sec document

S-3 1 forms304637_09182001.htm sec document

As filed with the Securities and Exchange Commission on September 21, 2001
Registration No. 333-____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM S-3

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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FALCONSTOR SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

77-0216135
----------
(IRS Employer
Identification Number)

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125 Baylis Road
Melville, New York 11747
(631) 777-5188 (Telephone)
(631) 501-7633 (Telecopier)
(Address, Including Zip Code, and Telephone Number of
Registrant's Principal Executive Offices)

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ReiJane Huai
FalconStor Software, Inc.
125 Baylis Road
Melville, New York 11747
(631) 777-5188
(Name, Address, Including Zip Code, and Telephone Number
of Agent for Service)

Copy to:
Steven Wolosky, Esq.
Olshan Grundman Frome Rosenzweig &amp; Wolosky LLP
505 Park Avenue
New York, New York 10022
(212) 753-7200

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Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. / /

If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /

CALCULATION OF REGISTRATION FEE

===========================================================================================================
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Securities to be Registered Registered(1) Per Share Offering Price Fee(4)
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Common Stock, $.001 par value 28,247,984 $7.34(1) $207,340,203 $54,737.81
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===========================================================================================================

(1) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee based upon the closing sales price of the
Company's Common Stock, $.001 par value (the "Common Stock"), as reported
on the Nasdaq National Market on September 17, 2001.

The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a) may determine.

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28,247,984 SHARES OF COMMON STOCK

FALCONSTOR SOFTWARE, INC.

The selling stockholders listed on pages 11 to 13 of this prospectus
are offering and selling up to 28,247,984 shares of our Common Stock. All
proceeds from the sale of the Common Stock under this prospectus will go to the
selling stockholders.

Our Common Stock is listed under the symbol "FALC" on the Nasdaq
National Market. The last reported sale price on the Nasdaq National Market for
our Common Stock on September 17, 2001 was $7.34 per share.

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THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
ON PAGES 5 THROUGH 9 OF THIS PROSPECTUS.

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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. THEY HAVE NOT MADE, NOR WILL THEY MAKE, ANY DETERMINATION AS TO
WHETHER ANYONE SHOULD BUY THESE SECURITIES. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

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The date of this Prospectus is September __, 2001.

TABLE OF CONTENTS

PROSPECTUS SUMMARY.........................................................................................4
RISK FACTORS...............................................................................................5
Failure of the merger to achieve potential benefits could harm our business
and operating results..................................................................................5

We have had limited revenues and a history of losses, and we may not
achieve or maintain profitability......................................................................5

Network Peripherals Inc. may have liabilities and ongoing obligations to certain customers and
suppliers as a result of the winding down of its business. ............................................5

The market for IP-based storage solutions is new and uncertain, and our
business will suffer if it does not develop as we expect...............................................5

If we are unable to develop and manufacture new products that address
additional storage networking infrastructure software market segments,
our operating results may suffer.......................................................................6

Our complex products may have errors or defects that could result in reduced
demand for our products or costly litigation...........................................................6

Through June 30, 2001, we received 49% of our revenues from a one-time
consulting fee and a majority of our future revenues may be derived from OEMs and resellers............6

Our quarterly results may fluctuate significantly, which could cause our stock price to decline........7

The storage networking infrastructure software market is highly
competitive and intense competition could negatively impact our business...............................7

The loss of any of our key personnel could harm our business...........................................7

Our board of directors may selectively release shares of our common stock
received by the former FalconStor, Inc. stockholders from lock-up restrictions.........................8

If we are unable to protect our intellectual property, our business will suffer........................8

Our technology may be subject to infringement claims that could harm our business......................8

We have a significant amount of authorized but unissued preferred stock,
which may affect the likelihood of a change of control in our company..................................8

We have a significant number of outstanding warrants and options, the exercise of which would
dilute the then-existing stockholders' percentage ownership of our common stock........................9

USE OF PROCEEDS............................................................................................9

ADDITIONAL INFORMATION.....................................................................................9
WHERE YOU CAN FIND MORE INFORMATION........................................................................9
SELLING STOCKHOLDERS......................................................................................10
PLAN OF DISTRIBUTION......................................................................................16
LEGAL MATTERS.............................................................................................18
EXPERTS...................................................................................................18
PART II.................................................................................................II-1
SIGNATURES..............................................................................................II-4
POWER OF ATTORNEY.......................................................................................II-4

PROSPECTUS SUMMARY

FALCONSTOR SOFTWARE, INC.

We are a provider of storage networking infrastructure software. Our
open software approach to storage networking enables companies to capture and
manipulate the expanding volume of enterprise data and existing storage
solutions, without rendering those solutions obsolete. By moving the
"intelligence" of storage management from hardware to software, we allow
companies to adopt Fibre Channel technology while maximizing their prior
investments in Ethernet information technology, or IT, infrastructure and taking
full advantage of the ubiquitous connectivity of the industry-standard internet
protocol, or IP. Our software technology can rapidly embrace various
input/output, or I/O, interface, communications standards and innovative storage
services as they are introduced. Our flagship IPStor product began shipping in
May 2001. IPStor is a storage solution that combines industry-standard
connectivity with next-generation network storage services, offering large,
widely-dispersed enterprises a complete storage management solution that
includes all four of the key service categories: universal connectivity
supporting both Fibre Channel and IP/iSCSI-based storage provisioning,
virtualization; storage services such as fail-over, mirroring, replication and
snapshot, and unified storage area network, or SAN, and network-attached
storage, or NAS. Our commitment to open standards and universal connectivity has
been endorsed by industry leaders such as Adaptec, Cisco, Crossroads, Emulex,
Gadzoox, IBM, NEC and QLogic.

CORPORATE HISTORY

Network Peripherals Inc. was incorporated in California in March
1989 and was reincorporated in Delaware in 1994. FalconStor, Inc. was
incorporated in Delaware in February 2000.

