Exhibit 99.1

                            FALCONSTOR SOFTWARE, INC.

                            2006 INCENTIVE STOCK PLAN

         1.    PURPOSE OF THE PLAN.

     This 2006 Incentive Stock Plan (the "Plan") is intended as an incentive, to
retain in the employ of and as directors,  officers,  consultants,  advisors and
employees to FalconStor Software,  Inc., a Delaware corporation (the "Company"),
and any  Subsidiary of the Company,  within the meaning of Section 424(f) of the
United States Internal Revenue Code of 1986, as amended (the "Code"), persons of
training,   experience  and  ability,   to  attract  new  directors,   officers,
consultants,  advisors and employees whose services are considered valuable,  to
encourage the sense of  proprietorship  and to stimulate the active  interest of
such persons in the  development  and  financial  success of the Company and its
Subsidiaries.

     It is further  intended that certain options  granted  pursuant to the Plan
shall  constitute  incentive  stock options within the meaning of Section 422 of
the Code (the "Incentive  Options") while certain other options granted pursuant
to the Plan shall be nonqualified  stock options (the  "Nonqualified  Options").
Incentive  Options  and  Nonqualified   Options  are  hereinafter   referred  to
collectively as "Options."

     The  Company  intends  that the Plan meet the  requirements  of Rule  16b-3
("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as amended
(the  "Exchange   Act")  and  that   transactions   of  the  type  specified  in
subparagraphs  (c) to (f)  inclusive of Rule 16b-3 by officers and  directors of
the Company  pursuant to the Plan will be exempt from the  operation  of Section
16(b)  of the  Exchange  Act.  Further,  the Plan is  intended  to  satisfy  the
performance-based  compensation exception to the limitation on the Company's tax
deductions  imposed by Section  162(m) of the Code with respect to those Options
for which qualification for such exception is intended. In all cases, the terms,
provisions,  conditions  and  limitations  of the Plan  shall be  construed  and
interpreted consistent with the Company's intent as stated in this Section 1.

         2.    ADMINISTRATION OF THE PLAN.

     The Board of  Directors  of the Company  (the  "Board")  shall  appoint and
maintain as administrator of the Plan a Committee (the  "Committee")  consisting
of two or more  directors  who are  "Non-Employee  Directors"  (as such  term is
defined  in Rule  16b-3)  and  "Outside  Directors"  (as such term is defined in
Section 162(m) of the Code), which shall serve at the pleasure of the Board. The
Committee,  subject  to  Sections  3, 5 and 6 hereof,  shall have full power and
authority to designate  recipients of Options and restricted stock  ("Restricted
Stock") and to determine the terms and conditions of the  respective  Option and
Restricted Stock  agreements  (which need not be identical) and to interpret the



provisions and supervise the  administration  of the Plan.  The Committee  shall
have the authority, without limitation, to designate which Options granted under
the Plan shall be Incentive Options and which shall be Nonqualified  Options. To
the  extent  any  Option  does not  qualify  as an  Incentive  Option,  it shall
constitute a separate Nonqualified Option.

     Subject to the  provisions of the Plan, the Committee  shall  interpret the
Plan and all Options and  Restricted  Stock granted  under the Plan,  shall make
such  rules as it deems  necessary  for the proper  administration  of the Plan,
shall  make  all  other   determinations   necessary   or   advisable   for  the
administration  of the Plan and shall correct any defects or supply any omission
or reconcile any inconsistency in the Plan or in any Options or Restricted Stock
granted under the Plan in the manner and to the extent that the Committee  deems
desirable to carry into effect the Plan or any Options or Restricted  Stock. The
act  or  determination  of a  majority  of the  Committee  shall  be the  act or
determination of the Committee and any decision reduced to writing and signed by
all of the members of the Committee  shall be fully  effective as if it had been
made by a majority  at a meeting  duly held.  Subject to the  provisions  of the
Plan, any action taken or determination  made by the Committee  pursuant to this
and the other Sections of the Plan shall be conclusive on all parties.

     In the event that for any reason the  Committee  is unable to act or if the
Committee at the time of any grant,  award or other  acquisition  under the Plan
does not consist of two or more Non-Employee  Directors, or if there shall be no
such Committee, then the Plan shall be administered by the Board, and references
herein to the Committee (except in the proviso to this sentence) shall be deemed
to be references to the Board,  and any such grant,  award or other  acquisition
may be approved or ratified in any other manner contemplated by subparagraph (d)
of Rule 16b-3;  provided,  however, that grants to the Company's Chief Executive
Officer or to any of the Company's other four most highly  compensated  officers
that are intended to qualify as  performance-based  compensation  under  Section
162(m) of the Code may only be granted by the Committee.

