**Exhibit10.26**

**DATAWATCH CORPORATION**

**Non-Qualified Stock OptionAgreement**

Datawatch Corporation, a Delaware corporation (the “Company”),hereby grants as of **[Date]**to [**Director]** (the “Optionee”), an option to purchase a maximumof **[# of shares]** shares (the “OptionShares”) of its Common Stock, $.01 par value (“Common Stock”), at theprice of **[Price]** per share,on the following terms and conditions:

**1.**                                      **Grant Under 2006 EquityCompensation and Incentive Plan****.**  This option is granted pursuant to and isgoverned by the Company’s 2006 Equity Compensation and Incentive Plan (the “Plan”)and, unless the context otherwise requires, terms used herein shall have thesame meaning as in the Plan. Determinations made in connection with this option pursuant to the Planshall be governed by the Plan as it exists on this date.

**2.**                                      **Grant as Non-Qualified StockOption; Other Options****.** This option shall be treated as aNon-Qualified Stock Option (rather than an incentive stock option underSection 422 of the Internal Revenue Code of 1986, as amended (the “Code”)).  This option is in addition to any otheroptions heretofore or hereafter granted to the Optionee by the Company or anyRelated Corporation (as defined in the Plan), but a duplicate original of thisinstrument shall not effect the grant of another option.

**3.**                                      **Extent of Option if BusinessRelationship Continues****.** If the Optionee has continued to serve theCompany or any Related Corporation in the capacity of an employee, officer,director or consultant (such service is described herein as maintaining orbeing involved in a “Business Relationship” with the Company) on the followingdates, the Optionee may exercise this option for the number of shares of CommonStock set opposite the applicable date:
| Prior to **[Date]**                                                    |   | -      |   | - 0 - shares                                                                                                                                                                          |
|------------------------------------------------------------------------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                   |   |   |   |                                                                                                                                                                                  |
| On **[Date]** and at   the end of each three month   period thereafter |   | -      |   | an additional **[  ]**  shares (or such   smaller number of shares at the end of   the last three month period so that the   total does not exceed [# **of shares**]shares) |

 

In accordance with the foregoing schedule, a total of **[# of shares]** shares shall be vested andexercisable on the third anniversary of **[Date]**.  Notwithstanding the foregoing, in accordancewith and subject to the provisions of the Plan, the Committee may, in itsdiscretion, accelerate the date that any installment of this Option becomesexercisable.  The foregoing rights arecumulative and, while the Optionee continues to maintain a Business Relationshipwith the Company, may be exercised on or before the date which is seven yearsfrom the date this option is granted. All the foregoing rights are subject to Sections 4 and 5, asappropriate, if the Optionee ceases to maintain a Business Relationship withthe Company.

**4.****                                     ****Termination of BusinessRelationship****.**  Ifthe Optionee ceases to maintain a Business Relationship with the Company, otherthan by reason of death or disability as defined in Section 5, no furtherinstallments of this option shall become exercisable, and this option shallterminate (and may no longer be exercised) (i) after the passage of twelvemonths from the date the Business Relationship ceases, but in no event laterthan the scheduled expiration date, if the Optionee has been involved in aBusiness Relationship with the Company as a Director on the Company’s Board ofDirectors for less than five years or (ii) after the passage oftwenty-four months from the date the Business Relationship ceases, but in noevent later than the scheduled expiration date, if the Optionee has beeninvolved in a Business Relationship with the Company as a Director on 

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the Company’s Board of Directors for five years or more.  In such a case, the Optionee’s only rightshereunder shall be those which are properly exercised before the termination ofthis option.

**5.****                                     ****Death; Disability****.**  Ifthe Optionee dies while involved in a Business Relationship with the Company,this option may be exercised, to the extent of the number of shares withrespect to which the Optionee could have exercised it on the date of his or herdeath, by his or her estate, personal representative or beneficiary to whomthis option has been assigned pursuant to Section 9, at any time within180 days after the date of death, but not later than the scheduled expirationdate.  If the Optionee’s BusinessRelationship with the Company is terminated by reason of his or her disability(as defined in the Plan), this option may be exercised, to the extent of thenumber of shares with respect to which the Optionee could have exercised it onthe date the Business Relationship was terminated, at any time within 180 daysafter the date of such termination, but not later than the scheduled expirationdate.  At the expiration of such 180-dayperiod or the scheduled expiration date, whichever is the earlier, this optionshall terminate and the only the rights hereunder shall be those as to whichthe option was properly exercised before such termination.

**6.****                                     ****Partial Exercise****. **This option may beexercised 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 unlesssuch exercise is with respect to the final installment of stock subject to thisoption and cash in lieu of a fractional share must be paid, in accordance with Paragraph13(G) of the Plan, to permit the Optionee to exercise completely such finalinstallment.  Any fractional share withrespect to which an installment of this option cannot be exercised because ofthe limitation contained in the preceding sentence shall remain subject to thisoption and shall be available for later purchase by the Optionee in accordancewith the terms hereof.

