sec document
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001.
OR
/ / TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-23970
FALCONSTOR SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0216135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 Baylis Road 11747
Melville, New York (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: 631-777-5188
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
Aggregate market value of Common Stock held by non-affiliates of the
Registrant as of April 24, 2002 was $127,798,764, which value, solely for the
purposes of this calculation excludes shares held by Registrant's officers,
directors, 5% shareholders and their affiliates. Such exclusion should not be
deemed a determination by Registrant that all such individuals are, in fact,
affiliates of the Registrant. The number of shares of Common Stock issued and
outstanding as of April 24, 2002 was 45,433,794 and 45,243,794, respectively.
Documents Incorporated by Reference:
None.
Item 10. Directors and Executive Officers of the Registrant
The following table contains the names, positions and ages of the
directors and executive officers of FalconStor Software, Inc. (the "Company"):
Name Position Age
---- -------- ---
ReiJane Huai Chairman of the Board, President and Chief Executive Officer 43
Lawrence S. Dolin Director 58
Steven H. Owings Director 48
Steven R. Fischer Director 56
Jacob Ferng, CPA Chief Financial Officer, Treasurer, Corporate Secretary and Vice President 40
Wayne Lam Vice President, Marketing 38
ReiJane Huai has served as President and Chief Executive Officer of the Company
and its predecessor since December 2000 and has served as Chairman of the Board
of the Company since August 2001. Mr. Huai also served as a director of the
Company's predecessor from July 2000 to August 2001. Mr. Huai came to the
Company with a career in software development and management. As executive vice
president and general manager, Asia, for Computer Associates International,
Inc., he was responsible for sales, marketing and the development of strategic
joint ventures in the region. Mr. Huai joined Computer Associates in 1996 with
its acquisition of Cheyenne Software, Inc., where he was president and chief
executive officer. Mr. Huai joined Cheyenne Software, Inc. in 1985 as manager of
research and development of ARCserve, the industry's first storage management
solution for the client/server environment. Mr. Huai received a master's degree
in computer science from the State University of New York at Stony Brook in
1985. Mr. Huai's term as Chairman of the Board of Directors expires in 2004.
Lawrence S. Dolin has held several positions with Noteworthy Medical Systems,
Inc., a provider of computerized patient record software, since July 1998. He is
currently serving as Noteworthy's chairman, president and chief executive
officer. Since January 1996, Mr. Dolin has been a general partner of Mordo
Partners, an investment management partnership. Since 1981, Mr. Dolin has served
as a director of Morgan's Foods, Inc., which owns through wholly-owned
subsidiaries KFC restaurants, Taco Bell restaurants and Pizza Hut restaurants.
Mr. Dolin holds a B.A. from Case Western Reserve University and a J.D. from Case
Western Reserve University. Mr. Dolin's term as director of the Company expires
in 2004. Mr. Dolin has been a director of the Company since August 2001.
Steven H. Owings served as the chief executive officer of ScanSource, Inc., a
value-added distributor of POS and bar code products, from 1992 to early 2000.
He has served as chairman of the board of directors of ScanSource, Inc. since
its inception in December 1992. From 1991 to 1992, Mr. Owings served as chairman
of the board of directors, chief executive officer and the sole shareholder of
Argent Technologies, Inc., a personal computer manufacturer. From 1983 to 1991
he held various positions with Gates/FA Distributing, Inc., and its
predecessors, a computer distribution company, including serving as president,
chief executive officer and chairman of the board of directors. From December
1987 to September 1994, Mr. Owings served as a director of Gates. From July 1996
to April 1997, he served as a director of Globelle Corporation, an international
distributor of personal computer products. He holds a B.A. from Clemson
University. Mr. Owings' term as director of the Company expires in 2003. Mr.
Owings has been a director of the Company since August 2001.
Steven R. Fischer has held multiple positions with Transamerica Business Capital
Corporation, which specializes in secured lending for mergers, acquisitions and
restructurings, since 1992. He is currently serving as Transamerica's President.
