Exhibit 10.1






                               AGREEMENT OF LEASE

                                     BETWEEN

                       RECKSON OPERATING PARTNERSHIP, L.P.

                                       AND

                              FALCONSTOR.NET, INC.








                                TABLE OF CONTENTS

                                                                            PAGE

SPACE.........................................................................1

TERM..........................................................................1

RENT..........................................................................2

USE ..........................................................................3

LANDLORD ALTERATION...........................................................4

SERVICES......................................................................5

LANDLORD'S REPAIRS............................................................5

WATER SUPPLY..................................................................5

PARKING FIELD.................................................................5

DIRECTORY.....................................................................5

TAXES AND OTHER CHARGES.......................................................6

TENANT'S REPAIRS..............................................................7

FIXTURES & INSTALLATIONS......................................................7

ALTERATIONS ..................................................................8

REQUIREMENTS OF LAW..........................................................11

END OF TERM .................................................................13

QUIET ENJOYMENT..............................................................14

SIGNS........................................................................14

RULES AND REGULATIONS........................................................14

RIGHT TO SUBLET OR ASSIGN....................................................15

                                        i








LANDLORD'S ACCESS TO PREMISES................................................18

SUBORDINATION................................................................19

PROPERTY LOSS, DAMAGE REIMBURSEMENT..........................................21

TENANT'S INDEMNITY...........................................................21

DESTRUCTION  FIRE OR OTHER CASUALTY..........................................22

INSURANCE   .................................................................23

EMINENT DOMAIN...............................................................25

NONLIABILITY OF LANDLORD.....................................................26

DEFAULT......................................................................26

TERMINATION ON DEFAULT.......................................................28

DAMAGES......................................................................29

SUMS DUE LANDLORD............................................................30

NO WAIVER....................................................................31

WAIVER OF TRIAL BY JURY......................................................32

NOTICES......................................................................32

INABILITY TO PERFORM.........................................................32

INTERRUPTION OF SERVICE......................................................33

CONDITIONS F LANDLORD'S LIABILITY............................................33

TENANT'S TAKING POSSESSION...................................................33

SUBSTITUTED PREMISES.........................................................34

ENTIRE AGREEMENT.............................................................34



                                       ii







DEFINITIONS .................................................................35

PARTNERSHIP TENANT...........................................................35

SUCCESSORS, ASSIGNS, ETC.....................................................36

BROKER      .................................................................36

CAPTIONS    .................................................................36

NOTICE OF ACCIDENTS..........................................................36

TENANT'S AUTHORITY TO ENTER LEASE............................................37

LETTER OF CREDIT.............................................................37

RENEWAL OPTION...............................................................40

RIGHT OF OFFER...............................................................42

EXPANSION/RELOCATION OPTION..................................................44

SCHEDULE "A".................................................................47

SCHEDULE "B".................................................................50

SCHEDULE "C".................................................................52

SCHEDULE "D".................................................................55




                                       iii





            AGREEMENT OF LEASE, made as of this ____ day of July, 2000,  between
RECKSON OPERATING PARTNERSHIP, L.P., a Delaware limited partnership,  having its
principal office at 225 Broadhollow  Road, Suite 212 W, CS 5341,  Melville,  New
York 11747-0983  (hereinafter  referred to as "Landlord"),  and  FALCONSTOR.NET,
INC., a Delaware  corporation,  having its  principal  place of business at 1800
Northern  Boulevard,   Roslyn,  New  York  11756  (hereinafter  referred  to  as
"Tenant").

            WITNESSETH: Landlord and Tenant hereby covenant and agree as follows:

                                      SPACE

            1.  Landlord  hereby  leases to Tenant and Tenant  hereby hires from
Landlord the space  substantially  as shown on the Rental Plan  initialed by the
parties and made part hereof as Exhibit "1" ("Demised  Premises" or  "Premises")
in the building,  located at 125 Baylis Road,  Melville,  New York  (hereinafter
referred to as the  "Building"),  and the parties  stipulate and agree that such
space  contains  6,721 square feet in a Building  containing  98,729 square feet
which  constitutes  6.81  percent  of  the  area  of  the  Building   ("Tenant's
Proportionate Share").

                                      TERM

            2. The term ("Term",  "term" or "Demised  Term") of this lease shall
commence  upon the  execution of this lease.  Subject to the  provisions of this
Article 2, Tenant's right to occupy the Demised Premises and Tenant's obligation
to pay Rent (as  defined in Article 3 hereof) and all items of  additional  rent
shall commence on September 1, 2000 (the "Rent Commencement  Date"). The Term of
this lease  shall  expire on the day  preceding  the day which is five (5) years
after (a) the Rent Commencement Date, if such date is the first day of the first
full  calendar  month or (b) the  first  day of the first  full  calendar  month
following  the Rent  Commencement  Date,  if such date is not the first day of a
calendar month (the "Expiration Date").

               If on the  foregoing  date  specified  for the Rent  Commencement
Date, the Premises  shall not be  "substantially  completed" in accordance  with
Schedule A annexed  hereto and the Rental Plan annexed hereto as Exhibit 1, then,
the  Rent  Commencement  Date  shall be  postponed  until the date on which the
Premises shall be "substantially  completed" and the Term of this lease shall be
extended so that the Expiration  Date shall be five (5) years after the last day
of the  month  in  which  the  Rent  Commencement  Date  occurs.  "Substantially
completed" as used herein is defined to mean when the only items to be completed
are those which do not interfere with the Tenant's  occupancy and  substantially
full enjoyment of the Premises and which do not interfere  Tenant's  preparation
for the conduct of its business operations;  but if Landlord shall be delayed in
such  "substantial  completion"  as a result of (i) Tenant's  failure to furnish
plans and  specifications  by the date  reasonably  requested by Landlord;  (ii)
Tenant's request for materials,  finishes or installations other than Landlord's
Building standard; (iii) Tenant's changes in said plans; (iv) the performance or
completion of any work, labor or services by a party employed by Tenant;  or (v)
Tenant's failure to approve,  or approve as noted, final construction  documents
within  five (5)  business  days  after  such  submission  thereof to Tenant for
approval (all such delays being hereinafter referred to as "tenant






delay");  then the Rent  Commencement Date shall be accelerated by the number of
days of such tenant delay  (however,  Landlord shall not be obligated to deliver
the Demised Premises to Tenant and Tenant shall not have the right to occupy the
Premises  until  Landlord's  Initial  Construction   (hereinafter   defined)  is
"substantially completed").  Tenant waives any right to rescind this lease under
Section  223-a of the New York Real  Property  Law or any  successor  statute of
similar import then in force and further waives the right to recover any damages
which may result from Landlord's  failure to deliver  possession of the Premises
on the Rent Commencement Date set forth in the first paragraph of this Article.

            A  "Lease  Year"  shall be  comprised  of a period  of  twelve  (12)
consecutive months. The first Lease Year shall commence on the Rent Commencement
Date but,  notwithstanding  the first  sentence of this  paragraph,  if the Rent
Commencement  Date is not the first day of a month,  then the first  Lease  Year
shall include the additional  period from the Rent  Commencement Date to the end
of  the  then  current  month.  Each  succeeding  Lease  Year  shall  end on the
anniversary  date of the last day of the preceding  Lease Year. For example,  if
the Rent  Commencement  date is  September  1, 2000,  the first Lease Year would
begin on September  1, 2000,  and end on August 31,  2001,  and each  succeeding
Lease Year would end on August 31th. If, however,  the Rent Commencement Date is
September  2, 2000 the first Lease Year would end on  September  30,  2001,  the
second Lease Year would commence on October 1, 2001, and each  succeeding  Lease
Year would end on September 30th.

            Within five (5) business days after Landlord's delivery to Tenant of
a Rent  Commencement  Date Certificate  (confirming the Rent  Commencement  Date
under this lease and, if applicable, the date of substantial completion), Tenant
will sign and return said Certificate to Landlord.  If Tenant shall fail to sign
and return said  certificate  within such five (5)  business  day period,  or to
object to the accuracy of the dates therein within such period,  Tenant shall be
deemed to have approved the dates set forth in said certificate.

            Subject to the substantial  completion provisions of this Article 2,
Landlord's  ability to deliver the Demised  Premises to Tenant by  September  1,
2000 is  conditioned  upon  Tenant  executing  and  delivering  this  lease  and
approving,  signing and delivering the plans for Landlord's Initial Construction
(defined  herein) on or before July 21, 2000. If Tenant shall fail to so execute
and deliver  this lease or to approve,  sign and deliver such plans on or before
such date,  the date by which  Landlord  shall  deliver the Demised  Premises to
Tenant  shall  be  delayed  one (1) day for each day  Tenant  shall  delay in so
executing and delivering  this lease and approving,  signing and delivering such
plans,  and such delay shall be  considered a tenant delay.  In such event,  the
Rent  Commencement.  Date  shall be  accelerated  by the  number of days of such
tenant delay  (however,  Landlord  shall not be obligated to deliver the Demised
Premises  to Tenant and Tenant  shall nat have the right to occupy the  Premises
until Landlord's Initial Construction  (hereinafter  defined) is "substantially
completed").

                                      RENT

            3. The annual minimum rental ("Rent" or "rent") is as follows:

                                       -2-





During the first Lease Year, the Rent shall be $163,488.36,  payable  $35,033.22
for the first  month  and  $11,677.74  for each of the  second  through  twelfth
months.

During the second Lease Year, the Rent shall be $145,106.40,  payable in monthly
installments of $12,092.20.

During the third Lease Year, the Rent shall be  $150,278.88,  payable in monthly
installments of $12,523.24.

During the fourth Lease Year, the Rent shall be $155,658.24,  payable in monthly
installments of $12,971.52.

During the fifth Lease Year, the Rent shall be $137,897.28,  payable  $13,437.73
for  each of the  first  through  tenth  months  and  $1,759.99  for each of the
eleventh and twelfth months.

Tenant agrees to pay the Rent to Landlord,  without notice or demand,  in lawful
money of the United  States  which shall be legal tender in payment of the debts
and dues, public and private, at the time of payment in advance on the first day
of each calendar month during the Demised Term at the office of the Landlord, or
at such other place as Landlord  shall  designate,  except that Tenant shall pay
the first monthly installment on the execution hereof. Tenant shall pay the Rent
as  above  and as  hereinafter  provided,  without  any  set  off  or  deduction
whatsoever. Should the Rent Commencement Date be a date other than the first day
of a calendar  month,  the Tenant  shall pay a pro rata portion of the Rent on a
per diem  basis,  based upon the second full  calendar  month of the first Lease
Year,  from such date to and  including  the last day of that  current  calendar
month,  and the first Lease Year shall  include  said  partial  month.  The Rent
payable for such partial month shall be in addition to the Rent payable pursuant
to the Rent schedule set forth above.

                                       USE

            4. (A) Tenant  shall use and occupy the  Demised  Premises  only for
executive and administrative  offices related to the development,  marketing and
sales of computer software and for no other purpose.

               (B)  Tenant  shall  not  use or  occupy,  suffer  or  permit  the
Premises,  or any part thereof, to be used in any manner which would in any way,
in the reasonable  judgment of Landlord,  (i) violate any laws or regulations of
public  authorities;  (ii) make void or voidable  any  insurance  policy then in
force with respect to the Building;  (iii) impair the  appearance,  character or
reputation of the Building;  (iv) discharge objectionable fumes, vapors or odors
into the Building, air-conditioning systems or Building flues or vents in such a
manner as to offend other occupants. The provisions of this Section shall not be
deemed to be limited in any way to or by the  provisions of any other Section or
any Rule or Regulation.


                                       -3-





               (C) The  emplacement of any equipment which will impose an evenly
distributed  floor load in excess of 100  pounds  per square  foot shall be done
only after written  permission is received  from the Landlord.  Such  permission
will be  granted  only  after  adequate  proof is  furnished  by a  professional
engineer  that such floor  loading  will not endanger  the  structure.  Business
machines and mechanical equipment in the Premises shall be placed and maintained
by  Tenant,  at  Tenant's  expense,  in such  manner as shall be  sufficient  in
Landlord's  judgment  to absorb  vibration  and noise and prevent  annoyance  or
inconvenience to Landlord or any other tenants or occupants of the Building.

               (D)  Tenant  will  not at any  time  use or  occupy  the  Demised
Premises in violation of the  certificate of occupancy  (temporary or permanent)
issued for the Building or portion thereof of which the Demised  Premises form a
part.  Landlord  shall deliver to Tenant a copy of the  certificate of occupancy
for the  Building  within  two (2)  weeks of the date  Landlord  delivers  fully
executed originals of this lease to Tenant.

               (E)  Except if  specifically  permitted  under  Section A of this
Article,  Tenant  shall  not use the  Demised  Premises  or permit  the  Demised
Premises to be used for a brokerage  office or other office  engaged in the sale
of stocks, bonds, options or other securities.

               (F)  Tenant  agrees  that  the  value  of the  Premises  and  the
reputation  of the Landlord  will be seriously  injured if the Premises are used
for any  obscene or  pornographic  purposes  or if any  obscene or  pornographic
material is permitted on the Premises.  Tenant  further  agrees that Tenant will
not  permit  any of these  uses by  Tenant or a  sublessee  or  assignee  of the
Premises.  This Article 4(F) shall  directly bind any  successors in interest to
Tenant.  Tenant agrees that if at any time Tenant violates any of the provisions
of this Article 4(F),  such violation  shall be deemed a breach of a substantial
obligation of the terms of this lease and  objectionable  conduct.  Pornographic
material  is  defined  for  purposes  of this  Article  4(F) as any  written  or
pictorial  matter with prurient  appeal or any objects or  instruments  that are
primarily  concerned with lewd in or prurient sexual activity.  Obscene material
is defined here as it is in Penal Law Section 235.00.

                               LANDLORD ALTERATION

            5. Landlord, at its sole cost and expense (unless otherwise noted on
either  the  Rental  Plan  annexed  hereto  as  Exhibit  1,  Schedule  "A",  the
preliminary plans and/or the construction  drawings),  will perform the work and
make the  installations,  as set forth in Schedule  "A"  annexed  hereto and the
Rental Plan  annexed  hereto as Exhibit 1, which work is  sometimes  hereinafter
referred to as the "Landlord's Initial Construction". In the event that there is
a conflict or inconsistency  between the provisions of this lease (including the
Exhibits  and  Schedules  annexed  hereto)  and the work set  forth on the final
construction  documents  to be  prepared  by  Landlord  for  Landlord's  Initial
Construction  and approved by Landlord  and Tenant  after the date hereof,  such
final construction documents shall be controlling.


                                       -4-





                                    SERVICES

            6. As long as this  Lease is in full  force  and  effect,  Landlord,
during  the  hours of 9:00 A.M.  to 8:00 P.M.  on  weekdays  ("Working  Hours"),
excluding  legal  holidays,  shall  furnish the Demised  Premises  with heat and
air-conditioning  in the respective  seasons,  and provide the Demised  Premises
with  electricity  for  lighting  and  usual  office  equipment  as set forth in
Schedule "C". Tenant,  with the consent of Landlord,  which consent shall not be
unreasonably withheld, shall have the right to designate other hours, so long as
the  total  hours  per  week  do not  exceed  fifty-five  (55),  subject  to the
provisions  of Schedule  "C". At any hours other than the  aforementioned,  such
services will be provided at Tenant's expense in accordance with Schedule "C".

                               LANDLORD'S REPAIRS

            7. Landlord, at its sole cost and expense, will make all the repairs
to and provide the maintenance for the Demised Premises  (excluding painting and
decorating)  and for all public  areas and  facilities  as set forth in Schedule
"B",  except  such  repairs  and  maintenance  as  may  be  necessitated  by the
negligence,  improper care or use of such premises and facilities by Tenant, its
agents,  employees,  licensees  or  invitees,  which will be made by Landlord at
Tenant's expense.

                                  WATER SUPPLY

            8.  Landlord,  at its sole cost and expense,  shall  furnish hot and
cold or tempered water for lavatory, kitchenette and drinking purposes only.

                                  PARKING FIELD

            9.  Tenant  shall  have the right to use  thirty-four  (34)  parking
spaces  (of which  spaces,  six (6) shall be  designated  as  reserved)  for the
parking of automobiles of the Tenant, its employees and invitees, in the parking
area designated for tenants of the Building  (hereinafter  sometimes referred to
as  "Building  Parking  Area"),  subject  to the  Rules and  Regulations  now or
hereafter  adopted  by  Landlord.  Tenant  shall not use nor  permit  any of its
officers,  agents or employees  to use any parking  spaces in excess of Tenant's
allotted number of spaces therein.

                                    DIRECTORY

            10.  Landlord  will  furnish  on  the  building  directory  listings
requested by Tenant, not to exceed two (2) listings. Landlord will also furnish,
on the directional  sign in the Building,  one (1) listing  requested by Tenant.
Such initial  listings  will be made at  Landlord's  expense and any  subsequent
changes by Tenant shall be made at Tenant's  expense  (which  expense  shall not
exceed Landlord's Building standard charge).  Landlord's  acceptance of any name
for listing on the  directory or the  directional  sign will not be deemed,  nor
will it substitute for,  Landlord's  consent,  as required by this lease, to any
sublease, assignment or other occupancy of the Premises.




                                       -5-





                             TAXES AND OTHER CHARGES

            11.  (A) As used in and for the  purposes  of this  Article  11, the
following definitions shall apply:

                     (i) "Taxes"  shall be the real estate  taxes,  assessments,
special or otherwise, sewer rents, rates and charges, and any other governmental
charges, general, specific,  ordinary or extraordinary,  foreseen or unforeseen,
levied on a calendar year or fiscal year basis against the Real Property.  If at
any time  during the Term the method of taxation  prevailing  at the date hereof
shall be altered so that there shall be levied,  assessed or imposed in lieu of,
or as in  addition  to,  or as a  substitute  for,  the whole or any part of the
taxes, levies,  impositions or charges now levied, assessed or imposed on all or
any part of the Real Property (a) a tax, assessment,  levy, imposition or charge
based upon the rents received by Landlord, whether or not wholly or partially as
a capital levy or  otherwise,  or (b) a tax,  assessment,  levy,  imposition  or
charge measured by or based in whole or in part upon all or any part of the Real
Property  and imposed on  Landlord,  or (c) a license  fee  measured by the rent
payable by Tenant to Landlord, or (d) any other tax, levy, imposition, charge or
license  fee  however  described  or  imposed;  then  all  such  taxes,  levies,
impositions,  charges or license fees or any part thereof, so measured or based,
shall be deemed to be Taxes.

                     (ii) "Base Year Taxes" shall be the taxes  actually due and
payable with respect to 2000/2001 tax year.

                     (iii) "Escalation Year" shall mean each calendar year which
shall include any part of the Demised Term.

                     (iv)  "Real  Property"  shall be the land  upon  which  the
Building stands and any part or parts thereof  utilized for parking,  landscaped
areas or otherwise  used in connection  with the Building,  and the Building and
other improvements appurtenant thereto.

                 (B) The Tenant shall pay the Landlord increases in Taxes levied
against the Real Property as follows: If the Taxes actually due and payable with
respect to the Real Property in any Escalation Year shall be increased above the
Base Year Taxes,  then the Tenant shall pay to the Landlord,  as additional rent
for such Escalation  Year, a sum equal to Tenant's  Proportionate  Share of said
increase ("Tenant's Tax Payment" or "Tax Payment").

                 (C) Landlord  shall  render to Tenant a statement  containing a
computation  of Tenant's Tax Payment  ("Landlord's  Statement").  Within fifteen
(15) days after the rendition of the Landlord's  Statement,  Tenant shall pay to
Landlord  the amount of  Tenant's  Tax  Payment.  On the first day of each month
following  the  rendition  of each  Landlord's  Statement,  Tenant  shall pay to
Landlord,  on account of Tenant's next Tax Payment,  a sum equal to  one-twelfth
(1/12th) of Tenant's last Tax Payment due hereunder,  which sum shall be subject
to adjustment for subsequent increases in Taxes.

                 (D) If during the Term Taxes are  required  to be paid as a tax
escrow payment to a mortgagee,  then, at Landlord's  option, the installments of
Tenant's Tax Payment shall be

                                       -6-





correspondingly  accelerated  so that  Tenant's  Tax Payment or any  installment
thereof shall be due and payable by Tenant to Landlord at least thirty (30) days
prior to the date such payment is due to such mortgagee.

                 (E) Tenant shall not, without Landlord's prior written consent,
institute or maintain any action, proceeding or application in any court or body
or with any governmental authority for the purpose of changing the Taxes.

                 (F)  Landlord's  failure to render a Landlord's  Statement with
respect to any Escalation Year shall not prejudice  Landlord's right to render a
Landlord's  Statement  with respect to any  Escalation  Year.  The obligation of
Landlord  and Tenant  under the  provisions  of this Article with respect to any
additional  rent for any  Escalation  Year shall  survive the  expiration or any
sooner termination of the Demised Term.

                                TENANT'S REPAIRS

            12. Tenant shall take good care of the Demised Premises and, subject
to the provisions of Article 7 hereof,  Landlord at the expense of Tenant, shall
make as and when  needed as a result of misuse or neglect by Tenant or  Tenant's
servants,  employees,  agents or licensees, all repairs in and about the Demised
Premises  necessary  to  preserve  them in good order and  condition.  Except as
provided  in Article  24 hereof,  there  shall be no  allowance  to Tenant for a
diminution of rental value and no liability on the part of Landlord by reason of
inconvenience,  annoyance or injury to business arising from Landlord, Tenant or
others making any repairs,  alterations,  additions or improvements in or to any
portion  of the  Building  or of  Demised  Premises,  or in or to the  fixtures,
appurtenances or equipment  thereof,  and no liability upon Landlord for failure
of  Landlord  or  others  to  make  any  repairs,   alterations,   additions  or
improvements in or to any portion of the Building or of the Demised Premises, or
in or to the fixtures, appurtenances or equipment thereof.

                            FIXTURES & INSTALLATIONS

            13. All appurtenances,  fixtures, improvements,  additions and other
property attached to or built into the Demised Premises,  whether by Landlord or
Tenant or others, and whether at Landlord's expense, or Tenant's expense, or the
joint  expense of  Landlord  and  Tenant,  shall be and remain the  property  of
Landlord  (except  for  purposes  of  sales  tax  which  shall  remain  Tenant's
obligation).  All trade fixtures,  furniture,  furnishings and other articles of
movable  personal  property  owned by Tenant and  located  within  the  Premises
(collectively,  "Tenant's  Property") may be removed from the Premises by Tenant
at any time during the Term. Tenant, before so removing Tenant's Property, shall
establish to Landlord's  satisfaction  that no structural  damage or change will
result  from such  removal  and that  Tenant can and  promptly  will  repair and
restore any damage  caused by such  removal  without cost or charge to Landlord.
Any such repair and removal shall itself be deemed an Alteration  (as defined in
Article 14 below)  within the purview of this lease.  Any Tenant's  Property for
which  Landlord  shall have  granted any  allowance,  contribution  or credit to
Tenant shall, at Landlord's option, not be so removed.  All the outside walls of
the Demised Premises

                                       -7-





including corridor walls and the outside entrance doors to the Demised Premises,
any balconies, terraces or roofs adjacent to the Demised Premises, and any space
in the Demised Premises used for shafts, stacks, pipes, conduits, ducts or other
building  facilities,  and the use  thereof,  as well as access  thereto  in and
through  the  Demised  Premises  for  the  purpose  of  operation,  maintenance,
decoration and repair, are expressly reserved to Landlord, and Landlord does not
convey any rights to Tenant therein. Notwithstanding the foregoing, Tenant shall
enjoy full right of access to the Demised Premises through the public entrances,
public corridors and public areas within the Building.

                                   ALTERATIONS

            14.   (A)   Tenant   shall   make   no   alterations,   decorations,
installations,  additions or improvements, except those installations, additions
and improvements performed as part Landlord's Initial Construction  (hereinafter
collectively referred to as "Alterations") in or to the Demised Premises. Tenant
may make written  request to Landlord  that certain  Alterations  be made to the
Demised Premises, but all such Alterations shall be performed, if at all, (i) in
the sole and reasonable discretion of Landlord, (ii) by Landlord or its designee
and (iii) at the sole cost and expense of Tenant. Any Alteration to be performed
in, on or to the Demised  Premises shall be performed by Landlord (which term as
used in  this  Article  14 (A)  shall  be  deemed  to  include  Landlord  and/or
Landlord's  contractor)  and Tenant shall pay Landlord for all costs and charges
for such Alteration  (including,  without limitation,  the cost of any drawings,
plans, layouts and/or  specifications  prepared by Landlord with respect to such
Alteration).   Notwithstanding  the  foregoing,  Tenant's  installation  of  its
furniture shall not be deemed an Alteration, provided same is not required to be
wired to the Building electric system.

                  (B) In the  event  that  Landlord,  in its sole  and  absolute
discretion,  permits Tenant to perform specific  Alterations in lieu of Landlord
or Landlord's contractor (the "Permitted Alterations"), the following provisions
shall apply:

                      (i) All Permitted  Alterations done by Tenant shall at all
times  comply  with (a) laws,  rules,  orders and  regulations  of  governmental
authorities having  jurisdiction  thereof,  and (b) rules and regulations of the
Landlord attached as Schedule D.

                      (ii) With respect to all Permitted Alterations,  plans and
specifications  prepared by and at the expense of Tenant  shall be  submitted to
Landlord  for its  prior  written  approval  in  accordance  with the  following
requirements:

                         (a) With  respect to any  Permitted  Alterations  to be
performed  by Tenant  pursuant  to this lease,  Tenant  shall,  at its  expense,
furnish  Landlord  with  complete   architectural,   mechanical  and  electrical
construction  documents for work to be performed by Tenant,  including,  without
limitation,   architectural,   plumbing,  electrical,  mechanical  and  heating,
ventilating  and air  conditioning  plans  (the  "Tenant's  Plans").  All of the
Tenant's Plans shall: (x) be compatible with the Landlord's  building plans, (y)
comply with all applicable laws and the rules, regulations,

                                       -8-





requirements  and orders of any and all  governmental  agencies,  departments or
bureaus having jurisdiction,  and (z) be fully detailed, including locations and
complete dimensions;

                         (b)  Tenant's  Plans  shall be subject to  approval  by
Landlord;

                         (c)  Tenant  shall,  at  Tenant's  expense,  (x)  cause
Tenant's Plans to be filed with the  governmental  agencies having  jurisdiction
thereover,  (y) obtain when  necessary all  governmental  permits,  licenses and
authorizations required for the work to be done in connection therewith, and (z)
obtain all necessary  certificates  of occupancy,  both temporary and permanent.
Landlord  shall  execute  such  documents  as  may  be  reasonably  required  in
connection with the foregoing and Landlord shall otherwise cooperate with Tenant
in connection with obtaining the foregoing, but without any expense to Landlord.
Tenant shall make no amendments or additions to Tenant's Plans without the prior
written consent of Landlord in each instance;

                         (d) No work shall  commence in the  Premises  until (x)
Tenant has procured all necessary  permits  therefor and has delivered copies of
same to Landlord, (y) Tenant has procured a paid builder's risk insurance policy
naming  Landlord  as an  additional  insured  and has  delivered  to  Landlord a
certificate  of  insurance  evidencing  such  policy,  and  (z)  Tenant  or  its
contractor has procured a workmen's  compensation  insurance policy covering the
activities  of  all  persons  working  at the  Premises  naming  Landlord  as an
additional  insured and has  delivered  to Landlord a  certificate  of insurance
evidencing such policy;

                         (e) Tenant may use any  licensed  architect or engineer
to prepare its plans and to file for permits. However, all such plans and permit
applications  shall be subject to review,  revision  and approval by Landlord or
its architect;

                         (f) Tenant,  at its expense,  shall perform all work in
connection  with all Permitted  Alterations,  in accordance with Tenant's Plans,
and such work shall be subject to  Landlord's  supervisory  fee charge of 10% of
the cost thereof.  Notwithstanding the foregoing,  the performance of Landlord's
Initial  Construction shall not be subject to such supervisory fee. In receiving
such  fee,  Landlord  assumes  no  responsibility  for  the  quality  or  manner
(including,  without limitation,  the means, methods and/or techniques) in which
such work has been performed; and

                         (g) Tenant agrees that it will not,  either directly or
indirectly, use any contractors and/or labor and/or materials if the use of such
contractors  and/or labor and/or  materials  would or will create any difficulty
with other  contractors  and/or labor engaged by Tenant or Landlord or others in
the construction, maintenance or operation of the Building or any part thereof.

                   (iii) Tenant's Permitted  Alterations shall be subject to the
following additional  conditions:  (a) the Permitted Alterations will not result
in a  violation  of, or  require  a change  in,  any  Certificate  of  Occupancy
applicable  to the  Premises  or  the  Building;  (b)  the  outside  appearance,
character  or use of the  Building  shall  not be  affected;  (c) no part of the
Building outside

                                       -9-





of the Premises shall be physically affected;  (d) the proper functioning of any
air-conditioning, elevator, plumbing, electrical, sanitary, mechanical and other
service or utility system of the Building shall not be affected.

                   (iv)  Tenant  shall  defend,   indemnify  and  save  harmless
Landlord against any and all mechanics' and other liens filed in connection with
its Permitted Alterations, repairs or installations,  including the liens of any
conditional  sales of, or chattel  mortgages  upon, any  materials,  fixtures or
articles so installed in and  constituting  part of the Premises and against any
loss, cost, liability,  claim, damage and expense,  including reasonable counsel
fees, penalties and fines incurred in connection with any such lien, conditional
sale or chattel  mortgage  or any action or  proceeding  brought  thereon.  As a
condition  precedent to Landlord's  consent to the making by Tenant of Permitted
Alterations,  Tenant  agrees to obtain and  deliver  to  Landlord,  written  and
unconditional waivers of mechanics' liens for all work, labor and services to be
performed   and  materials  to  be   furnished,   signed  by  all   contractors,
subcontractors, materialmen and laborers to become involved in such work.

                   (v) Tenant, at its expense, shall procure the satisfaction or
discharge of all such liens  within  thirty (30) days of the filing of such lien
against the Premises or the Building. If Tenant shall fail to cause such lien to
be discharged within the aforesaid period,  then, in addition to any other right
or remedy,  Landlord  may, but shall not be  obligated  to,  discharge  the same
either by paying the amount  claimed to be due or by procuring  the discharge of
such lien by deposit or by bonding  proceedings,  and in any such event Landlord
shall be entitled, if Landlord so elects, to compel the prosecution of an action
for the  foreclosure  of such lien by the  lienor  and to pay the  amount of the
judgment in favor of the lienor with interest, costs and allowances.  Any amount
so paid by  Landlord,  and all  costs  and  expenses  incurred  by  Landlord  in
connection  therewith,  together  with  interest  thereon  at the  maximum  rate
permitted by law from the respective dates of Landlord's  making of the payments
or incurring of the cost and expense, shall constitute additional rent and shall
be paid on demand.

                   (vi)  Nothing in this lease  contained  shall be construed in
any way as  constituting  the  consent  or  request of  Landlord,  expressed  or
implied,  to any  contractor,  subcontractor,  laborer  or  materialman  for the
performance of any labor or the furnishing of any material for any  improvement,
alteration  or repair of the  Premises,  nor as giving any right or authority to
contract for the  rendering of any services or the  furnishing  of any materials
that would give rise to the filing of any mechanics' liens against the Premises.

               (C)  Tenant  shall  not be  permitted  to  make,  or to  engage a
contractor  or  artist to make,  any  Alterations,  decorations,  installations,
additions or other improvements  ("Visual Alteration") which may be considered a
work of visual art of any kind,  and/or which might fall within the  protections
of the Visual Artists Rights Act of 1990 ("VARA") unless:


                                      -10-





                      (i) Tenant obtains, from each artist and/or contractor who
will be  involved  in said  Visual  Alteration,  valid  written  waivers of such
artist's and/or  contractor's  rights under VARA in form and content  reasonably
acceptable to Landlord; and

                      (ii)  Landlord  consents  to  such  Visual  Alteration  in
writing.

