<PAGE>


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

                                UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                  FORM 10-Q

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

              FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996


                         Commission File Number 0-21174

                            AVID TECHNOLOGY, INC.
            (Exact name of registrant as specified in its charter)


                  DELAWARE                      04-2977748
            (State or other jurisdiction of     (I.R.S. Employer
            incorporation or organization)      Identification No.)


                          METROPOLITAN TECHNOLOGY PARK
                                ONE PARK WEST
                             TEWKSBURY, MA 01876
                    (Address of principal executive offices)


      Registrant's telephone number, including area code: (508) 640-6789


      Indicate  by check  mark  whether  the  registrant  has filed 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).

                                 Yes X No _____


      Indicate by check mark  whether the  registrant  has been  subject to such
filing requirements for the past 90 days.

                                 Yes X No _____

The number of shares outstanding of the registrant's Common Stock as of November
4, 1996 was 21,281,420.


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



<PAGE>




                            AVID TECHNOLOGY, INC.

                                  FORM 10-Q

              FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

                              TABLE OF CONTENTS


                                                                          PAGE



PART I.    FINANCIAL INFORMATION


ITEM 1.    Condensed Consolidated Financial Statements:

   a) Condensed Consolidated Statements of Operations for the
      three months ended September 30, 1996 and 1995, and the nine
      months ended September 30, 1996 and 1995..............................1

   b) Condensed Consolidated Balance Sheets as of
      September 30, 1996 and December 31, 1995..............................2

   c) Condensed Consolidated Statements of Cash Flows
      for the nine months ended September 30, 1996 and 1995.................3

   d) Notes to Condensed Consolidated Financial Statements..................4


ITEM 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations..............................8


PART II.   OTHER INFORMATION


ITEM 1.    Legal Proceedings...............................................16


ITEM 6.    Exhibits and Reports on Form 8-K................................17

Signatures.................................................................18

EXHIBIT INDEX..............................................................19




<PAGE>




PART I.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

                                 Three Months Ended        Nine Months Ended
                                    September 30,            September 30,
                                ----------------------   ---------------------
                                  1996        1995         1996        1995
                                ---------   ----------   ---------  ----------
                                (unaudited) (unaudited) (unaudited) (unaudited)

Net revenues                    $114,664     $114,377    $315,798     $296,719
Cost of revenues                  60,670       56,408     172,542      144,119
                                ---------   ----------   ---------   ----------
  Gross profit                    53,994       57,969     143,256      152,600
                                ---------   ----------   ---------   ----------

Operating expenses:
  Research and development        17,569       12,834      51,822       38,184
  Marketing and selling           31,303       27,747      94,823       74,854
  General and administrative       6,767        4,459      18,346       12,803
  Nonrecurring costs               8,800           --      28,950        5,456
                                ---------   ----------   ---------   ----------
    Total operating expenses      64,439       45,040     193,941      131,297
                                ---------   ----------   ---------   ----------

Operating income (loss)          (10,445)      12,929     (50,685)      21,303
Interest and other income
(expense), net                       523         (53)       1,820          720
                                ----------  ----------   ---------   ----------

Income (loss) before income
taxes                             (9,922)      12,876     (48,865)      22,023
Provision (benefit) for income
taxes                             (3,164)       4,122     (15,652)       8,097
                                ----------  ----------   ----------  ----------

Net income (loss)                $(6,758)      $8,754    $(33,213)     $13,926
                                ==========  ==========   ==========  ==========

Net income (loss) per common
share                             $(0.32)       $0.43      $(1.57)       $0.71
                                ==========  ==========   ==========  ==========

Weighted average common and
common equivalent shares
outstanding                        21,224      20,344      21,116       19,487
                                ==========  ==========   =========   ==========


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


<PAGE>
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
                                                 September 30,     December 31,
                                                     1996              1995
                                                -------------     -------------
                                                (unaudited)
ASSETS
Current assets:
  Cash and cash equivalents                          $72,986          $32,847
  Marketable securities                                2,663           17,543
  Accounts receivable, net of
    allowances of $5,058 and $6,472
    in 1996 and 1995, respectively                    83,563          107,859
  Inventories                                         51,667           63,387
  Deferred tax assets                                 23,735           13,006
  Other current assets                                 9,241            8,311
                                                -------------     ------------
    Total current assets                             243,855          242,953

  Marketable securities                                   --           30,102
  Property and equipment, net                         53,023           48,992
  Other assets                                         2,850            9,557
                                                -------------     ------------
    Total assets                                    $299,728          $331,604
                                                =============     =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                   $23,123          $29,836
  Current portion of long term debt                    1,923            1,781
  Accrued expenses                                    29,765           20,787
  Income taxes payable                                    --            6,171
  Deferred revenues                                   25,748           22,118
                                                -------------     ------------
    Total current liabilities                         80,559           80,693
                                                -------------     ------------

Long-term debt                                         1,501            2,945

Commitments and contingencies                            --                --

Stockholders' equity:
  Preferred stock                                         --               --
  Common stock                                           213              209
  Additional paid-in capital                         212,352          208,918
  Retained earnings                                    6,282           39,495
  Cumulative translation adjustment                   (1,180)            (700)
  Net unrealized gains (losses)
   on marketable securities                                1               44
                                                -------------     ------------
    Total stockholders' equity                       217,668          247,966
                                                -------------     ------------
    Total liabilities and
      stockholders' equity                          $299,728         $331,604
                                                =============     ============

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

<PAGE>
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)                                  Nine Months Ended September 30,
                                                        1996          1995
                                                      ----------    ----------
                                                      (unaudited)  (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                   $(33,213)      $13,926
  Adjustments to reconcile net income (loss) to
    net cash provided by (used in) operating
    activities:
    Depreciation and amortization                        21,527       13,475
    Provision for doubtful accounts                       4,370        2,561
    Deferred tax assets                                (10,729)           --
    Tax benefit of stock option exercises                    97        4,856
    Provision for product transition costs,
     non-cash portion                                    13,150           --
    Provision for nonrecurring costs, non-cash
     portion                                              6,394           --
    Changes in operating assets and liabilities, net
    of acquisition:
      Accounts receivable                                18,570      (40,412)
      Inventories                                       (2,978)      (21,118)
      Other current assets                                (711)       (4,625)
      Accounts payable                                  (5,940)        5,941
      Accrued expenses and income taxes payable           2,092        3,863
      Deferred revenues                                   4,008        4,216
                                                      ----------   ----------
  NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES    16,637      (17,317)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capitalized software development costs                (1,296)       (2,235)
  Purchases of property and equipment and other
  assets, net                                          (21,966)      (36,123)
  Purchases of marketable securities                   (13,311)      (16,641)
  Proceeds from sales of marketable securities           58,250       27,812
                                                      ----------   ----------
  NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES    21,677      (27,187)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from line of credit                               --       15,000
  Proceeds from long-term debt                               --        2,733
  Payments of long-term debt                            (1,488)       (2,274)
  Proceeds from issuance of common stock                  3,339       93,564
                                                      ----------   ----------
       NET CASH PROVIDED BY FINANCING ACTIVITIES          1,851      109,023
Effects of exchange rate changes
  on cash and cash equivalents                             (26)         (30)
                                                      ----------   ----------
Net increase in cash and cash equivalents                40,139       64,489
Cash and cash equivalents at beginning of period         32,847       23,255
                                                      ----------   ----------
Cash and cash equivalents at end of period              $72,986      $87,744
                                                      ==========   ==========

Supplemental  disclosure  of non-cash  transactions:  For the nine months ended
   September 30, 1996:
      Acquisition of equipment under capital lease obligations.....$186

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

<PAGE>

PART I.     FINANCIAL INFORMATION

ITEM 1D.    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            (UNAUDITED)

1.    FINANCIAL INFORMATION

The  accompanying   condensed  consolidated  financial  statements  include  the
accounts  of  Avid  Technology,   Inc.  ("the  Company")  and  its  wholly-owned
subsidiaries.  The interim financial  statements are unaudited.  However, in the
opinion of management,  the condensed  consolidated financial statements include
all adjustments, consisting of only normal, recurring adjustments, necessary for
their fair  presentation.  Interim  results are not  necessarily  indicative  of
results expected for a full year. The accompanying unaudited condensed financial
statements have been prepared in accordance with the  instructions for Form 10-Q
and  therefore do not include all  information  and  footnotes  necessary  for a
complete presentation of operations,  the financial position,  and cash flows of
the Company,  in conformity with generally accepted accounting  principles.  The
Company filed  audited  consolidated  financial  statements  which  included all
information  and footnotes  necessary for such  presentation  for the year ended
December 31, 1995 on Form 10-K.

