January 31, 2002

VIA HAND DELIVERY
-----------------


Ms. Linda Lammi
                 
N. Reading, MA  01864

            Re: Severance Agreement and Release

Dear Linda:

            This letter summarizes the terms of your separation from employment
with Datawatch Corporation (the "Company") and the severance agreement and
release between you and the Company (the "Agreement"). The purpose of this
Agreement is to establish an amicable arrangement for ending your employment
relationship, to release the Company from any claims and to permit you to
receive severance pay and related benefits. With these understandings and in
exchange for the promises of you and the Company as set forth below, you and the
Company agree as follows.

1.          EMPLOYMENT STATUS AND FINAL PAYMENTS:

            (a) Your termination from employment with the Company will be
effective as of January 31, 2002 (the "Termination Date"). As of the Termination
Date, your salary will cease, and any entitlement you have or might have under a
Company-provided benefit plan, program, contract or practice will terminate,
except as required by federal or state law, or as otherwise described below.

            (b) You hereby acknowledge that as of the Termination Date, you have
been paid all wages earned but unpaid and have been paid for all vacation time
accrued but unused as of the Termination Date.

            (c) The Termination Date shall be the date of the "qualifying event"
under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and
the Company will present you with information on COBRA under separate cover.

2.          CONSIDERATION: In exchange for, and in consideration of, your full
execution of this Agreement and after the seven-day revocation  period set forth
in Section 11 has expired, the Company agrees as follows:

            (a) Severance Pay: The Company will pay you severance payments for a
period of six (6) months following the Termination Date at your current gross
semi-monthly salary
<PAGE>

rate of Five Thousand Six Hundred and Twenty-five Dollars ($5,625) in accordance
with the Company's standard payroll practices less applicable taxes.

            (b) Health Insurance: If you elect to continue medical and dental
insurance coverage after the Termination Date in accordance with the provisions
of COBRA, the Company shall pay your monthly premium payments until the earlier
of: (i) July 31, 2002; (ii) the date you obtain other employment; or (iii) the
date your COBRA continuation coverage would terminate in accordance with the
provisions of COBRA. Thereafter, medical and dental insurance coverage shall be
continued only to the extent required by COBRA and only to the extent you timely
pay the premium payments yourself.

            (c) Payments: The payments set forth in this Section 2 shall be
subject to all applicable federal, state and/or local withholding and/or payroll
taxes.

3.          STOCK OPTION: As set forth in the Datawatch Corporation Stock Option
and Incentive Plan and your Stock Option Agreement with the Company ("Stock
Option Agreement"), your options to purchase stock in the Company will cease
vesting on the Termination Date. All of your rights and obligations to stock
options, including without limitation vesting, exercise and expiration, are
governed by the terms and conditions of the Datawatch Corporation Stock Plan and
the Stock Option Agreement.

4.          RELEASE: In exchange for the amounts described in Section 2, which
are in addition to anything of value to which you are entitled to receive, and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, you and your representatives, agents, estate, heirs, successors
and assigns, absolutely and unconditionally hereby release, remise, discharge,
indemnify and hold harmless the Company Releasees (defined to include the
Company and/or any of its parents, subsidiaries or affiliates, predecessors,
successors or assigns, and its and their respective current and/or former
partners, directors, shareholders/stockholders, officers, employees, attorneys
and/or agents, all both individually and in their official capacities), from any
and all actions or causes of action, suits, claims, complaints, contracts,
liabilities, agreements, promises, contracts, torts, debts, damages,
controversies, judgments, rights and demands, whether existing or contingent,
known or unknown, suspected or unsuspected, which arise out of your employment
with, change in employment status with, and/or separation of employment from,
the Company. This release is intended by you to be all encompassing and to act
as a full and total release of any claims, whether specifically enumerated
herein or not, that you may have or have had against the Company Releasees
arising from conduct occurring up to and through the date of this Agreement,
including, but not limited to, any claims arising from any federal, state or
local law, regulation or constitution dealing with either employment, employment
benefits or employment discrimination such as those laws or regulations
concerning discrimination on the basis of race, color, creed, religion, age,
sex, sex harassment, sexual orientation, national origin, ancestry, genetic
carrier status, handicap or disability, veteran status, any military service or
application for military service, or any other category protected under federal
or state law; any contract, whether oral or written, express or implied; any
tort; any claim for equity or other benefits; or any other statutory and/or
common law claim.