            In the event that a claim is brought  under VARA with respect to any
Visual  Alteration  performed  in or about the  Building by or at the request of
Tenant or Tenant's agents or employees, Tenant shall indemnify and hold harmless
Landlord  against and from any and all such claims.  If any action or proceeding
shall be brought  against  Landlord by reason of such claim  under VARA,  Tenant
agrees  that  Tenant,  at its  expense,  will  resist and defend  such action or
proceeding and will employ counsel  satisfactory  to Landlord  therefor.  Tenant
shall also pay any and all  damages  sustained  by  Landlord as a result of such
claim, including,  without limitation,  attorney's fees and the cost to Landlord
of complying with VARA protections  (which shall include damages  sustained as a
result of Landlord's  inability to remove Visual Alterations from the Premises).
Failure of Tenant to strictly  comply with the  provisions of this Article 14(C)
shall be deemed a default  under this lease,  and Landlord  shall be entitled to
pursue all appropriate remedies provided herein, as well as at law or in equity.
The  provisions  of this Article 14 (C) shall  survive the  expiration or sooner
termination of this lease.

                               REQUIREMENTS OF LAW

            15. (A) Tenant, at Tenant's sole cost and expense, shall comply with
all statutes,  laws,  ordinances,  orders,  regulations  and notices of Federal,
State, County and Municipal  authorities,  and with all directions,  pursuant to
law, of all public officers, which shall impose any duty upon Landlord or Tenant
with respect to the Demised  Premises or the use or occupation  thereof,  except
that Tenant shall not be required to make any structural alterations in order so
to comply unless such alterations shall be necessitated or occasioned,  in whole
or in part,  by the acts,  omissions,  or  negligence  of  Tenant or any  person
claiming  through  or  under  Tenant  or  any  of  their  servants,   employees,
contractors, agents, visitors or licensees, or by the use or occupancy or manner
of use or occupancy of the Demised  Premises by Tenant,  or any such person,  in
which case such  structural  alterations  shall be made by  Landlord at Tenant's
sole cost and expense.

                (B) The  parties  acknowledge  that there are  certain  Federal,
State  and  local  laws,  regulations  and  guidelines  now in  effect  and that
additional laws,  regulations and guidelines may hereafter be enacted,  relating
to or affecting the Premises,  the Building,  and the land of which the Premises
and the  Building may be a part,  concerning  the impact on the  environment  of
construction,  land use, the  maintenance  and operation of  structures  and the
conduct of business.  Tenant will not cause, or permit to be caused,  any act or
practice, by negligence, omission, or otherwise, that would adversely affect the
environment or do anything or permit  anything to be done that would violate any
of said laws, regulations,  or guidelines.  Any violation of this covenant shall
be an event of default under this lease.


                                      -11-





                (C) Tenant  shall keep or cause the  Premises to be kept free of
Hazardous  Materials  (hereinafter  defined).  Without  limiting the  foregoing,
Tenant  shall  not  cause  or  permit  the  Premises  to be  used  to  generate,
manufacture, refine, transport, treat, store, handle, dispose, transfer, produce
or  process  Hazardous  Materials,  except  in  compliance  with all  applicable
Federal, State and Local laws or regulations,  nor shall Tenant cause or permit,
as a result of any intentional or  unintentional  act or omission on the part of
Tenant or any person or entity claiming  through or under Tenant or any of their
employees,  contractors,  agents, visitors or licensees (collectively,  "Related
Parties"),  a release of Hazardous Materials onto the Premises or onto any other
property.  Tenant shall comply with and ensure compliance by all Related Parties
with all  applicable  Federal,  State  and  Local  laws,  ordinances,  rules and
regulations,  whenever  and by whomever  triggered,  and shall obtain and comply
with,  and ensure that all Related  Parties  obtain and comply with, any and all
approvals,  registrations  or  permits  required  thereunder.  With  respect  to
Hazardous Materials for which Tenant is responsible hereunder,  Tenant shall (i)
conduct and complete all investigations,  studies,  samplings,  and testing, and
all  remedial  removal and other  actions  necessary to clean up and remove such
Hazardous Materials,  on, from, or affecting the Premises (a) in accordance with
all applicable Federal,  State and Local laws, ordinances,  rules,  regulations,
policies,  orders and directives,  and (b) to the satisfaction of Landlord,  and
(ii) defend,  indemnify,  and hold harmless  Landlord,  its  employees,  agents,
officers, and directors, from and against any claims, demands, penalties, fines,
liabilities,  settlements,  damages,  costs,  or expenses  of  whatever  kind or
nature, known or unknown, contingent or otherwise, arising out of, or in any way
related to, (a) the presence,  disposal,  release, or threatened release of such
Hazardous   Materials  which  are  on,  from,  or  affecting  the  soil,  water,
vegetation,  buildings,  personal property,  persons, animals, or otherwise; (b)
any  personal  injury  (including  wrongful  death) or property  damage (real or
personal) arising out of or related to such Hazardous Materials; (c) any lawsuit
brought or threatened,  settlement reached, or government order relating to such
Hazardous  Materials;  and/or (d) any  violation of laws,  orders,  regulations,
requirements,   or  demands  of  government  authorities,  or  any  policies  or
requirements  of  Landlord  which are based  upon or in any way  related to such
Hazardous  Materials,  including,  without  limitation,  attorney and consultant
fees,  investigation and laboratory fees, court costs, and litigation  expenses.
In the event this lease is terminated,  or Tenant is dispossessed,  Tenant shall
deliver the Premises to Landlord free of any and all Hazardous Materials so that
the conditions of the Premises shall conform with all applicable Federal,  State
and Local laws,  ordinances,  rules or regulations  affecting the Premises.  For
purposes of this paragraph,  "Hazardous Materials" includes, without limitation,
any flammable explosives,  radioactive materials, hazardous materials, hazardous
wastes,  hazardous  or toxic  substances,  or related  materials  defined in the
Comprehensive Environmental Response,  Compensation,  and Liability Act of 1980,
as  amended  (42  U.S.C.  Sections  9601,  et  seq.),  the  Hazardous  Materials
Transportation  Act, as amended (49 U.S.C.  Sections 1801 et seq.), the Resource
Conservation  and Recovery Act, as amended (42 U.S.C.  Sections  9601, et seq.),
and in the regulations adopted and publications promulgated pursuant thereto, or
any  other  Federal,  State or Local  environmental  law,  ordinance,  rule,  or
regulation.

                (D) Landlord  hereby  represents and warrants to Tenant that, to
the  best of  Landlord's  knowledge,  as of the  date  hereof,  there  exist  no
Hazardous  Materials in or upon the Demised  Premises or the common areas of the
Building in violation of applicable law. In the event

                                      -12-





of a breach  of the  foregoing  representation  and  warranty,  Landlord  hereby
covenants to remove or encapsulate any such Hazardous  Materials,  in the manner
required by applicable law.

                                   END OF TERM

            16. (A) Upon the expiration or other termination of the Term of this
lease,  Tenant  shall,  at its own expense,  quit and  surrender to Landlord the
Demised Premises, broom clean, in good order and condition,  ordinary wear, tear
and damage by fire or other insured casualty  excepted,  and Tenant shall remove
all of its  personal  property  and shall pay to Landlord the cost to repair all
damage to the Demised Premises or the Building  occasioned by such removal.  All
fixtures,  and  all  paneling,   partitions,   railings,   staircases  and  like
installations,  installed in the Demised Premises at any time,  either by Tenant
or by Landlord on Tenant's  behalf,  shall  become the  property of Landlord and
shall remain upon and be surrendered with the Premises unless Landlord elects to
have such installations  (other than painting and carpeting) removed at Tenant's
expense,  in which  event,  the same shall be removed and the  Demised  Premises
returned to its original  condition  prior to expiration of the Term hereof,  at
Tenant's expense.  Notwithstanding  the foregoing,  in the event Tenant requests
that Landlord notify Tenant whether a particular Alteration must be removed upon
the  expiration or sooner  termination  of this lease,  Landlord shall so notify
Tenant  simultaneously with Landlord's consent thereto. Any property not removed
from the  Premises  shall be deemed  abandoned  by Tenant and may be retained by
Landlord,  as its property,  or disposed of in any manner deemed  appropriate by
the Landlord.  Any expense incurred by Landlord in removing or disposing of such
property shall be reimbursed to Landlord by Tenant on demand.  Tenant  expressly
waives,  for itself and for any person  claiming  through or under  Tenant,  any
rights which Tenant or any such person may have under the  provisions of Section
2201 of the New York Civil  Practice Law and Rules and of any  successor  law of
like import then in force, in connection with any holdover or summary proceeding
which  Landlord  may  institute  to enforce  the  foregoing  provisions  of this
Article.  Tenant's  obligation to observe or perform this covenant shall survive
the expiration or other  termination of the Term of this lease.  If the last day
of the Term of this  lease or any  renewal  hereof  falls on  Sunday  or a legal
holiday,  this lease shall  expire on the business  day  immediately  preceding.
Tenant's  obligations under this Article 16 shall survive the Expiration Date or
sooner termination of this lease.

                (B) In the  event  of any  holding  over  by  Tenant  after  the
expiration or termination of this lease without the consent of Landlord,  Tenant
shall:

                   (i) pay as  holdover  rental for each  month of the  holdover
tenancy an amount  equal to the greater of (a) the fair market  rental  value of
the Premises for such month (as  reasonably  determined  by Landlord) or (b) one
hundred and  seventy-five  x(475%) percent of the Rent payable by Tenant for the
third  month  prior  to the  Expiration  Date of the  term of  this  lease,  and
otherwise observe,  fulfill and perform all of its obligations under this lease,
including but not limited to, those pertaining to additional rent, in accordance
with its terms;


                                      -13-





                   (ii) be liable to Landlord for any payment or rent concession
which  Landlord  may be  required  to make to any tenant in order to induce such
tenant not to  terminate  an executed  lease  covering all or any portion of the
Premises by reason of the holdover over by Tenant; and

                   (iii) be liable  to  Landlord  for any  damages  suffered  by
Landlord as the result of Tenant's failure to surrender the Premises.

            No holding over by Tenant after the Term shall operate to extend the
Term.

            The holdover,  with respect to all or any part of the Premises, of a
person deriving an interest in the Premises from or through  Tenant,  including,
but not  limited to, an  assignee  or  subtenant,  shall be deemed a holdover by
Tenant.

            Notwithstanding  anything in this Article contained to the contrary,
the  acceptance  of any Rent paid by Tenant  pursuant to this  Paragraph  16(B),
shall not  preclude  Landlord  from  commencing  and  prosecuting  a holdover or
eviction action or proceeding or any action or proceeding in the nature thereof.
The preceding sentence shall be deemed to be an "agreement  expressly  providing
otherwise"  within the meaning of Section  232-c of the Real Property Law of the
State of New York and any successor law of like import.

                                 QUIET ENJOYMENT

            17.  Landlord  covenants  and agrees  with  Tenant  that upon Tenant
paying the Rent and additional  rent and observing and performing all the terms,
covenants and conditions on Tenant's part to be observed and  performed,  Tenant
may  peaceably and quietly  enjoy the Demised  Premises  during the Term of this
lease  without  hindrance  or  molestation  by  anyone  claiming  by or  through
Landlord, subject,  nevertheless, to the terms, covenants and conditions of this
lease including, but not limited to, Article 22.

                                      SIGNS

            18.  Tenant  shall not place any signs or lettering of any nature on
or in any window or on the  exterior  of the  Building or  elsewhere  within the
Demised Premises such as will be visible from the street. Tenant shall not place
any sign or  lettering  in the  public  corridors  or on the doors  (except  for
Landlord's  standard  name  plaque).  Tenant  shall  have the  right to  install
Tenant's  logo on the angled  wall  inside the main  entrance  to the  Premises,
subject to Landlord's approval as to form and content,  which approval shall not
be unreasonably withheld or delayed).

                              RULES AND REGULATIONS

            19. Tenant and Tenant's agents,  employees,  visitors, and licensees
shall faithfully observe and comply with, and shall not permit violation of, the
Rules and Regulations set forth on Schedule

                                      -14-





D annexed hereto and made part hereof,  and with such further  reasonable  Rules
and  Regulations as Landlord at any time may make and  communicate in writing to
Tenant which,  in Landlord's  judgment,  shall be necessary for the  reputation,
safety,  care and appearance of the Building and the land allocated to it or the
preservation  of good order  therein,  or the  operation or  maintenance  of the
Building,  and such land,  its  equipment,  or the more useful  occupancy or the
comfort of the tenants or others in the Building.  Landlord  shall not be liable
to Tenant for the violation of any of said Rules and Regulations,  or the breach
of any covenant or condition, in any lease by any other tenant in the Building.

                            RIGHT TO SUBLET OR ASSIGN

            20. (A)  Tenant  covenants  that it shall not assign  this lease nor
sublet  the  Demised  Premises  or  any  part  thereof  by  operation  of law or
otherwise, including, without limitation, an assignment or subletting as defined
in (D) below,  without the prior  written  consent of Landlord in each  instance
(which  consent shall not be  unreasonably  withheld or delayed),  except on the
conditions  hereinafter stated.  Tenant may assign this lease or sublet all or a
portion of the Demised  Premises with Landlord's  written consent (which consent
shall not be unreasonably withheld or delayed), provided:

                (i) That such  assignment  or  sublease is for a use which is in
compliance  with this lease and the then  existing  zoning  regulations  and the
Certificate of Occupancy;

                (ii) That, at the time of such  assignment or subletting,  there
is no default,  beyond any notice and grace period  provided herein for the cure
thereof, under the terms of this lease on the Tenant's part;

                (iii) That, in the event of an  assignment,  the assignee  shall
assume in writing the  performance  of all of the terms and  obligations  of the
within lease;

                (iv) That a duplicate  original of said  assignment  or sublease
shall be delivered by certified  mail to the Landlord at the address  herein set
forth  within  ten (10) days from the said  assignment  or  sublease  and within
ninety (90) days of the date that Tenant first advises  Landlord of the name and
address  of  the  proposed  subtenant  or  assignee,  as  required  pursuant  to
subparagraph (B) hereof;

                (v) Such assignment or subletting  shall not,  however,  release
the within Tenant or any successor  tenant or any guarantor from their liability
for the full and faithful performance of all of the terms and conditions of this
lease;

                (vi) If this lease be  assigned,  or if the Demised  Premises or
any part thereof be underlet or occupied by anybody other than Tenant,  Landlord
may after  default by Tenant  collect  rent from the  assignee,  undertenant  or
occupant, and apply the net amount collected to the rent herein reserved; and

                                      -15-





                (vii) That, in the event Tenant shall request Landlord's consent
to a proposed  assignment of this lease or proposed sublease of all or a portion
of  the  Demised  Premises,  Tenant  shall  pay or  reimburse  to  Landlord  the
reasonable attorney fees incurred by Landlord in processing such request.

            (B)  Notwithstanding  anything  contained  in this Article 20 to the
contrary,  no assignment or  underletting,  except an assignment or underletting
made pursuant to the provisions of Article 20(C) below,  shall be made by Tenant
in any event until Tenant has offered to terminate this lease as of the last day
of any  calendar  month during the Term hereof and to vacate and  surrender  the
Demised  Premises to  Landlord on the date fixed in the notice  served by Tenant
upon Landlord (which date shall be prior to the date of such proposed assignment
or the commencement date of such proposed lease). Simultaneously with said offer
to terminate this lease,  Tenant shall advise the Landlord,  in writing,  of the
name and address of the proposed  assignee or subtenant,  a reasonably  detailed
statement  of the  proposed  subtenant/assignee's  business  (which must be of a
character and use  consistent  with other tenants in the  Building),  reasonably
detailed financial references,  and all the terms, covenants,  and conditions of
the proposed sublease or assignment.

            (C) Tenant may,  without the consent of Landlord,  assign this lease
to an  affiliated  (i.e.,  a  corporation  20% or more of whose capital stock is
owned by the same  stockholders  owning 20% or more of Tenant's  capital stock),
parent or subsidiary corporation of Tenant or to a corporation to which it sells
or assigns all or substantially  all of its assets or stock or with which it may
be consolidated or merged (herein referred to as a "Tenant Affiliate"), provided
such  purchasing,  consolidated,  merged,  affiliated or subsidiary  corporation
shall, in writing,  assume and agree to perform all of the obligations of Tenant
under  this  lease  and it shall  deliver  such  assumption  with a copy of such
assignment to Landlord  within ten (10) days  thereafter,  and provided  further
than Tenant shall not be released or discharged  from any  liability  under this
lease by reason of such assignment.

            (D) For  purposes of this Article 20, (i) the transfer of a majority
of the issued and  outstanding  capital stock of any corporate  tenant,  or of a
corporate subtenant,  or the transfer of a majority of the total interest in any
partnership  tenant or  subtenant,  however  accomplished,  whether  in a single
transaction or in a series of related or unrelated transactions, shall be deemed
an assignment of this lease,  or of such sublease,  as the case may be; (ii) any
person or legal  representative  of Tenant, to whom Tenant's interest under this
lease passes by operation of law or otherwise,  shall be bound by the provisions
of this Article 20; and (iii) a modification or amendment of a sublease shall be
deemed a sublease.

            (E) Whenever Tenant shall claim under this Article or any other part
of this lease that Landlord has unreasonably  withheld or delayed its consent to
some request of Tenant, Tenant shall have no claim for damages by reason of such
alleged  withholding or delay, and Tenant's sole remedy thereof shall be a right
to obtain  specific  performance  or injunction but in no event with recovery of
damages.  Tenant  shall have the right,  in the event  Landlord has withheld its
consent  to an  assignment  or  subletting,  to elect to submit  its claim  that
Landlord has unreasonably withheld or delayed its

                                      -16-





consent  to a  sublease  or  assignment  in  violation  of the  terms  hereof to
expedited  arbitration.  Such  arbitration  will be  governed by the laws of the
State of New York  and,  when not in  conflict  with such  law,  by the  general
procedures'in  the  commercial  arbitration  rules of the  American  Arbitration
Association.  The  arbitrator  shall be  limited to  deciding  the sole issue of
whether Landlord has unreasonably withheld or delayed its consent to the subject
assignment  or subletting  and in no event shall the  arbitrator be empowered to
award Tenant damages.

            (F) Tenant  shall not  mortgage,  pledge,  hypothecate  or otherwise
encumber its interest under this lease without Landlord's prior written consent.

            (G)  Notwithstanding  anything  contained  in this Article 20 to the
contrary, no assignment or underletting shall be made by Tenant to any brokerage
firm.

            (H) Without affecting any of its other obligations under this lease,
except with respect to any  permitted  assignment  or  subletting  under Article
20(C) hereof,  Tenant will pay Landlord as additional  rent one half of any sums
or other  economic  consideration,  which (i) are due and payable to Tenant as a
result of any permitted  assignment or subletting  whether or not referred to as
rentals  under  the  assignment  or  sublease  (after  deducting  therefrom  the
reasonable  costs  and  expenses  incurred  by  Tenant  in  connection  with the
assignment  or  subletting  in  question  provided  such costs were  approved by
Landlord when it approved the assignment or sublease);  and (ii) exceed in total
the sums which Tenant is obligated to pay Landlord under this lease (prorated to
reflect obligations allocable to that portion of the Demised Premises subject to
such assignment or sublease), it being the express intention of the parties that
Landlord and Tenant shall share equally in any profit by reason of such sublease
or assignment. The failure or inability of the assignee or subtenant to pay rent
pursuant  to the  assignment  or  sublease  will  not  relieve  Tenant  from its
obligations  to Landlord  under this  Article  20(H).  Tenant will not amend the
assignment  or sublease  in such a way as to reduce or delay  payment of amounts
which are provided in the assignment or sublease approved by Landlord.

            (I)  Landlord  agrees that it shall not  unreasonably  withhold  its
consent to a  subletting  or  assignment  in  accordance  with the terms of this
Article 20. In determining reasonableness, there shall be taken into account the
character  and  reputation of the proposed  subtenant or assignee,  the specific
nature of the proposed subtenant's or assignee's business and whether same is in
keeping with other  tenancies in the  building;  the  financial  standing of the
proposed subtenant or assignee;  and the impact of all of the foregoing upon the
Building and the other tenants of Landlord therein. Landlord shall not be deemed
to have  unreasonably  withheld  its  consent  if it  refuses  to  consent  to a
subletting or assignment to an existing tenant in any building which is owned by
Landlord or its  affiliate  or to a proposed  subtenant  or  assignee  with whom
Landlord is negotiating a lease or if at the time of Tenant's request, Tenant is
in default,  beyond  applicable grace and notice periods provided herein for the
cure thereof, of any of the terms,  covenants and conditions of this lease to be
performed by Tenant. At least thirty (30) days prior to any proposed  subletting
or assignment,  Tenant shall submit to Landlord a written notice of the proposed
subletting or  assignment,  which notice shall contain or be  accompanied by the
following information:

                                      -17-





            (i) the name and address of the proposed subtenant or assignee;

            (ii) the  nature  and  character  of the  business  of the  proposed
subtenant or assignee and its proposed use of the premises to be demised;

            (iii) the most recent  three (3) years of balance  sheets and profit
and loss  statements  of the proposed  subtenant or assignee or other  financial
information satisfactory to Landlord; and

            (iv) such shall be accompanied by a copy of the proposed sublease or
assignment of lease (which  agreement  need not be forwarded in executed  form).
Without  limiting  the right of Landlord to withhold its consent to any proposed
assignment  of this lease or  subletting  of all or any  portion of the  Demised
Premises, Tenant specifically acknowledges and agrees that it and anyone holding
through  Tenant  shall not  sublet or assign all or any  portion of the  Demised
Premises to any  subtenant  or assignee  who will use the Demised  Premises or a
portion  thereof for any of the following  designated uses nor for any other use
which is substantially similar to any one of the following designated uses:

            (i) federal,  state or local  governmental  division,  department or
agency which  generates  heavy public traffic,  including,  without  limitation,
court,  social security  offices,  labor  department  office,  drug  enforcement
agency, motor vehicle agency, postal service, military recruitment office;

            (ii) union or labor organization;

            (iii)  office  for  the  practice  of  medicine,  dentistry  or  the
rendering of other health related services;

            (iv) chemical or pharmaceutical company, provided, however, that the
subletting  or assignment to such a company which will use the premises only for
executive, general and sales offices and waive the right to conduct any research
and development shall not be prohibited;

            (v)  insurance  claims  office,   including,  but  not  limited  to,
unemployment insurance or worker's compensation insurance; or

            (vi) brokerage firm.

                          LANDLORD'S ACCESS TO PREMISES

            21. (A) Landlord or Landlord's  agents shall have the right to enter
and/or pass through the Demised  Premises at all reasonable  times on reasonable
notice, except in an emergency,  to examine the same, and to show them to ground
lessors, prospective purchasers or lessees or mortgagees of the Building, and to
make such repairs,  improvements  or additions as Landlord may deem necessary or
desirable,  and  Landlord  shall be allowed to take all  material  into and upon
and/or through said Demised Premises that may be required  therefor.  During the
twelve (12) months prior

                                      -18-





to the expiration of the Term of this lease,  or any renewal term,  Landlord may
exhibit  the  Demised  Premises  to  prospective  tenants or  purchasers  at all
reasonable hours and without unreasonably interfering with Tenant's business. If
Tenant  shall not be  personally  present  to open and permit an entry into said
premises at any time, when for any reason an entry therein shall be necessary or
permissible,  Landlord or Landlord's  agents may enter the same by a master key,
or forcibly, without rendering Landlord or such agent liable therefor (if during
such entry  Landlord  or  Landlord's  agents  shall  accord  reasonable  care to
Tenant's property).

                (B) Landlord  shall also have the right,  at any time, to change
the arrangement and/or location of entrances or passageways, doors and doorways,
and  corridors,  elevators,  stairs,  toilets,  or  other  public  parts  of the
Building,  provided,  however,  that  Landlord  shall  make  no  change  in  the
arrangement and/or location of entrances or passageways or other public parts of
the Building which will adversely affect in any material manner Tenant's use and
enjoyment of the Demised  Premises.  Landlord shall also have the right,  at any
time,  to  name  the  Building,  including,  but  not  limited  to,  the  use of
appropriate signs and/or lettering on any or all entrances to the Building,  and
to change the name,  number or  designation  by which the  Building  is commonly
known.

                (C) Neither  this lease nor any use by Tenant  shall give Tenant
any right or easement to the use of any door or passage or concourse  connecting
with any other building or to any public conveniences, and the use of such doors
and passages and  concourse  and of such  conveniences  may be regulated  and/or
discontinued  at any time and from time to time by  Landlord  without  notice to
Tenant.

                (D) The exercise by Landlord or its agents of any right reserved
to Landlord  in this  Article  shall not  constitute  an actual or  constructive
eviction,  in whole or in part, or entitle Tenant to any abatement or diminution
of rent,  or relieve  Tenant from any of its  obligations  under this lease,  or
impose any liability upon Landlord,  or its agents, or upon any lessor under any
ground or underlying  lease, by reason of  inconvenience or annoyance to Tenant,
or injury to or interruption of Tenant's business, or otherwise.

                                  SUBORDINATION

            22. (A) This lease and all rights of Tenant hereunder are, and shall
be,  subject  and  subordinate  in all  respects  to all  ground  leases  and/or
underlying  leases and to all mortgages and building loan  agreements  which may
now or hereafter be placed on or affect such leases  and/or the Real Property of
which  the  Demised  Premises  form a part,  or any part or  parts of such  Real
Property, and/or Landlord's interest or estate therein, and to each advance made
and/or  hereafter  to be made  under any such  mortgages,  and to all  renewals,
modifications,  consolidations,  replacements  and  extensions  thereof  and all
substitutions  therefor.  This Section A shall be self-operative  and no further
instrument  of  subordination  shall  be  required.   In  confirmation  of  such
subordination,  Tenant shall execute and deliver  promptly any certificate  that
Landlord  and/or any mortgagee  and/or the lessor under any ground or underlying
lease and/or their respective successors in interest may request.


                                      -19-





                (B) Without  limitation of any of the  provisions of this lease,
in the event that any  mortgagee or its assigns shall succeed to the interest of
Landlord or of any  successor-Landlord  and/or shall have become  lessee under a
new ground or  underlying  lease,  then, at the option of such  mortgagee,  this
lease shall nevertheless  continue in full force and effect and Tenant shall and
does hereby  agree to attorn to such  mortgagee  or its assigns and to recognize
such mortgagee or its respective assigns as its Landlord.

                (C) Tenant  shall,  at any time and from time to time,  upon not
less than five (5) days  prior  notice by  Landlord,  execute,  acknowledge  and
deliver  to  Landlord  a  statement  in  writing  certifying  that this lease is
unmodified  and in full force and  effect (or if there have been  modifications,
that  the  same  is in full  force  and  effect  as  modified  and  stating  the
modification) and the dates to which the Rent, additional rent and other charges
have  been paid in  advance,  if any,  and  stating  whether  or not to the best
knowledge  of  the  signer  of  such  certificate  Landlord  is  in  default  in
performance of any covenant,  agreement,  term, provision or condition contained
in this lease,  and if so,  specifying each such default of which the signer may
have  knowledge,  it being intended that any such statement  delivered  pursuant
hereto may be relied upon by any  prospective  purchaser  or lessee of said real
property  or any  interest  or estate  therein,  any  mortgagee  or  prospective
mortgagee thereof, or any prospective  assignee of any mortgage thereof.  If, in
connection  with obtaining  financing for the Building and the land allocated to
it, a banking,  insurance or other recognized institutional lender shall request
reasonable modifications in this lease as a condition to such financing,  Tenant
will not unreasonably  withhold,  delay or defer its consent  thereof,  provided
that such  modifications  do not increase the obligations of Tenant hereunder or
materially  adversely  affect the  leasehold  interest  hereby  created.  If, in
connection  with  such  financing,   such  institutional  lender  shall  require
financial audited  information on the Tenant,  Tenant shall promptly comply with
such request.

                (D) The  Tenant  covenants  and  agrees  that if by  reason of a
default under any underlying  lease (including an underlying lease through which
the Landlord  derives its leasehold  estate in the  premises),  such  underlying
lease and the leasehold estate of the Landlord in the premises demised hereby is
terminated,  providing  notice  has  been  given  to the  Tenant  and  leasehold
mortgagee,  the  Tenant  will  attorn  to the then  holder  of the  reversionary
interest in the premises demised by this lease or to anyone who shall succeed to
the interest of the Landlord or to the lessee of a new underlying  lease entered
into pursuant to the  provisions of such  underlying  lease,  and will recognize
such  holder  and/or  such lessee as the  Tenant's  landlord of this lease.  The
Tenant  agrees to execute and deliver,  at any time and from time to time,  upon
the request of the  Landlord or of the lessor under any such  underlying  lease,
any  instrument   which  may  be  necessary  or  appropriate  to  evidence  such
attornment.  The Tenant  further  waives the provision of any statute or rule of
law now or  hereafter in effect which may give or purport to give the Tenant any
right of election to  terminate  this lease or to  surrender  possession  of the
premises  hereby in the event any  proceeding is brought by the lessor under any
underlying  lease to  terminate  the same,  and agrees that unless and until any
such lessor,  in connection with any such  proceeding,  shall elect to terminate
this  lease and the  rights of the Tenant  hereunder,  this  lease  shall not be
affected in any way whatsoever by any such proceeding.

                                      -20-





                       PROPERTY LOSS, DAMAGE REIMBURSEMENT

            23. (A)  Landlord or its agents  shall not be liable for any damages
to property of Tenant or of others  entrusted to employees of the Building,  nor
for the loss of or damage  to any  property  of  Tenant  by theft or  otherwise.
Landlord  or its agents  shall not be liable for any injury or damage to persons
or  property  resulting  from fire,  explosion,  falling  plaster,  steam,  gas,
electricity,  electrical disturbance, water, rain or snow or leaks from any part
of the  Building or from the pipes,  appliances  or  plumbing  works or from the
roof,  street or  subsurface  or from any other  place or by  dampness or by any
other cause of whatsoever  nature,  unless caused by or due to the negligence of
Landlord, its agents, servants or employees; nor shall Landlord or its agents be
liable for any such damage caused by other tenants or persons in the Building or
caused by operations in construction of any private, public or quasipublic work;
nor shall Landlord be liable for any latent defect in the Demised Premises or in
the Building. If at any time any windows of the Demised Premises are temporarily
closed or darkened  incident  to or for the  purpose of  repairs,  replacements,
maintenance  and/or  cleaning  in, on, to or about the  Building  or any part or
parts  thereof,  Landlord  shall not be liable for any damage Tenant may sustain
thereby  and Tenant  shall not be  entitled  to any  compensation  therefor  nor
abatement  of rent  nor  shall  the same  release  Tenant  from its  obligations
hereunder nor  constitute  an eviction.  Tenant shall  reimburse and  compensate
Landlord as additional rent for all expenditures (including, without limitation,
reasonable  attorneys'  fees) made by, or damages or fines sustained or incurred
by, Landlord due to non-performance or non-compliance  with or breach or failure
to observe any term,  covenant or condition of this lease upon  Tenant's part to
be kept,  observed,  performed or complied  with.  Tenant  shall give  immediate
notice to Landlord in case of fire or  accidents  in the Demised  Premises or in
the Building or of defects therein or in any fixtures or equipment.

                               TENANT'S INDEMNITY

                (B) Tenant shall  indemnify and save harmless  Landlord  against
and from any and all  claims by or on behalf of any person or  persons,  firm or
firms, corporation or corporations (including Landlord) arising from the conduct
or management of or from any work or other thing  whatsoever done (other than by
Landlord or its  contractors or the agents or employees of either) in and on the
Demised  Premises  during any period of occupancy by Tenant  including,  without
limitation,  the Term of this lease and during the period of time, if any, prior
to the specified commencement date that Tenant may have been given access to the
Demised  Premises  for the  purpose of making  installations,  and will  further
indemnify  and save  harmless  Landlord  against  and from any and all claims or
losses arising from any condition of the Demised Premises or Tenant's  occupancy
thereof due to or arising from any act or omissions or  negligence  of Tenant or
any of its agents, contractors,  servants, employees,  licensees or invitees and
against and from all costs,  expenses,  and  liabilities  incurred in connection
with any such claim or loss or action or proceeding  brought thereon  (including
reasonable  attorney  fees and costs); and in case any action or  proceeding be
brought  against  Landlord  by reason of any such  claim or loss,  Tenant,  upon
notice from Landlord,  agrees that Tenant, at Tenant's  expense,  will resist or
defend such action or proceeding  and will employ  counsel  therefor  reasonably
satisfactory to Landlord.

