Exhibit 10.1

   FALCONSTOR SOFTWARE, INC. SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
                             Employee: ReiJane Huai

     SECOND  AMENDED  AND  RESTATED  EMPLOYMENT  AGREEMENT  made this 7th day of
November,  2005  (hereinafter  referred to as this "Employment  Agreement"),  by
FalconStor Software,  Inc., a Delaware corporation  (hereinafter  referred to as
the  "Corporation"),  and ReiJane Huai with an address at 3 Carlisle Drive,  Old
Brookville, NY 11545 (hereinafter referred to as the "Employee").
     WHEREAS, the Employee desires to continue to be employed by the Corporation
as President and Chief Executive  Officer ("CEO"),  and the Corporation  desires
that the  Employee  continue to be so  employed,  upon the terms and  conditions
hereinafter set forth.
     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties intending to be legally bound,
agree as follows:
     1. TERM OF  EMPLOYMENT.  The Board hereby employs the Employee as President
and CEO,  and the  Employee  hereby  agrees  to serve  the  Corporation  in such
capacity for the period  commencing on September 1, 2004 (the "Effective  Date")
and ending on December  31,  2007  (hereinafter  referred to as the  "Employment
Period"), unless sooner terminated as hereinafter provided.
     2. SCOPE OF DUTIES.  The Employee  shall serve as a President  and CEO. The
Employee shall report and be solely responsible to the Board of Directors of the
Corporation (the "Board").  The Employee's  performance shall be reviewed by the
Board annually.
     3. TIME TO BE DEVOTED TO  EMPLOYMENT.  The Employee  shall,  except  during
vacation periods or absences due to temporary illness,  devote substantially all
of his professional and business time,  attention and energies to his duties and
responsibilities  hereunder,  and  except  for  business  trips  which  shall be
necessary or desirable in the Corporation's business, shall render such services
at the  principal  office of the  Corporation.  Nothing  herein  contained or in
Section 10 hereof shall prevent or be construed as preventing  the Employee from
holding  or  purchasing  five  (5%)  percent  or less of any  class  of stock or
securities of a corporation which is listed on a national securities exchange or
regularly traded in the over-the-counter  market, or making other investments or
participating  in business  ventures not in competition with the business of the
Corporation, as long as such investments and business ventures shall not require
any time during  normal  business  hours and do not conflict  with his duties or
obligations to the Corporation as provided in this Employment Agreement.

     4. DIRECT  COMPENSATION.  (a) In consideration for services rendered and to
be rendered by the Employee hereunder during the Employment Period, the Employee
shall  receive a salary of Two  Hundred  and  Seventy-Five  Thousand  ($275,000)
Dollars per year, or such greater amount as the Board shall  determine from year
to year based on the Employee's performance (the "Base Salary"),  which shall be
paid  semi-monthly  in arrears or at such other intervals as other employees are
paid.
     (b) The  Employee  shall be  entitled  to  receive a cash bonus (i) for the
period from  September  1, 2004  through  December  31,  2005 (the "First  Bonus
Period") in an amount equal to 2.50% of the  Corporation's  net operating income
for  such  period  as  determined  by  reference  to  the  Corporation's  income
statements,  but without giving effect to (a) Statement of Financial  Accounting
Standard  123R,  or (b) such other  extraordinary,  non-recurring  and/or  other
unusual items as determined by the Compensation Committee of the Company's Board
of  Directors  and  agreed by a majority  of the  independent  directors  of the
Company's Board of Directors (hereinafter referred to as the "Operating Income")
during  the First  Bonus  Period,  (ii) for the fiscal  year of the  Corporation
ending  December 31, 2006 (the "Second Bonus  Period") in an amount equal to the
product  of (A)  the  Applicable  Percentage  (as  defined  below)  and  (B) the
Operating  Income for the Second  Bonus  Period and (iii) for the fiscal year of
the Corporation ending December 31, 2007 (the "Third Bonus Period") in an amount
equal to the  product of (A) the  Applicable  Percentage  and (B) the  Operating
Income for the Third Bonus Period.  Each bonus payable to the Employee  shall be
paid  within 75 days  after the last day of the  applicable  Bonus  Period.  For
purposes hereof, "Applicable Percentage" shall mean (I) 1.50%, if the percentage
obtained by dividing (x) the Operating Income for the Second Bonus Period or the
Third Bonus Period,  as the case may be, by (y) the  shareholders  equity of the
Corporation  during the Second  Bonus Period or the Third Bonus  Period,  as the
case may be, as determined by reference to the annual  audited  balance sheet of
the  Corporation  for  the  year  ending  as of the  end of  such  Bonus  Period
(hereinafter referred to as "Shareholders  Equity") is less than or equal to 5%,
(II) 2.00%, if the percentage  obtained by dividing (x) the Operating Income for
the Second  Bonus Period or the Third Bonus  Period,  as the case may be, by (y)
the  Shareholders  Equity is more  than 5% but less than or equal to 10%,  (III)
2.25%, if the percentage  obtained by dividing (x) the Operating  Income for the
Second  Bonus Period or the Third Bonus  Period,  as the case may be, by (y) the
Shareholders  Equity is more than 10% but less than or equal to 15%, (IV) 2.50%,
if the percentage  obtained by dividing (x) the Operating  Income for the Second
Bonus  Period  or the  Third  Bonus  Period,  as the  case  may  be,  by (y) the
Shareholders  Equity  is more  than  15% but  less  than or equal to 20% and (V)
3.00%, if the percentage  obtained by dividing (x) the Operating  Income for the
Second  Bonus Period or the Third Bonus  Period,  as the case may be, by (y) the
Shareholders Equity is more than 20%.

