DATAWATCH CORP
INCENTIVE STOCK OPTION AGREEMENT
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>2
<FILENAME>exhibit10-2_13033.txt
<DESCRIPTION>INCENTIVE STOCK OPTION AGREEMENT
<TEXT>
                                                                    EXHIBIT 10.2
                                                                    ------------

                              DATAWATCH CORPORATION

                    FORM OF INCENTIVE STOCK OPTION AGREEMENT

         Datawatch Corporation, a Delaware corporation (the "Company"), hereby
grants as of _________ to ________ (the "Employee"), an option to purchase a
maximum of _____ shares (the "Option Shares") of its Common Stock, $.01 par
value ("Common Stock"), at the price of $_______ per share, on the following
terms and conditions:

         1.  GRANT UNDER 1996 STOCK PLAN. This option is granted pursuant to
and is governed by the Company's 1996 Stock Plan (the "Plan") and, unless the
context otherwise requires, terms used herein shall have the same meaning as in
the Plan. Determinations made in connection with this option pursuant to the
Plan shall be governed by the Plan as it exists on this date.

         2.  GRANT AS INCENTIVE STOCK OPTION; OTHER OPTIONS. This option is
intended to qualify as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). This option is in
addition to any other options heretofore or hereafter granted to the Employee by
the Company or any Related Corporation (as defined in the Plan), but a duplicate
original of this instrument shall not effect the grant of another option.

         3.  VESTING OF OPTION IF EMPLOYMENT CONTINUES. If the Employee has
continued to be employed by the Company or any Related Corporation on the
following dates, the Employee may exercise this option for the number of shares
of Common Stock set opposite the applicable date:

         Prior to _________                  -0- shares


         On _________ and at the end     -   An additional ___
         of each three-month period          shares (or such number of shares at
         thereafter                          the end of the last three month
                                             period so that the total does not
                                             exceed  ______ shares.



Notwithstanding the foregoing, in accordance with and subject to the provisions
of the Plan, the Committee may, in its discretion, accelerate the date that any
installment of this Option becomes exercisable. The foregoing rights are
cumulative and (subject to Sections 4 or 5 hereof if the Employee ceases to be
employed by the Company and all Related Corporations) may be exercised on or
before the date which is ten years from the date this option is granted.
<PAGE>
                                       -2-


4.        TERMINATION OF EMPLOYMENT.

               (A) TERMINATION OTHER THAN FOR CAUSE. If the Employee ceases to
          be employed by the Company and all Related Corporations, other than by
          reason of death or disability as defined in Section 5 or termination
          for Cause as defined in Section 4(c), no further installments of this
          option shall become exercisable, and this option shall terminate (and
          may no longer be exercised) after the passage of three months from the
          Employee's last day of employment, but in no event later than the
          scheduled expiration date. In such a case, the Employee's only rights
          hereunder shall be those which are properly exercised before the
          termination of this option.

               (B) TERMINATION FOR CAUSE. If the employment of the Employee is
          terminated for Cause (as defined in Section 4(c)), this option shall
          terminate upon the Employee's receipt of written notice of such
          termination and shall thereafter not be exercisable to any extent
          whatsoever.

               (C) DEFINITION OF CAUSE. "Cause" shall mean conduct involving one
          or more of the following: (i) the substantial and continuing failure
          of the Employee, after notice thereof, to render services to the
          Company or Related Corporation in accordance with the terms or
          requirements of his or her employment; (ii) disloyalty, gross
          negligence, willful misconduct, dishonesty or breach of fiduciary duty
          to the Company or Related Corporation; (iii) the commission of an act
          of embezzlement or fraud; (iv) deliberate disregard of the rules or
          policies of the Company or Related Corporation which results in direct
          or indirect loss, damage or injury to the Company or Related
          Corporation; (v) the unauthorized disclosure of any trade secret or
          confidential information of the Company or Related Corporation; or
          (vi) the commission of an act which constitutes unfair competition
          with the Company or Related Corporation or which induces any customer
          or supplier to breach a contract with the Company or Related
          Corporation.