On August 22, 2001, we consummated an Agreement and Plan of Merger
and Reorganization between us, FalconStor, Inc., and Empire Acquisition Corp.
whereby the stockholders of FalconStor, Inc. received our common stock in
exchange for the shares or FalconStor capital stock they owned, and our name was
changed from Network Peripherals Inc. to FalconStor Software, Inc. Although we
acquired FalconStor, Inc. as a result of the transaction, FalconStor
stockholders hold a majority of the voting interests in the combined enterprise.
Accordingly, for accounting purposes, the acquisition was a "reverse
acquisition" and FalconStor was the "accounting acquiror." Further, as a result
of Network Peripherals Inc.'s decision to discontinue its NuWave and legacy
business, Network Peripherals Inc. became a non-operating public shell with no
continuing operations, and no intangible assets associated with Network
Peripherals Inc. were purchased by FalconStor, Inc. Accordingly, the transaction
will be accounted for as a recapitalization of FalconStor and recorded based on
the fair value of Network Peripherals Inc.'s net tangible assets acquired by
FalconStor, with no goodwill or other intangible assets being recognized. Costs
incurred by FalconStor directly related to the transaction will be charged to
stockholders' equity. For further information relating to the transaction, see
our proxy statement for special meeting of stockholders held on August 22, 2001
and our Current Report on Form 8-K, dated September 6, 2001.

Our principal executive offices are located at 125 Baylis Road,
Melville, New York 11747. Our telephone number is (631) 777-5188.

RISK FACTORS

AN INVESTMENT IN THE SHARES OFFERED BY THIS PROSPECTUS INVOLVES A
HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS,
AS WELL AS INFORMATION CONTAINED AND INCORPORATED BY REFERENCE IN THIS
PROSPECTUS BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.

FAILURE OF THE MERGER TO ACHIEVE POTENTIAL BENEFITS COULD HARM OUR BUSINESS AND
OPERATING RESULTS.

We expect that the merger will result in potential benefits for us.
Achieving these potential benefits will depend on a number of factors, some of
which include:

o retention of key management, marketing and technical personnel
after the merger;

o our ability to increase our customer base and to increase the
sales of our products; and

o competitive conditions in the storage networking infrastructure
software market.

We cannot assure you that the anticipated benefits will be achieved.
The failure to achieve anticipated benefits could harm our business, financial
condition and operating results.

WE HAVE HAD LIMITED REVENUES AND A HISTORY OF LOSSES, AND WE MAY NOT ACHIEVE OR
MAINTAIN PROFITABILITY.

We were incorporated on February 10, 2000. Due to the early stage of
our product, we have had limited revenues and a history of losses. For the
period from inception (February 10, 2000) through June 30, 2001, we had a gross
loss of $592,169 and a net loss of $9,456,311. We currently have signed
contracts with resellers and original equipment manufacturers, or OEMs, to ship
our products and expect that as a result of these contracts, our revenues will
increase in the future. Our business model depends upon signing agreements with
additional OEM customers, developing a reseller sales channel, and expanding our
direct sales force. Any difficulty in obtaining these OEM and reseller customers
or in attracting qualified sales personnel will negatively impact our financial
performance.

NETWORK PERIPHERALS INC. MAY HAVE LIABILITIES AND ONGOING OBLIGATIONS TO CERTAIN
CUSTOMERS AND SUPPLIERS AS A RESULT OF THE WINDING DOWN OF ITS BUSINESS.

Network Peripherals Inc. had existing agreements with certain
suppliers and customers, which we are in the process of terminating in
connection with the winding down of that business. NPI may have liabilities to
certain existing customers and suppliers as a result of the termination of these
agreements. While we are taking steps to minimize any such potential liability,
we cannot be sure that our efforts to remove all such liability will be
successful.

THE MARKET FOR IP-BASED STORAGE SOLUTIONS IS NEW AND UNCERTAIN, AND OUR BUSINESS
WILL SUFFER IF IT DOES NOT DEVELOP AS WE EXPECT.

The rapid adoption of Internet protocol (IP)-based storage solutions
is critical to our future success. The market for IP-based solutions is still
unproven, making it difficult to predict its potential size or future growth
rate, and there are currently only a handful of companies with IP-based storage
products that are commercially available. Most potential customers have made
substantial investments in their current storage networking infrastructure, and
they may elect to remain with current network architectures or to adopt new
architecture, in limited stages or over extended periods of time. We will need
to convince these potential customers of the benefits of our IP-based storage
products for future storage network infrastructure upgrades or expansions. We
cannot be certain that a viable market for our products will develop or be

sustainable. If this market does not develop, or develops more slowly than we
expect, our business, financial condition and results of operations would be
seriously harmed.

IF WE ARE UNABLE TO DEVELOP AND MANUFACTURE NEW PRODUCTS THAT ADDRESS ADDITIONAL
STORAGE NETWORKING INFRASTRUCTURE SOFTWARE MARKET SEGMENTS, OUR OPERATING
RESULTS MAY SUFFER.

Although our current products are designed for one of the most
significant segments of the storage networking infrastructure software market,
demand may shift to other market segments. Accordingly, we may need to develop
and manufacture new products that address additional storage networking
infrastructure software market segments and emerging technologies to remain
competitive in the data storage software industry. We cannot assure you that we
will successfully qualify new storage networking infrastructure software
products with our customers by meeting customer performance and quality
specifications or quickly achieve high volume production of storage networking
infrastructure software products.

Any failure to address additional market segments could harm our
business, financial condition and operating results.

OUR COMPLEX PRODUCTS MAY HAVE ERRORS OR DEFECTS THAT COULD RESULT IN REDUCED
DEMAND FOR OUR PRODUCTS OR COSTLY LITIGATION.

Our IPStor platform is complex and designed to be deployed in large
and complex networks. Many of our customers will require that our products be
designed to interface with customers' existing networks, each of which may have
different specifications and utilize multiple protocol standards. Because our
products are critical to the networks of our customers, any significant
interruption in their service as a result of defects in our product within our
customers' networks could result in lost profits or damage to our customers.
These problems could cause us to incur significant service and warranty costs,
divert engineering personnel from product development efforts and significantly
impair our ability to maintain existing customer relationships and attract new
customers. In addition, a product liability claim, whether successful or not,
would likely be time consuming and expensive to resolve and would divert
management time and attention. Further, if we are unable to fix the errors or
other problems that may be identified in full deployment, we would likely
experience loss of or delay in revenues and loss of market share and our
business and prospects would suffer.