                                       2

     5. FRINGE  BENEFITS.  (a) The Employee  shall be entitled to participate in
any and all fringe benefits and/or plans,  generally afforded to other employees
of the  Corporation  (to the extent the Employee  otherwise  qualifies under the
specific  terms  and  conditions  of  each  such  benefit),  including,  without
limitation,  group  disability,  life insurance,  medical  insurance and pension
plans  (401K)  which are,  or which may  become  available  generally  to senior
personnel of the  Corporation.  The Employee shall be entitled to four (4) weeks
of vacation time during each year of the Employment Period.
     (b) If the Corporation has a group disability plan in force at the time the
Employee's employment  terminates,  the Corporation shall offer the Employee the
opportunity  to continue  disability  coverage at the Employee's own expense for
such  period as the  Employee  desires;  provided,  that the  Employee  shall be
required to make all insurance premium contributions.
     (c) Upon termination of the Employee's  employment,  the Corporation  shall
offer the Employee the opportunity to continue the Employee's  health  insurance
coverage in effect  immediately  prior to such  termination or health  insurance
coverage generally  available at such time to executives of the Corporation,  at
the Employee's own expense,  for such period as the Employee desires;  provided,
that the Employee shall be required to make all insurance premium contributions.
     6. TERMINATION OF EMPLOYMENT.  During the Employment Period, the Employee's
employment  may be terminated by the Board on the  occurrence of any one or more
of the following events:
     (a) The death of the Employee;
     (b) For "Cause",  which shall mean (i) the willful  failure by the Employee
to  substantially  perform  his duties  hereunder  (including  the breach of any
provision  of  Section 9 and/or 10  hereof),  for  reasons  other  than death or
disability;  (ii) the willful engaging by the Employee in misconduct  materially
injurious to the Corporation;  or (iii) the commission by the Employee of an act
constituting (A) common law fraud against the Corporation or (B) a felony; or
     (c) If the  Employee  is unable  substantially  to perform  the  Employee's
duties and  responsibilities  hereunder to the full extent required by the Board
by reason of illness,  injury or incapacity for three consecutive months, or for
more than four  months in the  aggregate  during any  period of twelve  calendar
months  (such  condition  constituting  "disability"  for the  purposes  of this
Employment Agreement); provided, however, that the Corporation shall continue to
pay the Employee's  then current Base Salary until the Company acts to terminate
the Employee.  The Employee agrees, in the event of a dispute under this Section
6(c), to submit to a physical  examination by a licensed  physician  selected by
the Board and consented to by the Employee.
     7. DEATH  BENEFIT.  In addition to all other  insurance  and similar  death
benefits  generally  made  available  to employees  of the  Corporation,  if the
Employee's  death  occurs  during  the  term  of  the  Employment   Period,  the

