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                                                                   EXHIBIT 10.61

                                Option Agreement

   This Option Agreement (the "Agreement") dated as of March 30, 2001 by and
between Network Peripherals Inc., a Delaware corporation ("NPI"), and
FalconStor, Inc. a Delaware corporation ("FalconStor").

   WHEREAS, FalconStor desires to receive a capital investment from NPI to
continue and expand its business.

   WHEREAS, NPI has agreed to provide Twenty Five Million Dollars ($25,000,000)
of capital to FalconStor in the form of an equity investment (the "Equity
Investment").

   WHEREAS, contemporaneously with the execution of this Agreement, NPI and
FalconStor are entering into and executing stock purchase and related
agreements, including a registration rights agreement and an investors' rights
agreement, to consummate the Equity Investment (the "Equity Investment
Agreements").

   WHEREAS, NPI and FalconStor have negotiated the terms upon which NPI
proposes to enter into discussions to (i) invest in FalconStor, (ii) engage in
a series of transactions whereby a wholly owned subsidiary of NPI will merge
with and into FalconStor with FalconStor surviving as the continuing entity
(the "Merger Transaction") and (iii) resolve certain other related matters.

   WHEREAS, a substantial and material inducement to NPI to consummate the
Equity Investment is the grant by FalconStor to NPI of an option to execute the
Merger Transaction and FalconStor's execution and delivery of this Agreement
and the execution and delivery of the Voting Agreement (as defined below).

   NOW, THEREFORE, for good and valuable consideration, including the execution
and delivery of the Equity Investment Agreements, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:

   Section 1. Option to Merge with FalconStor. FalconStor hereby grants to NPI,
and NPI accepts, an option to execute the Merger Transaction on the terms set
forth in the Merger Agreement (as defined below) (the "Option"). The Option
shall be irrevocable during the term of this Agreement and may be exercised by
delivery of written notice to FalconStor of such exercise; provided, however,
that the Option shall only be exercisable during the 14-day period (the
"Exercise Period") immediately following (i) written notice by FalconStor to
NPI of the issuance and sale of additional shares of Series C Convertible
Preferred Stock (the "Series C Sale"), or (ii) four (4) weeks from the date of
this Agreement, whichever occurs first, unless extended by the written consent
of FalconStor and NPI. In the event of a Series C Sale, FalconStor shall
deliver a notice within twenty-four (24) hours to NPI notifying NPI of such
sale. Immediately upon exercise of the Option, the parties hereto will, acting
at all times in good faith, take, or cause to be taken, all actions and do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to execute and deliver a definitive agreement (the "Merger
Agreement") to consummate the Merger Transaction on the terms set forth in the
form of merger agreement attached hereto as Exhibit A as promptly as
practicable after the date on which NPI exercises the Option, including (i)
taking all corporate actions necessary to authorize, approve and direct the
execution and delivery of the Merger Agreement, (ii) authorizing and directing
their executive officers, accountants and legal counsel to devote all necessary
resources, utilizing their best efforts, to achieve the execution and delivery
of the Merger Agreement, (iii) preparing and filing as promptly as practicable
all documentation to effect all necessary applications, notices, petitions,
filings and other documents and to obtain as promptly as practicable all third
party consents and all consents necessary or advisable to be obtained from any
governmental entity in order to execute and deliver the Merger Agreement, (iv)
taking all reasonable steps as may be necessary to obtain all such third party
consents and consents of governmental entities necessary or advisable to be
obtained from any governmental entity in order to execute and deliver the
Merger Agreement

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and (v) defending any actions challenging this Agreement or the Merger
Agreement or the transactions contemplated hereby or thereby, including seeking
to have any stay or temporary restraining order entered by any governmental
entity vacated or reversed.