         3.    DESIGNATION OF OPTIONEES AND GRANTEES.

     Restricted   Stock  (the  "Grantees"  and  together  with  Optionees,   the
"Participants")  shall include directors,  officers and employees of the Company
or any  subsidiary  and  consultants  subject to their  meeting the  eligibility
requirements  of Rule 701  promulgated  under  the  Securities  Act of 1933,  as
amended (the  "Securities  Act"),  provided that  Incentive  Options may only be
granted  to  employees  of  the  Company  and  any   Subsidiary.   In  selecting
Participants,  and in  determining  the  number of shares to be  covered by each
Option or shares of Restricted Stock granted to Participants,  the Committee may
consider any factors it deems relevant, including without limitation, the office
or position held by the  Participant or the  Participant's  relationship  to the
Company,  the Participant's degree of responsibility for and contribution to the
growth and success of the Company or any Subsidiary, the Participant's length of
service,  promotions and potential. A Participant who has been granted an Option
or Restricted Stock hereunder may be granted an additional Option or Options, or
Restricted Stock if the Committee shall so determine.

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         4.    STOCK RESERVED FOR THE PLAN.

     Subject to adjustment as provided in Section 8 hereof, a total of 1,500,000
shares of the Company's  Common Stock, par value $0.001 per share (the "Stock"),
shall be subject to the Plan.  The maximum number of shares of Stock that may be
subject to Options granted under the Plan to any individual in any calendar year
shall not exceed fifteen  percent (15%) of the shares and the method of counting
such shares shall conform to any  requirements  applicable to  performance-based
compensation   under   Section   162(m)  of  the  Code,  if   qualification   as
performance-based compensation under Section 162(m) of the Code is intended. The
shares of Stock subject to the Plan shall consist of unissued  shares,  treasury
shares or previously  issued shares held by any  Subsidiary of the Company,  and
such amount of shares of Stock shall be and is hereby reserved for such purpose.
Any of such shares of Stock that may remain unissued and that are not subject to
outstanding  Options at the  termination  of the Plan shall cease to be reserved
for the  purposes  of the Plan,  but until  termination  of the Plan the Company
shall at all times  reserve a  sufficient  number of shares of Stock to meet the
requirements of the Plan.  Should any Option or share of Restricted Stock expire
or be canceled  prior to its exercise or vesting in full or should the number of
shares of Stock to be  delivered  upon the  exercise  or  vesting  in full of an
Option or share of  Restricted  Stock be reduced for any  reason,  the shares of
Stock  theretofore  subject to such Option or share of  Restricted  Stock may be
subject to future Options or shares of Restricted  Stock under the Plan,  except
where such reissuance is  inconsistent  with the provisions of Section 162(m) of
the Code where  qualification as  performance-based  compensation  under Section
162(m) of the Code is intended.

         5.    TERMS AND CONDITIONS OF OPTIONS.

     Options granted under the Plan shall be subject to the following conditions
and shall contain such additional terms and conditions,  not  inconsistent  with
the terms of the Plan, as the Committee shall deem desirable:

               (a)  OPTION  PRICE.  The  purchase  price of each  share of Stock
purchasable  under an Incentive  Option shall be  determined by the Committee at
the time of grant,  but shall not be less than 100% of the Fair Market Value (as
defined  below)  of such  share of Stock on the  date  the  Option  is  granted;
provided,  however,  that with  respect  to an  Optionee  who,  at the time such
Incentive  Option is granted,  owns (within the meaning of Section 424(d) of the
Code) more than 10% of the total  combined  voting power of all classes of stock
of the Company or of any Subsidiary, the purchase price per share of Stock shall
be at least  110% of the Fair  Market  Value  per  share of Stock on the date of
grant.  The  purchase  price  of  each  share  of  Stock   purchasable  under  a
Nonqualified Option shall not be less than 100% of the Fair Market Value of such
share of Stock on the date the Option is granted.  The  exercise  price for each
Option  shall be subject to  adjustment  as provided  in Section 8 below.  "Fair
Market  Value"  means the  closing  price on the date of grant on the  principal
securities  exchange on which shares of Stock are listed (if the shares of Stock
are so  listed),  or on the  NASDAQ  Stock  Market  (if the  shares of Stock are
regularly quoted on the NASDAQ Stock Market),  or, if not so listed or regularly
quoted,  the mean  between the closing bid and asked  prices of publicly  traded
shares of Stock in the over the counter market, or, if such bid and asked prices


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shall not be  available,  as reported  by any  nationally  recognized  quotation
service  selected by the Company,  or as determined by the Committee in a manner
consistent with the provisions of the Code. Anything in this Section 5(a) to the
contrary  notwithstanding,  in no event shall the  purchase  price of a share of
Stock be less than the minimum price  permitted  under the rules and policies of
any national securities exchange on which the shares of Stock are listed.

               (b) OPTION  TERM.  The term of each Option  shall be fixed by the
Committee, but no Option shall be exercisable more than ten years after the date
such  Option is granted  and in the case of an  Incentive  Option  granted to an
Optionee  who, at the time such  Incentive  Option is granted,  owns (within the
meaning  of  Section  424(d)  of the Code)  more than 10% of the total  combined
voting  power of all  classes of stock of the Company or of any  Subsidiary,  no
such Incentive  Option shall be exercisable  more than five years after the date
such Incentive Option is granted.