                                       3

Corporation shall provide a death benefit to the estate of the Employee equal to
the Employee's then current annual Base Salary at the date of death.  Such death
benefit shall be payable as may be determined by the  Corporation,  but not less
often than six (6) equal monthly  installments,  payable on the last day of each
month,  commencing  in the  month  subsequent  to the  month in which  the death
occurs.
     8. SEVERANCE PAYMENT.  (a) If the Corporation and the Employee do not enter
into a renewal  agreement  to be effective  January 1, 2008,  for a period of at
least two years and  containing  similar terms and conditions to those set forth
herein, then the Corporation will pay the Employee, as additional  compensation,
an amount equal to the Employee's then current annual Base Salary, as determined
under Section 4(a), payable semi-monthly in arrears for the twelve months ending
December  31,  2008;  such  compensation  is  hereinafter  referred  to  as  the
"Severance Payment".
     (b)  Notwithstanding  the  provisions of Section 8 (a) above,  the Employee
will not receive the Severance Payment if,
          (i) the  Corporation  declines to enter into a renewal  agreement with
the  Employee  because  the  Employee   breached  the   confidentiality   and/or
non-compete  provisions of this Employment Agreement or any other material terms
or conditions of his employment;
          (ii) the Employee has been terminated for Cause hereunder;
          (iii) the Employee declines to enter into a renewal agreement with the
Corporation, and the Corporation has offered a renewal agreement for a period of
not less than two years,  containing  similar terms and  conditions as discussed
herein; or
          (iv) the Employee  has  received a change of control  payment from the
Corporation  that provides change of control benefits that are at least equal to
the amount  that would be  received by the  Employee  pursuant  to Section  8(a)
above.
     (c) If the Employee's employment is terminated for Cause, the Corporation's
sole  obligation  hereunder  shall be to pay the  Employee  (i) any  accrued and
unpaid Base Salary as of the date of  termination,  (ii) an amount equal to such
reasonable  and  necessary   business  expenses  incurred  by  the  Employee  in
connection  with the  Employee's  employment on behalf of the  Corporation on or
prior to the date of termination,  but not previously paid to the Employee,  and
(iii)  if  the  basis  for  such  termination  arises  under  clause  (i) of the
definition  of  "Cause,"  his base  Salary (at the rate in effect on the date of
termination) through the twelve-month  anniversary of the date of termination in
accordance with the normal payroll  practices of the Corporation with respect to
Base Salary.
     9.  DISCLOSURE  OF  INFORMATION.  All  memoranda,  notes,  records or other
documents  made or compiled by the Employee or made  available to him during the
term of his employment  concerning the business of the Corporation  shall be the
Corporation's  property  and  shall  be  delivered  to  the  Corporation  on the
termination of the Employee's employment. The Employee shall not use for himself

                                       4

or others, or divulge to others, any proprietary or confidential  information of
the  Corporation,  obtained  by  him  as a  result  of  his  employment,  unless
authorized  by the  Corporation.  For  purposes  of this  Section  9,  the  term
"proprietary or confidential  information"  shall mean all information  which is
known only to the Employee or to the Employee and employees,  former  employees,
consultants or others in a confidential  relationship  with the  Corporation and
relates  to  specific  matters  such  as  trade  secrets,  customers,  potential
customers  and vendor  lists,  pricing  and credit  techniques,  program  codes,
software  design  know-how,   research  and  development   activities,   private
processes, and books and records, as they may exist from time to time, which the
Employee may have acquired or obtained by virtue of work heretofore or hereafter
performed  for or on behalf of the  Corporation  or which he may  acquire or may
have acquired knowledge of during the performance of said work, and which is not
known to others,  or readily  available  to others from  sources  other than the
Employee or officers or other  employees  of the  Corporation,  or is not in the
public domain.  In the event of a breach or a threatened  breach by the Employee
of the  provisions  of this Section 9, the  Corporation  shall be entitled to an
injunction  restraining the Employee from  disclosing,  in whole or in part, the
aforementioned  proprietary or confidential  information of the Corporation,  or
from  rendering any services to any person,  firm,  corporation,  association or
other entity to whom such proprietary or confidential  information,  in whole or
in part,  has been  disclosed or is threatened to be disclosed.  Nothing  herein
contained shall be construed as prohibiting  the  Corporation  from pursuing any
other  remedies  available  to the  Corporation  for such  breach or  threatened
breach, including the recovery of damages from the Employee.
     10.  RESTRICTIVE  COVENANTS.  (a)  The  Employee  hereby  acknowledges  and
recognizes  the highly  competitive  nature of the  Corporation's  business  and
accordingly  agrees that, in consideration of the premises  contained herein, he
will not from and after the date hereof and during the  Employment  Period until
the Designated Date (as hereinafter defined):  (i) directly or indirectly engage
in any Competitive  Activity (as hereinafter  defined),  whether such engagement
shall  be  as  an  officer,  director,  employee,   consultant,  agent,  lender,
stockholder,  or  other  participant  or  (ii)  assist  others  in  engaging  in
Competitive Activity. As used herein, the term "Competitive Activity" shall mean
and  include the  development  and/or  marketing  of  computer  hardware  and/or
software for Storage Networking applications and other similar systems.
     (b) As used in this  Section  10,  the  "Designated  Date"  shall  mean the
following:
          (i) if the Employee  terminates  his employment  with the  Corporation
prior to the  expiration of the  Employment  Period (other than as a result of a
breach by the  Corporation  of a material  term or condition of this  Employment
Agreement),  then the "Designated  Date" shall mean the second (2nd) anniversary
of the effective date of such termination;
          (ii) if the  Corporation  terminates  the  employment  of the Employee
under this Employment  Agreement for Cause,  then the "Designated Date" shall be
the second (2nd) anniversary of the effective date of such termination;