THROUGH JUNE 30, 2001, WE RECEIVED 49% OF OUR REVENUES FROM A ONE-TIME
CONSULTING FEE AND A MAJORITY OF OUR FUTURE REVENUES MAY BE DERIVED FROM OEMS
AND RESELLERS.

From inception through June 30, 2001, one customer, Depository Trust
Company, accounted for 49% of our revenues. Such revenues related to a one-time
consulting fee, and we do not expect that we will realize significant future
revenues from this customer or from consulting services. Our management expects
that the expansion of the end user base through OEMs and resellers will account
for a significant portion of our revenue. We presently have approximately 43
signed contracts with OEMs and resellers. These contracts are generally
terminable upon 30 to 60 days' notice and OEMs and resellers have a wide variety
of suppliers to choose from and therefore could make substantial demands on the
Company. If we lose a key customer or if any of our key customers reduce their
orders of our products or require us to reduce our prices before we are able to
reduce costs, our business, financial condition and operating results would
suffer.

OUR QUARTERLY RESULTS MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD CAUSE OUR STOCK
PRICE TO DECLINE.

Our future performance will depend on many factors, including:

o the average unit selling price of our products;

o existing or new competitors introducing better products at
competitive prices before we do;

o our ability to manage successfully the complex and difficult
process of qualifying our products with our customers;

o our customers canceling, rescheduling or deferring significant
orders for our products, particularly in anticipation of new
products or enhancements from us or our competitors;

o import or export restrictions on our proprietary technology;
and

o personnel changes.

Many of our expenses are relatively fixed and difficult to reduce or
modify. As a result, the fixed nature of our expenses will magnify any adverse
effect of a decrease in revenue on our operating results.

THE STORAGE NETWORKING INFRASTRUCTURE SOFTWARE MARKET IS HIGHLY COMPETITIVE AND
INTENSE COMPETITION COULD NEGATIVELY IMPACT OUR BUSINESS.

The storage networking infrastructure software market is intensely
competitive even during periods when demand is stable. Our management believes
that we compete primarily with DataCore and StorageApps. Those competitors and
other potential competitors may be able to establish rapidly or expand storage
networking infrastructure software offerings more quickly, adapt to new
technologies and customer requirements faster and take advantage of acquisition
and other opportunities more readily.

Our competitors also may:

o consolidate or establish strategic relationships among
themselves to lower their product costs or to otherwise compete
more effectively against us; or

o bundle their products with other products to increase demand
for their products.

In addition, some OEMs with whom we do business, or hope to do
business, may enter the market directly and rapidly capture market share. If we
fail to compete successfully against current or future competitors, our
business, financial condition and operating results may suffer.

THE LOSS OF ANY OF OUR KEY PERSONNEL COULD HARM OUR BUSINESS.

Our success depends upon the continued contributions of our key
employees, many of whom would be extremely difficult to replace. We do not have
key person life insurance on any of our personnel. Many of our senior management
and a significant number of our other employees have been with us for a short
period of time. Worldwide competition for skilled employees in the storage
networking infrastructure software industry is extremely intense. If we are
unable to retain existing employees or to hire and integrate new employees, our
business, financial condition and operating results could suffer. In addition,
companies whose employees accept positions with competitors often claim that the
competitors have engaged in unfair hiring practices. We may be the subject of
such claims in the future as we seek to hire qualified personnel and could incur
substantial costs defending ourself against those claims.

OUR BOARD OF DIRECTORS MAY SELECTIVELY RELEASE SHARES OF OUR COMMON STOCK
RECEIVED BY THE FORMER FALCONSTOR, INC. STOCKHOLDERS FROM LOCK-UP RESTRICTIONS.

Our board of directors may, in its sole discretion, release any or
all of the shares of our common stock received by the former FalconStor
stockholders from lock-up restrictions at any time with or without notice. Any
release of such shares from lock-up restrictions may be applied to our former
stockholders on a proportionate or selective basis. If the release is
selectively applied, the stockholders whose shares are not released will be
forced to hold such shares while other stockholders may sell. In addition, the
release of any of such shares could depress our stock price.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS WILL SUFFER.

Our success is dependent upon our proprietary technology. Currently,
the IPStor software suite is the core of our proprietary technology. We have
three pending patent applications and pending trademark applications related to
our IPStor product. We cannot predict whether we will receive patents for our
pending or future patent applications, and any patents that we own or that are
issued to us may be invalidated, circumvented or challenged. In addition, the
laws of certain countries in which we sell and manufacture our products,
including various countries in Asia, may not protect our products and
intellectual property rights to the same extent as the laws of the United
States.

We also rely on trade secret, copyright and trademark laws, as well
as the confidentiality and other restrictions contained in our respective sales
contracts and confidentiality agreements to protect our proprietary rights.
These legal protections afford only limited protection.

OUR TECHNOLOGY MAY BE SUBJECT TO INFRINGEMENT CLAIMS THAT COULD HARM OUR
BUSINESS.

We may become subject to litigation regarding infringement claims
alleged by third parties. We have received correspondence from a third party
claiming that some of our employees formerly employed by that third party may
have disclosed proprietary information of the third party in violation of
certain agreements or other obligations to that third party. This third party
has also asserted that our intellectual property may be based on or utilizes its
intellectual property. As of the date of this registration statement, no formal
action has been taken by the third party. We believe these claims are without
merit. However, if an action is commenced against us, our management may have to
devote substantial attention and resources to defend these claims. An
unfavorable result for the Company could have a material adverse effect on our
business, financial condition and operating and could limit our ability to use
our intellectual property.

WE HAVE A SIGNIFICANT AMOUNT OF AUTHORIZED BUT UNISSUED PREFERRED STOCK, WHICH
MAY AFFECT THE LIKELIHOOD OF A CHANGE OF CONTROL IN OUR COMPANY.