From 1981 to 1992, he served as vice president and regional manager of Citibank,
N.A. Since 1995, he has served as a director of ScanSource, Inc., a value-added
distributor of POS and bar code products. He holds a B.S. in Economics and
Accounting from Queens College and an M.B.A. from Baruch College. Mr. Fischer
has been a director of the Company since August 2001.
Jacob Ferng has served as chief financial officer and vice president of the
Company and its predecessor entity since August 2000. Mr. Ferng has more than 10
years of experience handling corporate finance, worldwide software
production and product distribution for publicly held companies, various private
corporations and a public accounting firm. Mr. Ferng was vice president of
finance and production worldwide for Computer Associates from 1996 to April
2000. He also served as corporate controller and vice president of finance and
operations of Cheyenne Software from 1991 to 1996. From 1988 to 1990, he was an
accountant for General Aerospace, Bell Associates, CPAs. He has a master's
degree in Accounting/Taxation from Long Island University, C.W. Post. Currently,
he is a certified public accountant in the state of New York.
Wayne Lam has served as vice president of marketing of the Company and its
predecessor entity since April 2000. Mr. Lam has more than 15 years of software
development and corporate management experience. As vice president at Computer
Associates, he held various roles in product marketing, business development and
product development. Mr. Lam joined Computer Associates in 1996 with its
acquisition of Cheyenne Software, where he held various positions including
general manager of Cheyenne Software Netware Division, director of business
development, and head of Cheyenne Communications, a business development unit
focusing on communication software. From 1989 to 1993 he was co-founder and
chief executive officer of Applied Programming Technologies, where he managed
all aspects of its operations and development projects. From 1987 to 1989 he was
vice president of engineering at Advanced Graphic Applications, where he managed
the development of PC-based document management systems and optical storage
device drivers. Mr. Lam has a B.E. in Electrical Engineering from Cooper Union,
where he was involved with a privately funded research project studying the
feasibility of building paperless offices using optical storage devices. The
success of the project led to the formation of Advanced Graphic Applications.
Item 11. Executive Compensation
Summary Compensation Table. The following table sets forth, for the
fiscal years indicated, all compensation awarded to, paid to or earned by the
Company's chief executive officer and the Company's other executive officers
(collectively, the "Named Executive Officers"). Please note that as described
under "Certain Relationships and Related Transactions," FalconStor, Inc. was the
accounting acquiror in the merger between Network Peripherals Inc. and
FalconStor, Inc. and the transaction was accounted for as a recapitalization of
FalconStor, Inc. Accordingly, the executive compensation provided below reflects
the executive compensation information of the Company from the inception of
FalconStor, Inc. on February 10, 2000 through December 31, 2001. However, under
Item 402 of Regulation S-K, the Company is also required to disclose
compensation information for James Regel, the former President and Chief
Executive Officer of Network Peripherals Inc. since he held such position during
the fiscal year ended December 31, 2001. The compensation information for Mr.
Regel reflects compensation from Network Peripherals Inc.
Summary Compensation Table
Long Term
Annual Compensation Compensation
---------------------------------- --------------------------------------------- -------------
Name and Principal Position Other Annual Securities All Other
Salary Bonus Compensation Underlying Compensation
Year ($) ($)(1) ($)(2) Options (#) ($)(3)
------------- ----------- ----------- ------------- ------------ -------------
ReiJane Huai 2001 $170,833 -- $ 8,000 -- $239,924
Chairman and Chief 2000 -- -- -- -- --
Executive Officer
Jacob Ferng 2001 $ 95,833 $ 20,000 -- -- --
Chief Financial Officer 2000 $ 20,833 -- -- 288,743 --
and Vice President
Wayne Lam 2001 $ 96,667 $ 10,000 -- -- --
Vice President-Marketing 2000 $ 41,154 -- -- 288,743 --
James Regel (4) 2001 $350,000 -- -- 125,000 --
Former President and Chief 2000 $145,833 -- -- 375,000 --
Executive Officer of Network
Peripherals Inc.
