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                                                                     Exhibit 4.1

                              AMENDED AND RESTATED

                            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.

      The  persons  eligible  for  participation  in the Plan as  recipients  of
Options (the  "Optionees") or 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.

4.    STOCK RESERVED FOR THE PLAN.

      An initial 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.  Subject to
adjustment as provided in Section 8 hereof,  if on July 1st of any calendar year
in which the Plan is in effect (the "Calculation  Date") the number of shares of
Stock with  respect to which  Options  may be granted is less than five  percent
(5%) of the number of outstanding shares of Stock, the number of shares of Stock
available  for  issuance  under the Plan shall be  increased  so that the number
equals five percent (5%) of the shares of Stock  outstanding on the  Calculation
Date,  but in no event shall the total number of shares of Stock  subject to the
Plan in the aggregate  exceed twenty  million  shares,  subject to adjustment as
provided in Section 8 hereof.  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 three hundred  thousand  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
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:

                  (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 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.

            (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 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
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.

            (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
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.

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.

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
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
                                                             Amended May 8, 2007sec document

                                                                     Exhibit 4.2

                            FALCONSTOR SOFTWARE, INC.

                 2007 OUTSIDE DIRECTORS EQUITY COMPENSATION PLAN

1.    PURPOSE.  The  FalconStor  Software,  Inc. 2007 Outside  Directors  Equity
      Compensation Plan (the "Plan") is established effective as of the 26th day
      of March, 2007, (the "Effective Date") to create additional  incentive for
      the non  employee  directors  of  FalconStor  Software,  Inc.,  a Delaware
      corporation,  and any successor corporation thereto (collectively referred
      to as the "Company") to promote the financial  success and progress of the
      Company and any present or future parent and/or subsidiary corporations of
      the  Company.  For  purposes  of the  Plan,  a  parent  corporation  and a
      subsidiary  corporation  shall be as defined in sections 424(e) and 424(f)
      of the Internal Revenue Code of 1986, as amended (the "Code").

2.    ADMINISTRATION.  The Plan shall be  administered by the Board of Directors
      of the Company (the "Board")  and/or by a duly appointed  committee of the
      Board  having  such  powers  as  shall  be  specified  by the  Board.  Any
      subsequent references herein to the Board shall also mean the committee if
      such committee has been appointed and,  unless the powers of the committee
      have been specifically limited, the committee shall have all of the powers
      of the Board granted herein, including,  without limitation,  the power to
      terminate  or amend the Plan at any time  subject to the terms of the Plan
      and any  applicable  limitations  imposed by law.  The Board shall have no
      authority, discretion or power to select the non-employee directors of the
      Company who will receive options or be granted shares of restricted  stock
      under the Plan, to set the exercise price of the options granted under the
      Plan,  to  determine  the  number of shares of common  stock to be granted
      under  option or the time at which  such  options  are to be  granted,  to
      establish the duration of option grants, to determine the number of shares
      of  restricted  stock to be granted  or the time at which  such  shares of
      restricted  stock are to be granted or to alter other terms or  conditions
      specified  in the  Plan,  except in the  sense of  administering  the Plan
      subject to the provisions of the Plan. All questions of  interpretation of
      the Plan,  of any options  granted  under the Plan (an "Option") or of any
      restricted stock granted under the plan  ("Restricted  Stock" and together
      with the Options,  an "Award") shall be determined by the Board,  and such
      determinations  shall be final  and  binding  upon all  persons  having an
      interest  in the Plan and/or any Award.  Any officer of the Company  shall
      have the  authority  to act on behalf of the Company  with  respect to any
      matter, right,  obligation,  or election which is the responsibility of or
      which is  allocated  to the  Company  herein,  provided  the  officer  has
      apparent  authority  with respect to such matter,  right,  obligation,  or
      election.