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<PAGE>

5.          ACCORD AND SATISFACTION: The amounts set forth above in Sections 1
and 2 shall be complete and unconditional payment, settlement, accord and/or
satisfaction with respect to all obligations and liabilities of the Company
Releasees to you, including, without limitation, all claims for back wages,
salary, vacation pay, draws, incentive pay, bonuses, stock and stock options,
commissions, severance pay, reimbursement of expenses, any and all other forms
of compensation or benefits, attorney's fees, or other costs or sums.

6.          WAIVER OF RIGHTS AND CLAIMS UNDER THE AGE DISCRIMINATION
            IN EMPLOYMENT ACT OF 1967:

            Since you are 40 years of age or older, you are being informed that
you have or may have specific rights and/or claims under the Age Discrimination
in Employment Act of 1967 (ADEA) and you agree that:

            (a) in consideration for the amounts described in Section 2 of this
Agreement, which you are not otherwise entitled to receive, you specifically and
voluntarily waive such rights and/or claims under the ADEA you might have
against the Company Releasees to the extent such rights and/or claims arose
prior to the date this Agreement was executed;

            (b) you understand that rights or claims under the ADEA which may
arise after the date this Agreement is executed are not waived by you;

            (c) you are advised to consider the terms of this Agreement
carefully and consult with or seek advice from an attorney of your choice or any
other person of your choosing prior to executing this Agreement;

            (d) you have carefully read and fully understand all of the
provisions of this Agreement, and you knowingly and voluntarily agree to all of
the terms set forth in this Agreement; and

            (e) in entering into this Agreement you are not relying on any
representation, promise or inducement made by the Company or its attorneys with
the exception of those promises described in this document.

7.          PERIOD FOR REVIEW AND CONSIDERATION OF AGREEMENT:

            (a) You acknowledge that you were informed and understand that you
have twenty-one days to review this Agreement and consider its terms before
signing it.

            (b) The 21-day review period will not be affected or extended by any
revisions, whether material or immaterial, that might be made to this Agreement.

8.          COMPANY FILES, DOCUMENTS AND OTHER PROPERTY: You agree that on or
before the Termination Date you will return to the Company all Company property
and materials, including but not limited to, (if applicable) personal computers,
laptops, fax machines,

                                       3
<PAGE>

scanners, copiers, cellular phones, Company credit cards and telephone charge
cards, manuals, building keys and passes, courtesy parking passes, diskettes,
intangible information stored on diskettes, software programs and data compiled
with the use of those programs, software passwords or codes, tangible copies of
trade secrets and confidential information, sales forecasts, names and addresses
of Company customers and potential customers, customer lists, customer contacts,
sales information, sales forecasts, memoranda, sales brochures, business or
marketing plans, reports, projections, and any and all other information or
property previously or currently held or used by you that is or was related to
your employment with the Company ("Company Property"). You agree that in the
event that you discover any other Company Property in your possession after the
Termination Date of this Agreement you will immediately return such materials to
the Company.

9.          FUTURE CONDUCT:

            (a) Nondisparagement: You agree not to make disparaging, critical or
otherwise detrimental comments to any person or entity concerning the Company,
its officers, directors or employees; the products, services or programs
provided or to be provided by the Company; the business affairs, operation,
management or the financial condition of the Company; or the circumstances
surrounding your employment and/or separation of employment from the Company.

            (b) Confidentiality of this Agreement: You agree that you shall not
disclose, divulge or publish, directly or indirectly, any information regarding
the substance, terms or existence of this Agreement and/or any discussion or
negotiations relating to this Agreement, to any person or organization other
than your immediate family and accountants or attorneys when such disclosure is
necessary for the accountants or attorneys to render professional services.
Prior to any such disclosure that you may make, you shall secure from your
attorney or accountant their agreement to maintain the confidentiality of such
matters.