The Company's  preparation of financial  statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect  the  reported  amount of assets and  liabilities  and
disclosure of contingent  assets and  liabilities  at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods.  The most significant  estimates included in these financial statements
include accounts receivable and sales allowances, inventory valuation and income
tax valuation allowances. Actual results could differ from those estimates.

In  January  1995,  the  Company  completed  a  merger  with  Digidesign,   Inc.
("Digidesign"),   accounted  for  as  a  pooling  of  interests.  The  condensed
consolidated  financial  statements for all periods presented herein include the
accounts of Avid Technology,  Inc. and Digidesign.  These condensed consolidated
financial  statements  should  be  read in  conjunction  with  the  consolidated
financial  statements and related notes included in the Company's  Annual Report
on Form 10-K for the year ended  December 31, 1995 as filed with the  Securities
and Exchange Commission on April 1, 1996 (SEC File No.
0-21174).

2.    NET INCOME (LOSS) PER COMMON SHARE

Net income per common share is based upon the weighted  average number of common
and common equivalent shares  outstanding  during the period.  Common equivalent
shares  are  included  in the per share  calculations  where the effect of their
inclusion  would  be  dilutive.  Net  loss per  common  share is based  upon the
weighted average number of common shares outstanding  during the period.  Common
equivalent shares result from the assumed exercise of outstanding stock options,
the  proceeds  of  which  are  then  assumed  to have  been  used to  repurchase
outstanding  common stock using the treasury  stock  method.  Fully  diluted net
income per share is not  materially  different  from the  reported  primary  net
income per share for all periods presented.

3.    INVENTORIES

Inventories consist of the following (in thousands):

                               September 30,    December 31,
                                   1996             1995
                               --------------   --------------
Raw materials                        $42,747          $55,690
Work in process                        1,768            1,355
Finished goods                         7,152            6,342
                               ==============   ==============
                                     $51,667          $63,387
                               ==============   ==============

4.    PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consists of the following (in thousands):

                                     September 30,    December 31,
                                         1996             1995
                                     --------------   --------------
Computer and video equipment               $75,148          $61,085
Office equipment and furniture
  and fixtures                              10,674            9,401
Leasehold improvements                      12,377           10,404
                                     --------------   --------------
                                            98,199           80,890
Less accumulated depreciation
  and amortization                          45,176           31,898
                                     ==============   ==============
                                           $53,023          $48,992
                                     ==============   ==============



5.    ACQUISITIONS

In January 1995, the Company completed a merger with Digidesign,  a developer of
digital  audio  production  software and systems.  This  transaction,  which was
accounted  for as a pooling of interests,  was effected  through the exchange of
approximately  6,000,000 shares of the Company's Common Stock for all the issued
and outstanding shares of Digidesign.

In March  1995,  the  Company  acquired  Parallax  Software  Limited and 3 Space
Software  Limited,  developers of paint and  compositing  software,  and Elastic
Reality,  Inc.,  a  developer  of digital  image  manipulation  software.  These
transactions,  which were accounted for as poolings of interests,  were effected
through the exchange of  approximately  1,500,000 shares of the Company's Common
Stock for all of the issued and outstanding shares of these entities.

In connection with these acquisitions,  the Company in the first quarter of 1995
provided  for  merger  costs of  approximately  $5.5  million.  Of this  amount,
approximately  $3.9 million represents direct  transaction  expenses,  primarily
professional fees, and $1.6 million consists of various restructuring charges.

6.    LINE OF CREDIT

In 1995,  the Company  entered into an unsecured  line of credit with a group of
banks which provided for up to $50,000,000  in revolving  credit.  The agreement
was to expire on June 30,  1996,  but was  amended as of June 28, 1996 to expire
June 28, 1997.  Under the terms of the  amendment,  the Company may borrow up to
$35,000,000.  The Company  must pay a quarterly  commitment  fee,  which will be
calculated  based on the debt  service  ratio of the Company and will range from
 .25%  to .40%  on the  $35,000,000  line.  The  interest  rate to be paid on any
outstanding borrowings will also be contingent upon the financial performance of
the Company and will range from the LIBOR rate plus 1.25% to the LIBOR rate plus
1.75%.  Additionally,  the Company is required  to  maintain  certain  financial
ratios and covenants over the life of the agreement,  including a restriction on
the payment of dividends. The Company had no borrowings against this facility as
of September 30, 1996.

7.    NONRECURRING COSTS

In the first  quarter of 1996,  the Company  recorded a  nonrecurring  charge of
$20.2  million,  consisting  of  $7.0  million  associated  with  restructuring,
including the Company's  costs related to staff  reductions  and the decision to
discontinue  development  of certain  products and  projects,  and $13.2 million
related to product transition costs associated with the transition from NuBus to
PCI bus  technology in some of the Company's  product lines.  The  restructuring
charge includes approximately $5.0 million of costs related to a staff reduction
of  approximately  70  employees  and  associated  write-offs  of fixed  assets.
Approximately $2.0 million of the $7.0 million  restructuring  charge relates to
the cancelation of certain products and development  projects.  As of September
30,  1996,  $6.0  million  of the $7.0  million  restructuring  charge  had been
recorded against the liability. Included in this $6.0 million were approximately
$4.3 million of cash payments consisting of $2.9 million of salaries and related
severance  costs and $1.4  million of other  staff  reduction  and  discontinued
development  costs.  The non-cash  charges of $1.7 million  recorded during 1996
consists  primarily  of $1.5  million for the  write-off  of fixed  assets.  The
Company expects that the related  restructuring actions will be completed by the
end of 1996.

In September,  1996 the Company recorded a nonrecurring  charge of $8.8 million,
associated  primarily with the Company's  decision not to release the Avid Media
Spectrum product line. This charge includes costs to write-off inventory,  fixed
assets,  capitalized  software  and  various  other  costs  associated  with the
canceled  product  line.   Approximately  $5.6  million  of  the  $8.8  million
nonrecurring  charge relates to non-cash items  associated with the write-off of
assets. The Company expects that these  restructuring  actions will be completed
by March 31, 1997.

8.    CONTINGENCIES

In December 1995, six purported  shareholder  class action complaints were filed
in the United States District Court for the District of Massachusetts naming the
Company  and  certain  of  its   underwriters  and  officers  and  directors  as
defendants.  On July  31,  1996,  the six  actions  were  consolidated  into two
lawsuits:  one  brought  under the 1934  Securities  Exchange  Act (the "`34 Act
suit") and one under the 1933  Securities  Act (the "`33 Act  suit").  Principal
allegations  contained in the two complaints  include claims that the defendants
violated federal  securities laws and state common law by allegedly making false
and misleading  statements that were not true when made and by allegedly failing
to disclose material information that was required to be disclosed,  purportedly
causing the value of the Company's  stock to be artificially  inflated.  The `34
Act suit was  brought on behalf of all persons  who bought the  Company's  stock
between July 26, 1995 and  December  20,  1995.  The `33 Act suit was brought on
behalf  of  persons  who  bought  the  Company's  stock in and  pursuant  to its
September 21, 1995 public offering. Both complaints seek unspecified damages for
the decline of the value of the Company's  stock during the  applicable  period.
Although the Company  believes that it and the other defendants have meritorious
defenses to the allegations  made by the plaintiffs and intends to contest these
lawsuits  vigorously,  an adverse  resolution  of this  litigation  could have a
material  adverse  effect on the Company's  consolidated  financial  position or
results of  operations  in the period in which the  litigation  is resolved.  No
costs have been accrued for this possible loss contingency.