                                       5

          (iii) if the Corporation, during the Employment Period, terminates the
employment of the Employee without Cause,  then the "Designated Date" shall mean
the effective date of such termination; or
          (iv) if the  Corporation  offers  the  Employee  a  renewal  agreement
pursuant to Section 8(a) hereof and the Employee does not accept such agreement,
then the "Designated Date" shall mean December 1, 2009.
     (c) It is the desire and intent of the parties that the  provisions of this
Section 10 shall be enforced to the fullest  extent  permissible  under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Section 10 shall be adjudicated
to be invalid  or  unenforceable,  such  provision  of this  Section 10 shall be
deemed  amended to delete from the  portion  thus  adjudicated  to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provisions  of this  Section  10 in the  particular  jurisdiction  in which such
adjudication is made and, further, only to the extent required in order for this
Section 10 to be enforceable.
     (d) With respect to Inventions (including but not limited to software) made
or conceived by the Employee,  whether or not during the hours of his employment
or with the use of the Corporation's facilities,  materials or personnel, either
solely  or  jointly  with  others  during  the  Employee's   employment  by  the
Corporation:
          (i) The Employee  shall inform the  Corporation  promptly and fully of
such  Inventions  by written  report,  setting  forth in detail  the  procedures
employed and the results  achieved.  A report shall be submitted by the Employee
upon  completion  of  any  studies  or  research  projects   undertaken  on  the
Corporation's  behalf whether or not in the  Employee's  opinion a given project
has resulted in an Invention.
          (ii) The  Employee  shall  apply,  at the  Corporation's  request  and
expense,   for  the  United  States  and/or  foreign  letters  patent  or  other
registrations  either in the Employee's  name or otherwise,  as the  Corporation
shall desire.
          (iii)  The  Employee  hereby  assigns  and  agrees  to  assign  to the
Corporation  all of his right and interest to any and all such Inventions and to
make  applications  for United States  and/or  foreign  letters  patent or other
registrations granted upon such Invention.
          (iv) The  Employee  shall  acknowledge  and  deliver  promptly  to the
Corporation, without charge to the Corporation, but at its expense, such written
instruments  and do such other acts in  support of his  inventorship,  as may be
necessary in the opinion of the Corporation to obtain and maintain United States
and/or foreign letters patent or other registration and to vest the entire right
in such  Inventions,  patents and patent  applications in the  Corporation.  The
Employee  agrees that if the  Corporation  is unable  because of the  Employee's
mental or  physical  incapacity  or  unavailability  or for any other  reason to
secure the Employee's  signature to apply for or to pursue any  application  for
any  United  States or  foreign  patents  or  copyright  registrations  covering