**7.**                                      **Payment of Price****. (a) **The optionprice shall be paid in the following manner:

(i)                                     in United States dollars in cash or by check;

(ii)                                  subject to Section 7(b) below, bydelivery of shares of the Company’s Common Stock having a fair market value (asdetermined by the Committee) as of the date of the exercise equal to the cashexercise price of this option;

(iii)                               by delivery of an assignment satisfactory inform****and substance to the Company of asufficient amount of the proceeds from the sale of the Option Shares and aninstruction 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 byDelivery of Common Stock****.**  Ifthe Optionee delivers Common Stock held by the Optionee (“Old Stock”) to theCompany in full or partial payment of the option price, and the Old Stock sodelivered is subject to restrictions or limitations imposed by agreementbetween the Optionee and the Company, an equivalent number of Option Sharesshall be subject to all restrictions and limitations applicable to the OldStock to the extent that the Optionee paid for the Option Shares by delivery ofOld Stock, in addition to any restrictions or limitations imposed by thisAgreement.  Notwithstanding theforegoing, the Optionee may not pay any part of the exercise price hereof bytransferring Common Stock to the Company unless such Common Stock has beenowned by the Optionee free of any substantial risk of forfeiture for at leastsix months.

**8.**                                      **Method of Exercising Option****. **Subject to the termsand conditions of this Agreement, this option may be exercised by writtennotice to the Company at its principal executive office,  or to such transfer agent as the Companyshall designate.  Such notice shall statethe election to exercise this option and the number of Option Shares for whichit is being exercised and shall be signed by the person or persons soexercising this option.  Such noticeshall be accompanied by payment of the full purchase price of such shares, andthe Company shall deliver a certificate or certificates representing suchshares as soon as practicable after the notice shall be received.  Such certificate or certificates shall beregistered in the name of the person or persons so exercising this 

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option (or, if this option shall be exercised by the Optionee and ifthe Optionee shall so request in the notice exercising this option, shall beregistered in the name of the Optionee and another person jointly, with rightof survivorship). In the event this option shall be exercised, pursuant toSection 5 hereof, by any person or persons other than the Optionee, suchnotice shall be accompanied by appropriate proof of the right of such person orpersons to exercise this option.

**9.**                                      **Option Not Transferable****. **This option is nottransferable or assignable except by will or by the laws of descent anddistribution.  During the Optionee’s lifetimeonly the Optionee can exercise this option.

**10.**                               **No Obligation to Exercise Option****. **The grant andacceptance of this option imposes no obligation on the Optionee to exercise it.

**11.**                               **No Obligation to ContinueBusiness Relationship****. **Neither the Plan, this Agreement, nor the grant of this option imposesany obligation on the Company or any Related Corporation to continue tomaintain a Business Relationship with the Optionee.

**12.**                               **No Rights as Stockholder untilExercise****. **The Optionee shall have no rights as a stockholder with respect to theOption Shares until such time as the Optionee has exercised this option bydelivering a notice of exercise and has paid in full the purchase price for theshares so exercised in accordance with Section 8.  Except as is expressly provided in the Planwith respect to certain changes in the capitalization of the Company, noadjustment shall be made for dividends or similar rights for which the recorddate is prior to such date of exercise.

**13.**                               **Capital Changes and BusinessSuccessions****. **The Plan contains provisions covering the treatment of options in anumber of contingencies such as stock splits and mergers.  Provisions in the Plan for adjustment withrespect to stock subject to options and the related provisions with respect tosuccessors to the business of the Company are hereby made applicable hereunderand are incorporated herein by reference.

**14.**                               **Withholding Taxes****.**  Ifthe Company or any Related Corporation in its discretion determines that it isobligated 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, anyCommon Stock or other property acquired pursuant to this option, the Optioneehereby agrees that the Company or any Related Corporation may withhold from theOptionee’s wages or other remuneration the appropriate amount of tax.  At the discretion of the Company or RelatedCorporation, the amount required to be withheld may be withheld in cash fromsuch wages or other remuneration or in kind from the Common Stock or otherproperty otherwise deliverable to the Optionee on exercise of this option.  The Optionee further agrees that, if theCompany or any Related Corporation does not withhold an amount from theOptionee’s wages or other remuneration sufficient to satisfy the withholdingobligation of the Company or Related Corporation, the Optionee will makereimbursement on demand, in cash, for the amount underwithheld.

**15.**                               **Provision****of****Documentation****to****Optionee****.**  Bysigning this Agreement the Optionee acknowledges receipt of a copy of thisAgreement and a copy of the Plan.