                                      -21-





                      DESTRUCTION - FIRE OR OTHER CASUALTY

            24. (A) If the Premises or any part thereof shall be damaged by fire
or other casualty and Tenant gives prompt notice  thereof to Landlord,  Landlord
shall proceed with  reasonable  diligence to repair or cause to be repaired such
damage. The Rent shall be abated to the extent that the Premises shall have been
rendered  untenantable,  such  abatement  to be from the date of such  damage or
destruction to the date the Premises shall be substantially repaired or rebuilt,
in  proportion  which  the  area  of  the  part  of  the  Premises  so  rendered
untenantable bears to the total area of the Premises.

                (B) If the Premises shall be totally  damaged or rendered wholly
untenantable  by fire or other  casualty,  and Landlord has not terminated  this
lease  pursuant to  Subsection  (C) and Landlord has not completed the making of
the required repairs and restored and rebuilt the Premises and/or access thereto
within twelve (12) months from the date of such damage or destruction,  and such
additional  time after  such date (but in no event to exceed six (6)  months) as
shall equal the aggregate  period  Landlord may have been delayed in doing so by
unavoidable  delays or  adjustment  of  insurance,  Tenant  may serve  notice on
Landlord of its  intention to terminate  this lease,  and, if within thirty (30)
days  thereafter  Landlord  shall not have  completed the making of the required
repairs and restored and rebuilt the Premises, this lease shall terminate on the
expiration of such thirty (30) day period as if such  termination  date were the
Expiration  Date,  and the Rent and  additional  rent shall be apportioned as of
such date and any  prepaid  portion of Rent and  additional  rent for any period
after such date shall be refunded by Landlord to Tenant.

                (C) If the Premises shall be totally  damaged or rendered wholly
untenantable by fire or other casualty or if the Building shall be so damaged by
fire or other  casualty that  substantial  alteration or  reconstruction  of the
Building shall, in Landlord's  opinion, be required (whether or not the Premises
shall  have been  damaged  by such fire or other  casualty),  hen in any of such
events Landlord may, at its option, terminate this lease and the Term and estate
hereby  granted,  by giving Tenant  thirty (30) days notice of such  termination
within  ninety (90) days after the date of such  damage.  In the event that such
notice of termination  shall be given, this lease and the Term and estate hereby
granted,  shall  terminate as of the date provided in such notice of termination
(whether or not the Term shall have  commenced)  with the same effect as if that
were the Expiration  Date, and the Rent and additional rent shall be apportioned
as of such  date or  sooner  termination  and any  prepaid  portion  of Rent and
additional  rent for any period after such date shall be refunded by Landlord to
Tenant.

                (D)  Landlord  shall  not be  liable  for any  inconvenience  or
annoyance  to Tenant or injury to the  business of Tenant  resulting  in any way
from such damage by fire or other casualty or the repair thereof.  Landlord will
not carry insurance of any kind on Tenant's property,  and Landlord shall not be
obligated to repair any damage thereto or replace the same.

                (E)  This  lease  shall  be  considered  an  express   agreement
governing  any case of  damage to or  destruction  of the  Building  or any part
thereof by fire or other casualty, and Section 227

                                      -22-





of the  Real  Property  Law of  the  State  of New  York  providing  for  such a
contingency in the absence of such express agreement,  and any other law of like
import now or hereafter enacted, shall have no application in such case.

                                    INSURANCE

            25. (A) Tenant shall not do anything,  or suffer or permit  anything
to be done,  in or about  the  Premises  which  shall  (i)  invalidate  or be in
conflict with the provisions of any fire or other  insurance  policies  covering
the Building or any  property  located  therein,  or (ii) result in a refusal by
fire  insurance  companies  of good  standing to insure the Building or any such
property  in amounts  reasonably  satisfactory  to  Landlord,  or (iii)  subject
Landlord to any liability or responsibility for injury to any person or property
by reason of any  activity  being  conducted  in the  Premises or (iv) cause any
increase in the fire insurance rates  applicable to the Building or equipment or
other  property  located  therein  at the  beginning  of the Term or at any time
thereafter.  Tenant, at Tenant's expense,  shall comply with all rules,  orders,
regulations or requirements of the New York Board of Fire  Underwriters  and the
New York Fire Insurance Rating Organization or any similar body.

                (B) If, by reason of any act or  omission on the part of Tenant,
the rate of fire insurance  with extended  coverage on the Building or equipment
or other  property of Landlord or any other  tenant or occupant of the  Building
shall be higher than it otherwise would be, Tenant shall reimburse  Landlord and
all such other tenants or occupants, on demand, for the part of the premiums for
fire insurance and extended  coverage paid by Landlord and such other tenants or
occupants because of such act or omission on the part of Tenant.

                (C) In the event that any dispute should arise between  Landlord
and Tenant concerning  insurance rates, a schedule or make up of insurance rates
for the  Building or the  Premises,  as the case may be,  issued by the New York
Fire Insurance  Rating  Organization or other similar body making rates for fire
insurance and extended coverage for the Premises concerned,  shall be conclusive
evidence of the facts therein stated and of the several items and charges in the
fire insurance rates with extended coverage then applicable to such Premises.

                (D) Tenant shall obtain and keep in full force and effect during
the Term,  at its own cost and  expense,  (i) General  Comprehensive  Commercial
Liability  Insurance,  such  insurance to afford  protection in an amount of not
les's than Three Million ($3,000,000) Dollars combined single limit coverage for
injury, death and property damage arising out of any one occurrence,  protecting
Landlord and Tenant as insureds  against any and all claims for personal injury,
death or  property  damage  and (ii) Fire and  Extended  Coverage  Insurance  on
Tenant's  property,  insuring  against  damage by fire, and such other risks and
hazards as are  insurable  under present and future  standard  forms of fire and
extended  coverage  insurance  policies,  to  Tenant's  property  for  the  full
insurable value thereof, protecting Landlord and Tenant as insureds.

                (E)  Said  insurance  is to be  written  in form  and  substance
satisfactory to Landlord by a good and solvent  insurance  company of recognized
standing, admitted to do business in the

                                      -23-





State of New York,  which shall be reasonably  satisfactory to Landlord.  Tenant
shall  procure,  maintain  and place such  insurance  and pay all  premiums  and
charges  therefor  and upon  failure  to do so  Landlord  may,  but shall not be
obligated to, procure,  maintain and place such insurance or make such payments,
and in such event the Tenant agrees to pay the amount thereof,  plus interest at
the maximum  rate  permitted by law, to Landlord on demand and said sum shall be
in each instance  collectible  as additional  rent on the first day of the month
following the date of payment by Landlord.  Tenant shall cause to be included in
all such  insurance  policies a  provision  to the effect  that the same will be
non-cancelable  except upon twenty (20) days  written  notice to  Landlord.  The
original insurance policies or appropriate  certificates shall be deposited with
Landlord  on or prior to the  commencement  of the Term  hereof.  Any  renewals,
replacements  or  endorsements  thereto shall also be deposited with Landlord to
the end that said insurance shall be in full force and effect during the Term.

                (F) Each party agrees to use its best efforts to include in each
of its  insurance  policies  (insuring  the  Building  and  Landlord's  property
therein, in the case of Landlord, and insuring Tenant's property, in the case of
Tenant,  against loss, damage or destruction by fire or other casualty) a waiver
of the insurer's right of subrogation against the other party, or if such waiver
should be  unobtainable  or  unenforceable  (i) an express  agreement  that such
policy shall not be  invalidated  if the insured waives or has waived before the
casualty,  the right of recovery  against any party  responsible  for a casualty
covered by the policy,  or (ii) any other form of permission  for the release of
the other  party,  or (iii) the  inclusion  of the other party as an  additional
insured,  but not a party to whom any loss  shall be  payable.  If such  waiver,
agreement or permission shall not be, or shall cease to be,  obtainable  without
additional  charge or at all, the insured  party shall so notify the other party
promptly after learning thereof. In such case, if the other party shall agree in
writing to pay the insurer's additional charge therefor, such waiver,  agreement
or permission shall be included in the policy, or the other party shall be named
as an additional  insured in the policy,  but not a party to whom any loss shall
be payable. Each such policy which shall so name a party hereto as an additional
insured, shall contain, if obtainable, agreements by the insurer that the policy
will not be  canceled  without at least  twenty  (20) days prior  notice to both
insureds  and that the act or omission of one insured  will not  invalidate  the
policy as to the other insured.

                (G) As long as Landlord's fire insurance  policies then in force
include  the  waiver of  subrogation  or  agreement  or  permission  to  release
liability  referred  to in  Subsection  (F) or name the Tenant as an  additional
insured, Landlord hereby waives (i) any obligation on the part of Tenant to make
repairs to the Premises  necessitated  or occasioned  by fire or other  casualty
that is an  insured  risk under such  policies,  and (ii) any right of  recovery
against Tenant, any other permitted  occupant of the Premises,  and any of their
servants,  employees, agents or contractors,  for any loss occasioned by fire or
other casualty that is an insured risk under such policies. In the event that at
any time  Landlord's  fire insurance  carriers shall not include such or similar
provisions in Landlord's fire insurance  policies,  the waivers set forth in the
foregoing sentence shall be deemed of no further force or effect.


                                      -24-





                (H) As long as Tenant's  fire  insurance  policies then in force
include  the  waiver of  subrogation  or  agreement  or  permission  to  release
liability  referred to in Subsection  (F), or name the Landlord as an additional
insured, Tenant hereby waives (and agrees to cause any other permitted occupants
of the Premises to execute and deliver to Landlord written instruments  waiving)
any right of recovery  against  Landlord,  any other tenants or occupants of the
Building, and any servants,  employees,  agents or contractors of Landlord or of
any such other  tenants or occupants,  for any loss  occasioned by fire or other
casualty which is an insured risk under such policies.  In the event that at any
time  Tenant's  fire  insurance  carriers  shall  not  include  such or  similar
provisions  in Tenant's  fire  insurance  policies,  the waiver set forth in the
foregoing sentence shall, upon notice given by Tenant to Landlord,  be deemed of
no further  force or effect with respect to any insured  risks under such policy
from and after the giving of such notice.  During any period while the foregoing
waiver  of right of  recovery  is in  effect,  Tenant,  or any  other  permitted
occupant of the Premises,  as the case may be, shall look solely to the proceeds
of such policies to compensate  Tenant or such other permitted  occupant for any
loss  occasioned by fire or other  casualty  which is an insured risk under such
policies.

                                 EMINENT DOMAIN

            26. (A) In the event that the whole of the Demised Premises shall be
lawfully  condemned or taken in any manner for any public or  quasi-public  use,
this lease and the Term and estate  hereby  granted  shall  forthwith  cease and
terminate  as of the date of vesting of title.  In the event that only a part of
the Demised  Premises  shall be so condemned or taken,  then effective as of the
date of  vesting  of  title,  the Rent  hereunder  shall be  abated in an amount
thereof  apportioned  according to the area of the Demised Premises so condemned
or taken. In the event that only a part of the Building shall be so condemned or
taken,  then (i) Landlord (whether or not the Demised Premises be affected) may,
at its option, terminate this lease and the Term and estate hereby granted as of
the date of such  vesting  of title  by  notifying  Tenant  in  writing  of such
termination  within sixty (60) days  following the date on which  Landlord shall
have  received  notice of vesting  of title,  and (ii) if such  condemnation  or
taking shall be of a substantial  part of the Demised  Premises or a substantial
part of the means of access thereto, Tenant shall have the right, by delivery of
notice in writing to Landlord within sixty (60) days following the date on which
Tenant shall have received  notice of vesting of title,  to terminate this lease
and the Term and estate  hereby  granted as of the date of vesting of title,  or
(iii) if  neither  Landlord  nor  Tenant  elects to  terminate  this  lease,  as
aforesaid,  this lease shall be and remain  unaffected by such  condemnation  or
taking,  except that the Rent shall be abated to the extent, if any, hereinabove
provided  in this  Article  26.  In the event  that  only a part of the  Demised
Premises  shall be so  condemned or taken and this lease and the Term and estate
hereby granted are not terminated as  hereinbefore  provided,  Landlord will, at
its expense,  restore the remaining portion of the Demised Premises as nearly as
practicable  to the same  condition as it was in prior to such  condemnation  or
taking.

                (B)  In  the  event  of  a  termination  in  any  of  the  cases
hereinabove provided, this lease and the Term and estate granted shall expire as
of the date of such termination with the same

                                      -25-





effect as if that were the date  hereinbefore set for the expiration of the Term
of this lease, and the Rent hereunder shall be apportioned as of such date.

                (C) In the  event  of any  condemnation  or  taking  hereinabove
mentioned of all or part of the Building,  Landlord shall be entitled to receive
the entire award in the  condemnation  proceeding,  including any award made for
the value of the  estate  vested by this  lease in  Tenant,  and  Tenant  hereby
expressly  assigns to Landlord  any and all right,  title and interest of Tenant
now or hereafter arising in or to any such award or any part thereof, and Tenant
shall be entitled  to receive no part of such award,  except that the Tenant may
file a claim  for any  taking of  nonmovable  fixtures  owned by Tenant  and for
moving expenses incurred by Tenant.  It is expressly  understood and agreed that
the provisions of this Article 26 shall not be applicable to any condemnation or
taking for governmental occupancy for a limited period.

                            NONLIABILITY OF LANDLORD

            27. (A) If  Landlord or a  successor  in  interest is an  individual
(which term as used herein  includes  aggregates of  individuals,  such as joint
ventures,  general or limited  partnerships  or  associations),  such individual
shall be under no personal  liability  with respect to any of the  provisions of
this lease,  and if such individual  hereto is in breach or default with respect
to its obligations  under this lease,  Tenant shall look solely to the equity of
such  individual  in the land and Building of which the Demised  Premises form a
part for the  satisfaction  of Tenant's  remedies  and in no event shall  Tenant
attempt to secure any  personal  judgment  against  any such  individual  or any
partner, employee or agent of Landlord by reason of such default by Landlord.

                (B) The word  "Landlord"  as used herein means only the owner of
the  landlord's  interest  for the time being in the land and  Building  (or the
owners  of a lease of the  Building  or of the land and  Building)  of which the
Premises  form a part,  and in the event of any sale of the Building and land of
which the Demised Premises form a part, Landlord shall be and hereby is entirely
freed and relieved of all covenants and  obligations of Landlord  hereunder and,
it shall be deemed and construed  without further  agreement between the parties
or between the parties and the  purchaser of the Premises,  that such  purchaser
has assumed and agreed to carry out any and all  covenants  and  obligations  of
Landlord hereunder.

                                     DEFAULT

            28.  (A) Upon the  occurrence,  at any time prior to  or during  the
Demised Term, of any one or more of the following events (referred to as "Events
of Default"):

                (i) If  Tenant  shall  default  in the  payment  when due of any
installment of Rent or in the payment when due of any additional  rent, and such
default  shall  continue for a period of seven (7) days after notice by Landlord
to Tenant of such default; or


                                      -26-





                (ii) If Tenant shall default in the observance or performance of
any term, covenant or condition of this lease on Tenant's part to be observed or
performed (other than the covenants for the payment of Rent and additional rent)
and Tenant shall fail to remedy such  default  within ten (10) days after notice
by Landlord to Tenant of such  default,  or if such  default is of such a nature
that it cannot be  completely  remedied  within said period of ten (10) days and
Tenant  shall not  commence  within said  period of ten (10) days,  or shall not
thereafter  diligently  prosecute to completion,  all steps  necessary to remedy
such default; or

                (iii) If Tenant shall file a voluntary petition in bankruptcy or
insolvency,  or shall be  adjudicated a bankrupt or become  insolvent,  or shall
file  any   petition  or  answer   seeking  any   reorganization,   arrangement,
composition, readjustment,  liquidation, dissolution or similar relief under the
present or any future  federal  bankruptcy  code or any other  present or future
applicable  federal,  state or other statute or law, or shall make an assignment
for the benefit of  creditors  or shall seek or consent to or  acquiesce  in the
appointment  of any trustee,  receiver or  liquidator of Tenant or of all or any
part of Tenant's property; or

                (iv) If,  within sixty (60) days after the  commencement  of any
proceeding  against  Tenant,  whether by the filing of a petition or  otherwise,
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
code or any other present or future applicable  federal,  state or other statute
or law, such proceedings shall not have been dismissed, or if, within sixty (60)
days after the appointment or any trustee,  receiver or liquidator of Tenant, or
of all or any part of Tenant's  property,  such appointment  shall not have been
vacated or otherwise  discharged,  or if any  execution or  attachment  shall be
issued against Tenant or any of Tenant's  property pursuant to which the Demised
Premises shall be taken or occupied or attempted to be taken or occupied; or

                (v) If Tenant shall default in the  observance or performance of
any term,  covenant or  condition  on Tenant's  part to be observed or performed
under any other lease with  Landlord of space in the  Building  and such default
shall  continue  beyond any grace period set forth in such other  lease for  the
remedying of such default; or

                (vi) If the Demised  Premises shall become  vacant,  deserted or
abandoned for a period of ten (10) consecutive days and Tenant fails to continue
to (i) make all payments of Rent and  additional  rent due  hereunder,  and (ii)
operate the lighting and heating,  ventilating and air  conditioning  systems in
the Demised Premises during Working Hours; or

                (vii) If Tenant's  interest in this lease shall  devolve upon or
pass  to any  person,  whether  by  operation  of law or  otherwise,  except  as
expressly permitted under Article 20;

                then,  upon the  occurrence,  at anytime  prior to or during the
Demised  Term,  of any one or more of such Events of Default,  Landlord,  at any
time  thereafter,  at  Landlord's  option,  may give to  Tenant a five (5) days'
notice of termination of this lease and, in the event such notice is given, this
lease and the Term  shall come to an end and  expire  (whether  or not said term
shall have

                                      -27-





commenced)  upon the expiration of said five (5) days with the same effect as if
the date of  expiration  of said five (5) days  were the  Expiration  Date,  but
Tenant shall remain liable for damages as provided in Article 30.

                (B) If, at any time (i) Tenant  shall be comprised of two (2) or
more  persons,  or (ii)  Tenant's  obligations  under this lease shall have been
guaranteed by any person other than Tenant,  or (iii) Tenant's  interest in this
lease shall have been assigned,  the word "Tenant",  as used in subsection (iii)
and  (iv) of  Section  28 (A),  shall be  deemed  to mean any one or more of the
persons  primarily or  secondarily  liable for Tenant's  obligations  under this
lease.  Any monies  received by Landlord  from or on behalf of Tenant during the
pendency of any  proceeding of the types referred to in said  subsections  (iii)
and (iv) shall be deemed paid as compensation  for the use and occupation of the
Demised  Premises and the acceptance of such  compensation by Landlord shall not
be  deemed an  acceptance  of Rent or a waiver  on the part of  Landlord  of any
rights under Section 28(A).

                             TERMINATION ON DEFAULT

            29.  (A) If Tenant  shall  default  in the  payment  when due of any
installment of rent or in the payment when due of any  additional  rent and such
default shall continue for a period of five (5) days after notice by Landlord to
Tenant of such  default,  or if this lease and the Demised Term shall expire and
come to an end as provided in Article 28:

                (i) Landlord and its agents and servants may immediately,  or at
any time  after  such  default  or after the date upon  which this lease and the
Demised Term shall expire and come to an end,  re-enter the Demised  Premises or
any part thereof,  without notice, either by summary proceedings or by any other
applicable action or proceeding,  or by force or other means provided such force
or other means are lawful  (without being liable to  indictment,  prosecution or
damages therefor),  and may repossess the Demised Premises and dispossess Tenant
and any other persons from the Demised  Premises and remove any and all of their
property and effects from the Demised Premises; and

                (ii) Landlord,  at Landlord's option, may relet the whole or any
part or parts of the Demised  Premises from time to time,  either in the name of
Landlord or otherwise,  to such tenant or tenants, for such term or terms ending
before, on or after the Expiration Date, at such rental or rentals and upon such
other  conditions,  which may  include  concessions  and free rent  periods,  as
Landlord,  in its  sole  discretion,  may  determine.  Landlord  shall  have  no
obligation  to relet the Demised  Premises  or any part  thereof and shall in no
event be liable for refusal or failure to relet the Demised Premises or any part
thereof,  or, in the event of any such  reletting,  for  refusal  or  failure to
collect  any rent due upon any such  reletting,  and no such  refusal or failure
shall operate to relieve  Tenant of any liability  under this lease or otherwise
to affect any such  liability;  Landlord,  at Landlord's  option,  may make such
repairs, replacements,  alterations,  additions,  improvements,  decorations and
other physical changes in and to the Demised  Premises as Landlord,  in its sole
discretion,  considers  advisable  or  necessary  in  connection  with  any such
reletting or proposed reletting, without relieving Tenant of any liability under
this lease or otherwise affecting any such liability.

                                      -28-





            (B) Tenant,  on its own behalf and on behalf of all persons claiming
through or under Tenant, including all creditors,  does hereby waive any and all
rights which Tenant and all such persons might  otherwise have under any present
or future law to redeem the Demised  Premises,  or to re-enter or repossess  the
Demised  Premises,  or to restore the operation of this lease,  after (i) Tenant
shall have been  dispossessed by a judgment or by warrant of any court or judge,
or (ii) any re-entry by Landlord, or (iii) any expiration or termination of this
lease and the Demised Term,  whether such  dispossess,  re-entry,  expiration or
termination  shall be by operation of law or pursuant to the  provisions of this
lease.  In the event of a breach or  threatened  breach by Tenant or any persons
claiming  through or under  Tenant,  of any term,  covenant or condition of this
lease on  Tenant's  part to be observed or  performed,  Landlord  shall have the
right to enjoin such breach and the right to invoke any other remedy  allowed by
law or in equity as if re-entry,  summary  proceeding and other special remedies
were not  provided  in this  lease for such  breach.  The  rights to invoke  the
remedies  hereinbefore set forth are cumulative and shall not preclude  Landlord
from invoking any other remedy allowed at law or in equity.

                                     DAMAGES

            30. (A) If this lease and the Demised  Term shall expire and come to
an end as provided in Article 28 or by or under any  summary  proceeding  or any
other action or proceeding,  or if Landlord shall re-enter the Demised  Premises
as provided in Article 29 or by or under any  summary  proceedings  or any other
action or proceeding, then, in any of said events:

                (i) Tenant shall pay to Landlord all Rent,  additional  rent and
other  charges  payable  under this lease by Tenant to Landlord to the date upon
which this lease and the Demised  Term shall have  expired and come to an end or
to the date of re-entry upon the Demised  Premises by Landlord,  as the case may
be; and

                (ii) Tenant  shall also be liable for and shall pay to Landlord,
as damages,  any deficiency  (referred to as "Deficiency")  between the Rent and
additional rent reserved in this lease for the period which otherwise would have
constituted  the  unexpired  portion of the Demised Term and the net amount,  if
any, of rents collected under any reletting  effected pursuant to the provisions
of Section  29(A) for any part of such period  (first  deducting  from the rents
collected under any such reletting all of Landlord's expenses in connection with
the  termination of this lease or Landlord's  reentry upon the Demised  Premises
and with such reletting  including,  but not limited to, all repossession costs,
brokerage  commissions,  legal expenses,  attorneys' fees,  alteration costs and
other expenses of preparing the Demised Premises for such  reletting).  Any such
Deficiency shall be paid in monthly installments by Tenant on the days specified
in this lease for payment of installments of Rent. Landlord shall be entitled to
recover from Tenant each monthly Deficiency as the same shall arise, and no suit
to collect the amount of the Deficiency for any month shall prejudice Landlord's
rights  to  collect  the  Deficiency  for  any  subsequent  month  by a  similar
proceeding; and

                (iii) At any time after the Demised  Term shall have expired and
come to an end or Landlord shall have re-entered upon the Demised  Premises,  as
the case may be, whether or not

                                      -29-





Landlord shall have collected any monthly  Deficiencies  as aforesaid,  Landlord
shall be entitled to recover from Tenant,  and Tenant shall pay to Landlord,  on
demand,  as and for  liquidated  and agreed  final  damages,  a sum equal to the
amount by which the Rent and  additional  rent  reserved  in this  lease for the
period which  otherwise  would have  constituted  the  unexpired  portion of the
Demised  Term exceeds the then fair and  reasonable  rental value of the Demised
Premises for the same period,  both  discounted  to present worth at the rate of
four  (40)  per  cent  per  annum.  If,  before  presentation  of  proof of such
liquidated damages to any court, commission,  or tribunal, the Demised Premises,
or any part  thereof,  shall have been relet by  Landlord  for the period  which
otherwise would have  constituted the unexpired  portion of the Demised Term, or
any part  thereof,  the amount of Rent  reserved  upon such  reletting  shall be
deemed,  prima facie, to be the fair and reasonable rental value for the part or
the whole of the Demised Premises so relet during the term of the reletting.

                (B) If the Demised Premises, or any part thereof, shall be relet
together with other space in the Building, the rents collected or reserved under
any such  reletting  and the expenses of any such  reletting  shall be equitably
apportioned  for the  purposes of this  Article 30.  Tenant shall in no event be
entitled to any rents  collected or payable under any reletting,  whether or not
such rents shall exceed the rent reserved in this lease. Solely for the purposes
of this Article, the term "Rent" as used in Section 30(A) shall mean the rent in
effect  immediately prior to the date upon which this lease and the Demised Term
shall have expired and come to an end, or the date of re-entry  upon the Demised
Premises by  Landlord,  as the case may be,  plus any  additional  rent  payable
pursuant to the provisions of Article 11 for the Escalation  Year (as defined in
Article 11) immediately  preceding such event.  Nothing contained in Articles 28
and 29 of this  lease  shall be  deemed to limit or  preclude  the  recovery  by
Landlord from Tenant of the maximum  amount allowed to be obtained as damages by
any statute or rule of law, or of any sums or damages to which  Landlord  may be
entitled in addition to the damages set forth in Section 30(A).

                                SUMS DUE LANDLORD

            31. If Tenant shall default in the  performance  of any covenants on
Tenant's part to be performed under this lease, Landlord may immediately,  or at
anytime  thereafter,  without notice,  and without thereby waiving such default,
perform  the same for the  account  of Tenant and at the  expense of Tenant.  If
Landlord at any time is compelled  to pay or elects to pay any sum of money,  or
do any act which will  require  the payment of any sum of money by reason of the
failure  of Tenant to comply  with any  provision  hereof,  or, if  Landlord  is
compelled to or elects to incur any  expense,  including  reasonable  attorneys'
fees,  instituting,  prosecuting  and/or  defending  any  action  or  proceeding
instituted by reason of any default of Tenant hereunder, the sum or sums so paid
by  Landlord,  with all  interest,  costs  and  damages,  shall be  deemed to be
additional  rent hereunder and shall be due from Tenant to Landlord on the first
day of the month  following  the  incurring of such  respective  expenses or, at
Landlord's  option,  on the first day of any subsequent  month. Any sum of money
(other than rent) accruing from Tenant to Landlord pursuant to any provisions of
this lease, including, but not limited to, the provisions of Schedule C, whether
prior to or after the Rent  Commencement  Date,  may, at Landlord's  option,  be
deemed  additional  rent, and Landlord shall have the same remedies for Tenant's
failure to pay any item of additional  rent when due as for Tenant's  failure to
pay any

                                      -30-





installment  of Rent when due.  Tenant's  obligations  under this Article  shall
survive the expiration or sooner termination of the Demised Term. In any case in
which the Rent or  additional  rent is not paid  within five (5) days of the day
when same is due,  Tenant  shall pay a late charge equal to 8-1/2 cents for each
dollar so due,  and in addition  thereto,  the sum of $100.00 for the purpose of
defraying  expenses  incident to the handling of such delinquent  account.  This
late  payment  charge is  intended to  compensate  Landlord  for its  additional
administrative  costs resulting from Tenant's  failure to pay in a timely manner
and has been agreed upon by Landlord and Tenant as a reasonable  estimate of the
additional administrative costs that will be incurred by Landlord as a result of
Tenant's failure as the actual cost in each instance is extremely difficult,  if
not  impossible,   to  determine.  This  late  payment  charge  will  constitute
liquidated  damages  and will be paid to  Landlord  together  with  such  unpaid
amounts. The payment of this late payment charge will not constitute a waiver by
Landlord of any default by Tenant under this lease.

                                    NO WAIVER

            32. No act or thing done by Landlord or Landlord's agents during the
term hereby demised shall be deemed an acceptance of a surrender of said Demised
Premises,  and no  agreement to accept such  surrender  shall be valid unless in
writing  signed by  Landlord.  No employee of Landlord or of  Landlord's  agents
shall have any power to accept  the keys of the  Demised  Premises  prior to the
termination  of this lease.  The delivery of keys to any employee of Landlord or
of  Landlord's  agents  shall not  operate as a  termination  of this lease or a
surrender of the Demised Premises.  In the event Tenant shall at any time desire
to have Landlord underlet the Demised Premises for Tenant's account, Landlord or
Landlord's  agents are authorized to receive said keys for such purposes without
releasing Tenant from any of the obligations under this lease, and Tenant hereby
relieves  Landlord  of any  liability  for loss of or damage to any of  Tenant's
effects in connection  with such  underletting.  The failure of Landlord to seek
redress  for  violation  of, or to insist  upon the strict  performance  of, any
covenants  or  conditions  of this  lease,  or any of the Rules and  Regulations
annexed  hereto and made a part hereof or hereafter  adopted by Landlord,  shall
not  prevent a  subsequent  act,  which  would  have  originally  constituted  a
violation,  from having all the force and effect of an original  violation.  The
receipt by Landlord of rent with knowledge of the breach of any covenant of this
lease  shall not be deemed a wavier of such  breach.  The failure of Landlord to
enforce any of the Rules and Regulations  annexed hereto and made a part hereof,
or hereafter  adopted,  against  Tenant  and/or any other tenant in the Building
shall not be deemed a waiver of any such Rules and Regulations.  No provision of
this lease shall be deemed to have been waived by  Landlord,  unless such waiver
be in writing signed by Landlord. No payment by Tenant or receipt by Landlord of
a lesser  amount then the monthly Rent herein  stipulated  shall be deemed to be
other than on account of the earliest  stipulated Rent nor shall any endorsement
or  statement  on any check or any letter  accompanying  any check or payment of
Rent be deemed an accord and satisfaction, and Landlord may accept such check or
payment  without  prejudice to  Landlord's  right to recover the balance of such
Rent or pursue any other remedy in this lease provided.



                                      -31-




                             WAIVER OF TRIAL BY JURY

            33. To the extent  such waiver is  permitted  by law,  Landlord  and
Tenant  hereby  waive trial by jury in any action,  proceeding  or  counterclaim
brought by Landlord or Tenant against the other on any matter whatsoever arising
out of or in any way connected with this lease, the relationship of landlord and
tenant,  the use or  occupancy  of the Demised  Premises by Tenant or any person
claiming  through  or under  Tenant,  any  claim of injury  or  damage,  and any
emergency or other statutory  remedy.  The provisions of the foregoing  sentence
shall survive the  expiration or any sooner  termination of the Demised Term. If
Landlord commences any. summary proceeding for nonpayment,  Tenant agrees not to
interpose any  noncompulsory  counterclaim  of whatever nature or description in
any such proceeding or to consolidate such proceeding with any other proceeding.

            Tenant  hereby  expressly  waives any and all  rights of  redemption
granted  by or under any  present  or future  laws in the event of Tenant  being
evicted or dispossessed  for any cause, or in the event of Landlord's  obtaining
possession of the Demised Premises,  by reason of the violation by Tenant of any
of the covenants and conditions of this lease or otherwise.