               (c) EXERCISABILITY. Subject to Section 5(j) hereof, Options shall
be exercisable at such time or times and subject to such terms and conditions as
shall be determined by the  Committee at the time of grant;  provided,  however,
that in the absence of any Option vesting periods designated by the Committee at
the time of grant,  Options shall vest and become exercisable as to one-third of
the total  amount of shares  subject to the Option on each of the first,  second
and third  anniversaries  of the date of grant;  and  provided  further  that no
Options shall be exercisable until such time as any vesting limitation  required
by Section 16 of the Exchange Act, and related rules, shall be satisfied if such
limitation  shall be required for continued  validity of the exemption  provided
under Rule 16b-3(d)(3).

     Notwithstanding  any provision in this Plan, in the event there is a Change
of Control (as defined below), the Company shall, at no cost to the Participant,
replace  any and all  stock  options  granted  by the  Company  and  held by the
Participant at the time of the Change of Control, whether or not vested, with an
equal number of  unrestricted  and fully vested stock options to purchase shares
of the Company's  Common Stock (the "Option  Replacement").  With respect to the
Option Replacement, all options will become fully vested. Alternatively,  in the
event of a Change of Control, in lieu of the Option  Replacement,  a Participant
may, subject to Board approval at the time, elect to surrender the Participant's
rights to such options,  and upon such  surrender,  the Company shall pay to the
Participant an amount in cash per stock option (whether vested or unvested) then
held,  which is the  difference  between the full exercise  price of each option
surrendered  and  the  greater  of (i)  the  average  price  per  share  paid in
connection  with the  acquisition  of control of the Company if such control was
acquired  by  the  payment  of  cash  or  the  then  fair  market  value  of the
consideration   paid  for  such  shares  if  such   control  was   acquired  for
consideration  other than cash, (ii) the price per share paid in connection with
any tender offer for shares of the Company's Common Stock leading to control, or
(iii)  the mean  between  the high and low  selling  price of such  stock on the
Nasdaq  National  Market or other market on which the Company's  Common Stock is
then traded on the date of the Change of Control.

     For  purposes  of the  Plan,  a Change in  Control  shall be deemed to have
occurred if:


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                    (i) An acquisition (other than directly from the Company) of
any voting  securities of the Company (the "Voting  Securities") by any "Person"
(as the term  "person"  is used for  purposes  of Section  13(d) or 14(d) of the
Securities  Exchange Act of 1934, as amended (the "Exchange Act")),  immediately
after which such Person has "Beneficial  Ownership"  (within the meaning of Rule
13d-3  promulgated  under the Exchange  Act) of more than fifty percent (50%) of
(1) the  then-outstanding  shares of common  stock of the  Company (or any other
securities  into which such shares of common stock are changed or for which such
shares of common stock are exchanged)  (the "Shares") or (2) the combined voting
power of the Company's  then-outstanding Voting Securities;  PROVIDED,  HOWEVER,
that in  determining  whether a Change in Control has occurred  pursuant to this
paragraph (a), the acquisition of Shares or Voting  Securities in a "Non-Control
Acquisition" (as hereinafter  defined) shall not constitute a Change in Control.
A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit
plan (or a trust  forming a part  thereof)  maintained by (A) the Company or (B)
any corporation or other Person the majority of the voting power,  voting equity
securities or equity interest of which is owned, directly or indirectly,  by the
Company (for purposes of this definition,  a "Related Entity"), (ii) the Company
or any Related  Entity,  or (iii) any Person in connection  with a  "Non-Control
Transaction" (as hereinafter defined);

                    (ii) The  individuals  who, as of the  Effective  Date,  are
members of the board of directors of the Company (the "Incumbent Board"),  cease
for any reason to  constitute at least a majority of the members of the board of
directors of the Company or,  following a Merger (as hereinafter  defined),  the
board of  directors  of (x) the  corporation  resulting  from such  Merger  (the
"Surviving Corporation"),  if fifty percent (50%) or more of the combined voting
power of the then-outstanding  voting securities of the Surviving Corporation is
not  Beneficially  Owned,  directly or indirectly,  by another Person (a "Parent
Corporation")  or (y) if there is one or more than one Parent  Corporation,  the
ultimate  Parent  Corporation;  PROVIDED,  HOWEVER,  that, if the  election,  or
nomination  for  election  by the  Company's  common  stockholders,  of any  new
director was approved by a vote of at least  two-thirds of the Incumbent  Board,
such new director shall, for purposes of the Plan, be considered a member of the
Incumbent Board;  and PROVIDED,  FURTHER,  HOWEVER,  that no individual shall be
considered a member of the Incumbent Board if such individual  initially assumed
office as a result  of an  actual  or  threatened  solicitation  of  proxies  or
consents by or on behalf of a Person  other than the board of  directors  of the
Company (a "Proxy  Contest"),  including by reason of any agreement  intended to
avoid or settle any Proxy Contest; or