5.       DEATH; DISABILITY.

               (A) DEATH. If the Employee dies while in the employ of the
          Company or any Related Corporation, this option may be exercised, to
          the extent otherwise exercisable on the date of his or her death, by
          the Employee's estate, personal representative or beneficiary to whom
          this option has been assigned pursuant to Section 9, at any time
          within 180 days after the date of death, but not later than the
          scheduled expiration date.

               (B) DISABILITY. If the Employee ceases to be employed by the
          Company and all Related Corporations by reason of his or her
          disability (as defined in the Plan), this option may be exercised, to
          the extent otherwise exercisable on the date of the termination of his
          or her employment, at any time within 180 days after such termination,
          but not later than the scheduled expiration date.
<PAGE>
                                       -3-

               (C) EFFECT OF TERMINATION. At the expiration of the 180-day
          period provided in paragraphs (a) or (b) of this Section 5 or the
          scheduled expiration date, whichever is the earlier, this option shall
          terminate (and shall no longer be exercisable) and the only rights
          hereunder shall be those as to which the option was properly exercised
          before such termination.

6.        PARTIAL EXERCISE. This option may be exercised in part at any time
and from time to time within the above limits, except that this option may not
be exercised for a fraction of a share unless such exercise is with respect to
the final installment of stock subject to this option and cash in lieu of a
fractional share must be paid, in accordance with Paragraph 13(G) of the Plan,
to permit the Employee to exercise completely such final installment. Any
fractional share with respect to which an installment of this option cannot be
exercised because of the limitation contained in the preceding sentence shall
remain subject to this option and shall be available for later purchase by the
Employee in accordance with the terms hereof.

7.        PAYMENT OF PRICE. (a) The option price shall be paid in the following
manner:

               (i) in cash or by check;

               (ii) subject to Section 7(b) below, by delivery of shares of the
          Company's Common Stock having a fair market value (as determined by
          the Committee) equal as of the date of exercise to the option price;

               (iii) by delivery of an assignment satisfactory in form and
          substance to the Company of a sufficient amount of the proceeds from
          the sale of the Option Shares and an instruction to the broker or
          selling agent to pay that amount to the Company; or

               (iv) by any combination of the foregoing.

               (B) LIMITATIONS ON PAYMENT BY DELIVERY OF COMMON STOCK. If the
          Employee delivers Common Stock held by the Employee ("Old Stock") to
          the Company in full or partial payment of the option price, and the
          Old Stock so delivered is subject to restrictions or limitations
          imposed by agreement between the Employee and the Company, an
          equivalent number of Option Shares shall be subject to all
          restrictions and limitations applicable to the Old Stock to the extent
          that the Employee paid for the Option Shares by delivery of Old Stock,
          in addition to any restrictions or limitations imposed by this
          Agreement. Notwithstanding the foregoing, the Employee may not pay any
          part of the exercise price hereof by transferring Common Stock to the
          Company unless such Common Stock has been owned by the Employee free
          of any substantial risk of forfeiture for at least six months.
<PAGE>
                                       -4-


               (C) PERMITTED PAYMENT BY RECOURSE NOTE. In addition, if this
          paragraph is initialed below by the person signing this Agreement on
          behalf of the Company, the option price may be paid by delivery of the
          Employee's three-year personal recourse promissory note bearing
          interest payable not less than annually at the applicable Federal
          rate, as defined in Section 1274(d) of the Code.

                                                     ----------
                                                     (initials)

8.        METHOD OF EXERCISING OPTION. Subject to the terms and conditions of
this Agreement, this option may be exercised by written notice to the Company at
its principal executive office, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this option and the
number of Option Shares for which it is being exercised and shall be signed by
the person or persons so exercising this option. Such notice shall be
accompanied by payment of the full purchase price of such shares, and the
Company shall deliver a certificate or certificates representing such shares as
soon as practicable after the notice shall be received. Such certificate or
certificates shall be registered in the name of the person or persons so
exercising this option (or, if this option shall be exercised by the Employee
and if the Employee shall so request in the notice exercising this option, shall
be registered in the name of the Employee and another person jointly, with right
of survivorship). In the event this option shall be exercised, pursuant to
Section 5 hereof, by any person or persons other than the Employee, such notice
shall be accompanied by appropriate proof of the right of such person or persons
to exercise this option.