   Section 2. Other Negotiations. During the term of this Agreement, neither
NPI nor FalconStor will (and it will use its best efforts to ensure that its
officers, directors, employees, agents and affiliates do not on its behalf)
take any action to solicit, initiate, seek, encourage or support any inquiry,
proposal or offer from, furnish any information to, or participate in any
negotiations with, any corporation, partnership, person or other entity or
group (each, a "Person") (other than discussions with the other party hereto)
regarding any acquisition of such party, any merger or consolidation with such
party, or any acquisition of all or substantially all of the stock or assets of
such party, (an "Acquisition Proposal"); provided, however, that if, at any
time during the term of this Agreement, the Board of Directors of either party
by majority vote determines in good faith, after receiving advice from its
outside counsel, that failing to take such action would constitute a breach of
the fiduciary duties of the such Board of Directors, such party may, in
response to a bona fide written Acquisition Proposal which did not result from
a breach of this Section 2 and which such Board of Directors determines in its
reasonable judgment, to be more favorable to its stockholders (taking into
account, among other things, all legal, financial, regulatory and other aspects
of the proposal and identity of the offeror) as compared to the transactions
contemplated by the Merger Agreement and which is reasonably capable of being
consummated ("Superior Proposal"); provided, however, that any such offer shall
not be deemed to be a Superior Proposal if any financing required to consummate
the transaction contemplated by such offer is not committed and is not
reasonably capable of being obtained by such third party, (i) furnish
information or provide access with respect to such party and each of its
subsidiaries to such Person pursuant to a customary confidentiality agreement
(as determined by such party after consultation with its outside counsel) and
(ii) participate in discussions and negotiations regarding such Superior
Proposal (it being understood that neither the sale and issuance by FalconStor
of additional shares of its Series C Convertible Preferred Stock nor the sale
by NPI of any Assets, as defined in the Letter Agreement dated March 21, 2001
by and between NPI and FalconStor, shall breach or violate the terms of this
Agreement). Each of NPI and FalconStor agrees that any such negotiations in
progress as of the date hereof will be terminated or suspended until this
Agreement is terminated pursuant to Section 5. Each party hereto will
immediately notify the other party hereto regarding any contact by any third
party regarding any offer, proposal or inquiry regarding any Acquisition
Proposal. In no event will either party hereto accept or enter into an
agreement concerning any such third party transaction prior to the Termination
of this Agreement pursuant to Section 5. Each party hereto represents and
warrants that it has the legal right to terminate or suspend any such pending
negotiations and agrees to indemnify the other party hereto, its
representatives and agents from and against any claims by any party to such
negotiations based upon or arising out of the discussion or any consummation of
the transactions contemplated by this Agreement.

   Section 3. Representations and Warranties of FalconStor. FalconStor hereby
represents and warrants to NPI as follows:

     a. FalconStor has the corporate power and authority to enter into this
  Agreement and to carry out its obligations hereunder. The execution and
  delivery of this Agreement and the consummation of the transactions
  contemplated hereby have been duly and validly authorized by the Board of
  Directors of FalconStor, and no other corporate proceedings on the part of
  FalconStor are necessary to authorize the execution and delivery of this
  Agreement or the performance by FalconStor of its obligations hereunder.
  This Agreement has been duly and validly executed and delivered by
  FalconStor and constitutes a valid and binding agreement of FalconStor,
  enforceable against FalconStor in accordance with its terms.

     b. The execution, delivery and performance of this Agreement and the
  consummation of the transactions contemplated hereby will not (i) conflict
  with or result in any breach of any provision of the certificate of
  incorporation, bylaws or similar organizational documents of FalconStor, or
  (ii) result in a violation or breach of, or constitute (with or without due
  notice or lapse of time or both) a default (or give rise to any right of
  termination, amendment, cancellation or acceleration) under, any of the
  terms,

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  conditions or provisions of any note, bond, mortgage, indenture, lease,
  license, contract, agreement or other instrument or obligation to which
  FalconStor is a party or by which any of its properties or assets may be
  bound, or (iii) violate any order, writ, injunction, decree, judgment,
  permit, license, ordinance, law, statute, rule or regulation applicable to
  FalconStor or any of its properties or assets.

     c. The holders of capital stock of FalconStor who are parties to the
  Voting Agreement (the "Holders"), attached hereto as Exhibit B (the "Voting
  Agreement"), hold a sufficient number of shares of FalconStor's Common
  Stock, Series A Preferred Stock and Series B Preferred Stock to approve the
  Merger Agreement and the transactions contemplated thereby.

     d. To FalconStor's knowledge, each Holder has the power, corporate or
  otherwise, and authority to enter into the Voting Agreement and to carry
  out its obligations thereunder. To FalconStor's knowledge, the execution
  and delivery of the Voting Agreement and the consummation of the
  transactions contemplated thereby by each Holder have been duly and validly
  authorized by such Holder and no other proceedings, corporate or otherwise,
  on the part of the Holders are necessary to authorize the execution and
  delivery of the Voting Agreement or the performance by the Holders of their
  obligations thereunder. To FalconStor's knowledge, the Voting Agreement has
  been duly and validly executed and delivered by each Holder and constitutes
  a valid and binding agreement of such Holder, enforceable against such
  Holder in accordance with its terms.