                    (iii) The consummation of:

                         (a) A merger,  consolidation or reorganization (1) with
or into the  Company or (2) in which  securities  of the  Company  are issued (a
"Merger"),  unless such Merger is a  "Non-Control  Transaction."  A "Non-Control
Transaction" shall mean a Merger in which:

                              (i) the  stockholders  of the Company  immediately
                    before such Merger own  directly or  indirectly  immediately
                    following  such Merger at least fifty  percent  (50%) of the
                    combined voting power of the outstanding  voting  securities


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                    of (x) the  Surviving  Corporation,  if there  is no  Parent
                    Corporation  or (y) if there is one or more than one  Parent
                    Corporation, the ultimate Parent Corporation;

                              (ii)  the  individuals  who  were  members  of the
                    Incumbent  Board  immediately  prior to the execution of the
                    agreement  providing  for such Merger  constitute at least a
                    majority of the members of the board of directors of (x) the
                    Surviving Corporation, if there is no Parent Corporation, or
                    (y) if there is one or more than one Parent Corporation, the
                    ultimate Parent Corporation; and

                              (iii) no Person  other than (1) the  Company,  (2)
                    any Related Entity, or (3) any employee benefit plan (or any
                    trust forming a part thereof) that, immediately prior to the
                    Merger, was maintained by the Company or any Related Entity,
                    or (4) any Person who,  immediately  prior to the Merger had
                    Beneficial  Ownership of twenty percent (20%) or more of the
                    then outstanding Shares or Voting Securities, has Beneficial
                    Ownership,  directly or indirectly,  of twenty percent (20%)
                    or more of the  combined  voting  power  of the  outstanding
                    voting  securities  or  common  stock  of (x) the  Surviving
                    Corporation,  if fifty percent (50%) or more of the combined
                    voting power of the then  outstanding  voting  securities of
                    the  Surviving   Corporation  is  not  Beneficially   Owned,
                    directly or  indirectly by a Parent  Corporation,  or (y) if
                    there  is one or  more  than  one  Parent  Corporation,  the
                    ultimate Parent Corporation;

               (b) A complete liquidation or dissolution of the Company; or

               (c) The sale or other  disposition of all or substantially all of
the assets of the  Company and its  subsidiaries  taken as a whole to any Person
(other than (x) a transfer to a Related Entity,  (y) a transfer under conditions
that would constitute a Non-Control Transaction,  with the disposition of assets
being  regarded  as a Merger  for this  purpose or (z) the  distribution  to the
Company's stockholders of the stock of a Related Entity or any other assets).

Notwithstanding the foregoing,  a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired  Beneficial  Ownership
of more  than the  permitted  amount  of the then  outstanding  Shares or Voting
Securities as a result of the acquisition of Shares or Voting  Securities by the
Company  which,  by  reducing  the  number of Shares or Voting  Securities  then
outstanding,  increases the proportional  number of shares Beneficially Owned by
the Subject Persons;  PROVIDED, that if a Change in Control would occur (but for
the  operation  of this  sentence) as a result of the  acquisition  of Shares or
Voting  Securities  by the  Company  and,  after such share  acquisition  by the
Company,  the Subject  Person  becomes the  Beneficial  Owner of any  additional
Shares  or  Voting  Securities  and  such  Beneficial  Ownership  increases  the
percentage  of the then  outstanding  Shares or Voting  Securities  Beneficially
Owned by the Subject Person, then a Change in Control shall occur.

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               (d) METHOD OF  EXERCISE.  Options to the extent then  exercisable
may be  exercised in whole or in part at any time during the option  period,  by
giving written notice to the Company specifying the number of shares of Stock to
be purchased,  accompanied by payment in full of the purchase price, in cash, or
by check or such other  instrument  as may be acceptable  to the  Committee.  As
determined by the Committee, in its sole discretion,  at or after grant, payment
in full or in part may be made at the  election of the  Optionee (i) in the form
of Stock  owned by the  Optionee  (based on the Fair  Market  Value of the Stock
which is not the subject of any pledge or security interest, (ii) in the form of
shares of Stock withheld by the Company from the shares of Stock otherwise to be
received with such withheld  shares of Stock having a Fair Market Value equal to
the exercise  price of the Option,  or (iii) by a combination  of the foregoing,
such Fair Market  Value  determined  by  applying  the  principles  set forth in
Section 5(a),  provided that the combined value of all cash and cash equivalents
and the Fair Market Value of any shares  surrendered  to the Company is at least
equal to such exercise price and except with respect to (ii) above,  such method
of payment will not cause a disqualifying disposition of all or a portion of the
Stock  received  upon  exercise  of an  Incentive  Option.  Notwithstanding  the
forgoing,  an  Optionee  may not take any  actions  that are  prohibited  by the
Sarbanes-Oxley  Act of 2002 and the rules  and  regulations  promulgated  by the
Securities and Exchange  Commission or any agency thereunder.  An Optionee shall
have the right to dividends  and other rights of a  stockholder  with respect to
shares  of Stock  purchased  upon  exercise  of an  Option  at such  time as the
Optionee (i) has given written  notice of exercise and has paid in full for such
shares,  and (ii) has  satisfied  such  conditions  that may be  imposed  by the
Company with respect to the withholding of taxes.