(1) Bonuses of $20,000 and $10,000 for Mr. Ferng and Mr. Lam, respectively
were paid in 2002 for services rendered in 2001.
(2) Mr. Huai was given an automobile allowance of $8,000 in 2001.
(3) Mr. Huai was reimbursed $239,924 in June 2001 for the payment of
Hart-Scott-Rodino filing fees as well as all taxes that were due as a
result of this reimbursement. The filing fees were incurred in connection
with FalconStor's merger with Network Peripherals Inc.
(4) Mr. Regel joined Network Peripherals Inc. in 2000.
(5) Mr. Regel will also receive an additional $233,000 in 2002 related to his
severance agreement plus an amount equal to $1,000,000 minus the value of
his in-the-money options on August 22, 2002.
Option Grants During 2001 Fiscal Year
The following table provides information related to options to
purchase Common Stock granted to James Regel during 2001. The Company currently
does not have any plans providing for the grant of stock appreciation rights.
Potential Realizable
Value at Assumed
Rates of Stock Price
Appreciation for
Individual Grants Option Term(2)
------------------------------------------------------------------------------------------------------------------------------------
% of Total
Number of Options
Securities Granted to Exercise Price
Underlying Employees in Base Price
Name Option(#) Fiscal Year ($/Sh)(1) Expiration Date 5% 10%
------------------------------------------------------------------------------------------------------------------------------------
James Regel 125,000 5% $7.625 January 26, 2001 $599,415 $1,519,036
(1) The option exercise price may be paid in shares of Common Stock owned by the
executive, in cash, or a combination of any of the foregoing. The exercise price
is equal to or greater than the fair market value of the Common Stock on the
date of grant.
(2) The potential realizable value portion of the foregoing table illustrates
values that might be realized upon exercise of the options immediately prior to
the expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options. These
numbers do not take into account provisions of certain options providing for
termination of the option following termination of employment,
non-transferability or differences in vesting periods. Regardless of the
theoretical value of an option, its ultimate value will depend upon the market
value of the Common Stock at a future date, and that value will depend on a
variety of factors, including the overall condition of the stock market and the
Company's results of operations and financial condition. There can be no
assurance that the values reflected in this table will be achieved.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
No options were exercised by any Named Executive Officer during the
fiscal year ended December 31, 2001. The following table sets forth certain
information concerning unexercised stock options held by the Named Executive
Officers as of December 31, 2001.
Number of Securities Underlying Value of Unexercised In-the-
Unexercised Options at 2001 Fiscal Money Options at 2001 Fiscal
Year-End (#) Year-End ($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------------- -------------------------
ReiJane Huai............... 0/0 0/0
Jacob Ferng................ 95,285/193,458 $830,284/$1,685,735
Wayne Lam.................. 95,285/193,458 $830,284/$1,685,735
James Regel................ 500,000/0 $179,315/0
-------------------
(1) On December 31, 2001, the last reported sales price of the Common
Stock as reported on The Nasdaq National Market was $9.06.
Employment Agreements
The Company has entered into an employment agreement with ReiJane
Huai dated as of September 2001, providing for the employment of such individual
as Chairman, President and Chief Executive Officer. The employment agreement
provides that Mr. Huai shall devote substantially all of his professional time
to the business of the Company. The employment agreement provides a base salary
in the amount of $150,000, subject to an increase of $15,000 per annum, provided
that the Company's earnings were higher than the previous year, as certified by
either the Company's Chief Financial Offer or its independent auditors and such
other increases as determined by the Board of Directors. The agreement contains
non-competition, confidentiality and non-solicitation provisions that apply for
twenty-four months after cessation of employment.
Severance Agreements
The Company has entered into Change of Control Contracts with each
of ReiJane Huai, Wayne Lam and Jacob Ferng dated as of December 2001 that
provide for severance pay and incidental benefits if there is a change in
control of the Company (as defined in the Change of Control Contracts). The
payment is a lump sum payment equal to 4.0 times one year's annual compensation.
