ex101to8k04637_12312007.htm


    Exhibit
      10.1

    


    FALCONSTOR
      SOFTWARE, INC. EMPLOYMENT AGREEMENT

    Employee:
      ReiJane Huai

    


    EMPLOYMENT
      AGREEMENT made this 31st day of December, 2007 (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 REDACTED (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 January 1, 2008 (the "Effective Date")
      and
      ending on December 31, 2010 (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 for each calendar year of the Employment Period as set
      forth below, 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:

     

    
      	
              Calendar
                Year

            	
              Salary

            
	
              2008

            	
              $310,000

            
	
              2009

            	
              $341,000

            
	
              2010

            	
              $375,100

            


    

    


    (b)
      The
      Employee shall be entitled to receive a bonus (the “Bonus”) for each calendar
      year of the Employment Period in an amount equal to four percent (4%) 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 (i) Statement
      of Financial Accounting Standard 123R, or (ii) such other extraordinary,
      non-recurring and/or other unusual items as determined by the Compensation
      Committee of the Corporation’s Board of Directors and agreed by a majority of
      the independent directors of the Corporation’s Board of Directors (hereinafter
      referred to as the “Operating Income”), provided that the Operating Income for
      the particular calendar year exceeds the Operating Income for the previous
      calendar year.  The Bonus shall be paid in shares of Restricted Stock
      of the Corporation issued in accordance with the terms of the 2006 FalconStor
      Software, Inc., Incentive Stock Plan, including Section 6
      thereof.  The Restricted Stock shall vest thirty three percent (33%)
      on January 1 of each of the first two years following the issuance of the
      Restricted Stock and thirty four percent (34%) on January 1 of the third year
      following the issuance of the Restricted Stock.  The number of shares
      of Restricted Stock to be issued shall be determined by dividing the Bonus
      amount by the average price of Corporation common stock on the Nasdaq Global
      Market (or any market on which the Corporation’s common stock is subsequently
      registered) for the calendar year for which the Bonus is being paid (the “Bonus
      Formula”).  For purposes of this Employment Agreement, the average
      price shall be the average of the daily closing prices of the Corporation common
      stock.  The Employee shall not be entitled to any fractional
      shares.  In the event the Bonus Formula results in a fractional
      number, the number of Restricted Shares to be paid shall be rounded down to
      the
      nearest whole number. The Bonus shall be paid within seventy five (75) days
      of
      the end of the applicable calendar year.

    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 vacation time during each year
      of
      the Employment Period at the discretion of the Board.


    
      
        
        

      

      
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    (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 Corporation 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 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.


    
      
        
        

      

      
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    8.
      Severance Payment. (a) If the Corporation and the Employee do not enter
      into a renewal agreement to be effective January 1, 2011, 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, 2011 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.

    

    (d)
      If at
      the time his employment is terminated the Employee is a “specified employee”
within the meaning of Section 409A of the Internal Revenue Code and the
      regulations thereunder, to the extent required to comply with Section 409A,
      payment of the Severance Payment and the Non-Renewal Severance, as applicable,
      shall not commence until one day after the day which is six months following
      the
      termination date, with the first payment equaling six months of Base
      Salary.  Reimbursements pursuant to this Section 8 shall be made
      on or before the last day of the Employee’s taxable year following the taxable
      year in which the expense was incurred.

     

    
      
        
        

      

      
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          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 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.


    
      
        
        

      

      
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    (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;

    (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, 2011.

    (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.


    
      
        
        

      

      
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    (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 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.


    
      
        
        

      

      
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    (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

    REDACTED

     

    If
      to the
      Corporation:

    FalconStor
      Software, Inc.

    2
      Huntington Quadrangle

    Suite
      2S01

    Melville,
      New York 11747

    Attn:  Chief
      Financial Officer

    


    (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.

      (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.

      

      
        
                            

        

      

    

    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

              
	 	 


      

      
 

      
        
          
          

        

        
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