                                     NOTICES

            34. Except as otherwise expressly provided in this lease, any bills,
statements,  notices,  demands,  requests  or other  communications  (other than
bills,  statements or notices given in the regular course of business)  given or
required  to be given under this lease  shall be  effective  only if rendered or
given  in  writing,  sent  by  registered  or  certified  mail  (return  receipt
requested),  addressed  (A)  to  Tenant,  to the  attention  of  Tenant's  Chief
Financial  Officer,  (i) at  Tenant's  address set forth in this lease if mailed
prior to Tenant's  taking  possession  of the Demised  Premises,  or (ii) at the
Building if mailed  subsequent  to  Tenant's  taking  possession  of the Demised
Premises,  or (iii) at any place where Tenant or any agent or employee of Tenant
may be found if mailed subsequent to Tenant's vacating, deserting, abandoning or
surrendering the Demised Premises,  or (B) to Landlord,  to the attention of the
"Vice  President  and Legal Counsel - Real  Estate",  at Landlord's  address set
forth in this lease,  or (C) addressed to such other address as either  Landlord
or Tenant may  designate  as its new address for such purpose by notice given to
the other in accordance  with the  provisions  of this Article.  Any such bills,
statements,  notices,  demands, requests or other communications shall be deemed
to have been  rendered  or given on the date when it shall  have been  mailed as
provided in this Article.

                              INABILITY TO PERFORM

            35. (A) If, by reason of strikes or other  labor  disputes,  fire or
other  casualty (or reasonable  delays in adjustment of  insurance),  accidents,
orders or regulations of any Federal,  State, County or Municipal authority,  or
any other cause beyond Landlord's reasonable control,  whether or not such other
cause shall be similar in nature to those hereinbefore  enumerated,  Landlord is
unable to furnish or is delayed in furnishing any utility or service required to
be furnished by Landlord  under the  provisions of this lease or any  collateral
instrument or is unable to perform or make or is delayed in performing or making
any installations, decorations, repairs, alterations, additions or improvements,
whether or not required to be performed or made under this lease, or

                                      -32-





under any  collateral  instrument,  or is unable to  fulfill  or is  delayed  in
fulfilling  any  of  Landlord's  other  obligations  under  this  lease,  or any
collateral instrument,  no such inability or delay shall constitute an actual or
constructive  eviction,  in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations  under this
lease,  or impose  any  liability  upon  Landlord  or its  agents,  by reason of
inconvenience  or annoyance to Tenant,  or injury to or interruption of Tenant's
business, or otherwise.

                             INTERRUPTION OF SERVICE

                (B) Landlord  reserves the right to stop the services of the air
conditioning,  elevator,  escalator,  plumbing,  electrical or other  mechanical
systems or facilities  in the Building  when  necessary by reason of accident or
emergency, or for repairs,  alterations or replacements,  which, in the judgment
of Landlord are  desirable or  necessary,  until such  repairs,  alterations  or
replacements  shall  have  been  completed.   Landlord  shall  use  commercially
reasonable   efforts  to  minimize  any  interference   with  Tenant's  business
operations  caused by such  interruption.  If the  Tenant is in  default  in the
payment  of the rent or  additional  rent,  or in the  performance  of any other
provisions  of this lease,  and such default  continues  for ten (10) days after
notice by Landlord to Tenant,  then Landlord  reserves the right to  discontinue
any or all of the services to the Demised  Premises  during the  continuance  of
such default.  The exercise of such rights by Landlord  shall not  constitute an
actual or constructive  eviction,  in whole or in part, or entitle Tenant to any
abatement or diminution of rent, or relieve  Tenant from any of its  obligations
under this lease,  or impose any liability upon Landlord or its agents by reason
of  inconvenience  or  annoyance  to  Tenant,  or injury to or  interruption  of
Tenant's business or otherwise.

                        CONDITIONS F LANDLORD'S LIABILITY

                (C)  (i)  In  addition  to  the  requirements  for  constructive
eviction  imposed by law,  Tenant shall not be entitled to claim a  constructive
eviction  from the Demised  Premises  unless  Tenant  shall have first  notified
Landlord  of  the  condition  or  conditions  giving  rise  thereto,  and if the
complaints  be  justified,  unless  Landlord  shall have  failed to remedy  such
conditions within a reasonable time after receipt of such notice.

                     (ii) If Landlord shall be unable to give  possession of the
Demised  Premises  on any date  specified  for the  commencement  of the term by
reason of the fact that the  Premises  have not been  sufficiently  completed to
make the Premises ready for occupancy,  or for any other reason,  Landlord shall
not be subject to any liability for the failure to give possession on said date,
nor shall  such  failure in any way  affect  the  validity  of this lease or the
obligations of Tenant hereunder.

                           TENANT'S TAKING POSSESSION

                (D) (i) Tenant,  by entering  into  occupancy  of the  Premises,
shall be  conclusively  deemed to have agreed that  Landlord,  up to the time of
such  occupancy  has  performed  all of its  obligations  hereunder and that the
Premises were in satisfactory condition as of the date of

                                      -33-





such  occupancy,  unless  within ten (10) days after the such date Tenant  shall
have given written notice to Landlord  specifying the respects in which the same
were not in such condition.

                     (ii) If Tenant  shall use or occupy  all or any part of the
Demised  Premises  for the  conduct of business  prior to the Rent  Commencement
Date,  such use or  occupancy  shall be  deemed  to be under  all of the  terms,
covenants and  conditions of this lease,  including the covenant to pay rent for
the  period  from  the  commencement  of  said  use or  occupancy  to  the  Rent
Commencement Date.

                              SUBSTITUTED PREMISES

            36. If the Demised  Premises  consists of 2,500 square feet or less,
Landlord  shall  have the right at any time,  upon  giving  Tenant not less than
sixty (60) days'  notice in writing,  to provide  and furnish  Tenant with space
elsewhere in the Building of approximately  the same size as the Premises and to
place  Tenant in such  space.  The size of any  substituted  premises  shall not
differ  from the size of the  Premises  by more than ten (10%)  percent.  If the
total square  footage of the new space  should  exceed the total of the original
Premises,  Tenant's Rent and Tenant's  percentage of the Building share shall be
increased proportionately. If, however, such total square footage shall be less,
Tenant's  Rent and  Tenant's  percentage  of the  Building  shall  be  decreased
proportionately.  In the event of any such relocation of Tenant,  Landlord shall
pay  the  reasonable  cost of  Tenant's  moving  which  are  actually  incurred,
provided,  however, Tenant shall not be entitled to any compensation for damages
for any  interference  with or  interruption of its business during or resulting
from such  relocation.  If Tenant shall notify  Landlord within ten (10) days of
receipt of notice from  Landlord as required  above that Tenant does not want to
relocate to the new space,  Landlord  may,  at its option,  cancel this lease by
sending  written  notice  thereof  to  Tenant,  and upon the date  specified  in
Landlord's notice the term of this Lease shall expire as fully and completely as
if such date were the date set forth above for the termination of this lease and
there shall be no liability  between the parties except such liability  accruing
up to the date of  termination  of this lease.  If Landlord moves Tenant to such
new space,  this lease and each and all of its terms,  covenants and  conditions
shall  remain in full  force and  effect  and be deemed  applicable  to such new
space, and such new space shall thereafter be deemed to be the "Premises".

                                ENTIRE AGREEMENT

            37. This lease (including the Schedules and Exhibits annexed hereto)
contains the entire agreement between the parties and all prior negotiations and
agreements are merged herein.  Tenant hereby  acknowledges that neither Landlord
nor  Landlord's  agent  or  representative  has  made  any   representations  or
statements,  or promises, upon which Tenant has relied,  regarding any matter or
thing relating to the Building,  the land allocated to it (including the parking
area) or the Demised  Premises,  or any other  matter  whatsoever,  except as is
expressly  set  forth  in  this  lease,  including,  but  without  limiting  the
generality of the foregoing, any statement,  representation or promise as to the
fitness of the Demised  Premises  for any  particular  use,  the  services to be
rendered  to the  Demised  Premises,  or the  prospective  amount of any item of
additional rent. No oral or written statement,

                                      -34-





representation or promise  whatsoever with respect to the foregoing or any other
matter made by  Landlord,  its agents or any  broker,  whether  contained  in an
affidavit,  information  circular,  or  otherwise,  shall  be  binding  upon the
Landlord  unless  expressly  set forth in this lease.  No rights,  easements  or
licenses are or shall be acquired by Tenant by implication  or otherwise  unless
expressly  set forth in this lease.  This lease may not be changed,  modified or
discharged,  in whole or in part,  orally,  and no executory  agreement shall be
effective to change, modify or discharge, in whole or in part, this lease or any
obligations  under this lease,  unless such  agreement is set forth in a written
instrument  executed  by the  party  against  whom  enforcement  of the  change,
modification or discharge is sought. All references in this lease to the consent
or approval of Landlord shall be deemed to mean the written consent of Landlord,
or the  written  approval  of  Landlord,  as the case may be,  and no consent or
approval of Landlord  shall be effective for any purpose  unless such consent or
approval is set forth in a written instrument executed by Landlord.

            Tenant  shall not record this lease (nor a memorandum  thereof).  In
the event that Tenant violates this prohibition against recording,  Landlord, at
its option, may terminate this lease or may declare Tenant in default under this
lease and pursue any or all of Landlord's remedies provided in this lease.

                                   DEFINITIONS

            38. The words  "re-enter",  "re-entry",  and "re-entered" as used in
this  lease are not  restricted  to their  technical  legal  meanings.  The term
"business  days" as used in this lease  shall  exclude  Saturdays  (except  such
portion  thereof as is covered by specific  hours in Article 6 hereof),  Sundays
and all days observed by the State or Federal Government as legal holidays.  The
terms  "person"  and  "persons" as used in this lease shall be deemed to include
natural persons, firms, corporations,  partnerships,  associations and any other
private or public  entities,  whether any of the  foregoing  are acting on their
behalf or in a representative  capacity.  The various terms which are defined in
other  Articles of this lease or are defined in  Schedules  or Exhibits  annexed
hereto,  shall have the meanings specified in such other Articles,  Exhibits and
Schedules  for all  purposes  of this  lease  and  all  agreements  supplemental
thereto, unless the context clearly indicates the contrary.

                               PARTNERSHIP TENANT

            39. If Tenant is a  partnership  (or is comprised of two (2) or more
persons,  individually  or as  co-partners  of a  partnership)  or  if  Tenant's
interest in this lease shall be assigned to a partnership (or to two (2) or more
persons,  individually or as copartners of a partnership) pursuant to Article 20
(any such  partnership  and such  persons  are  referred  to in this  Section as
"Partnership  Tenant"),  the following provisions of this Section shall apply to
such  Partnership  Tenant:  (a) the liability of each of the parties  comprising
Partnership  Tenant  shall be joint  and  several,  and (b) each of the  parties
comprising  Partnership  Tenant hereby  consents in advance to, and agrees to be
bound by, any  modifications  of this lease which may hereafter be made,  and by
any notices,  demands,  requests or other  communications which may hereafter be
given,  by Partnership  Tenant or by any of the parties  comprising  Partnership
Tenant, and (c) any bills, statements, notices, demands,

                                      -35-





requests and other  communications given or rendered to Partnership Tenant or to
any of the  parties  comprising  Partnership  Tenant  shall be  deemed  given or
rendered to Partnership Tenant and to all such parties and shall be binding upon
Partnership  Tenant and all such parties,  and (d) if  Partnership  Tenant shall
admit new  partners,  all of such new  partners  shall,  by their  admission  to
Partnership  Tenant, be deemed to have assumed  performance of all of the terms,
covenants  and  conditions  of this lease on Tenant's  part to be  observed  and
performed,  and (e)  Partnership  Tenant shall give prompt notice to Landlord of
the admission of any such new partners, and upon demand of Landlord, shall cause
each such new partner to execute and  deliver to Landlord an  agreement  in form
satisfactory to Landlord, wherein each such new partner shall assume performance
of all of the terms,  covenants and conditions of this lease on Tenant's part to
be observed and performed  (but neither  Landlord's  failure to request any such
agreement nor the failure of any such new partner to execute or deliver any such
agreement to Landlord shall vitiate the  provisions of  subdivision  (d) of this
Section).

                            SUCCESSORS, ASSIGNS, ETC.

            40. The terms,  covenants,  conditions and  agreements  contained in
this lease shall bind and inure to the benefit of Landlord  and Tenant and their
respective heirs,  distributees,  executors,  administrators,  successors,  and,
except as otherwise provided in this lease, their respective assigns.

                                     BROKER

            41. Landlord and Tenant each represents to the other that this lease
was brought about by Sutton & Edwards,  Inc. as broker and all negotiations with
respect to this lease were conducted  exclusively with said broker.  The parties
agree that if any claim is made for  commissions  by any other broker through or
on account of any acts of a party, such party will hold the other party free and
harmless  from any and all  liabilities  and expenses in  connection  therewith,
including such other party's reasonable attorney's fees.

                                    CAPTIONS

            42.  The  captions  in this lease are  included  only as a matter of
convenience and for reference, and in no way define, limit or describe the scope
of this lease nor the intent of any provisions thereof.


                               NOTICE OF ACCIDENTS

            43.  Tenant  shall give notice to  Landlord,  promptly  after Tenant
learns thereof, of (i) any accident in or about the Premises, (ii) all fires and
other  casualties  within the  Premises,  (iii) all damages to or defects in the
Premises,  including the fixtures,  equipment and appurtenances  thereof for the
repair of which Landlord might be responsible, and (iv) all damage to or defects
in any parts

                                      -36-





or appurtenances of the Building's sanitary,  electrical,  heating, ventilating,
air-conditioning,  elevator and other systems  located in or passing through the
Premises or any part thereof.

                        TENANT'S AUTHORITY TO ENTER LEASE

            44. In the event that the Tenant hereunder is a corporation,  Tenant
represents that the officer or officers  executing this lease have the requisite
authority  to do so.  Tenant  agrees  to give  Landlord  written  notice  of any
proposed  change in the  ownership  of the majority of the  outstanding  capital
stock of Tenant or any change in the  ownership of the majority of the assets of
Tenant.  Failure  of Tenant to give the  notice  provided  for in the  preceding
sentence shall be deemed a non-curable  default by Tenant pursuant to this lease
(that is, a default  which has  already  extended  beyond the  applicable  grace
period, if any,  following notice from Landlord),  giving Landlord the right, at
its option,  to cancel and terminate this lease or to exercise any and all other
remedies available to Landlord hereunder or as shall exist at law or in equity.

                                LETTER OF CREDIT

            45.  (A) Upon  execution  of this  lease,  Tenant  shall  deliver to
Landlord  either  a  cash  security  deposit  (the  "Security  Deposit")  or  an
unconditional,  irrevocable,  stand-by letter of credit (the "Letter of Credit")
in the amount of Two Hundred and One Thousand  Five Hundred and  Ninety-Six  and
40/100  ($201,596.40)  Dollars,  to serve as security  for the full and faithful
performance and observance by Tenant of all of the terms, conditions,  covenants
and  agreements  of this lease.  If Tenant  delivers to  Landlord  the  Security
Deposit,  then such  amount  shall be held and  applied in  accordance  with the
provisions of Article 45(I), below. If Tenant delivers to Landlord the Letter of
Credit,  then same must conform to the requirements of Article 45(C), below, and
the rights and  obligations  of the parties with respect to the Letter of Credit
shall be  governed by the  provisions  of Articles  45(B),  (D) and (E),  below.
Provided that no default, beyond any notice and grace period provided herein for
the cure thereof,  has occurred  under this lease on the part of Tenant,  Tenant
shall have the right to reduce the amount of the Security  Deposit or the Letter
of Credit (as applicable) to (i) One Hundred and Thirty-Four  Thousand and Three
Hundred  and  Ninety-Seven  and 60/100  ($134,397.60)  Dollars at the end of the
third Lease Year; and (ii) Sixty-Seven Thousand One Hundred and Ninety-Eight and
80/100  ($67,198.80)  Dollars at the end of the fourth Lease Year.  In the event
Tenant delivers to Landlord the Security Deposit,  Tenant may at any time during
the Term  deliver to Landlord a Letter of Credit,  in an amount equal to the sum
then being held by  Landlord as the  Security  Deposit.  In such event  Landlord
shall return to Tenant said Security Deposit,  together with the interest earned
thereon,  provided such Letter of Credit conforms to all of the  requirements of
Article 45(C) below.

                (B) In the event Tenant defaults in payment of Rent,  Additional
Rent,  or other  sums due from  Tenant  to  Landlord  under  this  lease,  or in
performance or observance of any other term, covenant, condition or agreement of
this lease,  after the expiration of applicable  notice periods  provided herein
for the cure  thereof,  Landlord  may notify  the  "Issuing  Bank"  (hereinafter
defined) and thereupon draw on the letter of credit, in whole or part, from time
to time, at Landlord's election,

                                      -37-





and use,  apply or retain the whole or any part of such  proceeds  to the extent
required  for  the  payment  of  any  sums  as to  which  Tenant  is in  default
(including,  without  limitation,  any damages or deficiency  accrued  before or
after  summary  proceedings  or other  re-entry by  Landlord) or for coverage or
reimbursement of any sums which Landlord may expend or may be required to expend
by reason of such default by Tenant.  In the event Landlord so uses,  applies or
retains all or any portion of such monies  represented  by the letter of credit,
Tenant shall  forthwith  restore the amount so used,  applied or retained,  upon
delivery  of written  notice by  Landlord  detailing  such use,  application  or
retention,  through  delivery  of cash or a certified  or bank check  payable to
Landlord.  In the event  Landlord  shall not apply all of the  proceeds  of such
letter of credit to cover  Tenant's  default as  permitted  hereunder,  Landlord
shall hold the unapplied  portion of such proceeds (and the  restoration  amount
required  pursuant to the preceding  sentence) as a security  deposit under this
lease, and thereafter apply such funds as permitted under this subparagraph (B).
In the event that  Tenant  shall  fully and  faithfully  comply  with all of the
terms, provisions,  covenants and conditions of this lease, the letter of credit
or security  deposit  then being held by  Landlord,  whichever  may be the case,
shall be  returned to Tenant  after the  Expiration  Date and after  delivery by
Tenant of entire  possession  of the  Demised  Premises  to  Landlord in strict
accordance with the terms of this lease.

                (C) The unconditional,  irrevocable, standby letter of credit to
be  delivered by Tenant  pursuant to this  Article  shall be in form and content
satisfactory to Landlord and shall conform to each the following requirements:

                (i) such  letter of credit may only be issued by a member of the
New York  Clearing  House  Association  (or a commercial  bank or trust  company
satisfactory to Landlord having a net worth of at least  $750,000,000.00)  which
has  banking  offices  in New York City or Nassau  County at which the letter of
credit may be drawn upon (the "Issuing Bank");

                (ii) such  letter of credit  shall  indicate  the address of the
Issuing Bank in New York City or Nassau County where it can be drawn upon;

                (iii) such letter of credit shall name  Landlord as  beneficiary
under the letter of credit with its address c/o Reckson Associates Realty Corp.,
225 Broadhollow Road, CS 5341, Melville,  New York 11747,  Attention:  Corporate
Controller.

                (iv) such  letter of credit  must be payable to  Landlord  or an
authorized  representative  of Landlord upon  presentation of only the letter of
credit and a sight  draft,  and shall not contain as a  condition  to a draw the
requirement of Landlord's  certification  or other statement as to the existence
of Tenant's default;

                (v) such  letter of credit  shall be deemed to be  automatically
renewed,  without  amendment,  for  consecutive  one year periods through a date
which is not  earlier  than sixty (60) days  after the  Expiration  Date of this
lease, or any renewal or extension thereof,  unless written notice of nonrenewal
has been given by the Issuing Bank to Landlord  (sent to Landlord via  certified
mail, return receipt requested,  attention: Corporate Controller, at the address
set forth in subparagraph (iii)

                                      -38-





above) at least sixty (60) days prior to the  expiration  of the current term of
the letter of credit. Upon the Issuing Bank's giving of such notice, Tenant must
replace  said  letter of credit  with a new  letter  of  credit  satisfying  the
requirements  of this Article at least thirty (30) days prior to the termination
of the  existing  letter of credit.  Failure by Tenant to replace  the  existing
letter of credit as required herein shall  constitute a default under this lease
and there shall be no notice or  opportunity  to cure said  default.  Thereupon,
Landlord shall be permitted to draw upon the existing letter of credit up to the
full amount thereof;

                (vi) such letter of credit shall be transferable  multiple times
by Landlord without the consent of Tenant; and

                (vii)   such   letter  of  credit   shall  be   subject  to  the
International   Standby  Practices  1998,   International  Chamber  of  Commerce
Publication No. 590.

                Tenant  acknowledges  and  agrees  that  Landlord  shall have no
responsibility or liability on account of any error by the Issuing Bank.

                (D) In the event of a sale or lease of all or a  portion  of the
Building by Landlord, Landlord shall have the right to transfer its rights under
the letter of credit  (or  security  deposit,  as  applicable)  to the vendee or
lessee and Landlord shall  thereupon be released by Tenant from all liability in
connection  with such letter of credit (or  security  deposit,  as  applicable);
Tenant  agrees to look solely to the new landlord with respect to the return of,
or any dispute  arising in connection  with,  such letter of credit (or security
deposit);  and the provisions hereof shall apply to every transfer or assignment
made of such rights to a new landlord.  Tenant shall pay upon Landlord's demand,
as Additional  Rent, all costs and fees charged in connection with the letter of
credit that arise due to (i) Landlord's  transfer of its rights under the letter
of  credit  in  connection  with the sale or  lease of all or a  portion  of the
Building,  or (ii) the addition,  deletion or  modification  of any  beneficiary
under the letter of credit.

                (E) Tenant  shall not assign or encumber or attempt to assign or
encumber  the  letter of credit  (or  security  deposit).  Any such  assignment,
encumbrance,  attempted  assignment or attempted  encumbrance by Tenant shall be
deemed void and of no force or effect,  nor shall same be binding upon  Landlord
or its successors or assigns.

                (F) Tenant shall  cooperate,  at its expense,  with  Landlord to
promptly execute and deliver to Landlord any and all modifications,  amendments,
and replacements of the letter of credit, as Landlord may reasonably  request to
carry out the intent, terms and conditions of this Article.

                (G) In the event  that  Tenant  fails to  deliver  the letter of
credit  simultaneously  with the  execution  of this lease by Tenant as required
above,  such  failure  shall be  deemed a tenant  delay in which  event the Rent
Commencement  Date shall be  accelerated  by the  number of days of such  tenant
delay  (from the date that Tenant  executes  this lease to that date that Tenant
delivers the letter of credit to Landlord as required above), however,  Landlord
shall not be obligated to deliver the

                                      -39-





Demised  Premises  to Tenant and  Tenant  shall not have the right to occupy the
Demised  Premises  until  Landlord's  Initial   Construction  is  "substantially
completed".

                (H) The acceptance of the letter of credit (or security deposit,
as  applicable)  or the exercise of any remedies  under this Article by Landlord
shall not be a limitation on Landlord's damages,  remedies or other rights under
this  lease,  or  construed  as a payment  of  liquidated  damages or an advance
payment of Rent or any Additional Rent.

                (I) If Tenant  delivers to Landlord the Security  Deposit,  same
shall  be  held  by  Landlord  as  security  for the  faithful  performance  and
observance  by Tenant of the terms,  provisions  and  conditions  of this lease,
which Security  Deposit Landlord shall deposit into an interest bearing account.
Tenant hereby agrees that, in the event Tenant defaults in respect of any of the
terms, provisions and conditions of this lease,  including,  without limitation,
the payment of Rent and/or  additional  rent,  Landlord may use, apply or retain
the whole or any part of the Security  Deposit,  including  all interest  earned
thereon,  to the extent required for the payment of any Rent and additional rent
or any other sum of which Tenant is in default or for any sum which Landlord may
expend or may be required to expend by reason of Tenant's  default in respect of
any of the terms,  covenants and  conditions of this lease,  including,  without
limitation, any damages or deficiency in the re-letting of the Demised Premises,
whether such damages or deficiency  accrued before or after summary  proceedings
or other re-entry by Landlord.  If any portion of the Security  Deposit is used,
Tenant shall,  within five (5) days after written demand therefor,  deposit cash
with  Landlord in an amount  sufficient  to restore the Security  Deposit to its
original amount. In the event that Tenant shall fully and faithfully comply with
all of the terms,  provisions,  covenants  and  conditions  of this  lease,  the
Security  Deposit,  together with any interest  earned  thereon (less a one (1%)
percent  administrative  fee  payable to  Landlord)  shall be returned to Tenant
after the Expiration  Date and after delivery by Tenant of entire  possession of
the Demised  Premises to  Landlord in strict  accordance  with the terms of this
lease.  In the  event of a sale of the Real  Property  or the  Building,  or the
leasing of the Building,  Landlord shall have the right to transfer the Security
Deposit to the vendee or lessee and  Landlord  shall  thereupon  be  released by
Tenant from all liability for the return of such  Security  Deposit;  and Tenant
agrees to look solely to the new owner or lessee for the return of said Security
Deposit.  Tenant hereby  agrees that the  provisions of this Article 45(I) shall
apply to every transfer or assignment  made of the Security  Deposit by Landlord
to any new owner or lessee.  Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the Security  Deposit and that neither
Landlord nor its  successors or assigns  shall be bound by any such  assignment,
encumbrance, attempted assignment or attempted encumbrance.


                                 RENEWAL OPTION

            46. The Tenant shall have the right to be  exercised as  hereinafter
provided, to extend the term of this lease for one period of five (5) years (the
"Renewal Term") upon the following terms and conditions:


                                      -40-





                (A) That at the time of the  exercise  of such  right and at the
commencement  of  the  Renewal  Term,  Tenant  shall  not be in  default  beyond
applicable  notice and cure periods  provided herein for the cure thereof in the
performance  of any of the  terms,  covenants  or  conditions  which  Tenant  is
required to perform under this lease.

                (B) That Tenant  shall  notify  Landlord in writing  that Tenant
intends  to  exercise  this  option at least  twelve  (12)  months  prior to the
termination of the initial term set forth in Article 2 of this lease.

                (C)  That  the  Renewal  Term  shall  be upon  the  same  terms,
covenants and conditions as in this lease provided,  except that (a) there shall
be no further  option to extend  this  lease  beyond  the one (1)  Renewal  Term
referred  to above;  (b) the  Premises  shall be  delivered  in its then "as is"
condition;  and (c) the Rent to be paid by Tenant  during the Renewal Term shall
be as follows:

            During the first  year of the  Renewal  Term,  the Rent shall be the
then fair market annual  minimum rent being  received by Landlord for comparable
space in the Building, but in no event less than $167,071.20.  Said sum shall be
payable in equal monthly installments.

            During each of the second  through  fifth years of the Renewal Term,
the Rent shall be increased by four (4%) percent per annum over the Rent payable
for the prior year. Said sums shall be payable in equal monthly installments.

            "Fair  market  annual  minimum  rent"  shall mean the rate  Landlord
generally  receives or that is received for  comparable  space in the  Building.
Fair market annual minimum rent shall not mean "net effective rent to Landlord".
In determining  fair market annual minimum rent, no adjustment  shall be made in
consideration  of and  Tenant  shall  not be  entitled  to a credit  for  Tenant
improvements,  brokerage  commissions,  rent  concessions and other  concessions
which  Landlord  may  typically  offer to other  tenants.  In the  event  Tenant
disputes Landlord's determination of fair market annual minimum rent, Tenant, by
written demand served upon Landlord within five (5) days after Landlord notifies
Tenant of  Landlord's  determination  of fair market annual  minimum  rent,  may
commence  arbitration  strictly in accordance  with the terms and  conditions of
this  Article  46(C).  If Tenant shall fail to demand  arbitration  as set forth
above within said five (5) day period,  Tenant shall be deemed to have  accepted
Landlord's  determination  of fair market annual minimum rent. The sole issue to
be determined by such  arbitration  shall be the fair market annual minimum rent
in accordance with this Subparagraph. Such written demand shall contain the name
and address of the arbitrator  appointed by the demandant.  Within ten (10) days
after its receipt of the written demand, the other party will give the demandant
written notice of the name and address of its  arbitrator.  Within ten (10) days
after  the  date  of the  appointment  of the  second  arbitrator,  the  two (2)
arbitrators  will meet.  If the two (2)  arbitrators  are unable to agree on the
fair market  annual  minimum rent as provided  herein within ten (10) days after
their first meeting,  they will select a third arbitrator.  The third arbitrator
will be  designated  as chairman and will  immediately  give Landlord and Tenant
written notice of its  appointment.  The three (3) arbitrators  will meet within
ten (10) days after the

                                      -41-





appointment  of the third  arbitrator.  If they are  unable to agree on the fair
market annual minimum rent within ten (10) days after their first  meeting,  the
third  arbitrator will select a time, date and place for a hearing and will give
Landlord and Tenant  thirty (30) days prior  written  notice of it. The date for
the hearing will not be more than sixty (60) days after the date of  appointment
of the third arbitrator. The arbitrators must be licensed real estate appraisers
with at least  five (5)  years  experience  in the  Nassau/Suffolk  real  estate
market. No arbitrator may be an active real estate broker.  The arbitration will
be governed by the laws of the State of New York and,  when not in conflict with
such law, by the general  procedures in the commercial  arbitration rules of the
American Arbitration Association. The arbitrators will not have the power to add
to, modify, detract from or alter in any way the provisions of this lease or any
amendments or supplements to this lease. The arbitrators will not have any power
to decide or consider  anything other than the specific issue of the fair market
annual  minimum  rent in  accordance  with the terms of this lease.  The written
decision of at least two (2)  arbitrators  will be  conclusive  and binding upon
Landlord and Tenant. No arbitrator is authorized to make an award for damages of
any kind  including,  without  limitation,  an award  for  punitive,  exemplary,
consequential  or  incidental  damages.  Landlord  and  Tenant  will pay for the
services of its  appointees,  attorneys and witnesses plus one-half of all other
proper costs relating to the  arbitration.  The decision of the arbitrators will
be final and  non-appealable  and may be enforced  according  to the laws of the
State of New York. Notwithstanding anything to the contrary contained herein, in
the event Tenant  disputes  Landlord's  determination  of the fair market annual
minimum rent,  Tenant shall  nevertheless  continue to pay rent at the same rate
then being paid under this lease. In the event the rent as determined  hereunder
is at variance  with the rent being paid by Tenant,  Tenant shall either pay the
difference in a lump sum or receive a credit as the case may be.

            Time  shall  be of the  essence  with  respect  to  all of  Tenant's
obligations under this Article 46.

            This  Renewal  Option is personal  to  Falconstor.net,  Inc.  and is
non-transferable by operation of law or otherwise, except to a Tenant Affiliate.


                                 RIGHT OF OFFER

            47. (a) In the event that any space  adjoining and contiguous to the
Demised  Premises,  located  on the  first  (1st) or second  (2nd)  floor of the
Building (the "Offer Space"),  becomes available and vacant,  during the term of
this lease,  then before  offering  for lease to a third  party,  and so long as
Tenant is not in default, beyond any notice and grace period provided herein for
the cure thereof,  under this lease,  Landlord shall notify Tenant  ("Landlord's
Notice") of the market rent and market  rental  increases  ("Market  Rent") upon
which it would be willing to lease the Offer  Space to a bone fide third  party;
provided  that Landlord  shall not be liable to Tenant for any costs,  expenses,
damages  or  liabilities  which  are or may be  incurred  by Tenant by reason of
Landlord's  unintentional failure to so notify Tenant. This Right of First Offer
shall not apply  during the last two (2) years of the initial term of this Lease
or during the last two (2) years of any Renewal  Term unless  Tenant  shall have
previously  exercised the next available  renewal option.  Tenant shall,  within
seven (7) days after receipt of Landlord's  Notice,  notify  Landlord in writing
("Tenant's Notice") of its intention to

                                      -42-





exercise  Tenant's  right to lease the entire  Offer  Space at the  Market  Rent
(which  Tenant's  Notice shall be effective  only if sent by Tenant to Landlord,
via certified  mail,  return  receipt  requested;  to the attention of the "Vice
President and Legal Counsel - Real Estate",  at Landlord's  address set forth in
this Lease).  If Tenant does not give such Tenant's Notice within such seven (7)
day period as required  above,  then this Right of First Offer will lapse and be
of no further  force and effect and  Landlord  shall have the right to lease the
Offer Space (in whole or in separate  portions) to a third party (or parties) on
the same or any  other  terms  and  conditions,  whether  or not such  terms and
conditions are more or less favorable than those offered to Tenant, and Landlord
shall not be required to re-offer such space (or any portion thereof) to Tenant,
even in the event that Landlord  divides the Offer Space and leases each portion
separately.