3.    ELIGIBILITY AND TYPE OF AWARDS. Awards may be granted only to directors of
      the  Company  who,  at the time of such grant,  are not  employees  of the
      Company  or of  any  parent  or  subsidiary  corporation  of  the  Company
      ("Outside  Directors").  Options  granted  to Outside  Directors  shall be
      nonqualified  stock  options;  that is,  options  that are not  treated as
      having been granted under section  422(b) of the Code. A person granted an
      Option is  hereinafter  referred  to as an  "Optionee".  A person  granted
      Restricted  Stock is hereinafter  referred to as a "Grantee" (and together
      with  the  Optionees,   the  "Participants").   Notwithstanding   anything
      contained herein, no Participant may take any action that is prohibited by
      the Sarbanes-Oxley  Act of 2002 and the rules and regulations  promulgated
      by the Securities and Exchange Commission or any other agency thereunder.

4.    SHARES  SUBJECT TO AWARDS.  Options shall be for the purchase of shares of
      authorized but unissued common stock or treasury shares of common stock of
      the Company (the "Stock"),  subject to adjustment as provided in paragraph
      8 below.  The  maximum  number of  shares of Stock  which may be issued or
      granted under the Plan shall be Three Hundred Thousand  (300,000)  shares.
      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.

5.    TERMS,  CONDITIONS AND FORM OF OPTIONS.  Options  granted  pursuant to the
      Plan shall be evidenced  by written  agreements  specifying  the number of
      shares of Stock covered thereby, in substantially the form attached hereto
      as  Exhibit  A (the  "Option  Agreement"),  which  written  agreement  may
      incorporate  all or any of the  terms of the Plan by  reference  and shall
      comply with and be subject to the following terms and conditions:

      a.    AUTOMATIC  GRANT OF  OPTIONS.  Subject  to  execution  by an Outside
            Director  of an  appropriate  Option  Agreement,  Options  shall  be
            granted  automatically  and without  further action of the Board, as
            follows:

            i.    Each person who is newly  elected or  appointed  as an Outside
                  Director  on or after the  Effective  Date shall be granted an
                  Option on the day of such initial  election or  appointment to
                  purchase Fifty Thousand (50,000) shares of Stock.

            ii.   On the date of each  Annual  Meeting  of  Stockholders  of the
                  Company  occurring  after the  Effective  Date,  each  Outside
                  Director  shall be granted an Option to purchase Five Thousand
                  (5,000) shares of Stock; provided,  however, that in the event
                  an Outside  Director  was elected or  appointed  as an Outside
                  Director and was granted an Option  pursuant to the provisions
                  of  subparagraph  5(a)(i) above within six months prior to the
                  Annual Meeting of Stockholders, that Outside Director shall be
                  ineligible  to receive an Option  with  respect to such Annual
                  Meeting of Stockholders.

            iii.  On the date of the 2007 Annual Meeting of  Stockholders,  each
                  Outside   Director  who  served  as  the  Chairperson  of  any
                  committee of the Company's Board of Directors for at least six
                  months during the Company's  most  recently  concluded  fiscal
                  year  shall be  granted an Option to  purchase  Five  Thousand
                  (5,000)  shares of Stock.  In the  event an  Outside  Director
                  served as the  Chairperson  for two or more  Committees,  such
                  Outside  Director  shall be granted an option to purchase Five
                  Thousand  (5,000) shares of Stock for each committee for which
                  the Outside Director served as Chairperson.

            iv.   Notwithstanding  the  foregoing,  any  person may elect not to
                  receive an Option to be  granted  pursuant  to this  paragraph
                  5(a) by  delivering  written  notice of such  election  to the
                  Board no later  than the day  prior to the date on which  such
                  Option would  otherwise  be granted.  A person so declining an
                  Option shall receive no payment or other consideration in lieu
                  of such declined  Option.  A person who has declined an Option
                  may revoke such election by delivering  written notice of such
                  revocation  to the  Board no later  than the day  prior to the
                  date on  which  such  Option  would  be  granted  pursuant  to
                  paragraph 5(a).

            v.    Notwithstanding  any  other  provision  of  the  Plan  to  the
                  contrary,  no Option shall be granted to any  individual  on a
                  day when he or she is no longer serving as an Outside Director
                  of the Company.