On March 11, 1996,  the Company was named as defendant in a patent  infringement
suit filed in the United States District Court for the Western District of Texas
by Combined Logic Company,  a California  partnership  located in Beverly Hills,
California.  On May 16,  1996,  the suit was  transferred  to the United  States
District  Court for the Southern  District of New York.  The  complaint  alleges
infringement by Avid of U.S. patent number 4,258,385,  issued in 1981, and seeks
injunctive  relief,  treble damages and costs and  attorneys'  fees. The Company
believes  that it has  meritorious  defenses  to the  complaint  and  intends to
contest it vigorously.  However,  an adverse resolution of this litigation could
have an adverse  effect on the  Company's  consolidated  financial  position  or
results of  operations  in the period in which the  litigation  is resolved.  No
costs have been accrued for this possible loss contingency.

On April 23, 1996,  the Company was named as defendant in a patent  infringement
suit filed in the United States District Court for the District of Massachusetts
by Data  Translation,  Inc., of Marlboro,  Massachusetts.  The complaint alleges
infringement by the Company of U.S. patent number 5,488,695 and seeks injunctive
relief,  treble damages and costs and attorneys' fees. The Company believes that
it  has  meritorious  defenses  to  the  complaint  and  intends  to  defend  it
vigorously.  However,  an adverse  resolution of this  litigation  could have an
adverse effect on the Company's  consolidated  financial  position or results of
operations in the period in which the litigation is resolved. No costs have been
accrued for this possible loss contingency.

9.    EMPLOYEE BENEFIT PLANS

In February  1996, the 1994 Stock Option Plan was amended to increase the number
of shares authorized for issuance  thereunder from 1,600,000 to 2,400,000 shares
of Common Stock. The 1993 Director Stock Option Plan was also amended,  in April
1996, to increase the number of shares  authorized for issuance  thereunder from
120,000 shares of Common Stock to 220,000 shares.

On July 31, 1996, the 1993 Employee Stock Purchase Plan expired and was replaced
with the 1996 Employee  Stock  Purchase  Plan.  The 1996 Employee Stock Purchase
Plan  authorizes  the issuance of a maximum of 200,000 shares of Common Stock in
semi-annual  offerings at a price equal to the lower of 85% of the closing price
on the applicable offering  commencement date or 85% of the closing price on the
applicable offering termination date.



<PAGE>


PART I.     FINANCIAL INFORMATION

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

The text of this document may include forward-looking statements. Actual results
may differ materially from those described herein,  depending on such factors as
are described  herein,  including under "CERTAIN  FACTORS THAT MAY AFFECT FUTURE
RESULTS."

The  Company was founded in 1987 to develop  and market  digital  video  editing
systems for the production and post production markets.  The Company shipped its
first product,  the Avid/1 Media Composer system, in the fourth quarter of 1989.
The Company is currently selling Media Composer system version 6.1. In 1992, the
Company  began  shipping its  AudioVision  product to the digital  audio editing
segment of the post production  market, and in 1993 introduced Film Composer for
the film editing market and a line of disk-based  capture,  editing and playback
products for the broadcast  news  industry.  In 1994,  the Company  acquired two
businesses,  SofTECH  Systems,  Inc. and the newsroom  systems division of Basys
Automation  Systems,  Inc.,  to expand its  presence  in the  newsroom  computer
systems  market.  In  January  1995,  the  Company  completed  its  merger  with
Digidesign,  Inc.  ("Digidesign").  The  Digidesign  merger added  digital audio
production   software  and  related  application  lines.  Pro  Tools,  the  most
significant   product  line  acquired  in  the  merger,  is  marketed  to  audio
professionals.  The Media  Composer and Pro Tools product  lines,  together with
add-on software, storage devices and associated maintenance fees, have accounted
for a substantial majority of the Company's revenues to date. In March 1995, the
Company  acquired   Elastic   Reality,   Inc.,  a  developer  of  digital  image
manipulation  software,  and  Parallax  Software  Limited  and 3 Space  Software
Limited,  together  developers of paint and compositing  software,  all of whose
products are sold primarily to the film and video production and post-production
markets. In March 1996 and in May 1996, the Company began shipments of the Media
Composer  and Pro  Tools  product  lines,  respectively,  for  use on  PCI-based
computers. In June 1996 the Company began selling MCXpress for Macintosh and for
Windows NT.

RESULTS OF OPERATIONS

NET REVENUES
The Company's net revenues have been derived mainly from the sales of disk-based
digital,  nonlinear media editing systems and related peripherals,  licensing of
related  software  and sales of software  maintenance  contracts.  Net  revenues
increased by $287,000 (.3%) to $114.7 million in the quarter ended September 30,
1996 from $114.4  million in the same quarter of last year. Net revenues for the
nine months  ended  September  30,  1996 of $315.8  million  increased  by $19.1
million (6.4%) from $296.7 million for the nine months ended September 30, 1995.
The increase in net revenues  was  primarily  the result of higher unit sales of
the Media Composer product line and of digital audio products. In March 1996 and
in May 1996,  the Company  began  shipments of the Media  Composer and Pro Tools
product lines,  respectively,  for use on PCI-based computers.  In June 1996 the
Company  began  selling  MCXpress  for  Macintosh  and for  Windows NT. To date,
product returns of all products have been immaterial.

International  sales (sales to customers  outside North  America)  accounted for
approximately 47.7% of the Company's 1996 third quarter net revenues compared to
approximately 46.0% for the same quarter in 1995.  International sales increased
by 5.2% for the third quarter of 1996 compared to the same quarter in 1995.  The
increase in  international  sales in the third quarter of 1996 was  attributable
primarily to higher unit sales of Media  Composer and Pro Tools product lines in
Europe.

International sales accounted for approximately 49.8% and 46.0% of the Company's
net  revenues  for  the  nine  months  ended   September   30,  1996  and  1995,
respectively.  International  sales increased by 15.2% in the nine-month  period
ended  September  30,  1996  from  the same  period  in 1995.  The  increase  in
international  sales in 1996 was  attributable  primarily to higher unit sale of
Media  Composer  and Pro Tools  product  lines in Europe  and the Asia  Pacific
region.

GROSS PROFIT
Cost of revenues consists  primarily of costs associated with the acquisition of
components, the assembly, test and distribution of finished products, provisions
for  inventory  obsolescence,  warehousing,  shipping  and  post-sales  customer
support costs.  The resulting gross profit  fluctuates  based on factors such as
the mix of  products  sold,  the cost and  proportion  of  third-party  hardware
included in the systems sold by the Company,  the distribution  channels through
which products are sold, the timing of new product  introductions,  the offering
of product  upgrades,  price  discounts and other sales  promotion  programs and
sales of aftermarket  hardware products.  Gross margin decreased to 47.1% in the
third  quarter  of 1996  compared  to 50.7%  in the  third  quarter  of 1995 and
decreased to 45.4% for the nine-month period ended September 30, 1996 from 51.4%
for the  same  period  in 1995  due to an  increase  in  manufacturing  overhead
associated  with higher  facility and  information  system  costs and  increased
provisions for inventory  obsolescence,  increased sales of aftermarket hardware
products,  and an increase in the percentage of customer support costs allocated
to cost of revenues.  Gross margins for the nine months ended September 30, 1996
were also negatively  affected by upgrading of Media Composer systems for use on
PCI-based  computers  and the  recognition  of the sale of certain  server-based
broadcast  products at an aggregate  gross margin of  approximately  20%. In the
second  quarter of 1996 the Company  recognized  approximately  $2.4  million in
revenues from two of these server-based broadcast systems and approximately $1.9
million of related costs. The Company expects gross margins during the remainder
of 1996 to be less than gross  margins in 1995  because of higher  manufacturing
overhead  costs,  increased  percentage of customer  support costs  allocated to
post-sales support, and higher provisions for inventory obsolescence.