            Tenant's  exercise  of this  Right of First  Offer by the  giving of
Tenant's Notice to Landlord shall be self-operative  and no additional  document
of  confirmation  of  Tenant's  exercise  of this Right of First  Offer shall be
necessary.  Notwithstanding  the foregoing,  at Landlord's option,  Landlord and
Tenant shall execute a lease modification agreement (the "Offer Agreement"),  to
confirm Tenant's exercise of this Right of First Offer. In the event that Tenant
properly and timely exercises its Right of First Offer as provided above, Tenant
shall lease the Offer Space from Landlord in accordance herewith, which lease by
Tenant of the Offer space shall be upon all the same terms as this lease, except
(i) that,  in the event there is less than five (5) years  remaining in the term
of this Lease, or any Renewal Term thereof,  the term of this Lease with respect
to the Offer Space shall commence upon Tenant's  delivery of Tenant's  Notice to
Landlord  (the  "Offer  Space  Commencement  Date") and shall  expire on the day
immediately  preceding  the day  which is five (5) years  after the Offer  Space
Commencement  Date (in such event,  the term of this Lease,  with respect to the
Premises,  shall be extended to and including the day immediately  preceding the
day which is five (5) years after the Offer Space  Commencement  Date,  it being
the express intention of the parties that the term of this Lease with respect to
the Premises and the term of this Lease with respect to the Offer Space shall be
coterminous),  (ii) for the Market Rent terms, (iii) for other matters dependent
upon the size of the Offer Space,  such as Tenant's  Proportionate  Share,  (iv)
that Tenant is accepting  the Offer Space in its "as is"  condition and Landlord
shall not be  required to perform any work in or to the Offer Space or incur any
expense in order to prepare such space for Tenant's  occupancy  and (v) for such
other terms and conditions as may be mutually  agreed to by Landlord and Tenant.
In the event this Lease, with respect to the Premises,  is extended as set forth
in the  foregoing  subparagraph  (i), the Rent for the  Premises,  from the date
Tenant timely  delivers  Tenant's  Notice to Landlord  through and including the
date  originally set forth for the expiration of the Lease, or the Renewal Term,
as the case may be,  shall be as set  forth in  Article  3  herein.  Thereafter,
Tenant shall pay Rent for the  Premises at the greater of (y) the annual  rental
rate per square foot then being paid by Tenant with  respect to the Offer Space,
and (z) the amount which is four (4%) percent greater than Rent paid by Tenant
for the third month prior to the date originally set forth for the expiration of
the Lease,  or the Renewal Term, as the case may be,  multiplied by twelve (12).
Thereafter,  the Rent shall be increased by four (4%) percent per annum over the
Rent  payable  for the prior year.  Said sums shall be payable in equal  monthly
installments.  Time shall be of the  essence  with  respect  to all of  Tenant's
obligations under this Article 47.


                                      -43-





                (b) This Right of First  Offer is  personal  to  Falconstor.net,
Inc., is non-transferable  by operation of law or otherwise,  except to a Tenant
Affiliate,  and is subject to then  existing  rights,  if any,  granted to other
tenants at the Building.

                           EXPANSION/RELOCATION OPTION

            48.  (A)  Provided  Tenant  has  complied  with  all of  the  terms,
covenants and  conditions  of this lease and is not then in default,  beyond any
notice and grace period provided herein for the cure thereof, of its obligations
hereunder,   Tenant  shall  have  the  option  of  requiring   Landlord  to  use
commercially  reasonable efforts to accommodate  Tenant's need to occupy a total
of  approximately  13,500 rentable square feet of contiguous space commencing on
or about the first day of the fourth (4th) Lease Year.  Notwithstanding anything
contained to the contrary  herein,  Landlord's  obligation  to use  commercially
reasonable efforts to accommodate  Tenant's expansion shall not require Landlord
to provide space that Landlord is, at the time Tenant exercises this option,  in
active  negotiation  with a third  party for the  lease  thereof.  Tenant  shall
exercise this option,  if at all, through delivery of written notice to Landlord
made no later than the date which is six (6) months prior to the  expiration  of
the third (3rd) Lease Year.

                (B) If Tenant exercises this option and Landlord is able to make
available  for lease by Tenant  approximately  13,500  rentable  square  feet of
additional  space located adjacent to the existing  Premises,  then Tenant shall
lease from Landlord  such  additional,  adjacent  space (the  "Adjacent  Space")
effective  on or about the  commencement  of the  Fourth  (4th)  Lease Year (the
"Adjacent  Space  Commencement  Date").  The leasing by Tenant of such  Adjacent
Space shall be under all of the same terms,  covenants  and  conditions  in this
lease contained,  except that (i) the definition of the term "Premises" shall be
expanded to include  such  Adjacent  Space;  (ii) the Rent  attributable  to the
Adjacent  Space  shall be set at the then  current  fair  market  value for such
space,  as  determined in accordance  with the  procedures  set forth in Article
46(C);  (iii)  adjustments  will be made to all  other  lease  terms  which  are
dependent upon the size of the Premises (e.g., "Tenant's  Proportionate Share");
(iv) Tenant shall have no further  Expansion/Relocation  Option under this lease
and (v) the Term of the lease with respect to both the Premises and the Adjacent
Space shall be extended to the date immediately preceding the date which is five
(5) years after the Adjacent Space  Commencement  Date. The Rent attributable to
the Premises from the date  immediately  following the date originally set forth
herein for the  expiration of the Term to and  including  the  expiration of the
term, as extended  pursuant to this Article  48(B),  shall be the greater of (i)
the fair  market  value for the  Premises,  as  determined  in  accordance  with
procedures set forth in Article 46(C),  and (ii)  $167,071.20.  Thereafter,  the
Rent  attributable  to the Premises  shall be increased by four (4%) percent per
annum over the Rent  attributable to the Premises payable for the prior year. At
the time of such expansion, Landlord and Tenant shall enter into an amendment of
this lease which reflects the  aforementioned  changes and modifications and any
other changes or modifications mutually acceptable to Landlord and Tenant.

                (C) If Tenant  exercises  this option but  Landlord is unable to
accommodate  Tenant's need for additional space by making  available  additional
space located adjacent to the

                                      -44-





Demised  Premises,  then Landlord shall use commercially  reasonable  efforts to
relocate Tenant into another premises in the Building or in the another building
owned by  Landlord  or its  affiliate  in  Nassau  or  Suffolk  counties;  which
relocation  space shall contain  approximately  13,500  rentable  square feet of
contiguous  space  ("Relocation  Space").  In the event  Tenant is to lease such
Relocation Space from Landlord,  then, effective on or about the commencement of
the fourth  (4th) Lease Year  hereunder,  Landlord and Tenant shall enter into a
new lease for the Relocation  Space.  Effective as of the rent commencement date
under such new lease,  Tenant  shall  surrender  this lease and the  Premises to
Landlord  (in the  condition  required  under  Article 16 hereof) and this lease
shall terminate  without further  liability or obligation of the parties (except
for  liabilities or obligations  previously  accrued but  unsatisfied).  The new
lease  for the  Relocation  Space  shall  contain  substantially  of the  terms,
covenants and conditions in this lease contained, except that (i) the definition
of the term "Premises"  shall refer to the Relocation  Space only; (ii) the Rent
for the Relocation  Space shall be set at the then current fair market value for
such space, as determined in accordance with the procedures set forth in Article
46(C) plus one half of the costs of Landlord's Initial Construction which remain
unamortized  at the end of the third Lease Year (which shall be  amortized  into
the Rent for the Relocation Space);  (iii) adjustments will be made to all other
lease terms which are  dependent  upon the size of the Demised  Premises  (e.g.,
"Tenant's Proportionate Share"); (iv) Tenant shall have no Expansion/ Relocation
Option  under the new  lease;  and (v) the Term of the new lease  shall be for a
term of five (5) years (unless otherwise mutually agreed to by the parties).

                (D) In the event Landlord is unable,  after use of  commercially
reasonable  efforts,  to make available Adjacent Space or Relocation Space, then
this lease shall continue unaffected in accordance with its terms.

                (E) The  provisions of this Article 48 shall be applicable  only
where Falconstor.net, Inc. or a Tenant Affiliate remains the Tenant and occupant
of the entire  Premises at the time of the expansion or relocation,  as the case
may be.

            IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and
sealed this lease as of the day and year first above written.




Witness for Landlord:                   RECKSON OPERATING PARTNERSHIP, L.P.
                                          BY: Reckson Associates Realty Corp its
                                          general partner


____________________________            By:_________________________________
                                             Print Name:
                                             Print Title:

Witness for Tenant:                     FALCONSTOR.NET, INC.


____________________________            By:_________________________________
                                             Print Name:

                                             Print Title:


                                      -45-





STATE OF NEW YORK   )
                    )    ss.
COUNTY OF NASSAU    )


            On the 21st day of July, 2000, before me, the undersigned,  a Notary
Public  in  and  for  said  State,  personally  appeared  _____________________,
personally known to me or proved to me on the basis of satisfactory  evidence to
be the  individual  whose  name  is  subscribed  to the  within  instrument  and
acknowledged  to me that he executed  the same in his  capacity  and that by his
signature on the instrument,  the individual, or the person upon behalf of which
the individual acted, executed the instrument.


                                              ---------------------------
                                              Notary Public


                                      -46-





                                  SCHEDULE "A"
                         LANDLORD'S INITIAL CONSTRUCTION

l.          Initial Office Finishing Schedule

At the  Tenant's  option,  Landlord  will  design  or follow  Tenant's  plans in
preparing  Tenant's  office area at Landlord's cost (subject to Article 5 above)
to the following specifications:

Erect the necessary dividing walls constructed of metal stud, 5/8" Fire X gypsum
board,  with batts of 3" fiberglass  for sound  attenuation  in demising  walls.
Finish  exterior  walls with 1/2"  sheetrock.  Erect per approved  plan dry-wall
partitioning  of  2-1/2"  metal  studs  with 5/8"  gypsum  board on each side to
underside of hung ceiling.

Spackle and tape walls three coats to a smooth and true finish.  Paint walls two
coats flat latex and doors and trim coats matching enamel.

Install in executive  offices,  main  conference  room and reception  area, over
padding,  executive  grade, 30 ounce cut pile carpet.  Balance of space carpeted
with building standard 28 ounce loop pile carpet (glued down). Building standard
vinyl reinforced tile may be installed in place of carpet.

Install a 2' x 4' acoustical tile ceiling with a Travertine finish.

Provide interior building standard hollow core doors on Tenant's plan.

2.          Lavatory Area - Public Spaces

a)          Separate male and female toilet facilities.

3.          Landscaping

The building  will be  extensively  landscaped  with trees,  plantings and other
materials. An underground sprinkler system will be provided with a time clock to
maintain proper watering.

4.          Electrical Specifications

All  electrical  work  shall  be  installed  in  accordance  with  the  National
Electrical  Code, and the local  building  code. A  "Certificate  of Compliance"
shall be obtained from the New York Board of Fire Underwriters at the completion
of the project.

Lighting throughout the entire finished office area shall be obtained by the use
of recessed light 2' by 4' fluorescent  fixtures with prismatic  lenses,  not to
exceed one (1) fixture for each eighty (80) square feet of usable  space.  Local
wall switches shall be provided for control of lighting. Toilet, corridor, lobby
and other similar areas shall be lit to 50 foot candles.

                                      -47-





Exit light lighting for all paths of egress shall be provided in accordance with
local building department regulations, if required.

All  branch  circuit  wiring  shall be above  hung  ceiling  or within  dry-wall
construction  in finished  areas and shall be type BX. All  exposed  conduits in
non-finished areas shall be thin-walled "EMT".

Wall-mounted  duplex  convenience  outlets shall be provided on the basis of one
duplex  outlet for each 120 square feet of rented area.  This  formula  shall be
used to establish the quantity of outlets.  However,  the exact location of each
outlet shall be  coordinated  with the  Tenant's  furniture  layout.  All duplex
outlets are to be considered as normal convenience outlets and shall be wired up
with an  average of 5 to 8 outlets on one 20  ampere,  120 volt  circuit.  Panel
capacity  shall be adequate to handle all tenant  lighting and  equipment  load,
providing  such  equipment  load  does not  exceed 2 watts  per  square  foot of
rentable area.

No credit given for installation less than standard installation.

5.          Heating, Ventilation and Air Conditioning Specifications

General

The intent of this  specification  is to define a design concept for the subject
area.

Design Criteria

Central air conditioning with modular systems with individual zone control shall
be  capable  of the  following  performance  when  the  criteria  noted  are not
exceeded:

A) Between  September 1 and June 1, the "heating  system" shall be operative and
maintain a minimum of 70 degrees FDB when the outdoor  temperature  is 0 degrees
FDB and the prevailing wind velocity does not exceed 15 mph.

B) Between April 15 and October 14, the "cooling  system" shall be operative and
maintain a maximum of 78 degrees FDB and 55% relative  humidity when the outdoor
temperature  is 95  degrees  FDB and 75  degrees  FDB with the  prevailing  wind
velocity not exceeding 13 mph.

C) During the  overlapping  seasons (April 15 - June 1 and September 1 - October
15) both systems shall be operative (cooling and heating).

D) Zoning  temperature  and balancing  controls shall be operated  solely by the
Landlord to assure the conditions above.


                                      -48-





E)          Maintenance of the foregoing  temperature  conditions is conditioned
            upon the  following  criteria,  which  shall not be  exceeded by the
            Tenant in any room, or area, within the demised premises:



            a)  Population Density                    1 person per 150 square feet

            b)  Lighting and Electrical Load Density  4 watts per square foot

            c)  Exhaust and Ventilation Load          5 cfm per person

6.          Ventilation


Bathrooms and similar areas to be ventilated per code using rooftop fans.


                                      -49-





                                  SCHEDULE "B"

            LANDLORD'S CLEANING SERVICES AND MAINTENANCE OF PREMISES

(to be performed on all business days except those which are union  holidays for
the employees  performing  cleaning services and maintenance in the Building and
grounds or those days on which the Building is closed)

I.          CLEANING SERVICES - PUBLIC SPACES:

A.          Floor of  entrance  lobby and public  corridors  will be vacuumed or
swept and washed nightly and waxed as necessary.

B.          Entranceway  glass and metal  work will be washed  and  rubbed  down
daily.

C.          Wall surfaces and elevator cabs will be kept in polished condition

D.          Lighting fixtures will be cleaned and polished annually.

E.          Elevators and restrooms will be washed and  disinfected  once a day.
The floors will be mopped as many times as required.  All brightwork and mirrors
will be kept in polished condition.  Dispensers will be continuously checked and
receptacles continuously emptied.

F.          Exterior  surfaces and all windows of the  building  will be cleaned
quarterly.

II.         CLEANING SERVICES - TENANT SPACES:

A.          Floors will be swept and spot cleaned nightly. Carpets will be swept
daily with carpet sweeper and vacuumed weekly.

B.          Office equipment, telephones, etc. will be dusted nightly.

C.          Normal  office waste in  receptacles  and  ashtrays  will be emptied
nightly.

D.          Interior  surface  of  windows  and sills  will be washed and blinds
dusted quarterly.

E.          There shall be regularly scheduled visits by a qualified exterminator.


                                      -50-





III.        EXTERIOR SERVICES:

A.          Parking fields will be regularly swept, cleared of snow in excess of
two inches, and generally maintained so as to be well drained, properly surfaced
and striped.

B.          All landscaping, gardening, exterior lighting and irrigation systems
will have regular care and servicing.

IV.         EQUIPMENT SERVICE:

A.          All  air-conditioning  and heating  equipment and elevators  will be
regularly serviced and maintained.

B.          Plumbing and electrical facilities,  doors, hinges and locks will be
repaired as necessary.

C.          All appurtenances, such as rails, stairs, etc. will be maintained in
a safe condition.

D.          Light bulbs and ballasts located within the Demised Premises will be
replaced as needed at Tenant's expense.

V.          EXTRA CLEANING SERVICES

Tenant shall pay to  Landlord,  on demand,  Landlord's  charges for (a) cleaning
work in the  Premises  required  because of (i) misuse or neglect on the part of
Tenant or its  employees or  visitors,  (ii) use of portions of the Premises for
preparation,  serving or  consumption  of food or  beverages,  or other  special
purposes  requiring  greater or more difficult  cleaning work than office areas;
(iii) unusual quantity of interior glass surfaces;  (iv)  non-building  standard
materials or finishes  installed by Tenant or at its request;  (v)  increases in
frequency  or scope in any item set  forth in  Schedule  "B" as shall  have been
requested  by Tenant;  and (b) removal  from the Premises and Building of (i) so
much of any  refuse  and  rubbish  of  Tenant  as  shall  exceed  that  normally
accumulated in the routine of ordinary  business office activity and (ii) all of
the refuse and rubbish of any eating facility  requiring  special  handling (wet
garbage).


                                      -51-





                                  SCHEDULE "C"

            1.  Landlord  shall provide at the rates  hereinafter  set forth and
Tenant shall purchase from Landlord "energy service" for Tenant's  requirements.
There shall be the following categories of energy service:

            A) NORMAL SERVICE:  NORMAL SERVICE is energy consumed during WORKING
HOURS as  defined  in  Article 6 whose  power  demands do not exceed 4 watts per
square foot of the Demised  Premises during WORKING HOURS  ("TENANT'S  ALLOWABLE
USE"). Of this amount, two watts are allocated to Landlord supplied lighting and
two watts are  allocated  for  Tenant's  usual office  equipment.  The charge to
change WORKING HOURS is $100.00 per zone.

            B) EXCESS SERVICE: EXCESS SERVICE is energy demanded,  regardless of
hours, in excess of TENANT'S ALLOWABLE USE.

            C)  OVERTIME  SERVICE:  OVERTIME  SERVICE is energy  consumed at all
other hours than WORKING HOURS ("OVERTIME  HOURS").  For the purpose of OVERTIME
SERVICE,  the Demised  Premises may be separated  into zones of use. The minimum
practical  size of these zones is 2500 square feet.  Zones less than 2500 square
feet will be billed at the rate applicable to 2500 square feet.

            2.  Charges  for NORMAL  SERVICE:  The charge for NORMAL  SERVICE is
payable at the rate of $2.35 per annum per square foot of the  Demised  Premises
and is subject to  escalation  as  hereinafter  provided.  The charge for NORMAL
SERVICE is included in the monthly  rent set forth in Article 3. Any  escalation
shall be payable as additional rent.

            3.  Charges  for  OVERTIME   SERVICE:   Subject  to   escalation  as
hereinafter  provided,  the  Landlord's  monthly  charge for  Tenant's  OVERTIME
SERVICE,  payable in addition to any  additional  charges for NORMAL SERVICE and
EXCESS SERVICE if applicable, shall be derived as follows:

            A) OVERTIME SERVICE: An amount equal to the number of OVERTIME HOURS
in the month,  multiplied by the square feet of the zones in use,  multiplied by
$.____.

            B) OVERTIME  charges shall be increased by the same  percentage  the
EXCESS  SERVICE  (if  applicable)  exceeds  TENANT'S  ALLOWABLE  USE for  NORMAL
SERVICE.

            C)  TWENTY-FOUR  HOUR  SERVICE:  All of the electric  outlets in the
Premises shall be operative twenty-four hours per day, seven days per week at no
additional charge to Tenant provided such use does not exceed TENANT'S ALLOWABLE
USE. Any such use which  exceeds  TENANT'S  ALLOWABLE USE shall be deemed EXCESS
SERVICE.


                                      -52-





                These  amounts  shall be billed at least once every three months
and shall be payable during the month in which billed as additional rent.

            4. Charges for EXCESS  SERVICE:  The Landlord's  monthly charges for
Tenant's  EXCESS SERVICE  payable in addition to any charges for NORMAL SERVICE,
OVERTIME  SERVICE,  and  TWENTY-FOUR  HOUR SERVICE,  if applicable,  shall be an
amount  derived as follows:  The excess above  TENANT'S  ALLOWABLE  USE shall be
charged to Tenant at the rate of $___ per square foot per year,  for each excess
watt (or part thereof, computed and adjusted to the nearest 100th).

            5.  Escalation  of  Charges  for  NORMAL  SERVICE,  EXCESS  SERVICE,
OVERTIME  SERVICE and  TWENTY-FOUR  HOUR SERVICE:  The rates referred to in this
Schedule "C" are based upon the average of the current monthly rates promulgated
by the utility company during the twelve (12) month period  immediately prior to
the date hereof.  All of the rates, fuel and adjustment  costs,  state and local
government  taxes,  and all other component parts of the utility company charges
referred to in this Schedule "C" are subject to increase to reflect increases in
rate or  classification  or other  component  parts of the bill  employed by the
utility  company  providing  services to the Building.  Landlord  shall have the
right to bill Tenant and Tenant agrees to pay such  increase in utility  company
charges monthly, as additional rent. Landlord shall give due notice to Tenant of
any such  increase  in  charge.  Tenant  shall  not be or become  entitled  to a
reduction in rent,  additional  rent or to other  reimbursement  in the event it
uses less energy than is contemplated by this Schedule "C".

            6. Landlord's energy  management system will be conclusive  evidence
of the  computation of NORMAL  SERVICE,  EXCESS  SERVICE,  OVERTIME  SERVICE and
TWENTY-FOUR HOUR SERVICE. However, Landlord hereby reserves to itself the right,
from  time  to  time,  at  Landlord's  expense,  to  use  a  reputable  electric
engineering  company (the  "Engineer") to make a survey of Tenant's energy usage
requirements to determine whether the TENANT'S ALLOWABLE USE limitation has been
exceeded and, if so, to what extent.  If these surveys indicate at the time that
the cost to Landlord  by reason  thereof,  computed on an annual  basis at rates
which would be charged by a public  utility  company  servicing the Building for
such  purposes,  is in excess of the initial cost similarly  computed,  then the
additional rent provided for in this Schedule shall be increased as provided for
herein,  commencing  with the first day of the month  immediately  following the
computation of such survey and the submission of a copy thereof to Tenant.

            7.  Landlord  shall  have  full  and  unrestricted   access  to  all
air-conditioning and heating equipment,  and to all other utility  installations
servicing  the Building and the Demised  Premises.  Landlord  reserves the right
temporarily to interrupt,  curtail, stop or suspend air-conditioning and heating
service,  and all other  utilities,  or other  services,  because of  Landlord's
inability to obtain,  or difficulty  or delay in  obtaining,  labor or materials
necessary  therefor,  or in order to comply with  governmental  restrictions  in
connection  therewith,  or for any  other  cause  beyond  Landlord's  reasonable
control.  No  diminution  or  abatement  of  Rent,  additional  rent,  or  other
compensation  shall be  granted  to  Tenant,  nor shall this Lease or any of the
obligations  of  Tenant  hereunder  be  affected  or  reduced  by reason of such
interruptions, stoppages or curtailments, the causes of which are

                                      -53-





hereinabove  enumerated,  nor shall  the same  give rise to a claim in  Tenant's
favor that such failure  constitutes  actual or constructive,  total or partial,
eviction  from the Demised  Premises,  unless such  interruptions,  stoppages or
curtailments  have been due to the  arbitrary,  willful  or  negligent  act,  or
failure to act, of Landlord or its agents.

            8.   Telephone   and  data   transmission   service   (collectively,
"telephone/data  service") shall be the  responsibility of Tenant.  Tenant shall
make   all   arrangements   for   telephone/data   service   directly   with   a
telecommunications   company  supplying  said  service,  including  the  deposit
requirement for the furnishing of service. Landlord shall not be responsible for
any delays occasioned by the failure of said company to furnish such service. In
the event Landlord has designated a company as the prime telephone/data  service
provider for the  Building,  Tenant may use a different  telephone/data  service
provider of its choice  provided  (A) such other  provider  shall be  reasonably
acceptable to Landlord,  (B) the  installation  work of such  provider  shall be
performed  in  accordance  with the  provisions  of Article 14 (B) of this lease
relating to  Permitted  Alterations,  and (C) such  provider  shall  install the
equipment required to provide such service to Tenant inside the Demised Premises
and not in the common areas of the Building  (except that the wiring and cabling
to such  equipment  may be run  through  such  common  areas in the  manner  and
location reasonably required by Landlord).

            9. At Landlord's  option,  it shall furnish and install all lighting
tubes,  bulbs and ballasts used in the Premises and Tenant shall pay  Landlord's
reasonable charges therefor, on demand, as additional rent.

            10.  Landlord  reserves  the right to install  an energy  management
system  or  from  time to time to  make  modifications  and/or  upgrades  to the
existing energy  management  system in the Building and the Demised  Premises in
order to measure  Tenant's  consumption of electric  current and HVAC service in
the  Premises.  The energy  management  system,  whether  presently  existing or
hereinafter installed, may cut off or curtail overhead lighting and HVAC service
within  the  Demised  Premises  at the end of  WORKING  HOURS but such  electric
current and HVAC service may be restored, at Tenant's election, by a means which
shall record  Tenant's use of electric  current and HVAC service  after  WORKING
HOURS.  The hours of usage  recorded by such energy  management  system shall be
conclusive  evidence of Tenant's  occupancy of the Premises  after WORKING HOURS
and shall be used to determine the amount Tenant shall pay for OVERTIME  SERVICE
pursuant to Section 3(A) of this schedule.


                                      -54-





                                  SCHEDULE "D"

            1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules,  stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose  other than for ingress to and egress from
the Demised  Premises and for delivery of merchandise  and equipment in a prompt
and  efficient  manner  using  elevators  and  passageways  designated  for such
delivery by  Landlord.  There  shall not be used in any space,  or in the public
hall of the  building,  either  by any  Tenant  or by  jobbers  or others in the
delivery or receipt of merchandise,  any hand trucks, except those equipped with
rubber tires and sideguards.

            2. The water and wash  closets and  plumbing  fixtures  shall not be
used for any  purposes  other  than  those  for  which  they  were  designed  or
constructed and no sweepings,  rubbish, rags, acids or other substances shall be
deposited  therein,  and  the  expense  of any  breakage,  stoppage,  or  damage
resulting  from the  violation of this rule shall be borne by the Tenant who, or
whose clerks, agents, employees or visitors, shall have caused it.

            3. No  Tenant  shall  sweep or throw or permit to be swept or thrown
from the  Premises  any dirt or other  substances  into any of the  corridors or
halls,  elevators,  or out of the doors or windows or stairways of the building,
and the  Tenant  shall not use,  keep or  permit  to be used or kept any  coffee
machine,  vending machine, burner, microwave oven, refrigerator or oven, food or
noxious  gas or  substance  in the  Demised  Premises,  or permit or suffer  the
Demised  Premises to be occupied or used in a manner  offensive or objectionable
to Landlord or other occupants of the Building by reason of noise,  odors and/or
vibrations,  or interfere in any way with other tenants or those having business
therein,  nor  shall  any  animals  or birds be kept in or about  the  Building.
Smoking  or  carrying  lighted  cigars or  cigarettes  in the  elevators  of the
Building is prohibited.

            4. No awnings or other  projections shall be attached to the outside
walls of the Building without the prior written consent of the Landlord.

            5. No sign,  advertisement,  notice or other lettering and/or window
treatment shall be exhibited, inscribed, painted or affixed by any Tenant on any
part of the outside of the Demised  Premises or the Building or on the inside of
the  Demised  Premises  if the same is visible  from the  outside of the Demised
Premises without the prior written consent of the Landlord.  In the event of the
violation of the  foregoing by any Tenant,  Landlord may remove same without any
liability,  and may charge the  expense  incurred  by such  removal to Tenant or
Tenants violating this rule.  Interior signs on doors and directory tables shall
be  inscribed,  painted or affixed for each Tenant by Landlord at the expense of
such Tenant, and shall be of a size, color and style acceptable to Landlord.

            6. No Tenant shall mark, paint, drill into, or in any way deface any
part of the  Demised  Premises  or the  Building  of which they form a part.  No
boring, cutting or stringing of wires shall be permitted,  except with the prior
written  consent of Landlord,  and as Landlord  may direct.  No tenant shall lay
linoleum or other similar  floor  covering so that the same shall come in direct
contact with the floor of the Demised Premises and, if linoleum or other similar
floor covering is desired to

                                      -55-




be used, an  interlining  of builder's  deadening felt shall be first affixed to
the floor,  by a paste or other  water  soluble  material,  the use of cement or
other similar adhesive material being expressly prohibited.

            7. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by any Tenant, nor shall any changes be made in existing
locks or in the mechanisms  thereof.  Each Tenant must,  upon the termination of
his tenancy,  restore to Landlord all keys of stores,  offices and toilet rooms,
either furnished to, or otherwise  procured by, such Tenant, and in the event of
the loss of any keys, so  furnished,  such Tenant shall pay to Landlord the cost
thereof.

            8. Freight,  furniture,  business  equipment,  merchandise and bulky
matter of any  description  shall be  delivered to and removed from the Premises
only through the service entrances and corridors, and only during hours and in a
manner approved by Landlord.  Landlord reserves the right to inspect all freight
to be brought  into the  Building  and to exclude  from the Building all freight
which  violates any of these Rules and  Regulations  or the lease of which these
Rules and Regulations are a part.

            9. Canvassing, soliciting and peddling in the building is prohibited
and each Tenant shall cooperate to prevent the same.

            10. Landlord reserves the right to exclude from the building between
the hours of 6:00  P.M.  and 8:00 A.M.  and at all  hours on  Sundays  and legal
holidays,  all  persons  who do not  present  a pass to the  building  signed by
Landlord.  Landlord will furnish passes to persons for whom any Tenant  requires
same in writing.  Each Tenant shall be  responsible  for all persons for whom he
requires  such a pass  and  shall be  liable  to  Landlord  for all acts of such
persons.

            11. Landlord shall have the right to prohibit any advertising by any
Tenant  which,  in  Landlord's  opinion,  tends to impair the  reputation of the
Building or its desirability as an office building, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.

            12.  Tenant shall not bring or permit to be brought or kept in or on
the  Premises,  any  inflammable,  combustible,  hazardous or  explosive  fluid,
material,  chemical  or  substance,  or cause or permit  any odors of cooking or
other processes,  or any unusual or other objectionable odors, to permeate in or
emanate from the Premises.

            13.  Tenant  agrees to use the entry doors to its premises  only for
ingress and egress purposes and to keep such doors closed at all other times.


                                      -56-

                                                                    Exhibit 10.2

                FIRST LEASE MODIFICATION AND EXTENSION AGREEMENT

            AGREEMENT made as of the 25th day of May, 2001 by and between
RECKSON OPERATING PARTNERSHIP, L.P., a Delaware limited partnership having an
office at 225 Broadhollow Road, Melville, New York 11747 (hereinafter called
"Landlord"), and FALCONSTOR, INC., a Delaware corporation having an address at
125 Baylis Road, Melville, New York (hereinafter called "Tenant").

                                    RECITALS

            WHEREAS, Landlord and Tenant have entered into an Agreement of Lease
dated as of July 2000 (the "Lease") for the lease of 6,721 square feet (the
"Original Premises") in the building located at 125 Baylis Road, Melville, New
York (the "Building"); and

            WHEREAS, Landlord and Tenant desire to amend the Lease to, among
other things, include as part of the Demised Premises under the Lease as of the
Additional Premises Commencement Date (hereinafter defined), the premises shown
on the rental plan annexed hereto and made a part hereof as Exhibit "1"
consisting of approximately 5,050 square feet (the "Additional Premises"), and
to extend the term of the Lease with respect to the Original Premises.

            NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:









                                    ARTICLE I

                                   Definitions

            1.1 The recitals are specifically incorporated into the body of this
Agreement and shall be binding upon the parties hereto.

            1.2 Unless expressly set forth to the contrary and except as
modified by this Agreement, all capitalized or defined terms shall have the
meanings ascribed to them in the Lease.

            1.3 Unless otherwise specifically set forth herein, the "Additional
Premises Commencement Date" as the term is used herein shall mean and refer to
June 1, 2001. If, on the Additional Premises Commencement Date, the Additional
Premises Work (as hereinafter defined) has not been "substantially completed",
(as defined in the Lease, including the provisions governing Tenant delays set
forth therein (it being understood and agreed that, for the purposes of
determining the Additional Premises Commencement Date, the references to the
"Demised Premises" or "Premises" and the "Rent Commencement Date" in Article 2
of the Lease shall be deemed to mean the "Additional Premises" and the
"Additional Premises Commencement Date", respectively), then the Additional
Premises Commencement Date shall be postponed until the date on which the
Additional Premises Work has been "substantially completed" and the term of the
Lease with respect to the Additional Premises and the Original Premises shall be
extended so that the Expiration Date shall be six (6) years after the last day
of the month in which the Additional Premises Commencement Date occurs.



                                       -2-





                                   ARTICLE II

                               Lease Modifications

            2.1 The Lease is hereby modified and amended as follows:

            2.1.1 Except as otherwise specifically set forth herein to the
contrary, the term "Premises" or "Demised Premises" as used in the Lease shall
mean the Original Premises and the Additional Premises effective as of the
Additional Premises Commencement Date.

            2.1.2 Space. Effective as of the Additional Premises Commencement
Date, Article 1 of the Lease is modified and amended as follows:

                         (i) "6,721" is hereby deleted and "11,771" is inserted
in lieu thereof.

                         (ii) Article 1 is modified to reflect that, except as
set forth to the contrary herein, the term "Tenant's Proportionate Share" as
used in the Lease shall mean 11.93%.

            2.1.3 Term. (a) The term of the Lease with respect to the Additional
Premises shall commence on the Additional Premises Commencement Date and shall
expire on the day immediately preceding the day which is six (6) years after (a)
the Additional Premises Commencement Date, if such date is the first day of a
calendar month or (b) the first day of the first full calendar month following
the Additional Premises Commencement Date, if such date is not the first day of
a calendar month (the "Additional Premises Expiration Date").

            (b) The term of the Lease with respect to the Original Premises is
hereby extended to and including the Additional Premises Expiration Date; it
being the express intention of the parties that the term of the Lease with
respect to the Original Premises and the term of the Lease with respect to the
Additional Premises shall be co-terminous. All references in the Lease

                                       -3-





or this Agreement to the term "Expiration Date" (unless specifically set forth
to the contrary herein) shall mean and refer to the Additional Premises
Expiration Date.

            (c) An "Additional Premises Lease Year", as the term is used herein,
shall be comprised of a period of twelve (12) consecutive months. The first
Additional Premises Lease Year shall commence on the Additional Premises
Commencement Date. However, notwithstanding the first sentence of this
paragraph, if Additional Premises Commencement Date is not the first day of a
month, then the first Additional Premises Lease Year shall include the period
from the Additional Premises Commencement Date to the end of the then current
month. Each succeeding Additional Premises Lease Year shall end on the
anniversary date of the last day of the preceding Additional Premises Lease
Year. For example, if the Additional Premises Commencement date is June 1, 2001,
the first Additional Premises Lease Year would begin on June 1, 2001, and end on
May 31, 2002, and each succeeding Additional Premises Lease Year would end on
May 31st. If, however, the Additional Premises Commencement Date is June 2,
2001, the first Additional Premises Lease Year would commence on June 2, 2001
and end on June 30, 2002, the second Additional Premises Lease Year would
commence on July 1, 2002, and each succeeding Lease Year would commence on July
1st and end on June 30th.

            2.1.4 Rent. (a) With respect to the Original Premises, Tenant shall
continue to pay Rent in accordance with Article 3 of the Lease from the date
hereof to and including the date originally set forth in the Lease as the
expiration date with respect to the Original Premises (the "Original Expiration
Date"). From the Original Expiration Date to and including August 31, 2006, Rent
with respect to the Original Premises shall be payable in monthly installments
of $13,922.60. From August 31, 2006 to and including the Additional Premises
Expiration Date,

                                       -4-





Rent with respect to the Original Premises shall be payable in equal monthly
installments of $14,426.85.

            (b) With respect to the Additional Premises only, Tenant shall pay
rent ("Additional Premises Rent"), in addition to the Rent payable with respect
to the Original Premises, as follows:

                (i) for the first Additional Premises Lease Year, the Additional
Premises Rent shall be $134,212.12, payable $28,759.74 for the first month and
$9,586.58 for each of the second through twelfth months.

                (ii) for the second Additional Premises Lease Year, the
Additional Premises Rent shall be $119,135.52, payable in equal monthly
installments of $9,927.96.

                (iii) for the third Additional Premises Lease Year, the
Additional Premises Rent shall be $123,396.00, payable in equal monthly
installments of $10,283.00.

                (iv) for the fourth Additional Premises Lease Year, the
Additional Premises Rent shall be $127,826.88, payable in equal monthly
installments of $10,652.24.

                (iv) for the fifth Additional Premises Lease Year, the
Additional Premises Rent shall be $132,434.88, payable in equal monthly
installments of $11,036.24.

                (v) for the sixth Additional Premises Lease Year, the Additional
Premises Rent shall be $118,054.16, payable $11,435.61 for each of the first
through tenth months and $1,849.03 for each of the eleventh and twelfth months.

            (c) Effective as of the Additional Premises Commencement Date,
except as otherwise set forth herein, all references to the term "Rent" in the
Lease shall refer to the Rent with respect to the original Premises and the
Additional Premises Rent combined.


                                       -5-





            2.1.5 Parking. Effective as of the Additional Premises Commencement
Date, the first sentence of Article 9 of the Lease is hereby modified by
deleting "thirty-four (34)" and inserting "fifty-nine (59)" in lieu thereof and
the second sentence of Article 9 is hereby modified by deleting "six (6)" and
inserting "ten (10)" in lieu thereof.

            2.1.6 Directory. Effective as of the Additional Premises
Commencement Date, Article 10 of the Lease is hereby modified and amended by
deleting "two (2)" and inserting "four (4)" in lieu thereof.

            2.1.7 Taxes. (a) With respect to the Original Premises, Tenant shall
continue to pay Landlord, as additional rent during each Escalation Year, 6.81%
of the increases in Taxes levied against the Real Property above the Base Year
Taxes, in accordance with Article 11 of the Lease.

            (b) With respect to the Additional Premises:

                   (i) the term "Base Year Taxes" set forth in Article 11(A) of
the Lease, as it relates to the Additional Premises only, shall be deemed to be
the Taxes actually due and payable in the 2001/2002 tax year ("Additional
Premises Base Year Taxes").

                   (ii) as of the Additional Premises Commencement Date, Tenant
shall pay to Landlord as additional rent for each Escalation Year (in addition
to the additional rent applicable to the Original Premises by reason of
increases in Taxes), 5.12% of the increases in Taxes levied against the Real
Property above the Additional Premises Base Year Taxes in accordance with the
provisions of Article 11 of the Lease as modified hereby (which amount shall be
added to and shall be included in the definition of "Tenant's Tax Payment"
and/or "Tax Payment", as such terms are used in the Lease).

                                       -6-





            2.1.8 Landlord's Alterations. (a) With respect to the Original
Premises, Tenant hereby acknowledges and agrees that all work which was required
to be performed by Landlord under the Lease has been performed, and that
Landlord shall not be required to perform any work, make any installations or
incur any expense in order to prepare the Original Premises for Tenant's
continued occupancy.

            (b) With respect to the Additional Premises only, Landlord shall, at
its expense (unless otherwise noted on the Rental Plan annexed hereto as Exhibit
1, the preliminary plans and/or the construction drawings), perform the work and
make the installations set forth on Exhibit 1 annexed hereto, in accordance with
the specifications set forth in Schedule A annexed to the Lease ("Additional
Premises Work").

            2.1.9 Security Deposit. Supplementing Section 2.1.1 hereof, the Cash
Security Deposit provided for in Article 45 of the Lease shall serve as security
for the full and faithful performance and observance by Tenant of all of the
terms, conditions, covenants and agreements of the Lease and this Agreement with
respect to the Additional Premises as well as the Original Premises.

            2.1.10 Renewal Option. The parties hereby acknowledge and agree that
the renewal option contained in Article 46 of the Lease may only be exercised
with respect to both the Original Premises and the Additional Premises.
Effective as of the Additional Premises Commencement Date, Article 46(C) is
hereby modified and amended by deleting "$167,071.20" and inserting
"$315,333.57" in lieu thereof.

            2.1.11 Expansion/Relocation Option. Effective as of the Additional
Premises Commencement Date, Article 48 is hereby modified and amended as
follows:

                                       -7-





            (a) "13,500" is hereby deleted from the sixth sentence of Paragraph
(A) and "23,000" is inserted in lieu thereof; and

            (b) "$167,071.20" is hereby deleted from the third sentence of
Paragraph (B) and "$315,333.57" is inserted in lieu thereof.

            2.1.12 Schedule "C". Effective as of the Additional Premises
Commencement Date, Schedule "C" annexed to the Lease is hereby modified and
amended, with respect to the Additional Premises only, by:

            (a) deleting "$2.35" in Paragraph 2 and inserting "$2.50" in lieu
thereof;

            (b) deleting $.0024" in Paragraph 3(A) and inserting "$.003" in lieu
thereof; and

            (c) deleting "$.59" in Paragraph 4 and inserting "$.63" in lieu
thereof.


                                   ARTICLE III

                                     Broker

            3.1 Tenant represents that this Agreement was brought about by
Sutton & Edwards, Inc., as broker, and that all negotiations with respect to
this Agreement were conducted exclusively with said broker. Tenant agrees that
if any claim is made for commissions by any other broker through or on account
of any acts of Tenant, Tenant will hold Landlord free and harmless from any and
all liabilities and expenses in connection therewith, including Landlord's
reasonable attorney's fees.



                                       -8-





                                   ARTICLE IV

                                  Ratification

            4.1 Tenant represents and warrants that the Lease is presently in
full force and effect, that it knows of no event of default on the part of
Landlord and that the Tenant has no defense or right of offset in connection
with Landlord's performance under the Lease to this date.

            4.2 The parties hereby ratify and confirm all of the terms,
covenants and conditions of the Lease, except to the extent that those terms,
covenants and conditions are amended, modified or varied by this Agreement. If
there is a conflict between the provisions of the Lease, and the provisions of
this Agreement, the provisions of this Agreement shall control.

            4.3 This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and/or assigns.

            IN WITNESS WHEREOF, the parties have executed this First Lease
Modification and Extension Agreement as of the day and year first above written.

                                RECKSON OPERATING PARTNERSHIP, L.P.
                                BY: Reckson Associates Realty Corp. its general
                                    partner


                                By:_______________________________________

                                FALCONSTOR, INC.


                                By:_______________________________________



                                       -9-




                                   EXHIBIT "l"

                                   Rental Plan








                                      -10-

                                                                    Exhibit 10.3

                 FALCONSTOR SOFTWARE, INC. EMPLOYMENT AGREEMENT
                             Employee: ReiJane Huai

            EMPLOYMENT AGREEMENT made this 1st day of September, 2001
(hereinafter referred to as "Employment Agreement"), by FalconStor Software,
Inc., a Delaware corporation (hereinafter referred to as the "Corporation") and
ReiJane Huai with an address at 3 Carlie Drive, Old Brookville, NY 11545
(hereinafter referred to as the "Employee").

            WHEREAS, the Employee desires to be employed by the Corporation as
Chairman, President and CEO, and the Corporation desires that the Employee 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
Chairman, President and CEO, and the Employee hereby agrees to serve the
Corporation in such capacity for the period commencing on the date hereof (the
"Effective Date") and ending on the third (3rd) anniversary of such date
(hereinafter referred to as the "Employment Period"), unless sooner terminated
as hereinafter provided.

            2. Scope of Duties. The Employee shall serve as a Chairman,
President and CEO. The Employee shall report and be solely responsible to the
Board of Directors. The Employee's performance shall be reviewed by the Board of
Directors annually.

            3. Time To Be Devoted to Employment. The Employee shall, except
during vacation periods or absences due to temporary illness, devote
substantially all of his professional and business time, attention and energies
to his duties and responsibilities hereunder, and except for business trips
which shall be necessary or desirable in the Corporation's business, shall
render such services at the principal office of the Corporation. Nothing herein
contained or in Section 10 hereof shall prevent or be construed as preventing
the Employee from holding or purchasing five (5%) percent or less of any class
of stock or securities of a corporation which is listed on a national securities
exchange or regularly traded in the over-the-counter market, or making other
investments or participating in business ventures not in competition with the
business of the Corporation, as long as such investments and business ventures
shall not require any time during normal business hours and do not conflict with
his duties or obligations to the Corporation as provided in this Employment
Agreement.

            4. Direct Compensation. (a) In consideration for services rendered
and to be rendered by the Employee hereunder during the Employment Period, the
Employee shall receive a salary of One Hundred and Fifty Thousand ($150,000)
Dollars per year (the "Base Salary"), which shall be paid semi-monthly in
arrears or at such other intervals as other employees are paid.






            (b) Commencing on September 1, 2001 and each year thereafter, the
Corporation shall increase the Employee's Base Salary by Fifteen Thousand
($15,000) Dollars per annum, provided that the Corporation's earnings were
higher than the previous year, as certified by either the Corporation's Chief
Financial Officer or its independent auditors.

            (c) Employee shall be eligible to receive additional payments or
bonuses as may be determined, at the sole discretion of the Corporation's Board
of Directors. However, nothing contained in this Section shall obligate the
Board of Directors to approve such additional payments or bonuses for the
Employee.

            5. Fringe Benefits. (a)The Employee shall be entitled to participate
in any and all fringe benefits and/or plans, generally afforded to other
employees of the Corporation (to the extent the Employee otherwise qualifies
under the specific terms and conditions of each such benefit), including,
without limitation, group disability, life insurance, medical insurance and
pension plans (401K) which are, or which may become available generally to
senior personnel of the Corporation. The Employee shall be entitled to four (4)
weeks of vacation time during each year of the Employment Period. The
Corporation shall reimburse the Employee in an amount equal to no more than
Twenty Four Thousand ($24,000) Dollars, per annum for the lease payments of an
automobile used by the Employee in connection with the business of the
Corporation.

            (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 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 of Directors or the
Executive Committee of the Corporation 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 felony or common law fraud against the Corporation; or







            (c) If Executive is unable substantially to perform 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 Employee's then current Base Salary until the Company acts to terminate the
Employee. The Employee agrees, in the event of a dispute under this Section
6(c), to submit to a physical examination by a licensed physician selected by
the Board and consented to by the Employee.

            7. Death Benefit. In addition to all other insurance and similar
death benefits generally made available to employees of the Corporation, if
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.

            8. Severance Payment. (a) If the Corporation and the Employee do not
enter into a renewal agreement to be effective September 1, 2004, 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, payable semi-monthly in arrears for the twelve
months ending August 30, 2005; 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 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
Executive, and (iii) the Employee his base Salary (at the rate in effect on the
date of termination) through the twelve -month anniversary of the date of
termination in accordance with the normal payroll practices of the Corporation
with respect to Base Salary.

            9. Disclosure of Information. All memoranda, notes, records or other
documents made or compiled by the Employee or made available to him during the
term of his employment concerning the business of the Corporation shall be the
Corporation's property and shall be delivered to the Corporation on the
termination of the Employee's employment. The Employee shall not use for himself
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
outer remedies available to the Corporation for such breach or threatened
breach, including the recovery of damages from the Employee.

            10. Restrictive Covenants. (a) The Employee hereby acknowledges and
recognizes the highly competitive nature of the Corporation's business and
accordingly agrees that, in consideration of the premises contained herein, he
will not from and after the date hereof and during the Employment Period until
the Designated Date (as hereinafter defined): (i) directly or indirectly engage
in any Competitive Activity (as hereinafter defined), whether such engagement
shall be as an officer, director, employee, consultant, agent, lender,
stockholder, or other participant or (ii) assist others in engaging in
Competitive Activity. As used herein, the term "Competitive Activity" shall mean







and include the development and/or marketing of computer hardware and/or
software for Storage Networking applications and other similar systems.

            (b) As used in this Section 10, the "Designated Date" shall mean the
following:

                 (i) if the Employee terminates his employment with the
Corporation prior to the expiration of the Employment Period (other than as a
result of a breach by the Corporation of a material term or condition of this
Employment Agreement), then the "Designated Date" shall mean the second (2nd)
anniversary of the effective date of such termination;

                 (ii) if the Corporation terminates the employment of the
Employee under this Employment Agreement for Cause, then the "Designated Date"
shall be the second (2nd) anniversary of the effective date of such termination;

                 (iii) if the Corporation, during the Employment Period,
terminates the employment of the Employee without Cause, then the term
"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 Employee does not accept such agreement,
then the "Designated Date" shall be the second (2nd) anniversary of the
effective date of such termination.

            (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 Stares and/or foreign letters patent or
other registrations either in the Employee's name or otherwise, as the
Corporation shall desire.







                        (iii) The Employee hereby assigns and agrees to assign
to the Corporation all of his right and interest to any and all such Inventions
and to make applications for United States and/or foreign letters patent or
other registrations granted upon such Invention.

                        (iv) The Employee shall acknowledge and deliver promptly
to the Corporation, without charge to the Corporation, but at its expense, such
written instruments and do such other acts in support of his inventorship, as
may be necessary in the opinion of the Corporation to obtain and maintain United
States and/or foreign letters patent or other registration and to vest the
entire right in such Inventions, patents and patent applications in the
Corporation. Employee agrees that if the Corporation is unable because of
Employee's mental or physical incapacity or unavailability or for any other
reason to secure 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, Employee hereby irrevocably
designates and appoints the Corporation and its duly authorized officers and
agents as Employee's agent and attorney in fact, to act for and in 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 Employee.
Employee hereby waives and irrevocably quitclaims to the Corporation any and all
claims, of any nature whatsoever, which 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 Employer of the
provisions of this Section 10, the Corporation shall be entitled to an
injunction restraining him from such breach. Nothing herein contained shall be
construed as prohibiting the Corporation from pursuing any other remedies
available for such breach or threatened breach or any other breach of this
Employment Agreement.

            (f) 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 any party may request by notice in writing to
the other party to this Employment Agreement:

                              If to Employee:
                                    ReiJane Huai
                                    3 Carlie Drive,
                                    Old Brookville, NY 11545

                              If to the Corporation:
                                    FalconStor Software, Inc.
                                    125 Baylis Road, Suite 140
                                    Melville, New York 11747

                              With a copy to:
                                    Steven Wolosky, Esq.
                              Olshan Grundman Frome Rosenzweig & Wolosky LLP
                              505 Park Avenue
                              New York, New York 10022

                   (b) Construction. This Employment Agreement shall be
construed 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 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. 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
all of which counterparts shall together constitute a single agreement.

            (f) Illegality. 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/ Jacob Ferng
                                                 ------------------------------
                                                 Jacob Ferng
                                                 Chief Financial Officer



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

                                                                    Exhibit 10.4

                           CHANGE OF CONTROL CONTRACT


FalconStor Software, Inc.
125 Baylis Road
Melville, NY 11747

                                  CONFIDENTIAL

     December 10, 2001

ReiJane Huai, President/CEO

Dear Mr. Huai:

            A. It is expected that FalconStor Software, Inc. (the "Company")
from time to time will consider the possibility of an acquisition by another
company or other change of control (as hereinafter defined). The Board of
Directors of the Company recognizes that such consideration can be a distraction
to you and can cause you to consider alternative employment opportunities. The
Board of Directors has determined that it is in the best interests of the
Company and its stockholders to assure that the Company will have your continued
dedication and objectivity, notwithstanding the possibility, threat or
occurrence of a Change of Control of the Company.

            B. The Board of Directors believes that it is in the best interests
of the Company and its stockholders to provide you with an incentive to continue
his or her employment and to motivate you to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.

            C. The Board believes that it is imperative to provide you with
certain severance benefits upon a Change of Control that provide you with
enhanced financial security and incentive and encouragement to you to remain
with the Company notwithstanding the possibility of a Change of Control.

            Therefore the Board of Directors of the Company has determined that
it is in the best interests of the Company and its stockholders to offer you the
following agreement (the "Agreement") which provides you with certain severance
payments and benefits upon a Change of Control.

                                    ARTICLE I
                                   DEFINITIONS

            I.1         Definitions






                        Whenever used in this Agreement, the following
capitalized terms shall have the meanings set forth in this Section, certain
other capitalized terms being defined elsewhere in this Agreement:

                        (a) "Annualized Compensation" means the sum of your
highest level of Compensation (exclusive of any bonus(es)) within one (1) year
of the date on which your employment terminates.

                        (b) "Beneficial Owner" shall have the meaning ascribed
to such term in Rule 13d-3 promulgated under the Exchange Act.

                        (c) "Board of Directors" means the Board of Directors of
the Company.

                        (d) "Change of Control" of the Company means and
includes any of the following:

                              (i) Any person or "Group" (as defined in Section
13(d) of the Exchange Act), excluding for this purpose the Company or any
Subsidiary of the Company, or any employee benefit plan of the Company or any
Subsidiary of the Company, or any person or entity organized, appointed or
established by the Company for or pursuant to the terms of such plan which
acquires beneficial ownership of voting securities of the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
directly or indirectly of securities of the Company representing thirty percent
(30%) or more of the combined voting power of the Company's then outstanding
securities; provided, however, that no Change of Control shall be deemed to have
occurred as the result of an acquisition of securities of the Company by the
Company which, by reducing the number of voting securities outstanding,
increases the direct or indirect beneficial ownership interest of any person to
thirty percent (30%) or more of the combined voting power of the Company's then
outstanding securities, but any subsequent increase in the direct or indirect
beneficial ownership interest of such a person in the Company shall be deemed a
Change of Control; and provided further that if the Board of Directors of the
Company determines in good faith that a person who has become the beneficial
owner directly or indirectly of securities of the Company representing thirty
percent (30%) or more of the combined voting power of the Company's then
outstanding securities has inadvertently reached that level of ownership
interest, and if such person divests as promptly as practicable a sufficient
amount of securities of the Company so that the person no longer has a direct or
indirect beneficial ownership in thirty percent (30%) or more of the combined
voting power of the Company's then outstanding securities, then no Change of
Control shall be deemed to have occurred;

                              (ii) Consummation of (1) an agreement for the
sale, assignment, lease conveyance or other disposition of the Company or all or
substantially all of the Company's assets, (2) a plan of merger, consolidation
or reorganization of the Company with any other corporation whether or not the
Company is the person surviving or

                                      -2-


resulting therefrom, or (3) a similar transaction or series of transactions
involving the Company (any transaction described in parts(1) through (3) of this
subparagraph (ii) being referred to as a "Transaction"), in each case unless
after such a Transaction (x) the shareholders of the Company immediately prior
to the Transaction continue to own, directly or indirectly, more than fifty
percent (50%) of the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors of the new
(or continued) entity (including, but not by way of limitation, an entity which
as a result of such transaction owns the Company or all or substantially all of
the Company's former assets either directly or through one or more subsidiaries)
immediately after such Transaction, in substantially the same proportion as
their ownership of the Company immediately prior to such Transaction, (y) no
person (excluding any entity resulting from such Transaction or any employee
benefit plan (or related trust) of the Company or of such entity resulting from
such Transaction) beneficially owns, directly or indirectly, twenty percent
(20%) or more of the then combined voting power of the then outstanding voting
securities of such entity, except to the extent that such ownership existed
prior to the Transaction, and (z) at least a majority of the members of the
board of directors of the entity resulting from such Transaction were Existing
Directors at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Transaction; or

                              (iii) Approval by the shareholders of the Company
of a complete liquidation or dissolution of the Company.

                              Any other provision of this Agreement to the
contrary notwithstanding, a "Change of Control" shall not include any
transaction described in subparagraph (i) or (ii), above, where, in connection
with such transaction, you and/or any party acting in concert with you
substantially increases your or its, as the case may be, ownership interest in
the Company or a successor to the Company.

                        (e) "Company" means FalconStor Software, Inc., a
Delaware corporation, and any successor or assignee as provided in Article IV.

                        (f) "Compensation" means and includes all of your base
salary attributable to your employment with the Company and/or any of its
Subsidiaries as reported in the W-2 prepared by the Company (other than income
attributable to the exercise of stock options). In addition, Compensation shall
include, but not be limited to, any amounts excludable from your gross income
for federal income tax purposes pursuant to Section 125 or Section 401(k) of the
Internal Revenue Code of 1986, as amended, or deferred pursuant to any Company
or Subsidiary plan or program including any matching contributions by the
Company for the fiscal year during which a Change of Control occurs, and other
regular cash compensations or reimbursements of non-business expenses, if any,
including, but not limited to, automobile allowance and gasoline reimbursement.

                        (g) "Disability" means a physical or mental infirmity
which substantially impairs your ability to perform your material duties for a
period of at least

                                      -3-


one hundred eighty (180) consecutive calendar days and, as a result of such
Disability, you have not returned to your full-time regular employment or
officership prior to termination.

                        (h) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.

                        (i) "Exchange Act" means the Securities Exchange Act of
1934, as amended.

                        (j) "Just Cause" means the termination of your
employment or officership as a result of fraud, misappropriation of or
intentional material damage to the property or business of the Company
(including its Subsidiaries), or conviction of a felony.

                        (k) "Person" shall have the meaning ascribed to such
term in Section 3 of the Exchange Act and the rules and regulations promulgated
thereunder.

                        (l) "Severance Payment" means the payment of severance
compensation as provided in Article II.

                        (m) "Subsidiary" means any corporation or other Person,
a majority of the voting power, equity securities or equity interest of which is
owned directly or indirectly by the Company.

                                   ARTICLE II
                               SEVERANCE PAYMENTS

            II.1        Right to Severance Payment
                        --------------------------

                        You shall be entitled to receive a Severance Payment
from the Company within five days after such Change of Control in the
amount provided in Section II.2 if there has been a Change of Control of the
Company and you are an active employee or an officer of the Company at the time
of the Change of Control. For purposes of determining whether you are an active
employee or an officer of the Company at the time of the Change of Control, you
will still be considered to be an active employee or officer if you are on sick
leave, military leave or any other leave of absence approved by the Company or
any of its Subsidiaries.

            II.2        Amount of Severance Payment and Replacement of Options
                        ------------------------------------------------------

                        (a) If you become entitled to a Severance Payment under
this Agreement, you shall receive a lump sum payment equal to four (4) times one
year's Annualized Compensation including medical and other benefits.

                        (b) The Severance Payment otherwise calculated under
this Section II.2 shall be reduced by the amount of cash severance-type benefits
to which you may be

                                      -4-


entitled pursuant to any other severance plan, agreement, policy or program of
the Company or any of its Subsidiaries; provided that if the amount of cash
severance benefits payable under such other severance plan, agreement, policy or
program is greater than the amount payable pursuant to this Agreement, you will
be entitled to receive the amounts payable under such other plan, agreement,
policy or program. Without limiting other payments which would not constitute
"cash severance-type benefits" hereunder, any cash settlement of stock options,
accelerated vesting of stock options and retirement, pension and other similar
benefits shall not constitute "cash severance-type benefits" for purposes of
this Section II.2(b).

                        (c) Notwithstanding any provision in the Company's
Incentive and Non-Qualified Stock Option Plan, as amended, or in this Agreement
in the event there is a Change of Control, the Company shall, at no cost to you,
replace any and all stock options granted by the Company and held by you 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
Section I.1(d) hereof, in lieu of the Option Replacement, you may elect to
surrender your rights to such options, and upon such surrender, the Company
shall pay to you 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 on which you are entitled to a Severance Payment.

            II.3        Gross-Up Payment

                        If it shall be determined that any payment or
distribution by the Company to or for the benefit of you pursuant to this
Agreement, including any payments made pursuant to Articles V and VI of this
Agreement(a "Base Payment") would be subject to the excise tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), then you shall be entitled to receive an additional payment (the
"Gross-Up Payment") in an amount such that the net amount retained by you,
reduced by any federal, state and local taxes and determined after the
calculation and deduction of any Excise Tax on the Base Payment and any federal,
state, and local taxes and Excise Tax on the Gross-Up Payment, shall be equal to
the Base Payment, reduced by any federal, state and local taxes. In determining
this amount, the amount of the Gross-Up Payment attributable to federal income
taxes shall be reduced by the maximum reduction in federal income taxes that
could be obtained by the deduction of the portion

                                      -5-


of the Gross-Up Payment attributable to state and local income taxes. Finally,
the Gross-Up Payment shall be reduced by income or excise tax withholding
payments made by the Company to any federal, state, or local taxing authority
with respect to the Gross-Up Payment that were not deducted from compensation
payable to you.

                        All determinations required to be made under this
Section II.3, including whether and when a Gross-Up Payment is required,
the amount of such Gross-Up Payment, and the assumptions to be utilized in
arriving at such determination, except as specified above, shall be made by the
Company's independent auditor immediately prior to the date of the Change of
Control (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and you within fifteen (15) business days after
the receipt of notice from you that there should be a Gross-Up Payment. The
determination of tax liability made by the Accounting Firm shall be subject to
review by your tax advisor, and if your tax advisor does not agree with the
determination reached by the Accounting Firm, then the Accounting Firm and your
tax advisor shall jointly designate a nationally recognized public accounting
firm, which shall make the determination. All fees and expenses of the
accountants and tax advisors retained by either you or the Company shall be
borne by the Company. Any Gross-Up Payment shall be paid by the Company to you
within five (5) days after the receipt of the determination. Any determination
by a jointly designated public accounting firm shall be binding upon the Company
and you.

                        As a result of uncertainty in the application of Section
4999 of the Code at the time of the initial determination hereunder, it is
possible that Gross-Up Payments will not have been made by the Company that
should have been made consistent with the calculations required to be made
hereunder ("Underpayment"). In the event that you thereafter are required to
make a payment of any Excise Tax, any such Underpayment shall be promptly paid
by the Company to or for the benefit of you along with any Gross-Up thereon to
relieve you of 100% of the cost of any Excise Tax and other Federal, state and
local taxes on the Underpayment.

            II.4        No Duty of Mitigation
                        ---------------------

                        The Company acknowledges that it would be very difficult
and generally impracticable to determine your ability to, or the
extent to which you may, mitigate any damages or injuries you may incur by
reason of the Change of Control. The Company has taken this into account in
entering into this Agreement and, accordingly, the Company acknowledges and
agrees that you shall have no duty to mitigate any such damages and that you
shall be entitled to receive your entire Severance Payment regardless of any
income which you may receive from other sources following any Change of Control.

            II.5        Payment in the Event of Death
                        -----------------------------
                        If you should die before all amounts payable to you have
been paid, such unpaid amounts shall be paid to your beneficiary
under this Agreement or, if you have not designated such a beneficiary in
writing to the Company, to the personal

                                      -6-


representative(s) of your estate. For purposes of this Section II.5, you may
designate an intervivos revocable living grantor trust as your beneficiary.

            II.6        Life and Health Insurance Coverage; Physical
                        --------------------------------------------

                        If you are entitled to receive a Severance Payment under
Section II.1, you will also be entitled to receive the following
additional benefits:

                        (a) Life insurance coverage for you and your dependents
having a face amount at least equal to the greater of (i) the amount in effect
for you (in your case) and/or your dependents (in the case of your dependents)
on the date of the Change of Control, or (ii) the amount in effect for you (in
your case) and/or your dependents (in the case your dependents) on the date of
termination of service, such coverage to be provided under the same plan or
plans under which you (in your case) or your dependents (in the case of your
dependents) were covered immediately prior to the termination of your employment
or officership or substantially similar plan(s) established by the Company or
any of its Subsidiaries thereafter. Such life insurance coverage shall be paid
for by the Company to the same extent as if you were still employed by the
Company and you will be required to make such payments as you would be required
to make if you were still employed by the Company. This coverage will continue
for the period hereinafter provided.