Our Board of Directors has the authority, without further action by
the stockholders, to issue up to 2,000,000 shares of preferred stock on such
terms and with such rights, preferences and designations, including, without
limitation restricting dividends on our common stock, dilution of the voting
power of our common stock and impairing the liquidation rights of the holders of
our common stock, as the Board may determine without any vote of the
stockholders. Issuance of such preferred stock, depending upon the rights,
preferences and designations thereof may have the effect of delaying, deterring
or preventing a change in control. In addition, certain "anti-takeover"
provisions of the Delaware General Corporation Law, among other things, may
restrict the ability of our stockholders to authorize a merger, business
combination or change of control.

WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING OPTIONS, THE EXERCISE OF WHICH WOULD
DILUTE THE THEN-EXISTING STOCKHOLDERS' PERCENTAGE OWNERSHIP OF OUR COMMON STOCK.

As of September 3, 2001, we have outstanding options to purchase an
aggregate of 7,473,372 shares of our common stock at a weighted average exercise
price of $3.97 per share.

The exercise of all of the outstanding options would dilute the
then-existing stockholders' percentage ownership of common stock, and any sales
in the public market of the common stock issuable upon such exercise could
adversely affect prevailing market prices for the common stock. In addition, the
existence of a significant amount of outstanding options may encourage short
selling by the option holders since the exercise of the outstanding options
could depress the price of our common stock. Moreover, the terms upon which we
would be able to obtain additional equity capital could be adversely affected
because the holders of such securities can be expected to exercise or convert
them at a time when we would, in all likelihood, be able to obtain any needed
capital on terms more favorable than those provided by such securities.

USE OF PROCEEDS

The shares of Common Stock offered hereby are being registered for
the account of the selling stockholders identified in this prospectus. See
"Selling Stockholders." All net proceeds from the sale of the Common Stock will
go to the stockholders who offer and sell their shares. We will not receive any
part of the proceeds from such sales of Common Stock.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission (the
"SEC") a registration statement on Form S-3 under the Securities Act, with
respect to the resale of Common Stock. This prospectus, which constitutes a part
of that registration statement, does not contain all the information contained
in that registration statement and its exhibits. For further information with
respect to our Common Stock and the Company, you should consult the registration
statement and its exhibits. Statements contained in this prospectus concerning
the provisions of any documents are necessarily summaries of those documents,
and each statement is qualified in its entirety by reference to the copy of the
document filed with the SEC. The registration statement and any of its
amendments, including exhibits filed as a part of the registration statement or
an amendment to the registration statement, are available for inspection and
copying through the entities listed below. See "Where You Can Find More
Information."

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from the SEC's Web site at http://www.sec.gov. Reports, proxy statements and
other information concerning us can also be inspected at the Nasdaq National
Market Operations, 1735 K Street, N.W., Washington, D.C.

INCORPORATION BY REFERENCE

The SEC allows us to incorporate by reference the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made by us with the

SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934 until the sale of all of the shares of Common Stock that are part of this
offering. The documents we are incorporating by reference are as follows:

(1) Our Annual Report on Form 10-K for the year ended December 31,
2000;

(2) Our Quarterly Report on Form 10-Q for the quarter ended June
30, 2001;

(3) Our Current Reports on Form 8-K filed on April 16, 2001, August
23, 2001 and September 6, 2001;

(4) Our Registration Statement on Form S-4 filed on May 11, 2001,
as subsequently amended;

(5) The description of our Common Stock contained in our
registration statement on Form 8-A declared effective by the SEC on June 28,
1994, including any amendments or reports filed for the purpose of updating that
description.

You may request a copy of the filings, at no cost, by writing or
telephoning the following address:

FalconStor Software, Inc.
125 Baylis Road
Melville, New York 11747
Attention: Chief Financial Officer
(631) 777-5188

When you are deciding whether to purchase the shares being offered
by this prospectus, you should rely on the information incorporated by reference
or provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. We are not making any offer of
the shares in any state where the offer is not permitted. You should not assume
that the information in this prospectus or any supplement is accurate as of any
date other than the date on the front of those documents.

SELLING STOCKHOLDERS

The following list of selling stockholders includes, the number of
shares of Common Stock beneficially owned, the maximum number of shares of
Common Stock to be sold in the Offering by the selling stockholders and the
number of shares of Common Stock to be beneficially owned by the selling
stockholders after the Offering (assuming sale of such maximum number of
shares). We have 44,669,548 shares of Common Stock issued and outstanding as of
August 23, 2001. The number of shares to be sold in the Offering includes
28,247,984 shares of Common Stock. The shares being offered hereby primarily
relate to the resale of shares of Common Stock, by our affiliates or affiliates
of FalconStor, Inc., which were acquired in the merger between FalconStor, Inc
and us.

A selling stockholder may sell all or part of the shares of Common
Stock registered for its account hereunder. To the extent that, pursuant to Rule
13d-3 of the Securities Exchange Act of 1934, as amended, a selling stockholder
may be deemed to be the beneficial owner of shares held by one or more other
beneficial owners of Common Stock, we have included all of such shares in the
information presented in the table.

Percent Maximum
Shares Beneficially Number of Shares to be Percent to be
Beneficially Owned Prior Shares to be Beneficially Beneficially
Owned Prior to to this Offered for Owned after Owned after
this Offering(1) Offering(1) Resale this Offering(1) this Offering(1)
---------------- ----------- ------ ---------------- ----------------

ReiJane Huai (2) 10,824,260 24.2% 10,824,260 0 N/A
c/o FalconStor Software, Inc.
125 Baylis Road
Melville, NY 11747

Barry Rubenstein (3) 7,351,292 16.5% 7,351,292 0 N/A
68 Wheatley Road
Brookville, NY 11545

Brookwood Partners, L.P. (4) 526,956 1.2% 526,956 0 N/A
68 Wheatley Road
Brookville, NY 11545

Seneca Ventures (4) 642,453 1.4% 642,453 0 N/A
68 Wheatley Road
Brookville, NY 11545

Wheatley Associates III, L.P. (6) 1,962,836 4.4% 1,962,836 0 N/A
68 Wheatley Road
Brookville, NY 11545