The agreements also provide such individuals with the right to replace all stock
options whether vested or not with fully vested stock options, or alternatively
the right to receive a cash payment for surrendering the options equal to the
difference between the full exercise price of each option surrendered and the
greater of the price per share paid by the acquirer in the change of control
transaction or the market price of the Company's Common Stock on the date of the
change of control. Finally, the agreements provide that if any excise taxes are
imposed on Messrs. Huai, Lam and Ferng by Section 4999 of the Internal Revenue
Code of 1986, as amended, the Company will make them whole.
Report on Repricing of Options. None of the stock options granted
under any of the Company's plans were repriced in the fiscal year ended 2001.
Compensation Committee Interlock and Insider Participation. Messrs.
ReiJane Huai, Lawrence S. Dolin and Steven R. Fischer served as members of the
Compensation Committee of the Board of Directors during the fiscal year ended
December 31, 2001. For information relating to transactions involving the
Company and such individuals, please see "Certain Relationships and Related
Transactions."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information concerning ownership of
the Common Stock of FalconStor Software Inc. outstanding at March 20, 2002, by
(i) each person known by the Company to be the beneficial owner of more than
five percent of its Common Stock, (ii) each director, (iii) each of the
executive officers named in the summary compensation table and (iv) by all
directors and executive officers of the Company as a group.
Shares Beneficially Percentage
Name and Address of Beneficial Owner (1) Owned of Class (2)
----------------------------------------- ----- ------------
ReiJane Huai (3) 10,824,260 23.9%
c/o FalconStor Software, Inc.
125 Baylis Road
Melville, NY 11747
Barry Rubenstein (4) 6,955,053 15.4%
68 Wheatley Road
Brookville, NY 11545
Irwin Lieber (5) 4,602,689 10.2%
80 Cuttermill Road Suite 311
Great Neck, NY 11021
Barry Fingerhut (6) 3,000,164 6.6%
767 Fifth Avenue, 45th Floor
New York, NY 10153
Seth Lieber (7) 3,014,474 6.7%
200 East 72 Street, PH N
New York, NY 10021
Jonathan Lieber (8) 2,927,852 6.5%
271 Hamilton Road
Chappaqua, NY 10514
Marilyn Rubenstein (9) 2,482,424 5.5%
c/o Barry Rubenstein
68 Wheatley Road
Brookville, NY 11545
Eli Oxenhorn (10) 3,353,702 7.4%
56 The Intervale
Roslyn Estates, NY 11576
Lawrence S. Dolin (11) 40,000 *
Steven R. Fischer 2,500 *
Steven H. Owings 58,030 *
Jacob Ferng (12) 190,570 *
Wayne Lam (13) 177,432 *
All Directors and Executive Officers as a Group (14)
(6 persons) 11,292,792 24.8%
*Less than one percent
(1) A person is deemed to be the beneficial owner of voting securities
that can be acquired by such person within 60 days after the date
hereof upon the exercise of options, warrants or convertible
securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible
securities that are held by such person (but not those held by any
other person) and that are currently exercisable (i.e., that are
exercisable within 60 days from March 20, 2002) have been exercised.
Unless otherwise noted, we believe that all persons named in the
table have sole voting and investment power with respect to all
shares beneficially owned by them.
(2) Based upon shares of Common Stock outstanding as of March 20, 2002
of 45,240,294.
(3) Based upon information contained in a Form 3 and Schedule 13D filed
by Mr. Huai and certain other information.
(4) Based upon information contained in a report on a Schedule 13D, as
amended (the "Wheatley 13D") filed jointly by Barry Rubenstein,
Brookwood Partners, L.P. ("Brookwood"), Seneca Ventures ("Seneca"),
Wheatley Associates III, L.P. ("Wheatley Associates"), Wheatley
Foreign Partners, L.P. ("Wheatley Foreign"), Wheatley Foreign
Partners III, L.P. ("Wheatley Foreign III"), Wheatley Partners, L.P.
("Wheatley"), Wheatley Partners II, L.P. ("Wheatley II"), Wheatley
Partners III, L.P. ("Wheatley III"), Woodland Partners, Woodland
Venture Fund ("Woodland Fund"), and certain other entities with the
Securities and Exchange Commission ("SEC"), and a Form 3 filed by
Mr. Rubenstein with the SEC as well as certain other information.