      b.    OPTION EXERCISE PRICE. The exercise price per share of Stock subject
            to an Option  shall be the fair market value of a share of the Stock
            on the close of business on the date of the  granting of the Option.
            Where there is a public  market for the common stock of the Company,
            the fair  market  value per share of Stock  shall be the mean of the
            bid and asked  prices of the common stock of the Company on the date
            of the  granting  of the  Option,  as  reported  in the Wall  Street
            Journal  (or,  if not so  reported,  as  otherwise  reported  by the
            National  Association  of  Securities  Dealers  Automated  Quotation
            ("Nasdaq")  System) or, in the event the common stock of the Company
            is listed on the Nasdaq Global Market or a securities exchange,  the
            fair market  value per share of Stock shall be the closing  price on
            such  Global  Market  or  exchange  on the date of  granting  of the
            Option,  as reported in the Wall Street Journal.  If the date of the
            granting  of an Option  does not fall on a day on which  the  common
            stock of the Company is trading on Nasdaq,  the Nasdaq Global Market
            or securities exchange,  the date on which the Option exercise price
            shall be established shall be the last day on which the common stock
            of the  Company  was so  traded  prior to the  date of the  granting
            Option.

      c.    EXERCISE  PERIOD AND  EXERCISABILITY  OF OPTIONS.  An Option granted
            pursuant to the Plan shall be  exercisable  for a term of ten years.
            Options granted pursuant to the Plan shall first become  exercisable
            on the day (the "Initial  Vesting  Date") which is one year from the
            date on which the Option was  granted.  The  Option  shall  first be
            exercisable  on and  after  the  Initial  Vesting  Date and prior to
            termination of the Option in an amount equal to the number of Option

            Shares  multiplied by the Vested Ratio (as  hereinafter  defined) as
            set forth below, less the number of shares previously  acquired upon
            exercise of any portion of the Option.

      The "Vested Ratio" shall mean, on any relevant  date,  except as otherwise
provided herein, the ratio determined as follows:

                                                                 Vested Ratio
                                                                 ------------

            (i)    Prior to Initial Vesting Date:                     0

                   On Initial Vesting Date,                          1/3
                   provided the Optionee's Service has not
                   terminated prior to such date:

      Plus
      ----

            (ii)   For each full year
                   of the Optionee's  continuous Service
                   from the Initial Vesting Date until the
                   Vested Ratio equals 1/1, an additional:           1/3

For purposes of the Plan,  "Service" shall mean the Optionee's  service with the
Company, whether in the capacity of an employee, a director or a consultant. The
Optionee's  Service shall not be deemed to have  terminated  merely because of a
change in the  capacity in which the  Optionee  renders  Service to the Company,
provided that there is no interruption or termination of the Optionee's Service.

      d.    TERMINATION OF OPTIONEE.  In the event of an Optionee's  termination
            of  Service  for any  reason  other  than as a  result  of  death or
            disability  of the  Optionee,  in which case all  Options  that have
            become vested will remain  exercisable  for the earlier of 36 months
            or the  expiration  date of the  Options,  all Options that have not
            become vested and  exercisable  as of the date of such  cessation of
            Service  shall be forfeited and to the extent that such Options have
            become vested and  exercisable as of such date, such Options must be
            exercised,  if at all,  within ninety (90) days after the Optionee's
            termination  of  Service,   after  which  time  such  Options  shall
            automatically terminate; provided, however, in the event an Optionee
            ceases  being  a  director   because  the  Optionee's   Service  was
            terminated for cause, all Options granted hereunder  (whether vested
            or unvested) shall terminate immediately.

      e.    PAYMENT OF OPTION  EXERCISE.  Payment of the exercise  price for the
            number of shares of Stock  being  purchased  pursuant  to any Option
            shall be made (i) in cash, by check, or cash equivalent, (ii) by the
            assignment  of the  proceeds  of a sale of some or all of the shares
            being  acquired upon the exercise of an Option  (including,  without
            limitation,  through an exercise  complying  with the  provisions of
            Regulation  T as  promulgated  from  time to time  by the  Board  of
            Governors of the Federal Reserve  System),  (iii) by the delivery to
            the  Company of shares of Stock  which have been owned by the holder
            of the Option  for more than six months and which have an  aggregate
            value  equal  to such  exercise  price,  or (iv) by any  combination
            thereof.  The Company reserves,  at any and all times, the right, in
            the Company's sole and absolute discretion, to establish, decline to
            approve  and/or  terminate  any  program  and/or  procedure  for the
            exercise of Options by means of an  assignment  of the proceeds of a
            sale of some or all the  shares  of Stock to be  acquired  upon such
            exercise or the delivery of previously owned shares of Stock.