Wheatley Foreign Partners III, 1,962,836 4.4% 1,962,836 0 N/A
L.P. (6)
68 Wheatley Road
Brookville, NY 11545

Wheatley Partners III, L.P. (5) 1,962,836 4.4% 1,962,836 0 N/A
68 Wheatley Road
Brookville, NY 11545

Wheatley Foreign Partners,
L.P. (6) 525,059 1.2% 525,059 0 N/A
68 Wheatley Road
Brookville, NY 11545

Wheatley Partners, L.P. (6) 525,059 1.2% 525,059 0 N/A
68 Wheatley Road
Brookville, NY 11545

Wheatley Partners II, L.P. (4) 180,089 * 180,089 0 N/A
68 Wheatley Road
Brookville, NY 11545

Woodland Partners (4) 692,983 1.7% 692,983 0 N/A
68 Wheatley Road
Brookville, NY 11545

Woodland Venture Fund (4) 743,513 1.6% 743,513 0 N/A
68 Wheatley Road
Brookville, NY 11545

Irwin Lieber (7) 4,602,689 10.3% 4,602,689 0 N/A
80 Cuttermill Road, Suite 311
Great Neck, NY 11021

Barry Fingerhut (8) 3,000,164 6.7% 3,000,164 0 N/A
767 Fifth Avenue, 45th Floor
New York, NY 10153

Nancy Casey (9) 2,089,161 4.7% 2,089,161 0 N/A
10836 Pleasant Hill Drive
Potomac, MD 20854

Applegreen Partners (4) 346,491 0.8% 346,491 0 N/A
271 Hamilton Road
Chappaqua, NY 10514

Seth Lieber (10) 3,129,972 7.0% 3,129,972 0 N/A
200 East 72 Street, PH N
New York, NY 10021

Jonathan Lieber (11) 3,039,740 6.8% 3,039,740 0 N/A
271 Hamilton Road
Chappaqua, NY 10514

Marilyn Rubenstein (12) 2,614,163 5.9% 2,614,163 0 N/A
c/o Barry Rubenstein
68 Wheatley Road
Brookville, NY 11545

Lawrence S. Dolin (13) 40,000 * 40,000 * N/A
c/o FalconStor Software, Inc.
125 Baylis Road
Melville, NY 11747

Steven A. Fischer (14) 2,500 * 2,500 * N/A
245 Jerome Street
Syosset, NY 11791

Glenn Penisten (15) 612,654 1.4% 225,908 406,925 N/A
11651 Brooks Road
Windsor, CA 95492

Steven Owings (16) 58,030 * 58,030 0 N/A
ScanSource
6 Logue Court
Greenville, SC 29615

Wayne Lam (17) 82,147 * 3,537 78,610 N/A
c/o FalconStor Software, Inc.
125 Baylis Road
Melville, New York 11747

----------------------------------
*Less than one percent

(1) A person is deemed to be the beneficial owner of voting securities
that can be acquired by such person within 60 days after the date
hereof upon the exercise of options, warrants or convertible
securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible
securities that are held by such person (but not those held by any
other person) and that are currently exercisable (i.e., that are
exercisable within 60 days from the date hereof) have been
exercised. Unless otherwise noted, we believe that all persons named
in the table have sole voting and investment power with respect to
all shares beneficially owned by them.

(2) Based upon information contained in a Form 3 and Schedule 13D filed
by Mr. Huai and certain other information. Since August 2001, Mr.
Huai has been a Director and our President and Chief Executive
Officer. Mr. Huai joined FalconStor, Inc. in July 2000 as a
director, and subsequently became its president and chief executive
officer in December 2000.

(3) Based upon information contained in a report on a Schedule 13D (the
"Wheatley 13D") filed jointly by Barry Rubenstein, Brookwood
Partners, L.P. ("Brookwood"), Seneca Ventures ("Seneca"), Wheatley
Associates III, L.P. ("Wheatley Associates"), Wheatley Foreign
Partners, L.P. ("Wheatley Foreign"), Wheatley Foreign Partners III,
L.P. ("Wheatley Foreign III"), Wheatley Partners, L.P. ("Wheatley"),
Wheatley Partners II, L.P. ("Wheatley II"), Wheatley Partners III,
L.P. ("Wheatley III"), Woodland Partners, Woodland Venture Fund
("Woodland Fund"), and certain other entities with the SEC, and a
Form 3 filed by Mr. Rubenstein with the SEC as well as certain other
information. Consists of (i) 2,077,403 shares of Common Stock held
by Mr. Rubenstein, (ii) 526,956 shares of common stock held by
Brookwood, (iii) 642,453 shares of common stock held by Seneca, (iv)
299,809 shares of common stock held by Wheatley Associates, (v)
41,008 shares of common stock held by Wheatley Foreign, (vi) 293,012
shares of common stock held by Wheatley Foreign III, (vii) 484,051
shares of common stock held by Wheatley, (viii) 180,089 shares of
common stock held by Wheatley II, (ix) 1,370,015 shares of common
stock held by Wheatley III, (x) 692,983 shares of common stock held
by Woodland Partners and (xi) 743,513 shares of common stock held by
Woodland Fund. Does not include 8,258 shares of common stock held by
Mr. Rubenstein's spouse, Marilyn Rubenstein. Mr. Rubenstein was a
director of FalconStor, Inc. from February 2000 to August 2001. Mr.
Rubenstein disclaims beneficial ownership of the securities held by
Wheatley, Wheatley Foreign, Wheatley II, Wheatley III, Wheatley
Foreign III, Wheatley Associates, Seneca, Woodland Ventures,
Woodland Partners and Brookwood except to the extent of his
respective equity interest therein.

(4) Based upon information contained in the Wheatley 13D and certain
other information.