Consists of (i) 1,812,903 shares of Common Stock held by Mr.
Rubenstein, (ii) 395,217 shares of common stock held by Brookwood,
(iii) 642,453 shares of common stock held by Seneca, (iv) 299,809
shares of common stock held by Wheatley Associates, (v) 41,008
shares of common stock held by Wheatley Foreign, (vi) 293,012 shares
of common stock held by Wheatley Foreign III, (vii) 484,051 shares
of common stock held by Wheatley, (viii) 180,089 shares of common
stock held by Wheatley II, (ix) 1,370,015 shares of common stock
held by Wheatley III, (x) 692,983 shares of common stock held by
Woodland Partners and (xi) 743,513 shares of common stock held by
Woodland Fund. Does not include 8,258 shares of common stock held by
Mr. Rubenstein's spouse, Marilyn Rubenstein. Mr. Rubenstein
disclaims beneficial ownership of the securities held by Wheatley,
Wheatley Foreign, Wheatley II, Wheatley III, Wheatley Foreign III,
Wheatley Associates, Seneca, Woodland Fund, Woodland Partners and
Brookwood, except to the extent of his respective equity interest
therein.
(5) Based upon information contained in the Wheatley 13D and certain
other information. Consists of (i) 1,934,705 shares of Common Stock
held by Irwin Lieber, (ii) 484,051 shares of Common Stock held by
Wheatley, (iii) 41,008 shares of Common Stock held by Wheatley
Foreign, (iv) 180,089 shares of Common Stock held by Wheatley II,
(v) 1,370,015 shares of Common Stock held by Wheatley III, (vi)
293,012 shares of Common Stock held by Wheatley Foreign III, and
(vii) 299,809 shares of Common Stock held by Wheatley Associates.
Mr. Lieber disclaims beneficial ownership of the securities held by
Wheatley, Wheatley Foreign, Wheatley II, Wheatley III, Wheatley
Foreign III and Wheatley Associates, except to the extent of his
respective equity interests therein.
(6) Based upon information contained in the Wheatley 13D and certain
other information. Consists of (i) 322,180 shares of Common Stock
held by Barry Fingerhut, (ii) 484,051 shares of Common Stock held by
Wheatley, (iii) 41,008 shares of Common Stock held by Wheatley
Foreign, (iv) 180,089 shares of Common Stock held by Wheatley II,
(v) 1,370,015 shares of Common Stock held by Wheatley III, (vi)
293,012 shares of Common Stock held by Wheatley Foreign III, and
(vii) 299,809 shares of Common Stock held by Wheatley Associates.
Mr. Fingerhut disclaims beneficial ownership of the securities held
by Wheatley, Wheatley Foreign, Wheatley II, Wheatley III, Wheatley
Foreign III and Wheatley Associates, except to the extent of his
respective equity interests therein.
(7) Based upon information contained in the Wheatley 13D and certain
other information. Consists of (i) 86,622 shares of Common Stock
held by
Seth Lieber, (ii) 484,051 shares of Common Stock held by Wheatley,
(iii) 41,008 shares of Common Stock held by Wheatley Foreign, (iv)
180,089 shares of Common Stock held by Wheatley II, (v) 1,370,015
shares of Common Stock held by Wheatley III, (vi) 293,012 shares of
Common Stock held by Wheatley Foreign III, (vii) 299,809 shares of
Common Stock held by Wheatley Associates and (viii) 259,868 shares
of Common Stock held by Applegreen. Mr. Lieber disclaims beneficial
ownership of the securities held by Wheatley, Wheatley Foreign,
Wheatley II, Wheatley III, Wheatley Foreign III, Wheatley Associates
and Applegreen, except to the extent of his respective equity
interests therein.