                        (b) Health insurance coverage (including any dental
coverage, if any) for you and your dependents under the same plan or plans under
which you were covered immediately prior to the termination of your employment
or officership or substantially similar plan(s) established by the Company or
any of its Subsidiaries thereafter. Such health insurance coverage shall be paid
for by the Company to the same extent as if you were still employed by the
Company, and you will be required to make such payments as you would be required
to make if you were still employed by the Company. This coverage will continue
so long as after the Change of Control the Employee is employed by the Company
or the successor entity (collectively, the "Successor Entity") to the Company in
the event of a Change of Control.

                        (c) Payment for one physical examination, to be
performed by the physician of your choice.

                        (d) If after a Change of Control, the Successor Entity
has a group disability plan in force at the time the Employee's employment
terminates, the Successor Entity 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.

                        (e) Upon termination of the Employee's employment after
a Change of Control, the Successor Entity 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 Successor

                                      -7-


Entity, at the Employee's own expense, for such period as the Employee desires;
provided, that Employee shall be required to make all insurance premium
contributions based upon the Successor Entity's direct payment to the health
insurance carriers. Within five (5) days of the Change of Control, the Successor
Entity shall send the Employee a letter which details and describes the health
insurance coverage generally available to its executives as well as its
agreement that the Employee has the rights and privileges set forth in this
Section II.6(e).

                        (f) The benefits provided under this Section II.6 shall
continue for a period of two (2) years following the date of termination of your
employment or such longer period as provided in any agreement relating to any of
such benefits between you and the Company; provided, however, that the benefits
for medical coverage under the provisions of Section II.6(b) shall end as of the
date you become covered under any other group health plan that you do not have
as of the date of the Change of Control and any other group health plan not
maintained by the Company or any of its Subsidiaries which provides equal or
greater benefits than such plan and which does not exclude any pre-existing
condition that you or your dependents may have at that time.

            II.7        Miscellaneous
                        -------------

                        If you are entitled to receive a Severance Payment under
Section II.1, and at the time of the occurrence of a Change of Control you were
the primary user of a Company or Subsidiary automobile that was provided to you
at the expense of the Company or any of its Subsidiaries, the Company will take
all action to transfer ownership of the automobile to you at no cost to you
other than any income, FICA or medicare tax due on the value thereof. If the
automobile has been leased by the Company or any of its Subsidiaries, from an
unrelated third party, the Company will, at your written request made within
thirty (30) calendar days after you become entitled to receive a Severance
Payment hereunder, promptly use its best efforts to have the applicable lease
assigned to you.

            II.8        Withholding of Taxes
                        --------------------

                        The Company may withhold from any amounts payable under
this Agreement all federal, state, city or other taxes required by
applicable law to be withheld by the Company.

            II.9        No Setoff
                        ---------

                        The Company's obligation to make Severance Payments to
you pursuant to this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, but not limited
to, any setoff, counterclaim, recoupment, defense or other right which the
Company or any of its Subsidiaries may have against you or others.

            II.10       Benefits Under Other Plans

                                      -8-


                        The benefits that you may be entitled to receive
pursuant to Section II.6 of this Agreement are not intended to be duplicative of
any similar benefits to which you may be entitled from the Company or any of its
Subsidiaries under any other severance plan, agreement, policy or program
maintained by the Company or any of its Subsidiaries. Accordingly, the benefits
to which you are entitled under Section II.6 shall be reduced to take account of
any other similar benefits to which you are entitled from the Company or any of
its Subsidiaries; provided, however, that if the amount of benefits to which you
are entitled under such other severance plan, agreement, policy or program is
greater than the benefits to which you are entitled under Section II.6 of this
Agreement, you will be entitled to receive the full amount of the benefits to
which you are entitled under such other plan, agreement, policy or program.

                                   ARTICLE III
                     OTHER RIGHTS AND BENEFITS NOT AFFECTED

            III.1       Other Benefits
                        --------------

                        This Agreement does not provide a pension for you nor
shall any payment hereunder be characterized as deferred compensation. Except as
set forth in Sections II.2(b), II.3 and II.10, neither the provisions of this
Agreement nor the Severance Payment provided for hereunder shall reduce any
amounts otherwise payable, or in any way diminish your rights as an employee,
whether existing now or hereafter, under any benefit, incentive, retirement,
stock option, stock bonus or stock purchase plan or any employment agreement or
other plan or arrangement not related to severance. Any such other amounts or
benefits payable shall be included, as necessary, for making any of the
calculations required under Section II.3.

            III.2       Employment Status
                        -----------------

                        This Agreement does not constitute a contract of
employment or impose on you any obligation to remain in the employ of the
Company, nor does it impose on the Company or any of its Subsidiaries any
obligation to retain you in your present or any other position, or to change the
status of your employment as an employee at will unless you have a separate
written employment agreement with the Company or its Subsidiaries. Nothing in
this Agreement shall in any way require the Company or any of its Subsidiaries
to provide you with any severance benefits prior to a Change of Control, nor
shall this Agreement ever be construed in any way as establishing any policies
or requirements of the Company or any of its Subsidiaries for the termination of
your employment or the payment of severance benefits to you if your employment
terminates prior to a Change of Control, nor shall anything in this Agreement in
any way affect the right of the Company or any of its Subsidiaries in its
absolute discretion to change prior to a Change of Control one or more benefit
plans, including but not limited to pension plans, dental plans, health care
plans, savings plans, bonus plans, vacation pay plans, disability plans, and the
like.

                                      -9-


                                   ARTICLE IV
                              SUCCESSOR TO COMPANY

                        The Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all the business or assets of the Company,
expressly and unconditionally to assume and agree to perform the Company's
obligations under this Agreement, in the same manner and to the same extent that
the Company would be required to perform if no such succession or assignment had
taken place. In such event, the term "Company," as used in this Agreement, shall
mean (from and after, but not before, the occurrence of such event) the Company
as herein before defined and any successor or assignee to the business or assets
which by reason hereof becomes bound by the terms and provisions of this
Agreement.

                                    ARTICLE V
                             LEGAL FEES AND EXPENSES

                        The Company shall pay as they become due all legal fees,
costs of litigation and other expenses incurred in good faith by
you as a result of the Company's refusal or failure to make the Severance
Payment to which you become entitled under this Agreement, as a result of the
Company's contesting the validity, enforceability or interpretation of this
Agreement or of your right to benefits hereunder. You shall be conclusively
presumed to have acted in good faith unless a court makes a final determination
not otherwise subject to appeal to the contrary.

                                   ARTICLE VI
                                   ARBITRATION

                        Except as otherwise provided in Section II.3, you shall
have the right and option (but not the obligation) to elect (in
lieu of litigation) to have any dispute or controversy arising under or in
connection with this Agreement not otherwise resolved through the claims
procedure set forth in Section II.11, including any dispute under Section II.3,
settled by arbitration, conducted before a panel of three arbitrators sitting in
a location selected by you within fifty (50) miles from the location of your job
with the Company or any of its Subsidiaries, in accordance with the rules of the
American Arbitration Association then in effect. Judgement may be entered on the
award of the arbitrator in any court having jurisdiction. All expenses of such
arbitration, including the fees and expenses of your counsel, shall be borne,
and paid as incurred, by the Company; provided that the Company shall only be
required to pay your fees and expenses if they are incurred in good faith. You
shall be conclusively presumed to have acted in good faith unless and until the
arbitrator makes a final determination to the contrary.

                                   ARTICLE VII
                                  MISCELLANEOUS

            VII.1       Applicable Law
                        --------------

                                      -10-



                        To the extent not preempted by the laws of the United
States and in the interest of interpreting this Agreement in a uniform manner
with other similar agreements being entered into by the Company with other of
its and its Subsidiaries' employees regardless of the jurisdiction in which you
are employed or any other factor, the laws of the State of New York shall be the
controlling law in all matters relating to this Agreement, regardless of the
choice-of-law rules of the State of New York or any other jurisdiction.

            VII.2       Construction
                        ------------

                        No term or provision of this Agreement shall be
construed so as to require the commission of any act contrary to law, and
wherever there is any conflict between any provision of this Agreement and any
present or future statute, law, ordinance, or regulation contrary to which the
parties have no legal right to contract, the latter shall prevail, but in such
event the affected provision of this Agreement shall be curtailed and limited
only to the extent necessary to bring such provision within the requirements of
the law.

            VII.3       Severability
                        ------------

                        If a provision of this Agreement shall be held illegal
or invalid, the illegality or invalidity shall not affect the
remaining parts of this Agreement and this Agreement shall be construed and
enforced as if the illegal or invalid provision had not been included.



            VII.4       Headings
                        --------

                        The Section headings in this Agreement are inserted only
as a matter of convenience, and in no way define, limit, or extend
or interpret the scope of this Agreement or of any particular Section.

            VII.5       [Intentionally Omitted]

            VII.6       Assignability
                        -------------

                        Neither this Agreement nor any right or interest therein

shall be assignable or transferrable (whether by pledge, grant of
a security interest, or otherwise) by you, your beneficiaries or legal
representatives, except by will, by the laws of descent and distribution or
intervivos revocable living grantor trust as your beneficiaries. This Agreement
shall be binding upon and shall inure to the benefit of the Company, its
successors and assigns, and you and shall be enforceable by them and your legal
personal representatives.


            VII.7       Entire Agreement
                        ----------------

                        This Agreement constitutes the entire agreement between
the Company and you regarding the subject matter hereof and supersedes all prior
agreements, if any,

                                      -11-


understandings and arrangements, written or oral, between the Company and you
with respect to the subject matter hereof.

            VII.8       Term
                        ----

                        If a Change of Control has not theretofore occurred,
this Agreement shall expire and be of no further force and effect on
December 1, 2005; provided that the Board of Directors of the Company may, at
any time prior to the expiration thereof, extend the term of this Agreement for
a term of up to two years, including extending the date set forth in the third
line of Section II.1(d)(ii) of the definition of "Change of Control", without
any further action on your part.

                        If a Change of Control occurs, this Agreement shall
continue and be effective until you (or the person(s) specified in
Section II.5) shall have received in full all Severance Payments and other
benefits to which you are entitled under this Agreement, at which time this
Agreement shall terminate for all purposes.

            VII.9       Amendment
                        ---------

                        Except as set forth in Section II.8, no provision of
this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing and signed by you and
the Company. No waiver by the Company or you at any time or any breach by the
other party of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or any prior or subsequent time.
No agreement or representations, written or oral, express or implied, with
respect to the subject matter hereof, have been made by either party which are
not expressly set forth in this Agreement.

            VII.10      Notices
                        -------

                        For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other, provided that all notices to
the Company shall be directed to the attention of the Board of Directors with a
copy to the General Counsel. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the third business day
after the mailing thereof, except that notice of change of address shall be
effective only upon actual receipt. No objection to the method of delivery may
be made if the written notice or other communication is actually received.

            VII.11      Administration
                        --------------

                        The Company has entered into agreements similar to this
Agreement herein with other employees and officers of the Company
or its Subsidiaries. These agreements, taken together, constitute welfare
benefit plan within the meaning of Section

                                      -12-


3(1) of ERISA. The Administrator of such plan, within the meaning of Section
3(16) of ERISA, and the Named Fiduciary thereof, within the meaning of Section
402 of ERISA, is the Company.

                        If you believe you are entitled to a benefit under this
Agreement, you may make a claim for such benefit by filing with the
Company a written statement setting forth the amount and type of payment so
claimed. The statement shall also set forth the facts supporting the claim. The
claim may be filed by mailing or delivering it to the Secretary of the Company.

                        Within thirty (30) calendar days after receipt of such a
claim, the Company shall notify you in writing of its action on
such claim and if such claim is not allowed in full, shall state the following
in a manner calculated to be understood by you:

                        (a) The specific reason or reasons for the denial;

                        (b) Specific reference to pertinent provisions of this
Agreement on which the denial is based;

                        (c) A description of any additional material or
information necessary for you to be entitled to the benefits that have been
denied and an explanation of why such material or information is necessary; and

                        (d) An explanation of this Agreement's claim review
procedure.

                        If you disagree with the action taken by the Company,
you or your duly authorized representative may apply to the Company
for a review of such action. Such application shall be made within sixty (60)
calendar days after receipt by you of the notice of the Company's action on your
claim. The application for review shall be filed in the same manner as the claim
for benefits. In connection with such review, you may inspect any documents or
records pertinent to the matter and may submit issues and comments in writing to
the Company. A decision by the Company shall be communicated to you within
thirty (30) calendar days after receipt of the application. The decision on
review shall be in writing and shall include specific reasons for the decision,
written in a manner calculated to be understood by you, and specific references
to the pertinent provisions of this Agreement on which the decision is based.

                        If this Agreement is acceptable to you, please sign the
enclosed copy of this Agreement in the space provided below and
return it to me.

                                             Sincerely,


                                             ----------------------------
                                             Jacob Ferng[Officer of the Company]
                                             VP/CFO, Corporate Secretary

                                      -13-


ACCEPTED AND AGREED TO:


----------------------------
ReiJane Huai



                                      -14-

                                                                    Exhibit 10.5


                           CHANGE OF CONTROL CONTRACT


FalconStor Software, Inc.
125 Baylis Road
Melville, NY 11747

                                  CONFIDENTIAL

December 7, 2001

Wayne Lam, VP - Marketing

Dear Mr. Lam:

            A. It is expected that FalconStor Software, Inc. (the "Company")
from time to time will consider the possibility of an acquisition by another
company or other change of control (as hereinafter defined). The Board of
Directors of the Company recognizes that such consideration can be a distraction
to you and can cause you to consider alternative employment opportunities. The
Board of Directors has determined that it is in the best interests of the
Company and its stockholders to assure that the Company will have your continued
dedication and objectivity, notwithstanding the possibility, threat or
occurrence of a Change of Control of the Company.

            B. The Board of Directors believes that it is in the best interests
of the Company and its stockholders to provide you with an incentive to continue
his or her employment and to motivate you to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.

            C. The Board believes that it is imperative to provide you with
certain severance benefits upon a Change of Control that provide you with
enhanced financial security and incentive and encouragement to you to remain
with the Company notwithstanding the possibility of a Change of Control.

            Therefore the Board of Directors of the Company has determined that
it is in the best interests of the Company and its stockholders to offer you the
following agreement (the "Agreement") which provides you with certain severance
payments and benefits upon a Change of Control.

                                    ARTICLE I
                                   DEFINITIONS

            I.1         Definitions



            Whenever used in this Agreement, the following capitalized terms
shall have the meanings set forth in this Section, certain other capitalized
terms being defined elsewhere in this Agreement:

            (a) "Annualized Compensation" means the sum of your highest level of
Compensation (exclusive of any bonus(es)) within one (1) year of the date on
which your employment terminates.

            (b) "Beneficial Owner" shall have the meaning ascribed to such term
in Rule 13d-3 promulgated under the Exchange Act.

            (c) "Board of Directors" means the Board of Directors of the
Company.

            (d) "Change of Control" of the Company means and includes any of the
following:

                (i) Any person or "Group" (as defined in Section 13(d) of the
Exchange Act), excluding for this purpose the Company or any Subsidiary of the
Company, or any employee benefit plan of the Company or any Subsidiary of the
Company, or any person or entity organized, appointed or established by the
Company for or pursuant to the terms of such plan which acquires beneficial
ownership of voting securities of the Company, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly
of securities of the Company representing thirty percent (30%) or more of the
combined voting power of the Company's then outstanding securities; provided,
however, that no Change of Control shall be deemed to have occurred as the
result of an acquisition of securities of the Company by the Company which, by
reducing the number of voting securities outstanding, increases the direct or
indirect beneficial ownership interest of any person to thirty percent (30%) or
more of the combined voting power of the Company's then outstanding securities,
but any subsequent increase in the direct or indirect beneficial ownership
interest of such a person in the Company shall be deemed a Change of Control;
and provided further that if the Board of Directors of the Company determines in
good faith that a person who has become the beneficial owner directly or
indirectly of securities of the Company representing thirty percent (30%) or
more of the combined voting power of the Company's then outstanding securities
has inadvertently reached that level of ownership interest, and if such person
divests as promptly as practicable a sufficient amount of securities of the
Company so that the person no longer has a direct or indirect beneficial
ownership in thirty percent (30%) or more of the combined voting power of the
Company's then outstanding securities, then no Change of Control shall be deemed
to have occurred;

                (ii) Consummation of (1) an agreement for the sale, assignment,
lease conveyance or other disposition of the Company or all or substantially all
of the Company's assets, (2) a plan of merger, consolidation or reorganization
of the Company with any other corporation whether or not the Company is the
person surviving or resulting therefrom, or (3) a similar transaction or series

                                      -2-





of transactions involving the Company (any transaction described in parts(1)
through (3) of this subparagraph (ii) being referred to as a "Transaction"), in
each case unless after such a Transaction (x) the shareholders of the Company
immediately prior to the Transaction continue to own, directly or indirectly,
more than fifty percent (50%) of the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors of the new (or continued) entity (including, but not by way of
limitation, an entity which as a result of such transaction owns the Company or
all or substantially all of the Company's former assets either directly or
through one or more subsidiaries) immediately after such Transaction, in
substantially the same proportion as their ownership of the Company immediately
prior to such Transaction, (y) no person (excluding any entity resulting from
such Transaction or any employee benefit plan (or related trust) of the Company
or of such entity resulting from such Transaction) beneficially owns, directly
or indirectly, twenty percent (20%) or more of the then combined voting power of
the then outstanding voting securities of such entity, except to the extent that
such ownership existed prior to the Transaction, and (z) at least a majority of
the members of the board of directors of the entity resulting from such
Transaction were Existing Directors at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Transaction; or

                (iii) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.

                Any other provision of this Agreement to the contrary
notwithstanding, a "Change of Control" shall not include any transaction
described in subparagraph (i) or (ii), above, where, in connection with such
transaction, you and/or any party acting in concert with you substantially
increases your or its, as the case may be, ownership interest in the Company or
a successor to the Company.

            (e) "Company" means FalconStor Software, Inc., a Delaware
corporation, and any successor or assignee as provided in Article IV.

            (f) "Compensation" means and includes all of your base salary
attributable to your employment with the Company and/or any of its Subsidiaries
as reported in the W-2 prepared by the Company (other than income attributable
to the exercise of stock options). In addition, Compensation shall include, but
not be limited to, any amounts excludable from your gross income for federal
income tax purposes pursuant to Section 125 or Section 401(k) of the Internal
Revenue Code of 1986, as amended, or deferred pursuant to any Company or
Subsidiary plan or program including any matching contributions by the Company
for the fiscal year during which a Change of Control occurs, and other regular
cash compensations or reimbursements of non-business expenses, if any,
including, but not limited to, automobile allowance and gasoline reimbursement.

            (g) "Disability" means a physical or mental infirmity which
substantially impairs your ability to perform your material duties for a period
of at least one hundred eighty (180) consecutive calendar days and, as a result

                                      -3-





of such Disability, you have not returned to your full-time regular employment
or officership prior to termination.

            (h) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.

            (i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

            (j) "Just Cause" means the termination of your employment or
officership as a result of fraud, misappropriation of or intentional material
damage to the property or business of the Company (including its Subsidiaries),
or conviction of a felony.

            (k) "Person" shall have the meaning ascribed to such term in Section
3 of the Exchange Act and the rules and regulations promulgated thereunder.

            (l) "Severance Payment" means the payment of severance compensation
as provided in Article II.

            (m) "Subsidiary" means any corporation or other Person, a majority
of the voting power, equity securities or equity interest of which is owned
directly or indirectly by the Company.

                                   ARTICLE II
                               SEVERANCE PAYMENTS

            II.1        Right to Severance Payment

                        You shall be entitled to receive a Severance Payment
from the Company within five days after such Change of Control in the amount
provided in Section II.2 if there has been a Change of Control of the Company
and you are an active employee or an officer of the Company at the time of the
Change of Control. For purposes of determining whether you are an active
employee or an officer of the Company at the time of the Change of Control, you
will still be considered to be an active employee or officer if you are on sick
leave, military leave or any other leave of absence approved by the Company or
any of its Subsidiaries.

            II.2        Amount of Severance Payment and Replacement of Options

                        (a) If you become entitled to a Severance Payment under
this Agreement, you shall receive a lump sum payment equal to four (4) times one
year's Annualized Compensation including medical and other benefits.

                        (b) The Severance Payment otherwise calculated under
this Section II.2 shall be reduced by the amount of cash severance-type benefits
to which you may be entitled pursuant to any other severance plan, agreement,

                                      -4-





policy or program of the Company or any of its Subsidiaries; provided that if
the amount of cash severance benefits payable under such other severance plan,
agreement, policy or program is greater than the amount payable pursuant to this
Agreement, you will be entitled to receive the amounts payable under such other
plan, agreement, policy or program. Without limiting other payments which would
not constitute "cash severance-type benefits" hereunder, any cash settlement of
stock options, accelerated vesting of stock options and retirement, pension and
other similar benefits shall not constitute "cash severance-type benefits" for
purposes of this Section II.2(b).

                        (c) Notwithstanding any provision in the Company's
Incentive and Non-Qualified Stock Option Plan, as amended, or in this Agreement
in the event there is a Change of Control, the Company shall, at no cost to you,
replace any and all stock options granted by the Company and held by you 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
Section I.1(d) hereof, in lieu of the Option Replacement, you may elect to
surrender your rights to such options, and upon such surrender, the Company
shall pay to you 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 on which you are entitled to a Severance Payment.

            II.3        Gross-Up Payment

                        If it shall be determined that any payment or
distribution by the Company to or for the benefit of you pursuant to this
Agreement, including any payments made pursuant to Articles V and VI of this
Agreement(a "Base Payment") would be subject to the excise tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), then you shall be entitled to receive an additional payment (the
"Gross-Up Payment") in an amount such that the net amount retained by you,
reduced by any federal, state and local taxes and determined after the
calculation and deduction of any Excise Tax on the Base Payment and any federal,
state, and local taxes and Excise Tax on the Gross-Up Payment, shall be equal to
the Base Payment, reduced by any federal, state and local taxes. In determining
this amount, the amount of the Gross-Up Payment attributable to federal income
taxes shall be reduced by the maximum reduction in federal income taxes that

                                      -5-





could be obtained by the deduction of the portion of the Gross-Up Payment
attributable to state and local income taxes. Finally, the Gross-Up Payment
shall be reduced by income or excise tax withholding payments made by the
Company to any federal, state, or local taxing authority with respect to the
Gross-Up Payment that were not deducted from compensation payable to you.

                        All determinations required to be made under this
Section II.3, including whether and when a Gross-Up Payment is required, the
amount of such Gross-Up Payment, and the assumptions to be utilized in arriving
at such determination, except as specified above, shall be made by the Company's
independent auditor immediately prior to the date of the Change of Control (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and you within fifteen (15) business days after the receipt of
notice from you that there should be a Gross-Up Payment. The determination of
tax liability made by the Accounting Firm shall be subject to review by your tax
advisor, and if your tax advisor does not agree with the determination reached
by the Accounting Firm, then the Accounting Firm and your tax advisor shall
jointly designate a nationally recognized public accounting firm, which shall
make the determination. All fees and expenses of the accountants and tax
advisors retained by either you or the Company shall be borne by the Company.
Any Gross-Up Payment shall be paid by the Company to you within five (5) days
after the receipt of the determination. Any determination by a jointly
designated public accounting firm shall be binding upon the Company and you.

                        As a result of uncertainty in the application of Section
4999 of the Code at the time of the initial determination hereunder, it is
possible that Gross-Up Payments will not have been made by the Company that
should have been made consistent with the calculations required to be made
hereunder ("Underpayment"). In the event that you thereafter are required to
make a payment of any Excise Tax, any such Underpayment shall be promptly paid
by the Company to or for the benefit of you along with any Gross-Up thereon to
relieve you of 100% of the cost of any Excise Tax and other Federal, state and
local taxes on the Underpayment.

            II.4        No Duty of Mitigation

                        The Company acknowledges that it would be very difficult
and generally impracticable to determine your ability to, or the extent to which
you may, mitigate any damages or injuries you may incur by reason of the Change
of Control. The Company has taken this into account in entering into this
Agreement and, accordingly, the Company acknowledges and agrees that you shall
have no duty to mitigate any such damages and that you shall be entitled to
receive your entire Severance Payment regardless of any income which you may
receive from other sources following any Change of Control.

            II.5        Payment in the Event of Death

                        If you should die before all amounts payable to you have
been paid, such unpaid amounts shall be paid to your beneficiary under this
Agreement or, if you have not designated such a beneficiary in writing to the

                                      -6-





Company, to the personal representative(s) of your estate. For purposes of this
Section II.5, you may designate an intervivos revocable living grantor trust as
your beneficiary.

            II.6        Life and Health Insurance Coverage; Physical

                        If you are entitled to receive a Severance Payment under
Section II.1, you will also be entitled to receive the following
additional benefits:

                        (a) Life insurance coverage for you and your dependents
having a face amount at least equal to the greater of (i) the amount in effect
for you (in your case) and/or your dependents (in the case of your dependents)
on the date of the Change of Control, or (ii) the amount in effect for you (in
your case) and/or your dependents (in the case your dependents) on the date of
termination of service, such coverage to be provided under the same plan or
plans under which you (in your case) or your dependents (in the case of your
dependents) were covered immediately prior to the termination of your employment
or officership or substantially similar plan(s) established by the Company or
any of its Subsidiaries thereafter. Such life insurance coverage shall be paid
for by the Company to the same extent as if you were still employed by the
Company and you will be required to make such payments as you would be required
to make if you were still employed by the Company. This coverage will continue
for the period hereinafter provided.

                        (b) Health insurance coverage (including any dental
coverage, if any) for you and your dependents under the same plan or plans under
which you were covered immediately prior to the termination of your employment
or officership or substantially similar plan(s) established by the Company or
any of its Subsidiaries thereafter. Such health insurance coverage shall be paid
for by the Company to the same extent as if you were still employed by the
Company, and you will be required to make such payments as you would be required
to make if you were still employed by the Company. This coverage will continue
so long as after the Change of Control the Employee is employed by the Company
or the successor entity (collectively, the "Successor Entity") to the Company in
the event of a Change of Control.

                        (c) Payment for one physical examination, to be
performed by the physician of your choice.

                        (d) If after a Change of Control, the Successor Entity
has a group disability plan in force at the time the Employee's employment
terminates, the Successor Entity 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.

                        (e) Upon termination of the Employee's employment after
a Change of Control, the Successor Entity 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 Successor Entity, at the Employee's

                                      -7-





own expense, for such period as the Employee desires; provided, that Employee
shall be required to make all insurance premium contributions based upon the
Successor Entity's direct payment to the health insurance carriers. Within five
(5) days of the Change of Control, the Successor Entity shall send the Employee
a letter which details and describes the health insurance coverage generally
available to its executives as well as its agreement that the Employee has the
rights and privileges set forth in this Section II.6(e).

                        (f) The benefits provided under this Section II.6 shall
continue for a period of two (2) years following the date of termination of your
employment or such longer period as provided in any agreement relating to any of
such benefits between you and the Company; provided, however, that the benefits
for medical coverage under the provisions of Section II.6(b) shall end as of the
date you become covered under any other group health plan that you do not have
as of the date of the Change of Control and any other group health plan not
maintained by the Company or any of its Subsidiaries which provides equal or
greater benefits than such plan and which does not exclude any pre-existing
condition that you or your dependents may have at that time.

            II.7        Miscellaneous

                        If you are entitled to receive a Severance Payment under
Section II.1, and at the time of the occurrence of a Change of Control you were
the primary user of a Company or Subsidiary automobile that was provided to you
at the expense of the Company or any of its Subsidiaries, the Company will take
all action to transfer ownership of the automobile to you at no cost to you
other than any income, FICA or medicare tax due on the value thereof. If the
automobile has been leased by the Company or any of its Subsidiaries, from an
unrelated third party, the Company will, at your written request made within
thirty (30) calendar days after you become entitled to receive a Severance
Payment hereunder, promptly use its best efforts to have the applicable lease
assigned to you.

            II.8        Withholding of Taxes

                        The Company may withhold from any amounts payable under
this Agreement all federal, state, city or other taxes required by applicable
law to be withheld by the Company.

            II.9        No Setoff

                        The Company's obligation to make Severance Payments to
you pursuant to this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, but not limited
to, any setoff, counterclaim, recoupment, defense or other right which the
Company or any of its Subsidiaries may have against you or others.

                                      -8-





            II.10       Benefits Under Other Plans

                        The benefits that you may be entitled to receive
pursuant to Section II.6 of this Agreement are not intended to be duplicative of
any similar benefits to which you may be entitled from the Company or any of its
Subsidiaries under any other severance plan, agreement, policy or program
maintained by the Company or any of its Subsidiaries. Accordingly, the benefits
to which you are entitled under Section II.6 shall be reduced to take account of
any other similar benefits to which you are entitled from the Company or any of
its Subsidiaries; provided, however, that if the amount of benefits to which you
are entitled under such other severance plan, agreement, policy or program is
greater than the benefits to which you are entitled under Section II.6 of this
Agreement, you will be entitled to receive the full amount of the benefits to
which you are entitled under such other plan, agreement, policy or program.

                                   ARTICLE III
                     OTHER RIGHTS AND BENEFITS NOT AFFECTED

            III.1       Other Benefits

                        This Agreement does not provide a pension for you nor
shall any payment hereunder be characterized as deferred compensation. Except as
set forth in Sections II.2(b), II.3 and II.10, neither the provisions of this
Agreement nor the Severance Payment provided for hereunder shall reduce any
amounts otherwise payable, or in any way diminish your rights as an employee,
whether existing now or hereafter, under any benefit, incentive, retirement,
stock option, stock bonus or stock purchase plan or any employment agreement or
other plan or arrangement not related to severance. Any such other amounts or
benefits payable shall be included, as necessary, for making any of the
calculations required under Section II.3.

            III.2       Employment Status

                        This Agreement does not constitute a contract of
employment or impose on you any obligation to remain in the employ of the
Company, nor does it impose on the Company or any of its Subsidiaries any
obligation to retain you in your present or any other position, or to change the
status of your employment as an employee at will unless you have a separate
written employment agreement with the Company or its Subsidiaries. Nothing in
this Agreement shall in any way require the Company or any of its Subsidiaries
to provide you with any severance benefits prior to a Change of Control, nor
shall this Agreement ever be construed in any way as establishing any policies
or requirements of the Company or any of its Subsidiaries for the termination of
your employment or the payment of severance benefits to you if your employment
terminates prior to a Change of Control, nor shall anything in this Agreement in
any way affect the right of the Company or any of its Subsidiaries in its
absolute discretion to change prior to a Change of Control one or more benefit
plans, including but not limited to pension plans, dental plans, health care
plans, savings plans, bonus plans, vacation pay plans, disability plans, and the
like.

                                      -9-





                                   ARTICLE IV
                              SUCCESSOR TO COMPANY

                        The Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise,
to all or substantially all the business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Agreement, in the same manner and to the same extent that the Company would
be required to perform if no such succession or assignment had taken place. In
such event, the term "Company," as used in this Agreement, shall mean (from and
after, but not before, the occurrence of such event) the Company as herein
before defined and any successor or assignee to the business or assets which by
reason hereof becomes bound by the terms and provisions of this Agreement.

                                    ARTICLE V
                             LEGAL FEES AND EXPENSES

                        The Company shall pay as they become due all legal fees,
costs of litigation and other expenses incurred in good faith by you as a
result of the Company's refusal or failure to make the Severance Payment to
which you become entitled under this Agreement, as a result of the Company's
contesting the validity, enforceability or interpretation of this Agreement or
of your right to benefits hereunder. You shall be conclusively presumed to have
acted in good faith unless a court makes a final determination not otherwise
subject to appeal to the contrary.