   Section 4. Representations and Warranties of NPI. NPI hereby represents and
warrants to FalconStor as follows:

     a. NPI has the corporate power and authority to enter into this
  Agreement and to carry out its obligations hereunder. The execution and
  delivery of this Agreement and the consummation of the transactions
  contemplated hereby have been duly and validly authorized by the Board of
  Directors of NPI, and no other corporate proceedings on the part of NPI are
  necessary to authorize the execution and delivery of this Agreement or the
  performance by NPI of its obligations hereunder. The Board of Directors of
  NPI has received the opinion of Lehman Brothers Inc., substantially to the
  effect that as of the date hereof the consideration to be issued and
  delivered by NPI in the Merger Transaction is fair to NPI from a financial
  point of view. This Agreement has been duly and validly executed and
  delivered by NPI and constitutes a valid and binding agreement of NPI,
  enforceable against NPI in accordance with its terms.

     b. The execution, delivery and performance of this Agreement and the
  consummation of the transactions contemplated hereby will not (i) conflict
  with or result in any breach of any provision of the certificate of
  incorporation, bylaws or similar organizational documents of NPI, or (ii)
  result in a violation or breach of, or constitute (with or without due
  notice or lapse of time or both) a default (or give rise to any right of
  termination, amendment, cancellation or acceleration) under, any of the
  terms, conditions or provisions of any note, bond, mortgage, indenture,
  lease, license, contract, agreement or other instrument or obligation to
  which NPI is a party or by which any of its properties or assets may be
  bound, or (iii) violate any order, writ, injunction, decree, judgment,
  permit, license, ordinance, law, statute, rule or regulation applicable to
  NPI or any of its properties or assets.

   Section 5. Term; Termination; Effect of Termination.

     a. This Agreement shall be effective as of the date first above written.

     b. This Agreement shall terminate automatically upon the execution and
  delivery of the Merger Agreement by both NPI and FalconStor.

     c. This Agreement shall terminate upon the mutual written consent of NPI
  and FalconStor.

     d. In the event that (i) the Option is not exercised timely or (ii) the
  Merger Agreement is not executed and delivered by both FalconStor and NPI
  (A) within 14 days from the date of the exercise of the Option if the
  Option is exercised within the first seven (7) days of the Exercise Period
  or (B) if the Option is exercised with the second seven (7) days of the
  Exercise Period within the period starting on the

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  date the Option is exercised and ending seven (7) days after the Exercise
  Period terminates, FalconStor, by action of its Board of Directors, shall
  have the right to terminate this Agreement under this Section 5(d)
  (provided that such termination of this Agreement under Section 5(d) is not
  due to FalconStor's failure to fulfill any obligation under this Agreement
  has been the cause of or resulted in the failure of the Merger Agreement to
  be executed and delivered by FalconStor by such date).

     e. In the event that this Agreement terminates pursuant to Section 5(d)
  (provided that such termination of this Agreement under Section 5(d) is not
  due to FalconStor's failure to fulfill any obligation under this Agreement
  has been the cause of or resulted in the failure of the Merger Agreement to
  be executed and delivered by FalconStor by such date) then (i) NPI hereby
  covenants to vote all shares of preferred stock purchased by NPI pursuant
  to the Equity Investment Agreements in accordance with the recommendation
  of the Board of Directors of FalconStor, other than in respect of a
  Disposition Transaction (as that term is defined in the Certificate of
  Designations of the Series C Convertible Preferred Stock of FalconStor) in
  which case NPI shall vote as it deems appropriate and (ii) NPI shall
  concurrently (or on the following business day) pay to FalconStor a
  termination fee of $3 Million.

     f. In the event this Agreement is terminated pursuant to Section 5, this
  Agreement shall immediately become void and there shall be no liability or
  obligation on the part of NPI and FalconStor or their respective officers,
  directors, stockholders or affiliates except to the extent that the
  termination is a result of a willful and material breach by a party to this
  Agreement of any representation, warranty or covenant contained in this
  Agreement; provided, however, that the provisions of Section 6(k) and the
  obligations of NPI under Section 5(e) shall remain in full force and effect
  and survive any termination of this Agreement.