(8) Based upon information contained in the Wheatley 13D and certain
other information. Consists of (i) 484,051 shares of Common Stock
held by Wheatley, (ii) 41,008 shares of Common Stock held by
Wheatley Foreign, (iii) 180,089 shares of Common Stock held by
Wheatley II, (iv) 1,370,015 shares of Common Stock held by Wheatley
III, (v) 293,012 shares of Common Stock held by Wheatley Foreign
III, (vi) 299,809 shares of Common Stock held by Wheatley Associates
and (vii) 259,868 shares of Common Stock held by Applegreen
Partners. Mr. Lieber disclaims beneficial ownership of the
securities held by Wheatley, Wheatley Foreign, Wheatley II, Wheatley
III, Wheatley Foreign III, Wheatley Associates and Applegreen,
except to the extent of his respective equity interests therein.
(9) Based upon information contained in the Wheatley 13D and certain
other information. Consists of (i) 8,258 shares of Common Stock held
by Marilyn Rubenstein, (ii) 642,453 shares of Common Stock held by
Seneca, (iii) 743,513 shares of Common Stock held by Woodland Fund,
(iv) 692,983 shares of Common Stock held by Woodland Partners and
(v) 395,217 shares of Common Stock held by Brookwood. Mrs.
Rubenstein disclaims beneficial ownership of the securities held by
Seneca, Woodland Fund, Woodland Partners and Brookwood, except to
the extent of her respective equity interests therein. Does not
include 1,812,903 shares of Common Stock held by Mrs. Rubenstein's
spouse, Barry Rubenstein.
(10) Based upon information contained in a report on a Schedule 13G filed
jointly by Eli Oxenhorn and the Eli Oxenhorn Family Limited
Partnership (the "EOFLP"). Consists of (i) 2,898,932 shares of
common stock held by Mr. Oxenhorn (including 3,500 shares held by
the Eli Oxenhorn SEP IRA account and 8,000 shares held by the Eli
Oxenhorn Rollover IRA Account) and (ii) 454,770 shares of common
stock held by the EOFLP. Mr. Oxenhorn disclaims beneficial ownership
of the securities held by the EOFLP, except to the extent of his
respective equity interests therein.
(11) Includes 40,000 shares held by Northern Union Club. Mr. Dolin is a
general partner of Mordo Partners, which is a general partner of
Northern Union Club. Mr. Dolin disclaims beneficial ownership of the
securities held by Northern Union Club, except to the extent of his
respective equity interests therein.
(12) Includes options to purchase 95,285 shares of Common Stock
exercisable within 60 days of March 20, 2002.
(13) Includes options to purchase 173,895 shares of Common Stock
exercisable within 60 days of March 20, 2002.
(14) Includes options to purchase 269,180 shares of Common Stock
exercisable within 60 days of March 20, 2002.
Item 13. Certain Relationships and Related Transactions
On August 22, 2001, pursuant to an Agreement and Plan of Merger and
Reorganization, (the "Merger Agreement"), FalconStor, Inc. ("FalconStor") merged
with Network Peripherals Inc. ("NPI"), with NPI as the surviving corporation.