9.        OPTION NOT TRANSFERABLE. This option is not transferable or assignable
except by will or by the laws of descent and distribution. During the Employee's
lifetime only the Employee can exercise this option.

10.       NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this
option imposes no obligation on the Employee to exercise it.

11.       NO OBLIGATION TO CONTINUE EMPLOYMENT. Neither the Plan, this
Agreement, nor the grant of this option imposes any obligation on the Company or
any Related Corporation to continue the Employee in employment.

12.       NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Employee shall have no
rights as a stockholder with respect to the Option Shares until such time as the
Employee has exercised this option by delivering a notice of exercise and has
paid in full the purchase price for the shares so exercised in accordance with
Section 8. Except as is expressly provided in the Plan with respect to certain
changes in the capitalization of the Company, no adjustment shall be made for
dividends or similar rights for which the record date is prior to such date of
exercise.

13.       CAPITAL CHANGES AND BUSINESS SUCCESSIONS. The Plan contains provisions
covering the treatment of options in a number of contingencies such as stock
splits and mergers. Provisions in the Plan for adjustment with respect to stock
subject to options and the related provisions with respect to successors to the
business of the Company are hereby made applicable hereunder and are
incorporated herein by reference.

14.       EARLY DISPOSITION. The Employee agrees to notify the Company in
writing immediately after the Employee transfers any Option Shares, if such
transfer occurs on or before the later of (a) the date two years after the date
of this Agreement or (b) the date one year after the date the Employee acquired
such Option Shares. The Employee also agrees to provide the Company with any
information concerning any such transfer required by the Company for tax
purposes.

15.       WITHHOLDING TAXES. If the Company or any Related Corporation in its
discretion determines that it is obligated to withhold any tax in connection
with the exercise of this option, or in connection with the transfer of, or the
lapse of restrictions on, any Common Stock or other property acquired pursuant
to this option, the Employee hereby agrees that the Company or any Related
Corporation may withhold from the Employee's wages or other remuneration the
appropriate amount of tax. At the discretion of the Company or Related
Corporation, the amount required to be withheld may be withheld in cash from
such wages or other remuneration or in kind from the Common Stock or other
property otherwise deliverable to the Employee on exercise of this option. The
Employee further agrees that, if the Company or any Related Corporation does not
withhold an amount from the Employee's wages or other remuneration sufficient to
satisfy the withholding obligation of the Company or Related Corporation, the
Employee will make reimbursement on demand, in cash, for the amount
underwithheld.

16.       PROVISION OF DOCUMENTATION TO EMPLOYEE. By signing this Agreement the
Employee acknowledges receipt of a copy of this Agreement and a copy of the
Plan.

17.       MISCELLANEOUS.

               (A) NOTICES. All notices hereunder shall be in writing and shall
          be deemed given when sent by certified or registered mail, postage
          prepaid, return receipt requested, to the address set forth below. The
          addresses for such notices may be changed from time to time by written
          notice given in the manner provided for herein.

               (B) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes
          the entire agreement between the parties relative to the subject
          matter hereof, and supersedes all proposals, written or oral, and all
          other communications between the parties relating to the subject
          matter of this Agreement. This Agreement may be modified, amended or
          rescinded only by a written agreement executed by both parties.

               (C) SEVERABILITY. The invalidity, illegality or unenforceability
          of any provision of this Agreement shall in no way affect the
          validity, legality or enforceability of any other provision.

               (D) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
          and inure to the benefit of the parties hereto and their respective
          successors and assigns, subject to the limitations set forth in
          Section 9 hereof.

               (E) GOVERNING LAW. This Agreement shall be governed by and
          interpreted in accordance with the laws of the Commonwealth of
          Massachusetts, without giving effect to the principles of the
          conflicts of laws thereof.

          IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.



                                        DATAWATCH CORPORATION
                                        175 Cabot Street
                                        Suite 503
                                        Lowell, MA  01854


                                        By: ______________________________
                                            Robert W. Hagger
                                            President and CEO




                                        By: Employee

                                            ___________________________


                                            ___________________________
                                            Street Address

                                            ___________________________
                                            City    State      Zip Code

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</DOCUMENT>