      f.    TRANSFER OF CONTROL.  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  Global 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:

            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 (i),
                  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 (a) 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"),  (b) the
                  Company or any Related Entity, or (c) 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:

                  1.    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:

                        a.    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    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;

                        b.    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

                        c.    (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;

                  2.    A complete liquidation or dissolution of the Company; or

                  3.    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.

      g.    STOCKHOLDER  APPROVAL. No Option may be granted pursuant to the Plan
            prior to obtaining stockholder approval of the Plan.

      h.    TRANSFERABILITY OF OPTIONS.

            (i)   Except as provided  in  paragraph  5(h)(ii),  an Option may be
                  exercised  during the  lifetime  of the  Optionee  only by the
                  Optionee or the  Optionee's  guardian or legal  representative
                  and may not be assigned or transferred in any manner except by
                  will or by the laws of descent and distribution.

            (ii)  Notwithstanding the foregoing,  with the consent of the Board,
                  in its sole  discretion,  an Optionee  may  transfer  all or a
                  portion of the Option to: (i) an Immediate  Family  Member (as
                  defined below),  (ii) a trust for the exclusive benefit of the
                  Optionee and/or one or more Immediate Family Members,  (iii) a
                  partnership in which the Optionee and/or one or more Immediate
                  Family  Members  are the only  partners,  or (iv)  such  other
                  person or entity as the  Board  may  permit  (individually,  a
                  "Permitted  Transferee").   For  purposes  of  this  paragraph
                  5(h)(ii)  "Immediate Family Members" shall mean the Optionee's
                  spouse,  former  spouse,  children or  grandchildren,  whether
                  natural or adopted.  As a  condition  to such  transfer,  each
                  Permitted  Transferee  to  whom  the  Option  or any  interest
                  therein  is  transferred  shall  agree in  writing  (in a form
                  satisfactory  to the  Company) to be bound by all of the terms
                  and conditions of the Option Agreement  evidencing such Option
                  and any additional  restrictions  or conditions as the Company
                  may require.  Following  the  transfer of an Option,  the term
                  "Optionee"  shall refer to the  Permitted  Transferee,  except
                  that, with respect to any requirements of continued Service or
                  provision for the Company's tax withholding obligations,  such
                  term shall refer to the original  Optionee.  The Company shall
                  have no  obligation  to notify a Permitted  Transferee  of any
                  termination  of the  transferred  Option,  including  an early
                  termination  resulting from the  termination of Service of the
                  Original Optionee.  A Permitted Transferee shall be prohibited
                  from  making a  subsequent  transfer of a  transferred  Option
                  except  to  the  original  Optionee  or to  another  permitted
                  Transferee or as provided in paragraph 5(h)(i).

      i.    RE-PRICING OF OPTIONS / REPLACEMENT  OPTIONS.  The Company shall not
            re-price  any Options or issue any  replacement  Options  unless the
            Option re-pricing or Option  replacement shall have been approved by
            the holders of a majority of the outstanding shares of the Company.

      j.    DIVIDEND  EQUIVALENTS.  Simultaneously  with the grant of any Option
            and under such terms and  conditions as the Board deems  appropriate
            and  subject  to  Section  10  herein,  the Board 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 Board) 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,  if any).  Unless otherwise
            determined by the Board 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 Board,  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 Board shall  determine
            whether any deferred Dividend Equivalents will accrue interest.  The
            Board 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 Board.

      k.    TIME FOR GRANTING OPTIONS.  All Options shall be granted, if at all,
            within three years from the Effective Date.