RESEARCH AND DEVELOPMENT
Research and  development  expenses for the third quarter of 1996 increased $4.7
million (36.9%) from the third quarter of 1995. For the nine-month  period ended
September 30, 1996,  research and development  expenses  increased $13.6 million
(35.7%) compared to the same period of 1995. These increased  expenditures  were
primarily due to additions to the Company's  engineering and product  management
staffs for the continued development of new and existing products.  Research and
development  expenses increased to 15.3% of net revenues in the third quarter of
1996 compared to 11.2% in the same quarter of 1995 due to significant  resources
required to develop and maintain various products, including the PCI versions of
the  Media  Composer  and  Pro  Tools  products,  SGI-based  editing  and  image
processing  software,  newsroom computer systems,  video processing hardware and
the CamCutter product.  In addition,  research and development  expenses for the
third  quarter of 1995 and nine months ended 1995 were reduced by  approximately
$2.1  million  as a  result  of  payments  received  under  certain  development
agreements  with third parties.  The Company  capitalized  software  development
costs  of  approximately  $120,000  or 0.7% and  $1.3  million  or 2.4% of total
research  and  development  costs  during  the  third  quarter  of 1996  and the
nine-month  period  ended  September  30, 1996,  respectively.  During the third
quarter of 1995 and the nine months ended September 30, 1995, respectively,  the
Company capitalized  approximately $1.2 million or 8.6% and $2.2 million or 5.4%
of total research and development  costs. The capitalized  software  development
costs in the third quarter of 1996 were associated  primarily with  enhancements
to the Pro Tools product  software.  These costs will be amortized  into cost of
revenues over the  estimated  life of the related  products,  generally 12 to 24
months.  Amortization totaled approximately $1.1 million and $2.4 million during
the third quarter of 1996 and the  nine-month  period ended  September 30, 1996,
respectively.  For the three and nine month  periods  ended  September 30, 1995,
amortization totaled approximately $322,000 and $792,000, respectively.

MARKETING AND SELLING
Marketing and selling  expenses for the third quarter of 1996  increased by $3.6
million  (12.8%) from the third  quarter of 1995 and  increased by $20.0 million
(26.7%) for the nine-month  period ended September 30, 1996 compared to the same
period in 1995,  primarily due to expansion of the Company's sales and pre-sales
support  organization  and the opening of field sales offices  domestically  and
internationally  during the later part of 1995.  Marketing and selling  expenses
increased  as a  percentage  of net  revenues  to 27.3%  and  30.0% in the third
quarter  of  1996  and  the   nine-month   period  ended   September  30,  1996,
respectively,  from  24.3% and 25.2% in the  corresponding  periods  in 1995 due
primarily to expansion of the Company's  field sales  operations and to a lesser
extent,  to higher costs  associated  with the  Company's  participation  in the
National  Association of  Broadcasters  trade show in the second quarter of each
year.

GENERAL AND ADMINISTRATIVE
General and  administrative  expenses for the third quarter of 1996 increased by
$2.3 million  (51.8%) from the third quarter of 1995 and increased  $5.5 million
(43.3%) for the  nine-month  period ended  September  30, 1996,  compared to the
nine-month period ended September 30, 1995. General and administrative  expenses
increased as a percentage  of net revenues to 5.9% in the third  quarter of 1996
from 3.9% in the third quarter of 1995 and to 5.8% from 4.3% for the  nine-month
period ended September 30, 1996 and the same period in 1995, respectively. These
increased expenses were primarily due to increased staffing and associated costs
necessary to support the Company's  growth,  as well as increased legal expenses
associated with various  litigation  matters to which the Company is a party. In
addition,  general and administrative expenses increased in the third quarter of
1996 due to certain severance and recruiting costs.

NONRECURRING COSTS
In the third  quarter of 1996,  the Company  recorded  charges for  nonrecurring
costs of $8.8 million,  associated  primarily with the Company's decision not to
release the Avid Media Spectrum product line.  During the first quarter of 1996,
the Company recorded  charges for nonrecurring  costs consisting of $7.0 million
for  restructuring  charges  related to staffing  reductions  and the  Company's
decision to  discontinue  certain  products and  development  projects and $13.2
million for product  transition  costs in connection  with the  transition  from
NuBus to PCI bus  technology  in  certain  of its  product  lines.  In the first
quarter of 1995,  the  Company  acquired  Digidesign,  Inc.,  Parallax  Software
Limited, 3 Space Software Limited and Elastic Reality,  Inc. These transactions,
accounted  for as poolings of interest,  were  effected  through the exchange of
approximately  7,500,000  shares  of  Common  Stock  for all of the  issued  and
outstanding shares of these entities. In connection with these acquisitions, the
Company  recorded  merger costs of  approximately  $5.5  million,  of which $3.9
million  represented  direct  transaction  expenses and $1.6 million consists of
various restructuring charges.

INTEREST AND OTHER INCOME, NET
Interest and other income, net consists  primarily of interest income,  interest
expense and other  income.  Interest  income,  net for the third quarter of 1996
increased  $576,000  from the third  quarter of 1995.  For the nine months ended
September  30,  1996,  interest  income,  net  increased  $1.1  million compared
to 1995 primarily due to higher cash and  investment  balances in 1996 and a 
gain on sale of the VideoShop product line in the second quarter of 1996.

PROVISION FOR INCOME TAXES
The Company's  effective tax rate was 32% for both the third quarter of 1996 and
1995.  The 1996 and 1995  third  quarter  effective  tax rates are less than the
Federal  statutory  rate of 35%  primarily  due to the  impact of the  Company's
foreign subsidiaries. The Company's effective tax rate was 32% and 36.8% for the
nine-month   periods   ended   September   30,  1996  and  September  30,  1995,
respectively.  The 1995 provision included taxes of $8.7 million at an effective
rate of 32% on  $27.5  million  of  earnings  before  merger  charges.  The 1995
provision for the nine-month period ended September 30, 1995 also included a tax
benefit of $640,000 on merger  charges of $5.5  million,  of which $1.6  million
were tax deductible.

LIQUIDITY AND CAPITAL RESOURCES.

The Company has funded its  operations  to date through  private sales of equity
securities  and public  offerings  of equity  securities  in 1993 and 1995 which
generated  net  proceeds  to the  Company of  approximately  $67 million and $88
million,  respectively,  as well as through  cash flows from  operations.  As of
September 30, 1996 the Company's  principal sources of liquidity  included cash
and cash  equivalents  and  marketable  securities  totaling   approximately
$75.6 million.

The  Company's  operating  activities  generated  cash of $16.6  million  in the
nine-month  period  ended  September  30,  1996  compared to using cash of $17.3
million in the nine-month  period ended  September 30, 1995.  Cash was generated
during the nine months ended  September 30, 1996  primarily  from  reductions in
accounts receivable and inventory.

The Company  purchased  $21.8 million of property and equipment and other assets
in the nine months ended  September  30, 1996,  compared to $36.1 million in the
same  period  of 1995.  These  purchases  included  primarily  the  purchase  of
equipment for  demonstrating  and supporting  PCI-based and SGI-based  products,
hardware and software for the  Company's  information  systems and  equipment to
support research and development activities.

The Company has had an equipment-financing arrangement with a bank which expired
on March 31, 1996. In 1995 the Company  entered into an unsecured line of credit
with a group of banks which provided for up to $50,000,000 in revolving  credit.
The  agreement  was to expire on June 30,  1996,  but was amended as of June 28,
1996 to expire June 28, 1997. Under the terms of the amendment,  the Company may
borrow up to $35,000,000. The Company must pay a quarterly commitment fee, which
will be calculated based on the debt service ratio of the Company and will range
from .25% to .40% on the  $35,000,000  line. The interest rate to be paid on any
outstanding borrowings will also be contingent upon the financial performance of
the Company and will range from the LIBOR rate plus 1.25% to the LIBOR rate plus
1.75%.  Additionally,  the Company is required  to  maintain  certain  financial
ratios and covenants over the life of the agreement,  including a restriction on
the  payment of  dividends.  The Company has in certain  prior  periods  been in
default of certain  financial  covenants.  On these  occasions the defaults have
been waived by the banks.  There can be no  assurance  that the Company will not
default in future periods or that, if in default, it will be able to obtain such
waivers.  The Company had no  borrowings  against  either the  original  line of
credit or the amended line and was not in default of any financial  covenants as
of  September  30,  1996.  The Company  believes  existing  cash, marketable
securities, internally  generated funds, and available borrowings under its bank
credit  line  will  be  sufficient  to meet  the  Company's  cash  requirements,
including capital  expenditures,  at least through the end of 1997. In the event
the Company requires additional  financing the Company believes that it would be
able to obtain such financing;  however,  there is no assurance that it would be
successful  in  doing  so,  or that it could  do so on  terms  favorable  to the
Company.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, the following:

The Company's gross margin has fluctuated,  and may continue to fluctuate, based
on  factors  such as the mix of  products  sold,  cost  and  the  proportion  of
third-party   hardware  included  in  the  systems  sold  by  the  Company,  the
distribution channels through which products are sold, the timing of new product
introductions,  the offering of product and platform  upgrades,  price discounts
and other sales promotion programs,  the volume of sales of aftermarket hardware
products,  the costs of swapping or fixing products  released to the market with
errors or flaws,  provisions  for inventory  obsolescence,  sales of third-party
computer hardware to its distributors, and competitive pressure on selling
prices of products.  The Company's systems and software products  typically have
higher gross  margins than storage devices and product upgrades.  Gross profit
varies from product to product depending primarily on the proportion and cost of
third-party hardware included in each product.  The Company,  from time to time,
adds  functionality  and  features  to  its  systems.   If  such  additions  are
accomplished through the use of more, or more costly,  third-party hardware, and
if the  Company  does not  increase  the price of such  systems to offset  these
increased  costs, the Company's gross margins on such systems would be adversely
affected.  The Company  expects gross margins during the remainder of 1996 to be
less than gross margins in 1995 because of higher manufacturing  overhead costs,
increased  percentage of customer support costs allocated to post-sales  support
and higher provisions for inventory obsolescence.

In 1995,  the  Company  shipped  server-based,  all-digital  broadcast  newsroom
systems to a limited number of beta sites.  These systems  incorporate a variety
of the Company's products, as well as a significant amount of hardware purchased
from third parties,  including computers  purchased from Silicon Graphics,  Inc.
("SGI").  Because some of the  technology and products in these systems were new
and untested in live broadcast  environments,  the Company provided greater than
normal discounts to these initial  customers.  In addition,  because some of the
technology and products in these systems were new and untested in live broadcast
environments,  the  Company has  incurred  unexpected  delays and  greater  than
expected  costs in completing  and  supporting  these initial  installations  to
customers'  satisfaction.  As a result, the Company expects that it will report,
in the  aggregate,  a loss on these  sales,  when all  revenues  and  costs  are
recognized.  In the second quarter of 1996, the Company recognized approximately
$2.4  million in revenues  from three of these  systems and  approximately  $1.9
million of related costs. In future  quarters,  the Company expects to recognize
an additional $6.1 million in revenues and  approximately  $7.5 million in costs
associated with the remaining systems for which revenues will be recognized. The
Company has provided a reserve for this  expected  loss.  Revenues and costs are
recognized upon acceptance of the systems by customers. The Company is unable to
determine  the timing of this  acceptance.  There can be no  assurance  that the
remaining  systems  will be accepted by  customers  or that the Company will not
incur further costs in completing the installations.  If customers do not accept
these systems,  the Company could face additional costs associated with reducing
the value of the inventory included in the systems.  The Company's overall gross
margin  percentage  will be reduced  in any  quarter  or  quarters  in which the
remaining  systems are recognized or written off. To the extent that the Company
sells additional  server-based,  all-digital broadcast newsroom systems to other
customers in the future, the Company believes that such sales may be profitable.
However, the Company believes that because of the high proportion of third-party
hardware,  including  computers and storage  devices,  included in such systems,
that the gross  margins  on such  sales  would be lower  than the gross  margins
generally on the Company's other systems.

The Company's  operating  expense levels are based, in part, on its expectations
of future revenues.  In recent quarters,  40% or more of the Company's  revenues
for a quarter have been recorded in the third month of the quarter.  Further, in
many cases,  quarterly operating expense levels cannot be reduced rapidly in the
event  that  quarterly  revenue  levels  fail  to  meet  internal  expectations.
Therefore,  if quarterly revenue levels fail to meet internal expectations,  the
Company's  operating  results  would be  adversely  affected and there can be no
assurance  that the Company would be able to operate  profitably.  Reductions of
certain  operating  expenses,  if incurred,  in the face of lower than  expected
revenues could involve material  one-time charges  associated with reductions in
headcount,  trimming  product  lines,  eliminating  facilities  and  offices and
writing off fixed assets and inventory.

The  Company  has  recently  initiated  steps  designed  to shift an  increasing
proportion  of its sales through  indirect  channels  such as  distributors  and
resellers. The Company expects that this shift will result in an increase in the
number of software and circuit  board "kits" sold through  indirect  channels in
comparison with turnkey systems  consisting of CPU's,  monitors,  and peripheral
devices including  accompanying  software and circuit boards sold by the Company
through  its  direct  sales  force to  customers.  Therefore,  to the extent the
Company increases its sales through indirect channels, its revenue per unit sale
will be less than it would have been had the same sale been made directly by the
Company.  In the event the Company is unable to increase  the volume of sales in
order to offset  this  decrease  in revenue  per sale or is unable to reduce its
costs associated with such sales,  profits could be adversely affected.  Because
the  Company to date has emphasized sales through its direct sales channels,
there is no  assurance  that the Company will be able to increase the
volume  of  sales through indirect channels or that it will be able to  reduce
its  costs  in  sufficient amounts to operate profitably.

The  Company  has  expanded  its  product  line to  address  the  digital  media
production needs of the television broadcast news market and the emerging market
for lower priced production and post production tools, including the corporate
and industrial  user market. The Company has limited  experience in serving
these markets,  and there can be no  assurance  that the  Company  will be able
to develop  such  products successfully, or that such products will achieve 
widespread customer acceptance. A  significant  portion of the  Company's  
future growth will depend on customer acceptance  in these and other new
markets.  Any  failure of such  products  to achieve market acceptance, 
additional costs and expenses incurred by the Company to improve market  
acceptance of such products, or the withdrawal from the market of such  products
or of the Company from such new markets  could have a material adverse effect 
on the Company's business and results of operations.

The  Company had  announced  the  introduction  of several new editing and image
processing  products  which were  designed to operate on computers  from SGI. In
August  1996,  the  company  determined  not to release  one of these  SGI-based
products, Avid Media Spectrum, which had been expected to be released during the
second  half of 1996.  In the third  quarter  of 1996,  the  Company  incurred a
one-time  charge  of  $8.8  million  primarily  associated  with  the  costs  of
implementing  this  decision.  The  failure of the other  SGI-based  products to
achieve market acceptance, the delay or deferral of customer purchase decisions,
the cost of any upgrade programs that may be implemented by the Company,  or the
inability  of the  Company or its  dealers to secure an  adequate  supply of SGI
computer systems could have a material adverse effect on the Company's  business
and results of operations.

The Company's  products  generally  operate only on Apple  computers.  Apple has
recently been suffering business and financial difficulties. In consideration of
these  difficulties,  there can be no assurance  that  customers  will not delay
purchases of Apple-based products, or purchase  substitutable  products based on
non-Apple  computers,  that  Apple will  continue  to  develop  and  manufacture
products  suitable for the  Company's  existing  and future  markets or that the
Company  will be able to  secure an  adequate  supply  of Apple  computers,  the
occurrence of any of which could have a material adverse effect on the Company's
business and results of operations.

In addition,  Apple has adopted the PCI bus  standard for data  transfer for its
computers.  The Company  believes  certain of its prospects  and customers  have
delayed purchases or have purchased  PCI-based  systems from competing  vendors.
The Company began shipping Media Composer products based on the PCI bus standard
in March 1996 and began  shipping Pro Tools products based on the PCI bus in May
of 1996.  Any  difficulty  or  delay by  third-party  developers  in  developing
applications for use on PCI bus based Pro Tools products, any failure of the Pro
Tools or Media Composer PCI bus products to obtain market acceptance,  the delay
or deferral of customer purchase  decisions,  the cost of any additional upgrade
programs to PCI bus that have been or may be implemented by the Company,  or the
inability of the Company to secure an adequate  supply of  PCI-compatible  video
processor  boards to include in its systems could have a material adverse effect
on the Company's business and results of operations.