Under the terms of the Merger Agreement, all of FalconStor's preferred shares
were converted into common shares and the stockholders of FalconStor received
0.721858 shares of NPI common stock for each share of FalconStor common stock
that they held. Although NPI acquired FalconStor, as a result of the
transaction, FalconStor stockholders held a majority of the voting interests in
the combined enterprise after the merger. Accordingly, for accounting purposes,
the acquisition was a "reverse acquisition" and FalconStor was the "accounting
acquiror." Further, as a result of NPI's decision on June 1, 2001 to discontinue
its NuWave and legacy
business, at the time of the merger NPI was a non-operating public shell with no
continuing operations, and FalconStor purchased no intangible assets associated
with NPI. As a result, the transaction was accounted for as a recapitalization
of FalconStor and recorded based on the fair value of NPI's net tangible assets
acquired by FalconStor, with no goodwill or other intangible assets being
recognized. The conversion of all of FalconStor's preferred stock into common
stock resulted in an additional 20,207,460 shares of common stock outstanding
and, for accounting purposes, the merger resulted in the issuance of 13,348,605
common shares to NPI's pre-merger shareholders. In connection with the merger,
the name of NPI was changed to FalconStor Software, Inc. The following
directors, executive officers, 5% stockholders and entities affiliated with 5%
stockholders acquired common stock in the merger: ReiJane Huai - 10,824,260
shares; Wayne Lam - 3,537 shares; Barry Rubenstein - 1,812,903 shares; Brookwood
Partners - 526,956 shares; Seneca Ventures- 642,453 shares; Wheatley Associates
III, L.P.- 299,809 shares; Wheatley Foreign Partners, L.P. - 41,008 shares;
Wheatley Foreign Partners III, L.P. - 293,012 shares; Wheatley Partners, L.P. -
484,051 shares; Wheatley Partners II, L.P. - 180,089 shares; Wheatley Partners
III, L.P. - 1,370,015 shares; Woodland Partners - 692,983 shares; Woodland
Venture Fund - 743,513 shares; Irwin Lieber - 1,905,705 shares; Barry Fingerhut
- 303,180 shares; Seth Lieber - 115,497 shares; Applegreen Partners - 346,491
shares; Jonathan Lieber - 25,265 shares; Marilyn Rubenstein - 8,258 shares; Eli
Oxenhorn - 2,898,932 shares; and the Eli Oxenhorn Family Limited Partnership -
454,770 shares.
On October 2, 2001, the Company invested approximately $2,300,000 in
a private placement of Network-1 Security Solutions, Inc. ("Network-1"), a
publicly traded corporation that develops and markets intrusion prevention
software products. For its investment, the Company received 1,084,935 shares of
preferred stock, which if converted into common stock, would represent an
approximate 16.5% ownership of Network-1. The following 5% stockholders or
entities affiliated with 5% stockholders of the Company also invested the
following approximate amounts in the private placement of Network-1: Applegreen
Partners - $75,000; Brookwood Partners - $250,000; Barry Fingerhut - $350,000;
Irwin Lieber - $350,000; Jonathan Lieber - $25,000; Seth Lieber - $25,000; Barry
Rubenstein - $100,000; Seneca Ventures - $350,000; Wheatley Partners, L.P. -
$184,000; Wheatley Partners II, L.P. - $200,000; Wheatley Foreign Partners, L.P.
- $16,000; Woodland Partners - $200,000; Woodland Venture Fund - $450,000; and
Eli Oxenhorn - $250,000.
Barry Rubenstein, a 5% stockholder, may be deemed to be the
beneficial owner of the securities acquired by Seneca Ventures, Woodland Venture
Fund, Woodland Partners, Brookwood Partners, Wheatley Associates III, L.P.,
Wheatley Foreign Partners, L.P., Wheatley Foreign Partners III, L.P., Wheatley
Partners, L.P., Wheatley Partners II, L.P. and Wheatley Partners III, L.P. Barry
Fingerhut and Irwin Lieber, each of whom are 5% stockholders, may be deemed to
be a beneficial owner of the securities acquired by Wheatley Associates III,
L.P., Wheatley Foreign Partners, L.P., Wheatley Foreign Partners III, L.P.,
Wheatley Partners, L.P., Wheatley Partners II, L.P. and Wheatley Partners III,
L.P. Seth Lieber and Jonathan Lieber, each of whom are 5% stockholders, may be
deemed to be the beneficial owners of the securities acquired by Wheatley
Associates III, L.P., Wheatley Foreign Partners, L.P., Wheatley Foreign Partners
III, L.P., Wheatley Partners, L.P., Wheatley Partners II, L.P. and Wheatley
Partners III, L.P. and Applegreen Partners. Marilyn Rubenstein, a 5%
stockholder, may be deemed to be a beneficial owner of the securities acquired
by Seneca Ventures, Brookwood Partners, Woodland Partners and Woodland Venture
Fund.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FALCONSTOR SOFTWARE, INC.
By: /s/ ReiJane Huai
--------------------------------
ReiJane Huai
President and Chief Executive Officer
Dated: April 29, 2002