 1996 was established in part by com-
paring the base salaries of chief executive officers at other companies of sim-
ilar size using published compensation sources. Mr. Dobbie received a cash
bonus of $12,500 for fiscal 1996. Mr. Dobbie did not receive a grant of stock
options in fiscal 1996.
Policy Regarding Deductibility of Compensation. The Company is re-
quired to disclose its policy regarding qualifying executive compensation for
deductibility under Section 162(m) of the Internal Revenue Code of 1986, as
amended, which provides that, for purposes of the regular income tax, the other-
wise allowable deduction for compensation paid or accrued with respect to the
executive officers of a publicly-held company, which is not performance-based
compensation is limited to no more than $ 1 million per year. It is not expec-
ted that the compensation to be paid to the Company's executive officers for
fiscal 1997 will exceed the $1 million limit per officer; however, to the extent
such compensation to be paid to such executive officers exceeds the $1 million
limit per officer, such excess will be treated as performance-based compensa-
tion.
COMPENSATION COMMITTEE
Milton M. T. Chang, Ph.D.
Robert F. Kuhling, Jr.
-10-
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN OF
EUPHONIX, INC., NASDAQ STOCK MARKET U.S. INDEX
AND THE H&Q TECHNOLOGY INDEX
The following graph shows a comparison of cumulative total return on
Common Stock for the Company, the Nasdaq Stock Market U.S. Index, and the
Hambrecht & Quist Technology Index for the period commencing August 22, 1995
through December 1996. The Company's Common Stock began trading on the Nasdaq
Stock Market on August 22, 1995. The stock price performance shown on the graph
below is not necessarily indicative of future price performance.
<TABLE>
<CAPTION>
<S> HAMBRECHT & QUIST INDEX PRODUCTS AND SE
1997 PROXY PERFORMANCE GRAPH DATA
Monthly Data Series
SCALED PRICES: Stock and index prices scaled to 100 at
H&Q Nasdaq Stock
DATES Euphonix Technology Market -U.S.
<C> ----- -------- ---------- ------------
8/22/95 100 100 100
Aug-95 103.13 98.17 99.53
Sep-95 125.00 100.96 101.82
Oct-95 114.06 102.26 101.23
Nov-95 106.25 101.68 103.61
Dec-95 106.25 98.59 103.06
Jan-96 134.38 100.78 103.57
Feb-96 125.00 104.62 107.51
Mar-96 109.38 100.56 107.87
Apr-96 126.56 111.53 116.82
May-96 126.56 113.08 122.18
Jun-96 104.69 105.17 116.68
Jul-96 96.88 95.17 106.29
Aug-96 62.50 100.81 112.24
Sep-96 78.13 111.99 120.83
Oct-96 59.38 110.08 119.51
Nov-96 60.94 120.96 126.91
Dec-96 54.69 118.30 126.77
</TABLE>
The chart above assumes $100 invested in each of the Company's Common
Stock, the Nasdaq Stock Market U.S. Index and the Hambrecht & Quist Technology
Index on August 22, 1995, and the reinvestment of dividends.
-11-
<PAGE>
ANNUAL REPORT AND FINANCIAL STATEMENTS
The 1996 Annual Report of the Company, which includes its audited
financial statements for the fiscal year ended December 31, 1996, is accompany-
ing this Proxy Statement.
OTHER MATTERS
The Board of Directors knows of no other business which will be
presented at the Annual Meeting. If any other business is properly brought
before the Annual Meeting, it is intended that proxies in the enclosed form
will be voted in respect thereof in accordance with the judgments of the
persons voting the proxies.
It is important that the proxies be returned promptly and that your
shares be represented. Shareholders are urged to fill in, sign and promptly
return the accompanying proxy in the enclosed envelope.
By Order of the Board of Directors,
/s/ JAMES DOBBIE
James Dobbie
Chief Executive Officer and
Chairman of the Board of Directors
May 22, 1997
Palo Alto, California
-12-
<PAGE>
This Proxy is solicited on behalf of the Board of Directors
EUPHONIX, INC.
1997 ANNUAL MEETING OF SHAREHOLDERS
June 26, 1997
The undersigned shareholder of EUPHONIX, INC., a California corporation, here-
by acknowledges receipt of the Notice of Annual Meeting of Shareholders and
Proxy Statement, each dated May 22, 1997, and hereby appoints James Dobbie and
Jeffrey A. Chew, and each of them, proxies with full power to each of substitu-
tion, on behalf and in the name of the undersigned, to represent the undersigned
at the 1997 Annual Meeting of Shareholders of EUPHONIX, INC. to be held on
Thursday, June 26, 1997, at 9:00 a.m., local time, at the offices of the Com-
pany, at 220 Portage Avenue, Palo Alto, California 94306 and at any adjourn-
ment(s) thereof, and to vote all shares of Common Stock which the undersigned
would be entitled to vote if then and there personally present, on the matters
set forth below:
(Continued, and to be marked, dated and signed, on the other side)
Page 1 of 1
<PAGE>
1. ELECTION OF DIRECTORS:
___ FOR all nominees listed below (except as indicated)
___ WITHHOLD AUTHORITY
If you wish to withhold authority to vote for any individual nominee, strike
a line through that nominee's name in the list below:
Robert F. Kuhling, Jr., Guy Paul Nohra, Scott W. Silfvast
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1997.
__ __ __
|__| FOR |__| AGAINST |__| ABSTAIN
and, in their discretion, upon such other matter or matters which
may properly come before the meeting and any adjournment(s) thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS, "FOR" EACH
PROPOSAL LISTED, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY COME BEFORE THE MEETING.
(This Proxy should be marked, dated, signed by the shareholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
Signature(s)______________________________ Dated_____________________
Print Name(s)______________________________ Dated_____________________
Page 2 of 2