The Company has from time to time developed new products,  or upgraded  existing
products that incorporate advances in enabling technologies such as PCI bus. The
Company believes that further advances will occur in bus architectures and other
enabling technologies,  such as microprocessors,  computers,  operating systems,
storage devices and digital media formats. The Company may be required, based on
market  demand,  to upgrade  existing  products or develop  other  products that
incorporate these further advances. In particular,  the Company believes that it
will be necessary to develop additional products which operate using the Windows
NT  operating  system.  There  can be no  assurance  that  the  Company  will be
successful in developing NT-based or other new products,  or that they will gain
market  acceptance,  if  developed.  Any failure to develop  such  products in a
timely way or to gain market  acceptance for them could have a material  adverse
effect on the Company's business and results of operations.

The  Company  has  experienced  a period of rapid  growth,  which  has  placed a
significant  strain on its  resources.  The Company has in the past  experienced
personnel  transitions  among its senior managers and expects  transitions  from
time to time in the future as the Company's  organizational  structure continues
to evolve.  In addition,  many of the Company's senior  management and other key
employees  have not had  experience in managing  organizations  of the Company's
size or larger.  To manage  effectively  any future growth,  the Company will be
required to continue to improve its  operational  and  financial  systems and to
expand,  train and manage its employee  base.  Since the beginning of 1996,  the
Company has incurred a higher rate of employee turnover than in prior years. The
loss of key  employees,  any delay or failure in attracting new employees or any
failure by the  Company to manage any  future  growth  effectively  could have a
material adverse effect on the Company's business.

The Company is dependent  upon sole source  suppliers for certain key components
used in its products. Products purchased by the Company from sole source vendors
include computers from Apple and SGI; video  compression  chips  manufactured by
C-Cube  Microsystems;  a small computer systems interface  ("SCSI")  accelerator
board from ATTO  Technology;  a 3D digital  video  effects  board from  Pinnacle
Systems;  certain storage devices from Ciprico, Inc. and an application specific
integrated  circuit  ("ASIC") from AMI. The Company  purchases these sole source
components  pursuant to purchase  orders  placed from time to time.  The Company
generally does not carry significant inventories of these sole source components
and has no guaranteed  supply  arrangements.  These purchasing  arrangements can
result in delays in obtaining  products  from time to time.  No assurance can be
given that sole source suppliers will devote the resources  necessary to support
the  enhancement or continued  availability  of such components or that any such
supplier will not encounter financial  difficulties.  While the Company believes
that  alternative  sources of supply  for its sole  source  components  could be
developed,  its business and results of operations could be materially adversely
affected if it were to encounter an interruption in its sources of supply.

The markets for digital  media  editing  and  production  systems are  intensely
competitive and subject to rapid change. The Company  encounters  competition in
the film, video and audio production and  post-production,  television broadcast
news and multimedia  tools markets,  including the corporate and industrial user
market. Many current and potential competitors of the Company have substantially
greater  financial,  technical and marketing  resources  than the Company.  Such
competitors  may use these  resources to lower their  product  costs and thus be
able to  lower  prices  to  levels  at  which  the  Company  could  not  operate
profitably. Further, such competitors may be able to develop products comparable
or superior to those of the  Company or adapt more  quickly  than the Company to
new technologies or evolving customer requirements. Accordingly, there can be no
assurance  that the Company  will be able to compete  effectively  in its target
markets or that future  competition  will not adversely  affect its business and
results of operations.

The Company is converting its core information systems to a new system developed
by Systems,  Applications and Products ("SAP").  Any difficulties in this system
conversion  could  delay the  shipment  of orders,  the  release of  invoices or
collection of  receivables  which could have an adverse  effect on the Company's
operations and cash flows.

The Company is  involved  in various  legal  proceedings,  including  patent and
securities fraud litigation, an adverse resolution of any such proceedings could
have a  material  adverse  effect  on the  Company's  business  and  results  of
operations.   See  Note  8  to  Condensed   Consolidated   Financial  Statements
(unaudited).  This litigation has been discussed in previously  filed reports on
Forms 10-Q and 10-K.



<PAGE>



P
ART II.    OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS


OTHER

The  Company  has  also  received  inquiries  with  regard  to  possible  patent
infringement claims in addition to those which have been specifically  disclosed
by  the  Company.  These  inquiries  are  referred  to  patent  counsel.  If any
infringements  are  determined  to  exist,  the  Company  may seek  licenses  or
settlements.  In addition, from time to time as a normal incidence of the nature
of the Company's business,  various claims,  charges and litigation are asserted
or  commenced  against the Company  arising  from or related to  contractual  or
employee  relations or product  performance.  Management  does not believe these
claims would have a material adverse effect on the financial position or results
of operations of the Company.





<PAGE>



 ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

 (a)  EXHIBITS.

      10.1        Employment agreement between the Company and William J.
                  Miller.

      10.2        Employment agreement between the Company and William L.
                  Flaherty.

      10.3        Employment agreement between the Company and Clifford Jenks.

      27          Financial Data Schedule


 (b)  REPORTS ON FORM 8-K. For the fiscal  quarter ended  September 30, 1996 the
      Company filed no Current Reports on Form 8-K.




<PAGE>



SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                              Avid Technology, Inc.

Date:  November 14, 1996     By:           /S/ WILLIAM L. FLAHERTY
                              William L. Flaherty,
                              Vice President of Finance and

                             Chief Financial Officer
                              (Principal Financial and Accounting Officer)




<PAGE>



                                EXHIBIT INDEX


EXHIBIT NO.                    DESCRIPTION

      10.1        Employment agreement between the Company and William J.
                  Miller.

      10.2        Employment agreement between the Company and William L.
                  Flaherty.

      10.3        Employment agreement between the Company and Clifford Jenks.

       27               Financial Data Schedule











<PAGE>


Mr. William Miller
April 3, 1996
Page




AVID TECHNOLOGY, INC.



                                  April 3, 1996



Mr. William J. Miller
360 Bachman
Los Gatos, CA 95030

Dear Bill:

      This  letter is to extend  to you an offer to become  the Chief  Executive
Officer and Chairman of the Board of Avid Technology,  Inc.  ("Avid"),  upon the
following terms:

1.Position. Upon acceptance of Avid's offer, you will become the Chief Executive
Officer and Chairman of the Board of Avid and devote your full business time and
efforts to the business of Avid,  provided that until September 30, 1996 you may
provide up to one day per month of consulting services for your prior employer.

2.Base  Salary.  You  shall be paid a base  salary at the rate of  $375,000  per
annum, subject to annual review by the Board of Directors after fiscal 1996.

3.Bonus.  Avid shall pay to you a performance bonus for the year ending December
31, 1996 at the discretion of the Board of Directors.  Assuming  satisfaction of
your performance  objectives for such year, your bonus potential for fiscal 1996
shall be in the range of 50-80% of your base salary.  For subsequent years, your
bonus  will be based on an  executive  compensation  plan that you will have the
responsibility  for  developing  and  submitting  to the Board of Directors  for
approval.


4.Benefits  and Vacation.  You shall be entitled to  participate  in all benefit
programs that Avid  establishes and makes available to its employees.  You shall
be entitled to four (4) weeks paid vacation per year.

5.Options.

(a) Upon your  acceptance  of this  letter,  Avid shall grant to you options for
200,000  shares of its  Common  Stock  under its 1994  Stock  Option  Plan at an
exercise  price equal to the last reported sale price of the Common Stock on the
business  day  preceding  the day on which you accept this  letter.  Such option
shall become exercisable,  depending on your continued  employment with Avid, at
the rate of 25% at the end of 12 months and 6.25% at the end of each three-month
period thereafter,  provided that the vesting of such option shall accelerate in
the event of any sale of the business of Avid by merger,  acquisition  of assets
or other form or reorganization. Such options shall be "incentive stock options"
to the extent  permitted by the Internal  Revenue Code, and the balance shall be
non-qualified options.

(b) In addition, upon your acceptance of this letter, Avid shall grant to you an
option for 50,000 shares of Common  Stock,  at an exercise  price  determined in
accordance  with paragraph (a) above,  vesting on the eighth  anniversary of the
date of grant if you are employed by Avid on such date.  However,  these options
shall become immediately vested and exercisable if the last reported sales price
of Avid Common  Stock on the Nasdaq  National  Market (or a national  securities
exchange)  is at least $50 per share  (adjusted  for stock  splits  and  similar
events) for 20 consecutive trading days prior to September 30, 1998.