            (c) Disclosures: Nothing herein shall prohibit or bar you from
providing truthful testimony in any legal proceeding or in communicating with
any governmental agency or representative or from making any truthful disclosure
required, authorized or permitted under law; provided, however, that in
providing such testimony or making such disclosures or communications, you will
use your best efforts to ensure that this Section is complied with to the
maximum extent possible. Notwithstanding the foregoing, nothing in this
Agreement shall bar or prohibit you from contacting, seeking assistance from or
participating in any proceeding before any federal or state administrative
agency to the extent permitted by applicable federal, state and/or local law.
However, you nevertheless will be prohibited to the fullest extent authorized by
law from obtaining monetary damages in any agency proceeding in which you do so
participate.

10.         REPRESENTATIONS AND GOVERNING LAW:

            (a) This Agreement sets forth the complete and sole agreement
between the parties and supersedes any and all other agreements or
understandings, whether oral or written, except the Proprietary Information and
Inventions Agreement between you and the Company and the Stock Option Agreement,
each of which shall remain in full force and effect in

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<PAGE>

accordance with their respective terms. This Agreement may not be changed,
amended, modified, altered or rescinded except upon the express written consent
of both the President of the Company and you.

            (b) If any provision of this Agreement, or part thereof, is held
invalid, void or voidable as against public policy or otherwise, the invalidity
shall not affect other provisions, or parts thereof, which may be given effect
without the invalid provision or part. To this extent, the provisions and parts
thereof of this Agreement are declared to be severable. Any waiver of any
provision of this Agreement shall not constitute a waiver of any other provision
of this Agreement unless expressly so indicated otherwise. The language of all
parts of this Agreement shall in all cases be construed according to its fair
meaning and not strictly for or against either of the parties.

            (c) This Agreement and any claims arising out of this Agreement (or
any other claims arising out of the relationship between the parties) shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts and shall in all respects be interpreted, enforced and governed
under the internal and domestic laws of Massachusetts, without giving effect to
the principles of conflicts of laws of such state. Any claims or legal actions
by one party against the other shall be commenced and maintained in state or
federal court located in Massachusetts, and you hereby submit to the
jurisdiction and venue of any such court.

            (d) You may not assign any of your rights or delegate any of your
duties under this Agreement. The rights and obligations of the Company shall
inure to the benefit of the Company's successors and assigns.

11.         EFFECTIVE DATE:  After signing this letter, you may revoke this
Agreement for a period of seven (7) days following said execution. The Agreement
shall not become effective or enforceable and no payments will be made until
this revocation period has expired ("Effective Date").

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<PAGE>

            If this letter correctly states the agreement and understanding we
have reached, please indicate your acceptance by countersigning the enclosed
copy and returning it to me.

                                           Very truly yours,

                                           DATAWATCH CORPORATION

                                           /s/ Robert W. Hagger
                                           -------------------------------------
                                           Robert W. Hagger, President



I REPRESENT THAT I HAVE READ THE FOREGOING AGREEMENT, THAT I FULLY UNDERSTAND
THE TERMS AND CONDITIONS OF SUCH AGREEMENT AND THAT I AM KNOWINGLY AND
VOLUNTARILY EXECUTING THE SAME. IN ENTERING INTO THIS AGREEMENT, I DO NOT RELY
ON ANY REPRESENTATION, PROMISE OR INDUCEMENT MADE BY THE COMPANY OR ITS
REPRESENTATIVES WITH THE EXCEPTION OF THE CONSIDERATION DESCRIBED IN THIS
DOCUMENT.


Accepted and Agreed to:

/s/ Linda Lammi
-------------------------------------
LINDA LAMMI

Date:   February 5, 2002
      -------------------------------


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<PAGE>

                  IF YOU DO NOT WISH TO USE THE 21-DAY PERIOD,
                 PLEASE CAREFULLY REVIEW AND SIGN THIS DOCUMENT
                 ----------------------------------------------

            I, Linda Lammi, acknowledge that I was informed and understand that
I have 21-days within which to consider the attached Severance Agreement and
Release, have been advised of my right to consult with an attorney regarding
such Agreement and have considered carefully every provision of the Agreement,
and that after having engaged in those actions, I prefer to and have requested
that I enter into the Agreement prior to the expiration of the 21-day period.


Dated:   February 5, 2002                    /s/ Linda Lammi
      ------------------------            ------------------------------------
Linda Lammi


Dated:   February 5, 2002                    /s/ Carol A. Beauchamp
      ------------------------            ------------------------------------
                                          Witness:  Carol A. Beauchamp




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Source: OneCLE Business Contracts.