               (e) NON-TRANSFERABILITY OF OPTIONS.  Options are not transferable
and may be  exercised  solely by the  Optionee  during his lifetime or after his
death by the person or persons  entitled  thereto  under his will or the laws of
descent and distribution.  The Committee,  in its sole discretion,  may permit a
transfer  of a  Nonqualified  Option  to (i) a  trust  for  the  benefit  of the
Optionee,  (ii) a member of the Optionee's  immediate family (or a trust for his
or her benefit) or (iii) pursuant to a domestic  relations order. Any attempt to
transfer,  assign,  pledge or otherwise  dispose of, or to subject to execution,
attachment or similar  process,  any Option  contrary to the  provisions  hereof
shall  be void  and  ineffective  and  shall  give  no  right  to the  purported
transferee.

               (f)  TERMINATION  BY DEATH.  Unless  otherwise  determined by the
Committee,  if any Optionee's  employment  with or service to the Company or any
Subsidiary  terminates  by  reason  of  death,  the  Option  may  thereafter  be
exercised,  to the extent then exercisable (or on such accelerated  basis as the
Committee shall determine at or after grant), by the legal representative of the
estate or by the legatee of the Optionee  under the will of the Optionee,  for a
period of one (1) year after the date of such death (or, if later,  such time as
the Option may be  exercised  pursuant  to  Section  14(d)  hereof) or until the
expiration  of the  stated  term of such  Option  as  provided  under  the Plan,
whichever period is shorter.

               (g)  TERMINATION  BY  REASON  OF  DISABILITY.   Unless  otherwise
determined by the Committee, if any Optionee's employment with or service to the
Company  or  any  Subsidiary   terminates  by  reason  of  total  and  permanent
disability, any Option held by such Optionee may thereafter be exercised, to the
extent it was  exercisable at the time of  termination  due to disability (or on


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such accelerated basis as the Committee shall determine at or after grant),  but
may not be exercised  after three (3) months after the date of such  termination
of employment or service (or, if later, such time as the Option may be exercised
pursuant to Section 14(d)  hereof) or the  expiration of the stated term of such
Option,  whichever period is shorter;  PROVIDED,  HOWEVER, that, if the Optionee
dies within such three (3) month  period,  any  unexercised  Option held by such
Optionee  shall  thereafter  be  exercisable  to  the  extent  to  which  it was
exercisable  at the time of death for a period of one (1) year after the date of
such death (or, if later,  such time as the Option may be exercised  pursuant to
Section 14(d) hereof) or for the stated term of such Option, whichever period is
shorter.

                  (h)  TERMINATION  BY REASON OF  RETIREMENT.  Unless  otherwise
determined by the Committee, if any Optionee's employment with or service to the
Company or any Subsidiary terminates by reason of Normal or Early Retirement (as
such terms are defined  below),  any Option held by such Optionee may thereafter
be exercised to the extent it was exercisable at the time of such Retirement (or
on such  accelerated  basis as the Committee shall determine at or after grant),
but  may  not be  exercised  after  three  (3)  months  after  the  date of such
termination of employment or service (or, if later,  such time as the Option may
be exercised  pursuant to Section 14(d) hereof) or the  expiration of the stated
term of such Option, whichever date is earlier; provided,  however, that, if the
Optionee dies within such three (3) month period, any unexercised Option held by
such Optionee  shall  thereafter be  exercisable,  to the extent to which it was
exercisable at the time of death, for a period of one (1) year after the date of
such death (or, if later,  such time as the Option may be exercised  pursuant to
Section 14(d) hereof) or for the stated term of such Option, whichever period is
shorter.

     For  purposes  of  this  paragraph  (h),  "Normal  Retirement"  shall  mean
retirement from active employment with the Company or any Subsidiary on or after
the normal  retirement  date specified in the  applicable  Company or Subsidiary
pension plan or if no such pension plan,  age 65, and "Early  Retirement"  shall
mean  retirement  from  active  employment  with the  Company or any  Subsidiary
pursuant  to the  early  retirement  provisions  of the  applicable  Company  or
Subsidiary pension plan or if no such pension plan, age 55.

               (i)  OTHER  TERMINATION.   Unless  otherwise  determined  by  the
Committee  upon  grant,  if any  Optionee's  employment  with or  service to the
Company or any Subsidiary terminates for any reason other than death, disability
or Normal or Early Retirement, the Option shall thereupon terminate, except that
the portion of any Option that was  exercisable on the date of such  termination
of  employment  or service may be  exercised  for the lesser of thirty (30) days
after  the date of  termination  or the  balance  of such  Option's  term if the
Optionee's employment or service with the Company or any Subsidiary or Affiliate
is terminated by the Company or such Subsidiary without cause (the determination
as to  whether  termination  was for  cause  to be made by the  Committee).  The
transfer  of an  Optionee  from the employ of or  service to the  Company to the
employ of or service to a Subsidiary,  or vice versa,  or from one Subsidiary to
another,  shall not be deemed to  constitute  a  termination  of  employment  or
service for purposes of the Plan.