   Section 6. Miscellaneous Provisions.

     a. Specific Performance. The parties agree that irreparable damage would
  occur in the event that any of the provisions of this Agreement were not
  performed in accordance with their specific terms or were otherwise
  breached. It is accordingly agreed that the parties shall be entitled to an
  injunction or injunctions to prevent breaches of this Agreement and to
  enforce specifically the terms and provisions of this Agreement, this being
  in addition to any other remedy to which they are entitled at law or in
  equity.

     b. Governing Law. This Agreement shall be governed by and construed in
  accordance with the laws of the State of Delaware, without giving effect to
  the choice of law principles thereof.

     c. Descriptive Headings. The descriptive headings herein are inserted
  for convenience of reference only and are not intended to be part of or to
  affect the meaning or interpretation of this Agreement.

     d. Parties in Interest. This Agreement shall be binding upon and inure
  solely to the benefit of each party hereto and its successors and permitted
  assigns, and nothing in this Agreement, express or implied, is intended to
  or shall confer upon any other person any rights, benefits or remedies of
  any nature whatsoever under or by reason of this Agreement.

     e. Severability. The provisions of this Agreement shall be deemed
  severable and the invalidity or unenforceability of any provision shall not
  affect the validity or enforceability of the other provisions hereof. If
  any provision of this Agreement, or the application thereof to any person
  or any circumstance, is invalid or unenforceable, (a) a suitable and
  equitable provision shall be substituted therefor in order to carry out, so
  far as may be valid and enforceable, the intent and purpose of such invalid
  or unenforceable provision and (b) the remainder of this Agreement and the
  application of such provision to other persons or circumstances shall not
  be affected by such invalidity or unenforceability, nor shall such
  invalidity or unenforceability affect the validity or enforceability of
  such provision, or the application thereof, in any other jurisdiction.

     f. Counterparts. This Agreement may be executed in two or more
  counterparts, all of which shall be considered one and the same agreement
  and shall become effective when one or more counterparts have been signed
  by each of the parties and delivered to the other parties.

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     g. Further Assurance. Each party to this Agreement agrees (i) to furnish
  upon request to the other party such further information, (ii) to execute
  and deliver to the other party such other documents and (iii) to do such
  other acts and things as the other party reasonably requests for the
  purpose of carrying out the intent of this Agreement and the documents and
  instruments referred to herein.

     h. Interpretation.

       6.h.1 The words "hereof," "herein," and words of similar import
    shall, unless otherwise stated, be construed to refer to this Agreement
    as a whole and not to any particular provision of this Agreement, and
    article, section, paragraph, exhibit, and schedule references are to
    the articles, sections, paragraphs, exhibits, and schedules of this
    Agreement unless otherwise specified. Whenever the words "include,"
    "includes," or "including" are used in this Agreement, they shall be
    deemed to be followed by the words "without limitation." All terms
    defined in this Agreement shall have the defined meanings contained
    herein when used in any certificate or other document made or delivered
    pursuant hereto unless otherwise defined therein. The definitions
    contained in this Agreement are applicable to the singular as well as
    the plural forms of such terms and to the masculine as well as to the
    feminine and neuter genders of such terms. Any agreement, instrument,
    or statute defined or referred to herein or in any agreement or
    instrument that is referred to herein means such agreement, instrument,
    or statute as from time to time, amended, qualified or supplemented,
    including (in the case of agreements and instruments) by waiver or
    consent and (in the case of statutes) by succession of comparable
    successor statutes and all attachments thereto and instruments
    incorporated therein. References to a person are also to its permitted
    successors and assigns.

       6.h.2 The phrases "the date of this Agreement," "the date hereof,"
    and terms of similar import, unless the context otherwise requires,
    shall be deemed to refer to March 30, 2001.