(5) Based upon information contained in the Wheatley 13D. Consists of
(i) 299,809 shares of common stock held by Wheatley Associates, (ii)
293,012 shares of common stock held by Wheatley Foreign III and
(iii) 1,370,015 shares of common stock held by Wheatley III.
Wheatley Associates disclaims beneficial ownership of the securities
held by Wheatley Foreign III and Wheatley III. Wheatley Foreign III
disclaims beneficial ownership of the securities held by Wheatley
Associates and Wheatley III. Wheatley III disclaims beneficial
ownership of the securities held by Wheatley Associates and Wheatley
Foreign III.

(6) Based upon information contained in the Wheatley 13D and certain
other information. Consists of (i) 41,008 held by Wheatley Foreign,
and (ii) 484,051 held by Wheatley. Wheatley Foreign disclaims
beneficial ownership of the securities held by Wheatley and Wheatley
disclaims beneficial ownership of the shares held by Wheatley
Foreign.

(7) Based upon information contained in the Wheatley 13D and certain
other information. Consists of (i) 1,934,705 shares of Common Stock
held by Irwin Lieber, (ii) 484,051 shares of Common Stock held by
Wheatley, (iii) 41,008 shares of Common Stock held by Wheatley
Foreign, (iv) 180,089 shares of Common Stock held by Wheatley II,
(v) 1,370,015 shares of Common Stock held by Wheatley III, (vi)
293,012 shares of Common Stock held by Wheatley Foreign III, and
(vii) 299,809 shares of Common Stock held by Wheatley Associates.
Mr. Lieber disclaims beneficial ownership of the securities held by
Wheatley, Wheatley Foreign, Wheatley II, Wheatley III, Wheatley
Foreign III and Wheatley Associates, except to the extent of his
respective equity interests therein.

(8) Based upon information contained in the Wheatley 13D and certain
other information. Consists of (i) 322,180 shares of Common Stock
held by Barry Fingerhut, (ii) 484,051 shares of Common Stock held by
Wheatley, (iii) 41,008 shares of Common Stock held by Wheatley
Foreign, (iv) 180,089 shares of Common Stock held by Wheatley II,
(v) 1,370,015 shares of Common Stock held by Wheatley III, (vi)
293,012 shares of Common Stock held by Wheatley Foreign III, and
(vii) 299,809 shares of Common Stock held by Wheatley Associates.
Mr. Fingerhut disclaims beneficial ownership of the securities held
by Wheatley, Wheatley Foreign, Wheatley II, Wheatley III, Wheatley
Foreign III and Wheatley Associates, except to the extent of his
respective equity interests therein.

(9) Based upon information contained in the Wheatley 13D and certain
other information. Consists of (i) 126,325 shares of Common Stock
held by Nancy Casey and her husband, as joint tenants, (ii)
1,370,015 shares of Common Stock held by Wheatley III, (iii) 293,012
shares of Common Stock held by Wheatley Foreign III, and (iv)
299,809 shares of Common Stock held by Wheatley Associates. Ms.
Casey disclaims beneficial ownership of the securities held by
Wheatley III, Wheatley Foreign III and Wheatley Associates, except
to the extent of her respective equity interests therein.

(10) Based upon information contained in the Wheatley 13D and certain
other information. Consists of (i) 25,265 shares of Common Stock
held by Seth Lieber, (ii) 484,051 shares of Common Stock held by
Wheatley, (iii) 41,008 shares of Common Stock held by Wheatley
Foreign, (iv) 180,089 shares of Common Stock held by Wheatley II,
(v) 1,370,015 shares of Common Stock held by Wheatley III, (f)
293,012 shares of Common Stock held by Wheatley Foreign III, and
(vi) 299,809 shares of Common Stock held by Wheatley Associates and
(vii) 346,491 shares of Common Stock held by Applegreen. Mr. Lieber

disclaims beneficial ownership of the securities held by Wheatley,
Wheatley Foreign, Wheatley II, Wheatley III, Wheatley Foreign III,
Wheatley Associates and Applegreen, except to the extent of his
respective equity interests therein.

(11) Based upon information contained in the Wheatley 13D and certain
other information. Consists of (i) 25,265 shares of Common Stock
held by Jonathan Lieber, (ii) 484,051 shares of Common Stock held by
Wheatley, (iii) 41,008 shares of Common Stock held by Wheatley
Foreign, (iv) 180,089 shares of Common Stock held by Wheatley II,
(v) 1,370,015 shares of Common Stock held by Wheatley III, (f)
293,012 shares of Common Stock held by Wheatley Foreign III, and
(vi) 299,809 shares of Common Stock held by Wheatley Associates and
(vii) 346,491 shares of Common Stock held by Applegreen. Mr. Lieber
disclaims beneficial ownership of the securities held by Wheatley,
Wheatley Foreign, Wheatley II, Wheatley III, Wheatley Foreign III,
Wheatley Associates and Applegreen, except to the extent of his
respective equity interests therein.

(12) Based upon information contained in the Wheatley 13D and certain
other information. Consists of (i) 8,258 shares of Common Stock held
by Marilyn Rubenstein, (ii) 642,453 shares of Common Stock held by
Seneca, (iii) 743,513 shares of Common Stock held by Woodland
Venture, (iv) 692,983 shares of Common Stock held by Woodland
Partners and (v) 526,956 shares of Common Stock held by Brookwood.
Mrs. Rubenstein disclaims beneficial ownership of the securities
held by Seneca, Woodland Venture, Woodland Partners and Brookwood,
except to the extent of her respective equity interests therein.
Does not include 2,077,403 shares of Common Stock held by Mrs.
Rubenstein's spouse, Barry Rubenstein.

(13) Based on information contained in the Form 3 filed by Mr. Dolin and
certain other information. Includes 40,000 shares held by Northern
Union Club. Mr. Dolin is a general partner of Mordo Partners, which
is a general partner of Northern Union Club. Mr. Dolin disclaims
beneficial ownership of the securities held by Northern Union Club,
except to the extent of her respective equity interests therein. Mr.
Dolin joined the Company in August 2001 as a director.

(14) Based upon information contained in the Form 3 filed by Mr. Fischer
and certain other information. Mr. Fischer joined the Company in
August 2001 as a director.