               (j) LIMIT ON VALUE OF INCENTIVE OPTION. The aggregate Fair Market
Value,  determined as of the date the Incentive Option is granted,  of Stock for


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which  Incentive  Options  are  exercisable  for the first time by any  Optionee
during any calendar  year under the Plan (and/or any other stock option plans of
the Company or any Subsidiary) shall not exceed $100,000.

               (k) GRANTS TO FOREIGN  EMPLOYEES.  The terms of grants to foreign
employees  may vary from the terms of this  Section  5  provided  that the terms
shall only be more restrictive than any term in this Section 5.

               (l) DIVIDEND  EQUIVALENTS.  Simultaneously  with the grant of any
Option and under such terms and  conditions as the Committee  deems  appropriate
and  subject to Section 12 herein,  the  Committee  may grant  special  dividend
equivalent rights ("Dividend  Equivalents")  which amount shall be determined by
multiplying  the number of shares of Stock subject to an Option by the per-share
cash  dividend,  or the  per-share  fair  market  value  (as  determined  by the
Committee) of any dividend in consideration other than cash, paid by the Company
on its Stock on a dividend  payment date (other than the regular  quarterly cash
dividends of the  Company).  Unless  otherwise  determined  by the  Committee at
grant,  the Dividend  Equivalents (i) shall have the same vesting  schedule,  if
any, as the Options to which the Dividend  Equivalents  relate and (ii) shall be
payable upon exercise of the Options to which the Dividend  Equivalents  relate.
At the discretion of the Committee,  Dividend  Equivalents  shall be credited to
accounts on the Company's records for purposes of the Plan. Dividend Equivalents
may be accrued as a cash obligation,  or may be converted to shares of Stock for
the  Participant.  The Committee shall determine  whether any deferred  Dividend
Equivalents will accrue interest. The Committee may provide that an Optionee may
use Dividend Equivalents to pay the Purchase Price.  Dividend Equivalents may be
payable in cash or shares of Stock or in a combination of the two, as determined
by the Committee.

          6.   TERMS AND CONDITIONS OF RESTRICTED STOCK.

     Restricted  Stock  may  be  granted  under  this  Plan  aside  from,  or in
association  with,  any  other  award  and  shall be  subject  to the  following
conditions and shall contain such  additional  terms and  conditions  (including
provisions  relating to the  acceleration of vesting of Restricted  Stock upon a
Change  of  Control),  not  inconsistent  with  the  terms of the  Plan,  as the
Committee shall deem desirable:

               (a) GRANTEE RIGHTS. A Grantee shall have no rights to an award of
Restricted  Stock unless and until  Grantee  accepts the award within the period
prescribed by the Committee and, if the Committee  shall deem  desirable,  makes
payment to the Company in cash,  or by check or such other  instrument as may be
acceptable to the Committee.  After  acceptance and issuance of a certificate or
certificates,  as provided  for below,  the  Grantee  shall have the rights of a
stockholder with respect to Restricted Stock subject to the  non-transferability
and forfeiture restrictions described in Section 6(d) below.

                                       9


               (b)  ISSUANCE OF  CERTIFICATES.  The  Company  shall issue in the
Grantee's  name a  certificate  or  certificates  for the shares of Common Stock
associated with the award promptly after the Grantee accepts such award.

               (c) DELIVERY OF  CERTIFICATES.  Unless  otherwise  provided,  any
certificate or certificates  issued  evidencing shares of Restricted Stock shall
not be delivered to the Grantee  until such shares are free of any  restrictions
specified by the Committee at the time of grant.

               (d)  FORFEITABILITY,  NON-TRANSFERABILITY  OF  RESTRICTED  STOCK.
Shares of Restricted  Stock are  forfeitable  until the terms of the  Restricted
Stock grant have been satisfied. Shares of Restricted Stock are not transferable
until the date on which the  Committee  has  specified  such  restrictions  have
lapsed.   Unless  otherwise  provided  by  the  Committee  at  or  after  grant,
distributions  in the form of dividends or  otherwise  of  additional  shares or
property in respect of shares of  Restricted  Stock shall be subject to the same
restrictions as such shares of Restricted Stock.

               (e) CHANGE OF CONTROL. Upon the occurrence of a Change in Control
as defined  in  Section  5(c),  the  Committee  may  accelerate  the  vesting of
outstanding  Restricted  Stock,  in  whole  or in  part,  as  determined  by the
Committee, in its sole discretion.