6.    TERMS  AND  CONDITIONS  OF  RESTRICTED  STOCK:  Restricted  Stock  awarded
      pursuant to the Plan shall be evidenced by written  agreements  specifying
      the number of shares of Restricted Stock covered thereby, in substantially
      the form attached hereto in Exhibit B (the "Restricted Stock  Agreement").
      Grants of Restricted  Stock 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 Board shall deem desirable:

      a     AUTOMATIC  GRANT OF  RESTRICTED  STOCK.  Subject to  execution by an
            Outside  Director  of an  appropriate  Restricted  Stock  Agreement,
            Restricted Stock shall be granted  automatically and without further
            action of the Board, as follows:

            i.    On the date of each  Annual  Meeting  of  Stockholders  of the
                  Company  occurring  after the  Effective  Date,  each  Outside
                  Director  shall be granted  Five  Thousand  (5,000)  shares of
                  Restricted  Stock;  provided,  however,  that in the  event an
                  Outside  Director  was  elected  or  appointed  as an  Outside
                  Director and was granted an Option  pursuant to the provisions
                  of  subparagraph  5(a)(i) above within six months prior to the
                  Annual Meeting of Stockholders, that Outside Director shall be
                  ineligible  to receive any  Restricted  Stock with  respect to
                  such Annual Meeting of  Stockholders.  Such  Restricted  Stock
                  shall have the same Vested Ratio as is provided  under Section
                  5(b) hereto.

            ii.   Notwithstanding  any  other  provision  of  the  Plan  to  the
                  contrary,   no  Restricted  Stock  shall  be  granted  to  any
                  individual on a day when he or she is no longer  serving as an
                  Outside Director of the Company.

      b     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 Board. 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(e) below.

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

      d     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 Board at the time of grant.

      e     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 Board has  specified  such
            restrictions have lapsed.  Unless otherwise provided by the Board 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.

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

      g     TERMINATION  OF GRANTEE.  In the event the  Grantee  ceases to be an
            Outside  Director 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 Board 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 Board may in other  cases waive in
            whole or in part restrictions or forfeiture  conditions  relating to
            Restricted Stock.

7.    AUTHORITY TO VARY TERMS.  The Board shall have the authority  from time to
      time to vary the  terms of the  Option  and  Restricted  Stock  Agreements
      either in connection with the grant of an individual  Option or Restricted
      Stock or in connection  with the  authorization  of a new standard form or
      forms of Awards; provided,  however, that the terms and conditions of such
      revised or amended  standard form or forms of stock option agreement shall
      be in accordance with the terms of the Plan. Such authority shall include,
      but  not  be  limited  to,  the  authority  to  grant  Options  which  are
      immediately  exercisable  subject to the Company's right to repurchase any
      unvested  shares of Stock  acquired by the  Participant  on exercise of an
      Option in the event such Participant's  service as director of the Company
      is terminated for any reason.

8.    EFFECT OF CHANGE IN STOCK SUBJECT TO PLAN.  Appropriate  adjustments shall
      be made in the  number  and class of shares of Stock  subject to the Plan,
      the number of shares to be granted  under the Plan and to any  outstanding
      Options or shares of Restricted  Stock and in the Option exercise price of
      any  outstanding  Options in the event of a stock  dividend,  stock split,
      recapitalization,  reverse stock split, combination,  reclassification, or
      like change in the capital structure of the Company.

9.    TERMINATION OR AMENDMENT OF PLAN. The Board,  including any duly appointed
      committee  of the  Board,  may  terminate  or amend  the Plan at any time;
      provided,  however,  that without the approval of the  stockholders of the
      Company, there shall be no increase in the total number of shares of Stock
      covered by the Plan (except by operation of the  provisions of paragraph 8
      above).  In  any  event,  no  amendment  may  adversely  affect  any  then
      outstanding  Option,  or any  unexercised  portion  thereof,  without  the
      consent of the Participant. 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 Board 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.

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).

11.   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.   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  Board  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 Board 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 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
            service of any of its directors at any time.

      c.    LIMITATION OF LIABILITY.  No member of the Board,  or any officer or
            employee  of the  Company  acting on behalf of the  Board,  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 Board 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 Board
            may also give appropriate stop transfer instructions with respect to
            such Stock to the Company's transfer agent.

13.   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.

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