       6.h.3 The parties have participated jointly in the negotiation and
    drafting of this Agreement. In the event an ambiguity or question of
    intent or interpretation arises, this Agreement shall be construed as
    if drafted jointly by the parties and no presumption or burden of proof
    shall arise favoring or disfavoring any party by virtue of the
    authorship of any provisions of this Agreement.

     i. Notices. All notices, requests, instructions or other documents to be
  given under this Agreement shall be in writing and shall be deemed given,
  (i) five business days following sending by registered or certified mail,
  postage prepaid, (ii) when sent if sent by facsimile; provided, however,
  that the facsimile is promptly confirmed by telephone confirmation thereof,
  (iii) when delivered, if delivered personally to the intended recipient,
  and (iv) one business day following sending by overnight delivery via a
  national courier service, and in each case, addressed to a party at the
  following address for such party:

<TABLE>
       <C>                   <S>
       if to NPI, to:        Network Peripherals Inc.
                             2859 Bayview Drive
                             Fremont, California 94538
                             Attention: James Regel
                             Fax: (510) 897-5056

       with copies to:       Gray Cary Ware & Freidenrich LLP
                             4365 Executive Drive, Suite 1600
                             San Diego, California 92121
                             Attention: Scott M. Stanton, Esq.
                             Facsimile: (858) 677-1477

       if to FalconStor, to: FalconStor Inc.
                             125 Baylis Road, Suite 140
                             Melville, New York 11747
                             Attention: ReiJane Huai
                             Facsimile: (631) 501-7633
</TABLE>

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<TABLE>
       <S>              <C>
       with a copy to:  Olshan Grundman Frome Rosenzweig & Wolosky LLP
                        505 Park Avenue
                        New York, NY 10022-1170
                        Attention: Steve Wolosky, Esq.
                        Facsimile: (212) 980-7177
</TABLE>

  or to such other address or facsimile number as the person to whom notice
  is given may have previously furnished to the other in writing in the
  manner set forth above.

     j. Entire Agreement; Assignment.

       6.j.1 This Agreement constitutes the entire agreement between the
    parties hereto in respect of the subject matter hereof and supersedes
    all other prior agreements and understandings, both written and oral,
    between the parties in respect of the subject matter hereof other than
    the non-disclosure agreement between the parties effective as of March
    30, 2001 (which shall remain in effect).

       6.j.2 Neither this Agreement nor any of the rights, interests or
    obligations hereunder shall be assigned by operation of law (including,
    by merger or consolidation) or otherwise. Any assignment in violation
    of the preceding sentence shall be void. Subject to the preceding
    sentence, this Agreement will be binding upon, inure to the benefit of,
    and be enforceable by, the parties and their respective successors and
    permitted assigns.

     k. Expenses. All fees and expenses incurred in connection with this
  Agreement and the transactions contemplated hereby shall be paid by the
  party incurring such expenses.

     l. Attorneys' Fees. In the event of any Action at law or in equity in
  relation to this Agreement, the prevailing party in such Action shall be
  entitled to receive its reasonable attorneys' fees and all other costs and
  expenses of such Action. For purposes of this Section, "Action" means any
  action, appeal, petition, plea, charge, complaint, claim, suit, demand,
  litigation, arbitration, mediation, hearing, inquiry, investigation or
  similar event, occurrence, or proceeding at law or at equity.

               [Remainder of the page intentionally left blank.]

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   IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the date first above written.

                                          FALCONSTOR, INC.

                                              /s/ ReiJane Huai
                                          By: _________________________________
                                            Name:  ReiJane Huai
                                            Title: Chief Executive Officer

                                          NETWORK PERIPHERALS INC.

                                              /s/ James Regel
                                          By: _________________________________
                                            Name:  James Regel
                                            Title: Chief Executive Officer

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                       WRITTEN NOTICE OF OPTION EXERCISE

   NPI, by delivery of this written notice, hereby elects to exercise its
option to merge with FalconStor on the terms set forth in the Merger Agreement.

Dated: May 4, 2001

                                          NETWORK PERIPHERALS INC.

                                              /s/ James Regel
                                          By: _________________________________
                                            Name:  James Regel
                                            Title: Chief Executive Officer

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