               (f) TERMINATION OF EMPLOYMENT. Unless otherwise determined by the
Committee at or after grant,  in the event the Grantee  ceases to be an employee
or otherwise  associated  with the Company for any other  reason,  all shares of
Restricted  Stock  theretofore  awarded  to  him  which  are  still  subject  to
restrictions shall be forfeited and the Company shall have the right to complete
a blank  stock  power.  The  Committee  may  provide  (on or after  grant)  that
restrictions  or forfeiture  conditions  relating to shares of Restricted  Stock
will be waived in whole or in part in the event of  termination  resulting  from
specified causes, and the Committee may in other cases waive in whole or in part
restrictions or forfeiture conditions relating to Restricted Stock.

         7.    TERM OF PLAN.

     No Option or shares of  Restricted  Stock shall be granted  pursuant to the
Plan on or after the date that is ten years from the effective date of the Plan,
but Options or shares of Restricted Stock theretofore  granted may extend beyond
that date.

         8.    CAPITAL CHANGE OF THE COMPANY.

     In   the   event   of   any    merger,    reorganization,    consolidation,
recapitalization,  stock dividend,  stock split or other equity restructuring or
change in corporate  structure  affecting the Stock, the Committee shall make an
appropriate  and equitable  adjustment in the number and kind of shares reserved
for issuance under the Plan and in the number and option price of shares subject
to outstanding  Options granted under the Plan, to the end that after such event
each  Optionee's  proportionate  interest  shall be  maintained  (to the  extent
possible) as  immediately  before the  occurrence  of such event.  The Committee


                                       10


shall, to the extent  feasible,  make such other  adjustments as may be required
under the tax laws so that any Incentive Options previously granted shall not be
deemed  modified  within the meaning of Section 424(h) of the Code.  Appropriate
adjustments  shall  also be made in the  case of  outstanding  Restricted  Stock
granted under the Plan.

     The adjustments  described above will be made only to the extent consistent
with continued qualification of the Option under Section 422 of the Code (in the
case of an Incentive Option) and Section 409A of the Code.

         9.    PURCHASE FOR INVESTMENT/CONDITIONS.

     Unless  the  Options  and shares  covered by the Plan have been  registered
under the Securities Act, or the Company has determined  that such  registration
is unnecessary,  each person exercising or receiving Options or Restricted Stock
under  the Plan may be  required  by the  Company  to give a  representation  in
writing that he is acquiring the  securities  for his own account for investment
and not with a view to, or for sale in connection  with, the distribution of any
part thereof. The Committee may impose any additional or further restrictions on
awards of Options or Restricted Stock as shall be determined by the Committee at
the time of award.

         10.   TAXES.

               (a)  The  Company  may  make  such  provisions  as  it  may  deem
appropriate,  consistent  with applicable law, in connection with any Options or
Restricted  Stock granted under the Plan with respect to the  withholding of any
taxes (including income or employment taxes) or any other tax matters.

               (b) If  any  Grantee,  in  connection  with  the  acquisition  of
Restricted Stock,  makes the election  permitted under Section 83(b) of the Code
(that is, an  election to include in gross  income in the year of  transfer  the
amounts  specified in Section  83(b)),  such Grantee shall notify the Company of
the election with the Internal  Revenue Service  pursuant to regulations  issued
under the authority of Code Section 83(b).

               (c) If any Grantee shall make any  disposition of shares of Stock
issued pursuant to the exercise of an Incentive  Option under the  circumstances
described  in Section  421(b) of the Code  (relating  to  certain  disqualifying
dispositions),  such Grantee shall notify the Company of such disposition within
ten (10) days hereof.

         11.   EFFECTIVE DATE OF PLAN.

     The Plan shall be effective on April 3, 2006; provided,  however,  that if,
and only if, certain options are intended to qualify as Incentive Stock Options,
the Plan  must  subsequently  be  approved  by  majority  vote of the  Company's
stockholders no later than April 3, 2007, and further, that in the event certain
Option   grants   hereunder   are  intended  to  qualify  as   performance-based
compensation  within the meaning of Section 162(m) of the Code, the requirements
as to  shareholder  approval  set  forth  in  Section  162(m)  of the  Code  are
satisfied.

                                       11


         12.   AMENDMENT AND TERMINATION.

     The Board may  amend,  suspend,  or  terminate  the  Plan,  except  that no
amendment  shall be made that would impair the rights of any  Participant  under
any Option or Restricted  Stock  theretofore  granted without the  Participant's
consent,  and except that no amendment shall be made which, without the approval
of the stockholders of the Company would:

               (a)  materially  increase the number of shares that may be issued
under the Plan, except as is provided in Section 8;

               (b) materially increase the benefits accruing to the Participants
under the Plan;

               (c) materially  modify the  requirements  as to  eligibility  for
participation in the Plan;

               (d) decrease the  exercise  price of an Incentive  Option to less
than  100% of the  Fair  Market  Value  per  share of Stock on the date of grant
thereof or the exercise price of a Nonqualified  Option to less than 100% of the
Fair Market Value per share of Stock on the date of grant thereof;

               (e) extend the term of any Option  beyond  that  provided  for in
Section 5(b); or

               (f) except as  otherwise  provided in Sections  5(c),  5(l) and 8
hereof,  reduce the exercise  price of outstanding  Options or effect  repricing
through cancellations and re-grants of new Options.