6.    Relocation.

(a) Avid shall reimburse you for reasonable  moving and travel expenses incurred
by you in moving to Massachusetts, including the expense of moving one horse, as
well as real estate  brokerage  fees,  mortgage  recording  fees,  transfer  and
documentary  taxes,  recording fees, title insurance fees,  property  inspection
costs,  termite inspection costs, home protection plans,  escrow charges,  legal
fees and  similar  out-of-pocket  expenses  incurred  in  selling  your house in
California and purchasing a residence in the Massachusetts area.

(b) Avid shall also reimburse you for the rental payments for temporary  housing
in  Massachusetts  for up to six months  until you are able to secure  permanent
housing in the Massachusetts area.

(c) At your request,  within 90 days of this  Agreement,  Avid shall purchase or
cause to be purchased your home at 360 Bachman Street, Los Gatos, California for
a purchase  price  equal to your cost  (approximately  $610,000)  or such higher
appraised  fair value as may be approved by Mr. Robert  Halperin in his absolute
discretion.  Such  purchase  shall be made to enable you to begin  employment at
Avid  immediately  and to enable  you to devote  full time to Avid  without  the
discretion of managing the sale of your home in California.

7.Severance.  If  Avid  terminates  your  employment  without  Cause,  or if you
voluntarily  terminate your employment for Good Reason, (i) the option described
in paragraph  5(a) shall become vested and  exercisable  to the extent that such
option  would have  become  vested and  exercisable  if you had  remained in the
employ  of Avid  for an  additional  twelve  months,  and  such  options  may be
exercised  until the end of the period during which you are receiving  severance
payments under this Agreement,  and (ii) Avid shall pay to you, in equal monthly
installments, a severance amount equal to your annual base salary at the time of
termination;  provided  that if such  termination  occurs  prior  to the  second
anniversary of the commencement of your employment,  Avid shall also pay to you,
during the second 12-month period following termination, on a monthly basis, the
amount by which your monthly base salary at the time of termination exceeds your
monthly compensation from your new employer. During such severance period (12 or
24 months  as  applicable),  you shall be  entitled  to  continuation  of health
insurance and other fringe benefits until you find other employment,  and if you
do not find employment in  Massachusetts  you shall be reimbursed for relocation
expenses back to  California  or Minnesota as you may elect.  "Cause" shall mean
willful  misconduct,  gross  negligence or any crime involving moral  turpitude.
"Good  Reason"   shall  mean  a   significant   diminution  in  your  duties  or
responsibilities  or any  acquisition  of Avid  that  results  in your no longer
serving as CEO of an independent public company.

8.Non-Compete. While you are employed by Avid and for a period of one year after
the termination of your employment,  you shall not, directly or indirectly,  (i)
engage in the business of developing,  making or selling any product competitive
with any product being  developed,  made or sold by Avid while you were employed
by Avid or (ii) recruit or solicit any employee of Avid to leave Avid.

9.Indemnification. The indemnification provided to you by Avid as an officer and
director  shall  continue  after  termination  of your  employment  for all acts
occurring during the period of your employment.

10.Invention and Non-Disclosure Agreement.  You shall sign Avid's
standard Invention and Non-Disclosure Agreement.

      This offer of employment will remain open until 6:00 p.m., E.S.T. on April
8, 1996.  To accept this  offer,  please sign in the  appropriate  space  below,
whereupon this letter shall become a binding agreement between Avid and
you.

      We look forward to your joining Avid.

                              Sincerely,

Avid Technology, Inc.


By:  /s/ William S. Kaiser
   William S. Kaiser
   Chairman of the Board



Accepted:

/S/ William J. Miller

William J. Miller

Dated: April __, 1996









August 21, 1996


William L. Flaherty
11 Coburn Road
Weston, MA  02193


Dear Bill:

I am pleased to offer you the  position of Vice  President  and Chief  Financial
Officer,  responsible  for  Finance  and  Treasury,  MIS,  Legal,  and  Investor
Relations, reporting to me.


SALARY

Your salary will be paid twice a month at a rate of ten  thousand  four  hundred
and sixteen dollars and sixty-seven cents ($10,416.67  semimonthly;  $250,000.08
annualized).  The initial pay period will be  calculated  based upon actual days
worked.


INCENTIVE COMPENSATION

You will be eligible to participate in Avid's  Executive  Variable  Compensation
Program. Your target for 1996 will be 60% at plan (pro-rated for that portion of
the fiscal year actually worked) which is based on the corporation achieving its
R.O.I.  objectives.  Your bonus for 1996 will be guaranteed in the amount of 20%
of your annualized salary, or $50,000.  Your total targeted cash compensation is
thus $400,000 on an annualized  basis.  This will be reviewed in January as part
of our Executive Officer salary review.


STOCK OPTIONS

In addition,  you will be issued,  upon hire, an Incentive Stock Option,  to the
extent  permitted  by the  Internal  Revenue  Code,  and the  balance  shall  be
non-qualified  options  (both  with  vesting
  over a four  year  period,  and an
expiration of ten years) under Avid's 1995 Incentive Stock Option Plan for fifty
thousand (50,000) shares of Avid Technology,  Inc. Common Stock. The shares will
be priced at the  NASDAQ  closing  price on the  Monday of the week in which you
start work at Avid.


SIGNING BONUS

Avid will also  provide  you with a thirty  thousand  dollar  ($30,000)  signing
bonus, which will be paid to you in your initial paycheck.


SEVERANCE AND CHANGE IN CONTROL

In the event of any sale of the business by merger,  acquisition  of assets,  or
other form of  reorganization,  the vesting of your  initial  stock option grant
will be fully accelerated.

If  Avid  voluntarily  terminates  your  employment  without  Cause,  or if  you
voluntarily  terminate your  employment for Good Reason,  (i) your initial stock
option grant shall become vested and  exercisable to the extent that such option
would have become  vested and  exercisable  if you had remained in the employ of
Avid for an additional  twelve months,  and such options may be exercised  until
the end of the period during which you are receiving  severance  payments  under
this Agreement, and (ii) Avid shall pay you, in equal semi-monthly installments,
a severance  amount equal to your annual base salary at the time of termination;
PROVIDED  that if  such  termination  occurs  prior  to the  end of your  second
anniversary of the commencement of your employment,  Avid shall also pay to you,
during the second  12-month  period  following  termination,  on a  semi-monthly
basis,  the amount by which your monthly base salary at the time of  termination
exceeds your monthly compensation from your new employer.  During such severance
period (12 or 24 months as applicable), you shall be entitled to continuation of
health insurance and other fringe benefits,  as permissible per plan provisions,
until you find other employment.  "Cause" shall mean willful  misconduct,  gross
negligence or any crime  involving moral  turpitude.  "Good Reason" shall mean a
significant  diminution in your duties or responsibilities or any acquisition of
Avid that  results  in your no longer  serving as CFO of an  independent  public
company.


REVIEW OF PRESS RELEASE

You will have the right to review any press announcement, before it is released,
which mentions your being appointed VP and CFO of Avid.


BENEFITS

Avid offers four weeks of paid  vacation  and ten paid  holidays  per year.  The
Company  contributes  75% of the  premium  cost for  medical,  dental and vision
coverage  and 100% of the costs for life  insurance  (in the amount of two times
your annual salary) and long term disability insurance. Additionally you will be
eligible  to  participate  in Avid's  401(k)  Plan on the next  enrollment  date
following your first three months of employment. A benefits summary is enclosed.
Please  call Kelli Boyle in our Human  Resources  department  for more  details.
Kelli can be reached at (508) 640-3297.  Detailed documentation will be provided
on these benefits upon commencement of employment.

This offer is subject to our satisfactory review of all of your prior employment
agreements  for  "non-compete"  clauses  under  which you may be  restricted  in
working  for Avid and upon your  furnishing  proof that you are  authorized  for
employment  in the  USA.  All  Avid  employees  are  required  to  sign  an Avid
nondisclosure  agreement upon acceptance and/or commencement of employment.  You
will also be required to complete an  Immigration  Department I-9 form for which
you will need to bring certain documentation with you to Avid. A copy of both of
these forms is enclosed for your review only;  do not complete  these  documents
until you meet with Human Resources. Please call if you have questions.