                                       6

Inventions assigned to the Corporation as above, the Employee hereby irrevocably
designates and appoints the  Corporation  and its duly  authorized  officers and
agents as the  Employee's  agent  and  attorney  in fact,  to act for and in the
Employee's  behalf and stead to execute and file any such applications and to do
all other lawfully  permitted acts to further the application for,  prosecution,
issuance,  maintenance or transfer of letters patent or copyright  registrations
thereon  with the same legal force and effect as if  originally  executed by the
Employee.   The  Employee  hereby  waives  and  irrevocably  quitclaims  to  the
Corporation any and all claims, of any nature whatsoever, which the Employee now
or  hereafter  may  have  for  infringement  of any and all  proprietary  rights
assigned to the Corporation.
          (v) The Corporation  shall also have the royalty-free  right to use in
its business,  and to make, use, and sell products and/or services  derived from
any  Inventions,  discoveries,  concepts and ideas,  whether or not  patentable,
including, but not limited to applications, methods, formulas and techniques, as
well as improvements or know-how, whether or not within the scope of Inventions,
but which are obtained,  created or made by the Employee  during the  Employment
Period, without payment of any additional compensation to the Employee.
          (vi) For the purposes of this Employment Agreement, "Inventions" means
discoveries,  concepts and ideas,  whether  patentable or not, including but not
limited to processes,  methods,  formulas and techniques as well as improvements
or know-how.
     (e) If  there is a breach  or  threatened  breach  by the  Employee  of the
provisions  of  this  Section  10,  the  Corporation  shall  be  entitled  to an
injunction  restraining him from such breach.  Nothing herein contained shall be
construed as  prohibiting  the  Corporation  from  pursuing  any other  remedies
available  for such  breach or  threatened  breach  or any other  breach of this
Employment Agreement.
     (f) The Employee  hereby  warrants and represents that he is not prohibited
by any  agreement or the order of any court from  entering into and carrying out
the terms of this Employment Agreement. In particular, the Employee warrants and
represents  that the scope of his  activity  is not  restricted  in any way with
respect  to  the  design,  development,   enhancement,  sale,  marketing  and/or
promotion of computer software and hardware.
     11. (a)  NOTICES.  All notices  required or permitted to be given under the
provisions  of this  Employment  Agreement  shall be in  writing  and  delivered
personally or by certified or registered mail, return receipt requested, postage
prepaid to the following  persons at the following  addresses,  or to such other
person at such other address as either party may request by notice in writing to
the other party to this Employment Agreement:
          If to the Employee:
               ReiJane Huai
               3 Carlisle Drive,
               Old Brookville, NY 11545

                                       7

          If to the Corporation:
               FalconStor Software, Inc.
               2 Huntington Quadrangle
               Suite 2S01
               Melville, New York 11747

     (b)  CONSTRUCTION.   This  Employment   Agreement  shall  be  construed  in
accordance  with,  and be  governed  by,  the laws of the  State of New York for
contracts entered into and to be performed in New York.
     (c) SUCCESSOR AND ASSIGNS. This Employment Agreement and the various rights
and obligations  arising  hereunder shall inure to the benefit of and be binding
upon the  Employee  and his heirs,  executors  and  administrators  and upon the
Corporation and its successors (including, without limitation, by way of merger)
and  assigns.  This  Employment  Agreement  is personal in nature and may not be
assigned or transferred by the Employee without the prior written consent of the
Corporation.
     (d) ENTIRE AGREEMENT;  AMENDMENT AND RESTATEMENT.  This instrument contains
the entire  understanding  and  agreement  between the  parties  relating to the
subject matter hereof,  and neither this Employment  Agreement nor any provision
hereof may be waived,  modified,  amended,  changed,  discharged or  terminated,
except by an agreement in writing  signed by the party against whom  enforcement
of any waiver,  modification,  change,  amendment,  discharge or  termination is
sought.  This Employment  Agreement amends,  restates and supersedes the Amended
and  Restated   Employment   Agreement  dated  September  1,  2004  between  the
Corporation and the Employee.
     (e) COUNTERPARTS.  This Employment Agreement may be executed simultaneously
in  counterparts,  each of which shall be deemed an original,  and both of which
counterparts shall together constitute a single agreement.
     (f) ILLEGALITY.  Without  limitation of Section 10(c) hereof, if any one or
more of the provisions of this Employment Agreement shall be invalid, illegal or
unenforceable in any respect,  the validity,  legality and enforceability of the
remaining  provisions  contained  herein  shall  not in any way be  affected  or
impaired thereby.
     (g) CAPTIONS.  The captions of the sections hereof are for convenience only
and shall not control or affect the meaning or  construction of any of the terms
or provisions of this Employment Agreement.

                                       8

     IN WITNESS  WHEREOF,  the parties  hereto have set their hands and executed
this Employment Agreement the day and year first above written.

                                  FalconStor Software, Inc.
                                  By: /s/ Jim Weber
                                      ------------------------------------------
                                      Jim Weber
                                      Vice President and Chief Financial Officer

                                  By: /s/ Reijane Huai
                                      ------------------------------------------
                                      ReiJane Huai