     Subject to the  forgoing,  the  Committee may amend the terms of any Option
theretofore  granted,  prospectively or  retrospectively,  but no such amendment
shall impair the rights of any Optionee without the Optionee's consent.

     It is the  intention  of the Board that the Plan comply  strictly  with the
provisions  of  Section  409A of the Code and  Treasury  Regulations  and  other
Internal  Revenue  Service  guidance  promulgated  thereunder (the "Section 409A
Rules") and the  Committee  shall  exercise its  discretion  in granting  awards
hereunder (and the terms of such awards), accordingly. The Plan and any grant of
an award hereunder may be amended from time to time (without,  in the case of an
award,  the consent of the  Participant)  as may be necessary or  appropriate to
comply with the Section 409A Rules.

         13.   GOVERNMENT REGULATIONS.

     The  Plan,  and the grant and  exercise  of  Options  or  Restricted  Stock
hereunder,  and the  obligation of the Company to sell and deliver  shares under
such Options and Restricted Stock shall be subject to all applicable laws, rules
and regulations,  and to such approvals by any governmental  agencies,  national
securities exchanges and interdealer quotation systems as may be required.

                                       12


         14.   GENERAL PROVISIONS.

               (a) CERTIFICATES.  All certificates for shares of Stock delivered
under  the Plan  shall  be  subject  to such  stop  transfer  orders  and  other
restrictions  as the Committee may deem advisable  under the rules,  regulations
and other  requirements  of the  Securities  and Exchange  Commission,  or other
securities  commission  having  jurisdiction,  any  applicable  Federal or state
securities  law, any stock exchange or interdealer  quotation  system upon which
the  Stock is then  listed  or traded  and the  Committee  may cause a legend or
legends to be placed on any such  certificates to make appropriate  reference to
such restrictions.

               (b) EMPLOYMENT MATTERS.  Neither the adoption of the Plan nor any
grant or award  under  the Plan  shall  confer  upon any  Participant  who is an
employee of the Company or any Subsidiary any right to continued  employment or,
in the case of a Participant who is a director, continued service as a director,
with the Company or a Subsidiary,  as the case may be, nor shall it interfere in
any way with  the  right of the  Company  or any  Subsidiary  to  terminate  the
employment of any of its  employees,  the service of any of its directors or the
retention of any of its consultants or advisors at any time.

               (c) LIMITATION OF LIABILITY.  No member of the Committee,  or any
officer or employee of the Company acting on behalf of the  Committee,  shall be
personally liable for any action,  determination or interpretation taken or made
in good faith with  respect to the Plan,  and all members of the  Committee  and
each and any officer or employee of the Company acting on their behalf shall, to
the extent  permitted by law, be fully  indemnified and protected by the Company
in respect of any such action, determination or interpretation.

               (d) REGISTRATION OF STOCK. Notwithstanding any other provision in
the Plan,  no Option  may be  exercised  unless and until the Stock to be issued
upon the exercise  thereof has been registered under the Securities Act of 1933,
as amended,  and  applicable  state  securities  laws, or are, in the opinion of
counsel to the Company,  exempt from such registration in the United States. The
Company shall not be under any obligation to register under  applicable  federal
or state  securities  laws any Stock to be issued upon the exercise of an Option
granted  hereunder in order to permit the exercise of an Option and the issuance
and sale of the Stock  subject to such  Option,  although the Company may in its
sole discretion register such Stock at such time as the Company shall determine.
If the Company chooses to comply with such an exemption from  registration,  the
Stock issued  under the Plan may, at the  direction  of the  Committee,  bear an
appropriate  restrictive  legend restricting the transfer or pledge of the Stock
represented  thereby,  and the Committee may also give appropriate stop transfer
instructions with respect to such Stock to the Company's transfer agent.

         15.   NON-UNIFORM DETERMINATIONS.

     The  Committee's   determinations  under  the  Plan,   including,   without
limitation,  (i) the  determination of the Participants to receive awards,  (ii)
the form,  amount and timing of such awards,  (iii) the terms and  provisions of
such awards and (ii) the agreements evidencing the same, need not be uniform and


                                       13


may be  made  by it  selectively  among  Participants  who  receive,  or who are
eligible to receive, awards under the Plan, whether or not such Participants are
similarly situated.

         16.   GOVERNING LAW.

     The  validity,  construction,  and  effect  of the Plan and any  rules  and
regulations  relating to the Plan shall be  determined  in  accordance  with the
internal laws of the State of Delaware,  without  giving effect to principles of
conflicts of laws, and applicable federal law.

                                                       FalconStor Software, Inc.
                                                                   April 3, 2006
                                                       As amended August 7, 2006




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