                                   ARTICLE VI
                                   ARBITRATION

                        Except as otherwise provided in Section II.3, you shall
have the right and option (but not the obligation) to elect (in lieu of
litigation) to have any dispute or controversy arising under or in connection
with this Agreement not otherwise resolved through the claims procedure set
forth in Section II.11, including any dispute under Section II.3, settled by
arbitration, conducted before a panel of three arbitrators sitting in a location
selected by you within fifty (50) miles from the location of your job with the
Company or any of its Subsidiaries, in accordance with the rules of the American
Arbitration Association then in effect. Judgement may be entered on the award of
the arbitrator in any court having jurisdiction. All expenses of such
arbitration, including the fees and expenses of your counsel, shall be borne,
and paid as incurred, by the Company; provided that the Company shall only be
required to pay your fees and expenses if they are incurred in good faith. You
shall be conclusively presumed to have acted in good faith unless and until the
arbitrator makes a final determination to the contrary.

                                      -10-





                                   ARTICLE VII
                                  MISCELLANEOUS

            VII.1       Applicable Law

                        To the extent not preempted by the laws of the United
States and in the interest of interpreting this Agreement in a uniform manner
with other similar agreements being entered into by the Company with other of
its and its Subsidiaries' employees regardless of the jurisdiction in which you
are employed or any other factor, the laws of the State of New York shall be the
controlling law in all matters relating to this Agreement, regardless of the
choice-of-law rules of the State of New York or any other jurisdiction.

            VII.2       Construction

                        No term or provision of this Agreement shall be
construed so as to require the commission of any act contrary to law, and
wherever there is any conflict between any provision of this Agreement and any
present or future statute, law, ordinance, or regulation contrary to which the
parties have no legal right to contract, the latter shall prevail, but in such
event the affected provision of this Agreement shall be curtailed and limited
only to the extent necessary to bring such provision within the requirements of
the law.

            VII.3       Severability

                        If a provision of this Agreement shall be held illegal
or invalid, the illegality or invalidity shall not affect the remaining
parts of this Agreement and this Agreement shall be construed and enforced as if
the illegal or invalid provision had not been included.

            VII.4       Headings

                        The Section headings in this Agreement are inserted only
as a matter of convenience, and in no way define, limit, or extend or interpret
the scope of this Agreement or of any particular Section.



            VII.5       [Intentionally Omitted]

            VII.6       Assignability

                        Neither this Agreement nor any right or interest therein

shall be assignable or transferrable (whether by pledge, grant of a security
interest, or otherwise) by you, your beneficiaries or legal representatives,
except by will, by the laws of descent and distribution or intervivos revocable
living grantor trust as your beneficiaries. This Agreement shall be binding upon
and shall inure to the benefit of the Company, its successors and assigns, and
you and shall be enforceable by them and your legal personal representatives.

            VII.7       Entire Agreement

                        This Agreement constitutes the entire agreement between
the Company and you regarding the subject matter hereof and supersedes all
prior agreements, if any, understandings and arrangements, written or oral,
between the Company and you with respect to the subject matter hereof.

                                      -11-





            VII.8       Term

                        If a Change of Control has not theretofore occurred,
this Agreement shall expire and be of no further force and effect on December
1, 2005; provided that the Board of Directors of the Company may, at any time
prior to the expiration thereof, extend the term of this Agreement for a term of
up to two years, including extending the date set forth in the third line of
Section II.1(d)(ii) of the definition of "Change of Control", without any
further action on your part.

                        If a Change of Control occurs, this Agreement shall
continue and be effective until you (or the person(s) specified in Section
II.5) shall have received in full all Severance Payments and other benefits to
which you are entitled under this Agreement, at which time this Agreement shall
terminate for all purposes.

            VII.9       Amendment

                        Except as set forth in Section II.8, no provision of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by you and the
Company. No waiver by the Company or you at any time or any breach by the other
party of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or any prior or subsequent time. No
agreement or representations, written or oral, express or implied, with respect
to the subject matter hereof, have been made by either party which are not
expressly set forth in this Agreement.

            VII.10      Notices

                        For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed to the respective addresses last
given by each party to the other, provided that all notices to the Company shall
be directed to the attention of the Board of Directors with a copy to the
General Counsel. All notices and communications shall be deemed to have been
received on the date of delivery thereof or on the third business day after the
mailing thereof, except that notice of change of address shall be effective only
upon actual receipt. No objection to the method of delivery may be made if the
written notice or other communication is actually received.

            VII.11      Administration

                        The Company has entered into agreements similar to this
Agreement herein with other employees and officers of the Company or its
Subsidiaries. These agreements, taken together, constitute welfare benefit plan
within the meaning of Section 3(1) of ERISA. The Administrator of such plan,

                                      -12-



within the meaning of Section 3(16) of ERISA, and the Named Fiduciary thereof,
within the meaning of Section 402 of ERISA, is the Company.

                        If you believe you are entitled to a benefit under this
Agreement, you may make a claim for such benefit by filing with the Company
a written statement setting forth the amount and type of payment so claimed. The
statement shall also set forth the facts supporting the claim. The claim may be
filed by mailing or delivering it to the Secretary of the Company.

                        Within thirty (30) calendar days after receipt of such a
claim, the Company shall notify you in writing of its action on such claim
and if such claim is not allowed in full, shall state the following in a manner
calculated to be understood by you:

                        (a) The specific reason or reasons for the denial;

                        (b) Specific reference to pertinent provisions of this
Agreement on which the denial is based;

                        (c) A description of any additional material or
information necessary for you to be entitled to the benefits that have been
denied and an explanation of why such material or information is necessary; and

                        (d) An explanation of this Agreement's claim review
procedure.

                        If you disagree with the action taken by the Company,
you or your duly authorized representative may apply to the Company for a
review of such action. Such application shall be made within sixty (60) calendar
days after receipt by you of the notice of the Company's action on your claim.
The application for review shall be filed in the same manner as the claim for
benefits. In connection with such review, you may inspect any documents or
records pertinent to the matter and may submit issues and comments in writing to
the Company. A decision by the Company shall be communicated to you within
thirty (30) calendar days after receipt of the application. The decision on
review shall be in writing and shall include specific reasons for the decision,
written in a manner calculated to be understood by you, and specific references
to the pertinent provisions of this Agreement on which the decision is based.

                                      -13-






                        If this Agreement is acceptable to you, please sign the
enclosed copy of this Agreement in the space provided below and return it
to me.

                                   Sincerely,




                                  ----------------------------
                                  ReiJane Huai
                                  Chairman/CEO



ACCEPTED AND AGREED TO:


----------------------------
Wayne Lam

                                      -14-

                                                                    Exhibit 10.6

                           CHANGE OF CONTROL CONTRACT


FalconStor Software, Inc.
125 Baylis Road
Melville, NY 11747

                                  CONFIDENTIAL

       December 10, 2001

Jhy, Jacob, Ferng, VP/CFO

Dear Mr. Ferng:

            A. It is expected that FalconStor Software, Inc. (the "Company")
from time to time will consider the possibility of an acquisition by another
company or other change of control (as hereinafter defined). The Board of
Directors of the Company recognizes that such consideration can be a distraction
to you and can cause you to consider alternative employment opportunities. The
Board of Directors has determined that it is in the best interests of the
Company and its stockholders to assure that the Company will have your continued
dedication and objectivity, notwithstanding the possibility, threat or
occurrence of a Change of Control of the Company.

            B. The Board of Directors believes that it is in the best interests
of the Company and its stockholders to provide you with an incentive to continue
his or her employment and to motivate you to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.

            C. The Board believes that it is imperative to provide you with
certain severance benefits upon a Change of Control that provide you with
enhanced financial security and incentive and encouragement to you to remain
with the Company notwithstanding the possibility of a Change of Control.

            Therefore the Board of Directors of the Company has determined that
it is in the best interests of the Company and its stockholders to offer you the
following agreement (the "Agreement") which provides you with certain severance
payments and benefits upon a Change of Control.

                                    ARTICLE I
                                   DEFINITIONS

            I.1         Definitions








                    Whenever used in this Agreement, the following capitalized
terms shall have the meanings set forth in this Section, certain other
capitalized terms being defined elsewhere in this Agreement:

                    (a) "Annualized Compensation" means the sum of your highest
level of Compensation (exclusive of any bonus(es)) within one (1) year of the
date on which your employment terminates.

                    (b) "Beneficial Owner" shall have the meaning ascribed to
such term in Rule 13d-3 promulgated under the Exchange Act.

                    (c) "Board of Directors" means the Board of Directors of the
Company.

                    (d) "Change of Control" of the Company means and includes
any of the following:

                        (i) Any person or "Group" (as defined in Section 13(d)
of the Exchange Act), excluding for this purpose the Company or any Subsidiary
of the Company, or any employee benefit plan of the Company or any Subsidiary of
the Company, or any person or entity organized, appointed or established by the
Company for or pursuant to the terms of such plan which acquires beneficial
ownership of voting securities of the Company, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly
of securities of the Company representing thirty percent (30%) or more of the
combined voting power of the Company's then outstanding securities; provided,
however, that no Change of Control shall be deemed to have occurred as the
result of an acquisition of securities of the Company by the Company which, by
reducing the number of voting securities outstanding, increases the direct or
indirect beneficial ownership interest of any person to thirty percent (30%) or
more of the combined voting power of the Company's then outstanding securities,
but any subsequent increase in the direct or indirect beneficial ownership
interest of such a person in the Company shall be deemed a Change of Control;
and provided further that if the Board of Directors of the Company determines in
good faith that a person who has become the beneficial owner directly or
indirectly of securities of the Company representing thirty percent (30%) or
more of the combined voting power of the Company's then outstanding securities
has inadvertently reached that level of ownership interest, and if such person
divests as promptly as practicable a sufficient amount of securities of the
Company so that the person no longer has a direct or indirect beneficial
ownership in thirty percent (30%) or more of the combined voting power of the
Company's then outstanding securities, then no Change of Control shall be deemed
to have occurred;

                        (ii) Consummation of (1) an agreement for the sale,
assignment, lease conveyance or other disposition of the Company or all or
substantially all of the Company's assets, (2) a plan of merger, consolidation
or reorganization of the Company with any other corporation whether or not the
Company is the person surviving or resulting therefrom, or (3) a similar

                                      -2-





transaction or series of transactions involving the Company (any transaction
described in parts(1) through (3) of this subparagraph (ii) being referred to as
a "Transaction"), in each case unless after such a Transaction (x) the
shareholders of the Company immediately prior to the Transaction continue to
own, directly or indirectly, more than fifty percent (50%) of the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors of the new (or continued) entity
(including, but not by way of limitation, an entity which as a result of such
transaction owns the Company or all or substantially all of the Company's former
assets either directly or through one or more subsidiaries) immediately after
such Transaction, in substantially the same proportion as their ownership of the
Company immediately prior to such Transaction, (y) no person (excluding any
entity resulting from such Transaction or any employee benefit plan (or related
trust) of the Company or of such entity resulting from such Transaction)
beneficially owns, directly or indirectly, twenty percent (20%) or more of the
then combined voting power of the then outstanding voting securities of such
entity, except to the extent that such ownership existed prior to the
Transaction, and (z) at least a majority of the members of the board of
directors of the entity resulting from such Transaction were Existing Directors
at the time of the execution of the initial agreement, or of the action of the
Board, providing for such Transaction; or

                        (iii) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.

                        Any other provision of this Agreement to the contrary
notwithstanding, a "Change of Control" shall not include any transaction
described in subparagraph (i) or (ii), above, where, in connection with such
transaction, you and/or any party acting in concert with you substantially
increases your or its, as the case may be, ownership interest in the Company or
a successor to the Company.

                    (e) "Company" means FalconStor Software, Inc., a Delaware
corporation, and any successor or assignee as provided in Article IV.

                    (f) "Compensation" means and includes all of your base
salary attributable to your employment with the Company and/or any of its
Subsidiaries as reported in the W-2 prepared by the Company (other than income
attributable to the exercise of stock options). In addition, Compensation shall
include, but not be limited to, any amounts excludable from your gross income
for federal income tax purposes pursuant to Section 125 or Section 401(k) of the
Internal Revenue Code of 1986, as amended, or deferred pursuant to any Company
or Subsidiary plan or program including any matching contributions by the
Company for the fiscal year during which a Change of Control occurs, and other
regular cash compensations or reimbursements of non-business expenses, if any,
including, but not limited to, automobile allowance and gasoline reimbursement.

                    (g) "Disability" means a physical or mental infirmity which
substantially impairs your ability to perform your material duties for a period
of at least one hundred eighty (180) consecutive calendar days and, as a result

                                      -3-





of such Disability, you have not returned to your full-time regular employment
or officership prior to termination.

                    (h) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.

                    (i) "Exchange Act" means the Securities Exchange Act of
1934, as amended.

                    (j) "Just Cause" means the termination of your employment or
officership as a result of fraud, misappropriation of or intentional material
damage to the property or business of the Company (including its Subsidiaries),
or conviction of a felony.

                    (k) "Person" shall have the meaning ascribed to such term in
Section 3 of the Exchange Act and the rules and regulations promulgated
thereunder.

                    (l) "Severance Payment" means the payment of severance
compensation as provided in Article II.

                    (m) "Subsidiary" means any corporation or other Person, a
majority of the voting power, equity securities or equity interest of which is
owned directly or indirectly by the Company.

                                   ARTICLE II
                               SEVERANCE PAYMENTS

            II.1        Right to Severance Payment

                        You shall be entitled to receive a Severance Payment
from the Company within five days after such Change of Control in the amount
provided in Section II.2 if there has been a Change of Control of the Company
and you are an active employee or an officer of the Company at the time of the
Change of Control. For purposes of determining whether you are an active
employee or an officer of the Company at the time of the Change of Control, you
will still be considered to be an active employee or officer if you are on sick
leave, military leave or any other leave of absence approved by the Company or
any of its Subsidiaries.

            II.2        Amount of Severance Payment and Replacement of Options

                        (a) If you become entitled to a Severance Payment under
this Agreement, you shall receive a lump sum payment equal to four (4) times one
year's Annualized Compensation including medical and other benefits.

                        (b) The Severance Payment otherwise calculated under
this Section II.2 shall be reduced by the amount of cash severance-type benefits
to which you may be entitled pursuant to any other severance plan, agreement,

                                      -4-





policy or program of the Company or any of its Subsidiaries; provided that if
the amount of cash severance benefits payable under such other severance plan,
agreement, policy or program is greater than the amount payable pursuant to this
Agreement, you will be entitled to receive the amounts payable under such other
plan, agreement, policy or program. Without limiting other payments which would
not constitute "cash severance-type benefits" hereunder, any cash settlement of
stock options, accelerated vesting of stock options and retirement, pension and
other similar benefits shall not constitute "cash severance-type benefits" for
purposes of this Section II.2(b).

                        (c) Notwithstanding any provision in the Company's
Incentive and Non-Qualified Stock Option Plan, as amended, or in this Agreement
in the event there is a Change of Control, the Company shall, at no cost to you,
replace any and all stock options granted by the Company and held by you 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
Section I.1(d) hereof, in lieu of the Option Replacement, you may elect to
surrender your rights to such options, and upon such surrender, the Company
shall pay to you 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 on which you are entitled to a Severance Payment.

            II.3        Gross-Up Payment

                        If it shall be determined that any payment or
distribution by the Company to or for the benefit of you pursuant to this
Agreement, including any payments made pursuant to Articles V and VI of this
Agreement(a "Base Payment") would be subject to the excise tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), then you shall be entitled to receive an additional payment (the
"Gross-Up Payment") in an amount such that the net amount retained by you,
reduced by any federal, state and local taxes and determined after the
calculation and deduction of any Excise Tax on the Base Payment and any federal,
state, and local taxes and Excise Tax on the Gross-Up Payment, shall be equal to
the Base Payment, reduced by any federal, state and local taxes. In determining
this amount, the amount of the Gross-Up Payment attributable to federal income
taxes shall be reduced by the maximum reduction in federal income taxes that
could be obtained by the deduction of the portion of the Gross-Up Payment

                                      -5-





attributable to state and local income taxes. Finally, the Gross-Up Payment
shall be reduced by income or excise tax withholding payments made by the
Company to any federal, state, or local taxing authority with respect to the
Gross-Up Payment that were not deducted from compensation payable to you.

                        All determinations required to be made under this
Section II.3, including whether and when a Gross-Up Payment is required, the
amount of such Gross-Up Payment, and the assumptions to be utilized in arriving
at such determination, except as specified above, shall be made by the Company's
independent auditor immediately prior to the date of the Change of Control (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and you within fifteen (15) business days after the receipt of
notice from you that there should be a Gross-Up Payment. The determination of
tax liability made by the Accounting Firm shall be subject to review by your tax
advisor, and if your tax advisor does not agree with the determination reached
by the Accounting Firm, then the Accounting Firm and your tax advisor shall
jointly designate a nationally recognized public accounting firm, which shall
make the determination. All fees and expenses of the accountants and tax
advisors retained by either you or the Company shall be borne by the Company.
Any Gross-Up Payment shall be paid by the Company to you within five (5) days
after the receipt of the determination. Any determination by a jointly
designated public accounting firm shall be binding upon the Company and you.

                        As a result of uncertainty in the application of Section
4999 of the Code at the time of the initial determination hereunder, it is
possible that Gross-Up Payments will not have been made by the Company that
should have been made consistent with the calculations required to be made
hereunder ("Underpayment"). In the event that you thereafter are required to
make a payment of any Excise Tax, any such Underpayment shall be promptly paid
by the Company to or for the benefit of you along with any Gross-Up thereon to
relieve you of 100% of the cost of any Excise Tax and other Federal, state and
local taxes on the Underpayment.

            II.4        No Duty of Mitigation

                        The Company acknowledges that it would be very difficult
and generally impracticable to determine your ability to, or the extent to which
you may, mitigate any damages or injuries you may incur by reason of the Change
of Control. The Company has taken this into account in entering into this
Agreement and, accordingly, the Company acknowledges and agrees that you shall
have no duty to mitigate any such damages and that you shall be entitled to
receive your entire Severance Payment regardless of any income which you may
receive from other sources following any Change of Control.

            II.5        Payment in the Event of Death

                        If you should die before all amounts payable to you have
been paid, such unpaid amounts shall be paid to your beneficiary under this
Agreement or, if you have not designated such a beneficiary in writing to the

                                      -6-





Company, to the personal representative(s) of your estate. For purposes of this
Section II.5, you may designate an intervivos revocable living grantor trust as
your beneficiary.

            II.6        Life and Health Insurance Coverage; Physical

                        If you are entitled to receive a Severance Payment under
Section II.1, you will also be entitled to receive the following
additional benefits:

                        (a) Life insurance coverage for you and your dependents
having a face amount at least equal to the greater of (i) the amount in effect
for you (in your case) and/or your dependents (in the case of your dependents)
on the date of the Change of Control, or (ii) the amount in effect for you (in
your case) and/or your dependents (in the case your dependents) on the date of
termination of service, such coverage to be provided under the same plan or
plans under which you (in your case) or your dependents (in the case of your
dependents) were covered immediately prior to the termination of your employment
or officership or substantially similar plan(s) established by the Company or
any of its Subsidiaries thereafter. Such life insurance coverage shall be paid
for by the Company to the same extent as if you were still employed by the
Company and you will be required to make such payments as you would be required
to make if you were still employed by the Company. This coverage will continue
for the period hereinafter provided.

                        (b) Health insurance coverage (including any dental
coverage, if any) for you and your dependents under the same plan or plans under
which you were covered immediately prior to the termination of your employment
or officership or substantially similar plan(s) established by the Company or
any of its Subsidiaries thereafter. Such health insurance coverage shall be paid
for by the Company to the same extent as if you were still employed by the
Company, and you will be required to make such payments as you would be required
to make if you were still employed by the Company. This coverage will continue
so long as after the Change of Control the Employee is employed by the Company
or the successor entity (collectively, the "Successor Entity") to the Company in
the event of a Change of Control.

                        (c) Payment for one physical examination, to be
performed by the physician of your choice.

                        (d) If after a Change of Control, the Successor Entity
has a group disability plan in force at the time the Employee's employment
terminates, the Successor Entity 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.

                        (e) Upon termination of the Employee's employment after
a Change of Control, the Successor Entity 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 Successor Entity, at the Employee's

                                      -7-





own expense, for such period as the Employee desires; provided, that Employee
shall be required to make all insurance premium contributions based upon the
Successor Entity's direct payment to the health insurance carriers. Within five
(5) days of the Change of Control, the Successor Entity shall send the Employee
a letter which details and describes the health insurance coverage generally
available to its executives as well as its agreement that the Employee has the
rights and privileges set forth in this Section II.6(e).

                        (f) The benefits provided under this Section II.6 shall
continue for a period of two (2) years following the date of termination of your
employment or such longer period as provided in any agreement relating to any of
such benefits between you and the Company; provided, however, that the benefits
for medical coverage under the provisions of Section II.6(b) shall end as of the
date you become covered under any other group health plan that you do not have
as of the date of the Change of Control and any other group health plan not
maintained by the Company or any of its Subsidiaries which provides equal or
greater benefits than such plan and which does not exclude any pre-existing
condition that you or your dependents may have at that time.

            II.7        Miscellaneous

                        If you are entitled to receive a Severance Payment under
Section II.1, and at the time of the occurrence of a Change of Control you were
the primary user of a Company or Subsidiary automobile that was provided to you
at the expense of the Company or any of its Subsidiaries, the Company will take
all action to transfer ownership of the automobile to you at no cost to you
other than any income, FICA or medicare tax due on the value thereof. If the
automobile has been leased by the Company or any of its Subsidiaries, from an
unrelated third party, the Company will, at your written request made within
thirty (30) calendar days after you become entitled to receive a Severance
Payment hereunder, promptly use its best efforts to have the applicable lease
assigned to you.

            II.8        Withholding of Taxes

                        The Company may withhold from any amounts payable under
this Agreement all federal, state, city or other taxes required by applicable
law to be withheld by the Company.

            II.9        No Setoff

                        The Company's obligation to make Severance Payments to
you pursuant to this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, but not limited
to, any setoff, counterclaim, recoupment, defense or other right which the
Company or any of its Subsidiaries may have against you or others.

                                      -8-





            II.10       Benefits Under Other Plans

                        The benefits that you may be entitled to receive
pursuant to Section II.6 of this Agreement are not intended to be duplicative of
any similar benefits to which you may be entitled from the Company or any of its
Subsidiaries under any other severance plan, agreement, policy or program
maintained by the Company or any of its Subsidiaries. Accordingly, the benefits
to which you are entitled under Section II.6 shall be reduced to take account of
any other similar benefits to which you are entitled from the Company or any of
its Subsidiaries; provided, however, that if the amount of benefits to which you
are entitled under such other severance plan, agreement, policy or program is
greater than the benefits to which you are entitled under Section II.6 of this
Agreement, you will be entitled to receive the full amount of the benefits to
which you are entitled under such other plan, agreement, policy or program.

                                   ARTICLE III
                     OTHER RIGHTS AND BENEFITS NOT AFFECTED

            III.1       Other Benefits

                        This Agreement does not provide a pension for you nor
shall any payment hereunder be characterized as deferred compensation. Except as
set forth in Sections II.2(b), II.3 and II.10, neither the provisions of this
Agreement nor the Severance Payment provided for hereunder shall reduce any
amounts otherwise payable, or in any way diminish your rights as an employee,
whether existing now or hereafter, under any benefit, incentive, retirement,
stock option, stock bonus or stock purchase plan or any employment agreement or
other plan or arrangement not related to severance. Any such other amounts or
benefits payable shall be included, as necessary, for making any of the
calculations required under Section II.3.

            III.2       Employment Status

                        This Agreement does not constitute a contract of
employment or impose on you any obligation to remain in the employ of the
Company, nor does it impose on the Company or any of its Subsidiaries any
obligation to retain you in your present or any other position, or to change the
status of your employment as an employee at will unless you have a separate
written employment agreement with the Company or its Subsidiaries. Nothing in
this Agreement shall in any way require the Company or any of its Subsidiaries
to provide you with any severance benefits prior to a Change of Control, nor
shall this Agreement ever be construed in any way as establishing any policies
or requirements of the Company or any of its Subsidiaries for the termination of
your employment or the payment of severance benefits to you if your employment
terminates prior to a Change of Control, nor shall anything in this Agreement in
any way affect the right of the Company or any of its Subsidiaries in its
absolute discretion to change prior to a Change of Control one or more benefit
plans, including but not limited to pension plans, dental plans, health care
plans, savings plans, bonus plans, vacation pay plans, disability plans, and the
like.

                                      -9-





                                   ARTICLE IV
                              SUCCESSOR TO COMPANY

                        The Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise,
to all or substantially all the business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Agreement, in the same manner and to the same extent that the Company would
be required to perform if no such succession or assignment had taken place. In
such event, the term "Company," as used in this Agreement, shall mean (from and
after, but not before, the occurrence of such event) the Company as herein
before defined and any successor or assignee to the business or assets which by
reason hereof becomes bound by the terms and provisions of this Agreement.

                                    ARTICLE V
                             LEGAL FEES AND EXPENSES

                        The Company shall pay as they become due all legal fees,
costs of litigation and other expenses incurred in good faith by you as a
result of the Company's refusal or failure to make the Severance Payment to
which you become entitled under this Agreement, as a result of the Company's
contesting the validity, enforceability or interpretation of this Agreement or
of your right to benefits hereunder. You shall be conclusively presumed to have
acted in good faith unless a court makes a final determination not otherwise
subject to appeal to the contrary.

                                   ARTICLE VI
                                   ARBITRATION

                        Except as otherwise provided in Section II.3, you shall
have the right and option (but not the obligation) to elect (in lieu of
litigation) to have any dispute or controversy arising under or in connection
with this Agreement not otherwise resolved through the claims procedure set
forth in Section II.11, including any dispute under Section II.3, settled by
arbitration, conducted before a panel of three arbitrators sitting in a location
selected by you within fifty (50) miles from the location of your job with the
Company or any of its Subsidiaries, in accordance with the rules of the American
Arbitration Association then in effect. Judgement may be entered on the award of
the arbitrator in any court having jurisdiction. All expenses of such
arbitration, including the fees and expenses of your counsel, shall be borne,
and paid as incurred, by the Company; provided that the Company shall only be
required to pay your fees and expenses if they are incurred in good faith. You
shall be conclusively presumed to have acted in good faith unless and until the
arbitrator makes a final determination to the contrary.

                                      -10-





                                   ARTICLE VII
                                  MISCELLANEOUS

            VII.1       Applicable Law

                        To the extent not preempted by the laws of the United
States and in the interest of interpreting this Agreement in a uniform manner
with other similar agreements being entered into by the Company with other of
its and its Subsidiaries' employees regardless of the jurisdiction in which you
are employed or any other factor, the laws of the State of New York shall be the
controlling law in all matters relating to this Agreement, regardless of the
choice-of-law rules of the State of New York or any other jurisdiction.

            VII.2       Construction

                        No term or provision of this Agreement shall be
construed so as to require the commission of any act contrary to law, and
wherever there is any conflict between any provision of this Agreement and any
present or future statute, law, ordinance, or regulation contrary to which the
parties have no legal right to contract, the latter shall prevail, but in such
event the affected provision of this Agreement shall be curtailed and limited
only to the extent necessary to bring such provision within the requirements of
the law.

            VII.3       Severability

                        If a provision of this Agreement shall be held illegal
or invalid, the illegality or invalidity shall not affect the remaining
parts of this Agreement and this Agreement shall be construed and enforced as if
the illegal or invalid provision had not been included.

            VII.4       Headings

                        The Section headings in this Agreement are inserted only
as a matter of convenience, and in no way define, limit, or extend or
interpret the scope of this Agreement or of any particular Section.



            VII.5       [Intentionally Omitted]

            VII.6       Assignability

                        Neither this Agreement nor any right or interest therein

shall be assignable or transferrable (whether by pledge, grant of a security
interest, or otherwise) by you, your beneficiaries or legal representatives,
except by will, by the laws of descent and distribution or intervivos revocable
living grantor trust as your beneficiaries. This Agreement shall be binding upon
and shall inure to the benefit of the Company, its successors and assigns, and
you and shall be enforceable by them and your legal personal representatives.

            VII.7       Entire Agreement

                        This Agreement constitutes the entire agreement between
the Company and you regarding the subject matter hereof and supersedes all
prior agreements, if any, understandings and arrangements, written or oral,
between the Company and you with respect to the subject matter hereof.

                                      -11-





            VII.8       Term

                        If a Change of Control has not theretofore occurred,
this Agreement shall expire and be of no further force and effect on December
1, 2005; provided that the Board of Directors of the Company may, at any time
prior to the expiration thereof, extend the term of this Agreement for a term of
up to two years, including extending the date set forth in the third line of
Section II.1(d)(ii) of the definition of "Change of Control", without any
further action on your part.

                        If a Change of Control occurs, this Agreement shall
continue and be effective until you (or the person(s) specified in Section
II.5) shall have received in full all Severance Payments and other benefits to
which you are entitled under this Agreement, at which time this Agreement shall
terminate for all purposes.

            VII.9       Amendment

                        Except as set forth in Section II.8, no provision of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by you and the
Company. No waiver by the Company or you at any time or any breach by the other
party of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or any prior or subsequent time. No
agreement or representations, written or oral, express or implied, with respect
to the subject matter hereof, have been made by either party which are not
expressly set forth in this Agreement.

            VII.10      Notices

                        For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed to the respective addresses last
given by each party to the other, provided that all notices to the Company shall
be directed to the attention of the Board of Directors with a copy to the
General Counsel. All notices and communications shall be deemed to have been
received on the date of delivery thereof or on the third business day after the
mailing thereof, except that notice of change of address shall be effective only
upon actual receipt. No objection to the method of delivery may be made if the
written notice or other communication is actually received.

            VII.11      Administration

                        The Company has entered into agreements similar to this
Agreement herein with other employees and officers of the Company or its
Subsidiaries. These agreements, taken together, constitute welfare benefit plan
within the meaning of Section 3(1) of ERISA. The Administrator of such plan,

                                      -12-



within the meaning of Section 3(16) of ERISA, and the Named Fiduciary thereof,
within the meaning of Section 402 of ERISA, is the Company.

                        If you believe you are entitled to a benefit under this
Agreement, you may make a claim for such benefit by filing with the Company
a written statement setting forth the amount and type of payment so claimed. The
statement shall also set forth the facts supporting the claim. The claim may be
filed by mailing or delivering it to the Secretary of the Company.

                        Within thirty (30) calendar days after receipt of such a
claim, the Company shall notify you in writing of its action on such claim
and if such claim is not allowed in full, shall state the following in a manner
calculated to be understood by you:

                        (a) The specific reason or reasons for the denial;

                        (b) Specific reference to pertinent provisions of this
Agreement on which the denial is based;

                        (c) A description of any additional material or
information necessary for you to be entitled to the benefits that have been
denied and an explanation of why such material or information is necessary; and

                        (d) An explanation of this Agreement's claim review
procedure.

                        If you disagree with the action taken by the Company,
you or your duly authorized representative may apply to the Company for a
review of such action. Such application shall be made within sixty (60) calendar
days after receipt by you of the notice of the Company's action on your claim.
The application for review shall be filed in the same manner as the claim for
benefits. In connection with such review, you may inspect any documents or
records pertinent to the matter and may submit issues and comments in writing to
the Company. A decision by the Company shall be communicated to you within
thirty (30) calendar days after receipt of the application. The decision on
review shall be in writing and shall include specific reasons for the decision,
written in a manner calculated to be understood by you, and specific references
to the pertinent provisions of this Agreement on which the decision is based.

                                      -13-







                        If this Agreement is acceptable to you, please sign the
enclosed copy of this Agreement in the space provided below and return it
to me.

                                   Sincerely,




                                  ----------------------------
                                  ReiJane Huai
                                  Chairman/CEO



ACCEPTED AND AGREED TO:


----------------------------
Jhy, Jacob, Ferng

                                      -14-