**16.****                              ****Acceleration of Vesting uponChange in Control****.** Notwithstanding Section 3 hereof, in the event of a Change inControl of the Company while this option is in effect, this option shall,immediately prior to the consummation of such Change in Control, become fullyvested and all unexercised options shall be exercisable by the Optionee; provided,however, that the Board, in its sole discretion, may require that theOptionee’s rights under this Section 16 shall be conditioned on approval by thestockholders of the Company in accordance with Section 280G(b)5(B) of the Codeand regulations thereunder.  For purposesof this Agreement, a “Change in Control” means the occurrence of any of thefollowing events:

**(a)**                  The Company is merged or consolidated orreorganized into or with another corporation or other legal person, and as aresult of such merger, consolidation or reorganization less than a majority ofthe combined voting power of the then-outstanding securities of such surviving,resulting or reorganized corporation or person immediately after suchtransaction is held in the aggregate by the holders of the then-outstanding

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securities entitled to vote generally in the election of directors ofthe Company (“Voting Stock”) immediately prior to such transaction;

**(b)**                  The Company sells or otherwise transfers allor substantially all of its assets to any other corporation or other legalperson, and as a result of such sale or transfer less than a majority of thecombined voting power of the then-outstanding securities of such corporation orperson immediately after such sale or transfer is held in the aggregate by theholders of Voting Stock of the Company immediately prior to such sale ortransfer;

**(c)**                  There is a report filed on Schedule 13Dor Schedule 14D-1 (or any successor schedule, form or report), each aspromulgated pursuant to the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), disclosing that any “person” (as such term is used inSection 13(d)(3) or Section 14(d)(2) of the Exchange Act) has becomethe “beneficial owner” (as such term is used in Rule 13d-3 under the ExchangeAct) of securities representing 35% or more of the Voting Stock of the Company;

**(d)**                  The Company files a report or proxy statementwith the Securities and Exchange Commission pursuant to the Exchange Actdisclosing in response to Form 8-K or Schedule 14A (or any successorschedule, form or report or item therein) that a change in control of theCompany has occurred; or

**(e)**                  If during any period of two consecutiveyears, individuals who at the beginning of any such period constitute the Boardcease for any reason to constitute at least a majority thereof, unless theelection, or the nomination for election by the Company’s stockholders, of eachdirector of the Company first elected during such period was approved by a voteof at least a majority of the directors then still in office who were directorsof the Company at the beginning of any such period;

provided, however,that a “Change in Control” shall not be deemed to have occurred for purposes ofthis Agreement solely because (x) the Company, (y) an entity in whichthe Company directly or indirectly beneficially owns 50% or more of the votingsecurities, or (z) any Company-sponsored employee stock ownership plan orany other employee benefit plan of the Company, either files or becomesobligated to file a report or a proxy statement under or in response toSchedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (orany successor schedule, form or report) under the Exchange Act, disclosingbeneficial ownership by it of shares of Voting Stock or because the Companyreports that a change in control of the Company has occurred by reason of suchbeneficial ownership.

**17.**                               **Miscellaneous****.**

**(a)**                                  **Notices****.**  Allnotices hereunder shall be in writing and shall be deemed given when sent bycertified or registered mail, postage prepaid, return receipt requested, to theaddress set forth below.  The addressesfor such notices may be changed from time to time by written notice given inthe manner provided for herein.

**(b)****                                 ****Entire Agreement; Modification****. **This Agreementconstitutes the entire agreement between the parties relative to the subjectmatter hereof, and supersedes all proposals, written or oral, and all othercommunications between the parties relating to the subject matter of thisAgreement.  This Agreement may bemodified, amended or rescinded only by a written agreement executed by bothparties.

**(c)**                                  **Severability****. **The invalidity,illegality or unenforceability of any provision of this Agreement shall in noway affect the validity, legality or enforceability of any other provision.

**(d)****                                 ****Successors and Assigns****. **This Agreement shallbe binding upon and inure to the benefit of the parties hereto and theirrespective successors and assigns, subject to the limitations set forth inSection 9 hereof.

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**(e)**                                  **Governing Law****.**  ThisAgreement shall be governed by and interpreted in accordance with the laws ofthe Commonwealth of Massachusetts**,** withoutgiving effect to the principles of the conflicts of laws thereof.

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IN WITNESS WHEREOF, the Company and the Optioneehave caused this instrument to be executed as of the date first above written.
|            | **COMPANY:**          |
|------------|-----------------------|
|       |                  |
|       | DATAWATCH CORPORATION |
|       | Quorum Office Park    |
|       | 271 Mill Road         |
|       | Chelmsford, MA 01824  |
|       |                  |
|       |                  |
|       | By:                   |   |   |
|       |                  | Robert W. Hagger, |
|       |                  | President and Chief Executive Officer |
|       |                  |
|       |                  |
| ** ** | **OPTIONEE:**         |
|       |                  |
|       |                  |
|       |                  |   |
| ** ** | **[Name]**            |
|       |                  |
|       |                  |   |
|       | Street Address        |
|       |                  |
|       |                  |   |
|       | City                  | State | Zip Code |
|            |                       |  |  |  |  |  |

 

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