(15) Based upon information contained in the Form 4 filed by Mr. Penisten
and certain other information. Includes 180,464 shares of common
stock held by Lazy P Investors, L.P. and an option to purchase
386,667 shares of common stock within 60 days. Mr. Penisten is a
general partner of Lazy P Investors, L.P. Mr. Penisten has been a
director of the Company since 1996.

(16) Based upon information contained in the Form 3 filed by Mr. Owings
and certain other information. Mr. Owings joined the Company in
August 2001 as a director.

(17) Based upon information contained in the Form 3 filed by Mr. Wayne
Lam and certain other information. Includes an option to purchase
78,610 shares of common stock exercisable within 60 days of the date
hereof. Mr. Wayne Lam joined FalconStor, Inc. in April 2000 as Vice
President, Marketing and is currently our Vice President, Marketing.

The following table names the ultimate beneficial owners of the
shares of our Common Stock for those selling stockholders that are not
individuals.

NAME OF THE ENTITY INFORMATION

Brookwood Partners, L.P. Mr. Barry Rubenstein
Mrs. Marilyn Rubenstein

Seneca Ventures Mr. Barry Rubenstein

NAME OF THE ENTITY INFORMATION

Wheatley Associates III, L.P. Mr. Barry Rubenstein
Mr. Irwin Lieber
Mr. Barry Fingerhut
Mr. Jonathan Lieber
Mr. Seth Lieber
Ms. Nancy Casey
Mr. Brian Rubenstein

Wheatley Foreign Partners, L.P. Mr. Barry Rubenstein
Mr. Irwin Lieber
Mr. Barry Fingerhut
Mr. Jonathan Lieber
Mr. Seth Lieber

Wheatley Foreign Partners III, L.P. Mr. Barry Rubenstein
Mr. Irwin Lieber
Mr. Barry Fingerhut
Mr. Jonathan Lieber
Mr. Seth Lieber
Ms. Nancy Casey
Mr. Brian Rubenstein

Wheatley Partners, L.P. Mr. Barry Rubenstein
Mr. Irwin Lieber
Mr. Barry Fingerhut
Mr. Jonathan Lieber
Mr. Seth Lieber

Wheatley Partners II, L.P. Mr. Barry Rubenstein
Mr. Irwin Lieber
Mr. Barry Fingerhut
Mr. Jonathan Lieber
Mr. Seth Lieber

Wheatley Partners III, L.P. Mr. Barry Rubenstein
Mr. Irwin Lieber
Mr. Barry Fingerhut
Mr. Jonathan Lieber
Mr. Seth Lieber
Ms. Nancy Casey
Mr. Brian Rubenstein

Woodland Partners Mr. Barry Rubenstein
Mrs. Marilyn Rubenstein

Woodland Venture Fund Mr. Barry Rubenstein

Applegreen Partners Mr. Irwin Lieber
Mr. Seth Lieber
Mr. Jonathan Lieber

PLAN OF DISTRIBUTION

This offering is self-underwritten; neither the selling stockholders
nor we have employed an underwriter for the sale of Common Stock by the selling
stockholders. We will bear all expenses in connection with the preparation of
this Prospectus. The selling stockholders will bear all expenses associated with
the sale of their Common Stock.

The selling stockholders may offer their shares of Common Stock
directly or through pledgees, donees, transferees or other successors in
interest in one or more of the following transactions:

o On any stock exchange on which the shares of Common Stock may
be listed at the time of sale

o In negotiated transactions

o In the over-the-counter market

o In a combination of any of the above transactions

The selling stockholders may offer their shares of Common Stock at
any of the following prices:

o Fixed prices that may be changed

o Market prices prevailing at the time of sale

o Prices related to such prevailing market prices

o At negotiated prices

The selling stockholders may effect such transactions by selling
shares to or through broker-dealers, and all such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from the
selling stockholders and/or the purchasers of shares of Common Stock for whom
such broker-dealers may act as agents or to whom they sell as principals, or
both (which compensation as to a particular broker-dealer might be in excess of
customary commissions).

Any broker-dealer acquiring Common Stock from the selling
stockholders may sell the shares either directly, in its normal market-making
activities, through or to other brokers on a principal or agency basis or to its
customers. Any such sales may be at prices then prevailing on the American Stock
Exchange or at prices related to such prevailing market prices or at negotiated
prices to its customers or a combination of such methods. The selling
stockholders and any broker-dealers that act in connection with the sale of the
Common Stock hereunder might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act; any commissions received by them and any
profit on the resale of shares as principal might be deemed to be underwriting
discounts and commissions under the Securities Act. Any such commissions, as
well as other expenses incurred by the selling stockholders and applicable
transfer taxes, are payable by the selling stockholders.

The selling stockholders reserve the right to accept, and together
with any agent of the selling stockholder, to reject in whole or in part any
proposed purchase of the shares of Common Stock. The selling stockholders will
pay any sales commissions or other seller's compensation applicable to such
transactions.

We have not registered or qualified offers and sales of shares of
the Common Stock under the laws of any country other than the United States. To
comply with certain states' securities laws, if applicable, the selling
stockholders will offer and sell their shares of Common Stock in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the selling stockholders may not offer or sell
shares of Common Stock unless we have registered or qualified such shares for
sale in such states or we have complied with an available exemption from
registration or qualification.

The selling shareholders have represented to us that any purchase
or sale of shares of Common Stock by them will comply with Regulation M
promulgated under the Securities Exchange Act of 1934, as amended. In general,
Rule 102 under Regulation M prohibits any person connected with a distribution
of securities (the "Distribution") from directly or indirectly bidding for, or
purchasing for any account in which he or she has a beneficial interest, any of
such securities or any right to purchase such securities, for a period of one
business day before and after completion of his or her participation in the
distribution (we refer to that time period as the "Distribution Period").

During the Distribution Period, Rule 104 under Regulation M
prohibits the selling stockholders and any other persons engaged in the
Distribution from engaging in any stabilizing bid or purchasing of our Common
Stock except for the purpose of preventing or retarding a decline in the open
market price of our Common Stock. No such person may effect any stabilizing
transaction to facilitate any offering at the market. Inasmuch as the selling
shareholders will be reoffering and reselling our Common Stock at the market,
Rule 104 prohibits them from effecting any stabilizing transaction in
contravention of Rule 104 with respect to our Common Stock.