All of us at Avid look  forward  to  welcoming  you and I am  confident  of your
potential as a valued and  respected  member of Avid's senior  management  team.
Please  confirm your  acceptance of this  employment  offer by signing below and
returning  one of the  original  two  copies  of this  letter  (in the  enclosed
self-addressed   envelope  or  hand   carried)  to  Judith   Oppenheim   (MARKED
CONFIDENTIAL).

Acceptance of this offer does not  constitute  an employment  agreement and this
letter is not to be construed as a guarantee  of  employment  by the Company for
any specific period or length of time.

If you have any  questions  regarding  the  position,  please do not hesitate to
contact me.

Sincerely,

/s/ W.J. Miller

William Miller
Chairman and Chief Executive Officer

/jdc
Enclosures


ACCEPTED:     /s/ William L. Flaherty    DATE:  Aug. 21, 1996


START DATE:   No later than September 16, 1996








October 3, 1996


Cliff Jenks
660 Circle Lane
Lake Forest, IL  60045


Dear Cliff:

I am pleased to offer you the position of Vice  President of Sales and Marketing
for Avid, reporting to me. The components of your offer are as follows:


SALARY

Your salary will be paid twice a month at a rate of eleven thousand four hundred
and  fifty-eight   dollars  and  thirty-four  cents   ($11,458.34   semimonthly;
$275,000.16  annualized).  The initial pay period will be calculated  based upon
actual days worked.


INCENTIVE COMPENSATION

You will be eligible to participate in Avid's  Executive  Variable  Compensation
Program.  Your targeted  incentive will be 50% at achievement of plan (pro-rated
for that  portion of the fiscal  year  actually  worked),  which is based on the
corporation  achieving  its  R.O.I.  objectives.  Your  payout  for 1996 will be
guaranteed  at your  targeted  annualized  rate of 50% for the  remainder of the
year,  pro-rated  for that  portion  of the year  actually  worked.  Your  total
targeted cash compensation is thus $412,500 on an annualized basis. This will be
reviewed in January as part of our Executive Officer salary review.


STOCK OPTIONS

In addition,  you will be issued,  upon hire, an Incentive Stock Option,  to the
extent  permitted  by the  Internal  Revenue
  Code,  and the  balance  shall  be
non-qualified  options  (both  with  vesting  over a four  year  period,  and an
expiration  of ten years)  under  Avid's 1995  Incentive  Stock  Option Plan for
seventy-five thousand (75,000) shares of Avid Technology, Inc. Common Stock. The
shares  will be priced at the  NASDAQ  closing  price on the day which you start
work at Avid.


SIGNING BONUS

Avid will also  provide  you with a thirty  thousand  dollar  ($30,000)  signing
bonus, which will be paid to you in your initial paycheck.


RELOCATION

Avid will provide you full relocation,  per our Executive  Relocation  Policy. A
copy of this policy will be sent to you with your hard copy offer letter.


BENEFITS

Avid offers four weeks of paid  vacation  and ten paid  holidays  per year.  The
Company  contributes  75% of the  premium  cost for  medical,  dental and vision
coverage  and 100% of the costs for life  insurance  (in the amount of two times
your annual salary) and long term disability insurance. Additionally you will be
eligible  to  participate  in Avid's  401(k)  Plan on the next  enrollment  date
following your first three months of employment. A benefits summary is enclosed.
Please  call Kelli Boyle in our Human  Resources  department  for more  details.
Kelli can be reached at (508) 640-3297.  Detailed documentation will be provided
on these benefits upon commencement of employment.

This offer is subject to our satisfactory review of all of your prior employment
agreements  for  "non-compete"  clauses  under  which you may be  restricted  in
working  for Avid and upon your  furnishing  proof that you are  authorized  for
employment  in the  USA.  All  Avid  employees  are  required  to  sign  an Avid
nondisclosure  agreement upon acceptance and/or commencement of employment.  You
will also be required to complete an  Immigration  Department I-9 form for which
you will need to bring certain documentation with you to Avid. A copy of both of
these forms is enclosed for your review only;  do not complete  these  documents
until you meet with Human Resources. Please call if you have questions.

All of us at Avid look  forward  to  welcoming  you and I am  confident  of your
potential as a valued and  respected  member of Avid's senior  management  team.
Please  confirm your  acceptance of this  employment  offer by signing below and
returning  one of the  original  two  copies  of this  letter  (in the  enclosed
self-addressed   envelope  or  hand   carried)  to  Judith   Oppenheim   (MARKED
CONFIDENTIAL).

Acceptance of this offer does not  constitute  an employment  agreement and this
letter is not to be construed as a guarantee  of  employment  by the Company for
any specific period or length of time.

If you have any  questions  regarding  the  position,  please do not hesitate to
contact me.

Sincerely,

/s/ W.J. Miller

William Miller
Chairman and Chief Executive Officer

/jdc
Enclosures

ACCEPTED:     /s/ C.A. Jenks             DATE:  10-7-96

START DATE: 10-7-96


Addendum to Offer Letter dated October 3, 1996


SEVERANCE AGREEMENT

If  Avid  voluntarily  terminates  your  employment  without  Cause,  or if  you
voluntarily  terminate your  employment for Good Reason,  (i) your initial stock
option grant shall become vested and  exercisable to the extent that such option
would have become  vested and  exercisable  if you had remained in the employ of
Avid for an additional  twelve months,  and such options may be exercised  until
the end of the period during which you are receiving  severance  payments  under
this Agreement, and (ii) Avid shall pay you, in equal semi-monthly installments,
a severance  amount equal to your annual base salary at the time of termination;
PROVIDED  that if  such  termination  occurs  prior  to the  end of your  second
anniversary of the commencement of your employment,  Avid shall also pay to you,
during the second  12-month  period  following  termination,  on a  semi-monthly
basis,  the amount by which your monthly base salary at the time of  termination
exceeds your monthly compensation from your new employer.  During such severance
period (12 or 24 months as applicable), you shall be entitled to continuation of
health insurance and other fringe benefits,  as permissible per plan provisions,
until you find other employment.  "Cause" shall mean willful  misconduct,  gross
negligence or any crime  involving moral  turpitude.  "Good Reason" shall mean a
significant  diminution in your duties or responsibilities or any acquisition of
Avid that results in your no longer  serving as VP of Sales and  Marketing of an
independent public company.




<TABLE> <S> <C>


<PAGE>
<ARTICLE>                     5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET ON THE FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 
30, 1996 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME AS FILED ON FORM
10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>                                   1000
       
<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                              DEC-31-1996
<PERIOD-START>                                 JAN-01-1996
<PERIOD-END>                                   SEP-30-1996
<CASH>                                         72,986
<SECURITIES>                                   2,663
<RECEIVABLES>                                  88,621
<ALLOWANCES>                                   5,058
<INVENTORY>                                    51,667
<CURRENT-ASSETS>                               243,855
<PP&E>                                         98,199
<DEPRECIATION>                                 45,176
<TOTAL-ASSETS>                                 299,728
<CURRENT-LIABILITIES>                          80,559
<BONDS>                                        0
<PREFERRED-MANDATORY>                          0
<PREFERRED>                                    0
<COMMON>                                       213
<OTHER-SE>                                     217,455
<TOTAL-LIABILITY-AND-EQUITY>                   299,728
<SALES>                                        114,664
<TOTAL-REVENUES>                               114,664
<CGS>                                          60,670
<TOTAL-COSTS>                                  60,670
<OTHER-EXPENSES>                               64,439
<LOSS-PROVISION>                               (10,445)
<INTEREST-EXPENSE>                             523
<INCOME-PRETAX>                                (9,922)
<INCOME-TAX>                                   (3,164)
<INCOME-CONTINUING>                            (6,758)
<DISCONTINUED>                                 0
<EXTRAORDINARY>                                0
<CHANGES>                                      0
<NET-INCOME>                                   (6,758)
<EPS-PRIMARY>                                  (0.32)
<EPS-DILUTED>                                  (0.32)
        


</TABLE>