There can be no assurance that the selling stockholders will sell
any or all of the shares offered by them hereunder or otherwise.

LEGAL MATTERS

Certain legal matters in connection with the issuance of the shares
of Common Stock offered hereby have been passed upon for the Company by Olshan
Grundman Frome Rosenzweig & Wolosky LLP, 505 Park Avenue, New York, New York
10022. Steven Wolosky, a member of Olshan Grundman Frome Rosenzweig &
Wolosky LLP, holds 90,232 shares of Common Stock of the Company.

EXPERTS

The consolidated financial statements of FalconStor, Inc. (a
development stage enterprise) as of December 31, 2000, and for the period from
inception (February 10, 2000) through December 31, 2000 have been incorporated
by reference in this Prospectus and in the registration statement in reliance on
the report of KPMG LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in auditing
and accounting.

The consolidated financial statements of Network Peripherals Inc. as
of December 31, 2000 and 1999 and for each of the three years in the period
ended December 31, 2000 incorporated by reference in this Prospectus have been
so incorporated by reference in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.

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

No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained in this prospectus
and, if given or made, such other information and representations must not be
relied upon as having been authorized by us. This prospectus does not constitute
an offer or solicitation by anyone in any state in which such person is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. The delivery of this prospectus at any time does not imply that
the information herein is correct as of any time subsequent to the date hereof.
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information. This prospectus does not offer to sell or
buy any shares in any jurisdiction where it is unlawful.

28,247,984 SHARES

FALCONSTOR SOFTWARE, INC.

COMMON STOCK

----------------------------
PROSPECTUS
----------------------------

______ __, 2001

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

The expenses in connection with the issuance and distribution of the
securities being registered, all of which will be paid by the Registrant, are as
follows:

SEC Registration Fee........................... $54,737.81
Accounting Fees and Expenses................... $10,000
Legal Fees and Expenses........................ $15,000
Blue Sky Fees and Expenses..................... $2,000
Miscellaneous Expenses......................... $3,262.19
----------
Total.......................................... $85,000

Item 15. Indemnification of Directors and Officers.

As permitted by the Delaware General Corporation Law ("DGCL"), the
Company's Certificate of Incorporation, as amended, limits the personal
liability of a director or officer to the Company for monetary damages for
breach of fiduciary duty of care as a director. Liability is not eliminated for
(i) any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payment of
dividends or stock purchase or redemptions pursuant to Section 174 of the DGCL,
or (iv) any transaction from which the director derived an improper personal
benefit.

The Company has also entered into indemnification agreements with
each of its directors and executive officers. The indemnification agreements
provide that the directors and executive officers will be indemnified to the
fullest extent permitted by applicable law against all expenses (including
attorneys' fees), judgments, fines and amounts reasonably paid or incurred by
them for settlement in any threatened, pending or completed action, suit or
proceeding, including any derivative action, on account of their services as a
director or officer of the Company or of any subsidiary of the Company or of any
other company or enterprise in which they are serving at the request of the
Company. No indemnification will be provided under the indemnification
agreements, however, to any director or executive officer in certain limited
circumstances, including on account of knowingly fraudulent, deliberately
dishonest or willful misconduct. To the extent the provisions of the
indemnification agreements exceed the indemnification permitted by applicable
law, such provision may be unenforceable or may be limited to the extent they
are found by a court of competent jurisdiction to be contrary to pubic policy.

DELAWARE LAW

The Company is subject to Section 203 of the DGCL, which prevents an
"interested stockholder" (defined in Section 203, generally, as a person owning
15% or more of a corporation's outstanding voting stock) from engaging in a
"business combination" with a publicly-held Delaware corporation for three years
following the date such person became an interested stockholder, unless: (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (subject to certain exceptions), or (iii) following the transaction in
which such person became an interested stockholder, the business combination is

II-1

approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of 66% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. A "business combination" includes mergers, stock or asset sales and
other transactions resulting in a financial benefit to the interested
stockholder.

The provisions of Section 203 of the DGCL could have the effect of
delaying, deferring or preventing a change in the control of the Company.

Item 16. Exhibits.

Exhibit Index

5 Opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP with
respect to the securities registered hereunder.

23.1 Consent of KPMG LLP.

23.2 Consent of PricewaterhouseCoopers LLP.

23.3 Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP
(included within Exhibit 5).

24.1 Powers of Attorney (included on the Signature page to the
Registration Statement).

Item 17. Undertakings.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any
material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the
termination of the offering.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,

II-2

the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against each such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

II-3

SIGNATURES

In accordance with the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form S-3 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Melville, State of New York, on the 21st day of
September, 2001.

FALCONSTOR SOFTWARE, INC.
-------------------------
(Registrant)
By: /s/ ReiJane Huai
------------------------------------------
ReiJane Huai
President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of ReiJane Huai and Jacob Ferng his
true and lawful attorneys-in-fact and agent, with full power of substitution and
resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, or his
or her substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.

Signature Title Date
--------- ----- ----

/s/ ReiJane Huai Director, President and Chief Executive September 21, 2001
-------------------- Officer (Principal Executive Officer)
ReiJane Huai

/s/ Jacob Ferng Vice President and Chief Financial September 21, 2001
-------------------- Officer (Principal Financial Officer and
Jacob Ferng Principal Accounting Officer)

------------------- Director September __, 2001
Glenn Penistein

/s/ Lawrence S. Dolin Director September 21, 2001
---------------------
Lawrence S. Dolin

Director September __, 2001
---------------------
Steven H. Owings

II-4

/s/ Steven R. Fischer Director September 21, 2001
---------------------
Steven R. Fischer

II-5

Exhibits.
--------

Exhibit Index

5 Opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP with
respect to the securities registered hereunder.

23.1 Consent of KPMG LLP.

23.2 Consent of PricewaterhouseCoopers LLP.

23.3 Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP
(included within Exhibit 5).

24.1 Powers of Attorney (included on the Signature page to the
Registration Statement).