SC 13D

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

UNDER THE SECURITIES EXCHANGE ACT OF 1934

GRAPHON CORPORATION

(Name of Issuer)

Common Stock, par value $0.0001 per share

(Title of Class of Securities)

388707101

(CUSIP Number)

Joyce J. Mason, Esq.

General Counsel and Secretary

IDT Corporation

520 Broad Street

Newark, New Jersey 07102

(973) 438-1000

(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)

February 15, 2005

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this statement because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box:  ¨

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the act (however, see the Notes).

SCHEDULE 13D

1	NAME OF REPORTING PERSON             IDT Capital, Inc. I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)             36-4568911
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)  ¨ (b)  x
3	SEC USE ONLY
4	SOURCE OF FUNDS             WC
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)	¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION             Delaware

NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH   7    SOLE VOTING POWER                 5,555,500   8    SHARED VOTING POWER                 N/A   9    SOLE DISPOSITIVE POWER                 5,555,500 10    SHARED DISPOSITIVE POWER                 N/A

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON             5,555,500
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES	¨
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)             12.0% of Common Stock*
14	TYPE OF REPORTING PERSON             CO

* The shares beneficially owned by the Reporting Person consist of 37,037 shares of Series A Participating Convertible Preferred Stock, par value $0.01 per share, of the Issuer (“Series A Stock”) and warrants (“Series B Warrants”) to purchase 18,518 shares of Series B Participating Convertible Preferred Stock, par value $0.01 per share, of the Issuer (“Series B Stock”) at an exercise price of $40.00 per share. Each share of Series A Stock and Series B Stock is convertible into 100 shares of common stock, par value $0.0001, per share of the Issuer (“Common Stock”) without consideration being paid therefor, and has that number of votes equal to the aggregate number of shares of Common Stock into which such share is then convertible. Thus, the Reporting Person is entitled to 3,703,700 votes in respect of the shares of Series A Stock it beneficially owns and 1,851,800 votes in respect of the shares of Series B Stock it would receive upon exercise of the Series B Warrants, for an aggregate total of 5,555,500 votes. The percentage listed in Line 13 above assumes the exercise of all Series B Warrants and all outstanding warrants to acquire shares of Common Stock. The calculation is based on an aggregate total of 46,147,047 shares of Common Stock outstanding and underlying all warrants of the Issuer, as set forth in the Schedule 14A filed by the Issuer with the Securities and Exchange Commission (the “SEC”) on February 11, 2005.

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SCHEDULE 13D

1	NAME OF REPORTING PERSON             IDT Corporation I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)             223415036
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)  ¨ (b)  x
3	SEC USE ONLY
4	SOURCE OF FUNDS             N/A
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)	¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION             Delaware

NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH   7    SOLE VOTING POWER                 5,555,500   8    SHARED VOTING POWER                 N/A   9    SOLE DISPOSITIVE POWER                 5,555,500 10    SHARED DISPOSITIVE POWER                 N/A

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON             5,555,500
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES	¨
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)             12.0% of Common Stock*
14	TYPE OF REPORTING PERSON             CO

* The shares beneficially owned by the Reporting Person consist of 37,037 shares of Series A Stock and Series B Warrants to purchase 18,518 shares of Series B Stock at an exercise price of $40.00 per share. Each share of Series A Stock and Series B Stock is convertible into 100 shares of Common Stock without consideration being paid therefor, and has that number of votes equal to the aggregate number of shares of Common Stock into which such share is then convertible. Thus, the Reporting Person is entitled to 3,703,700 votes in respect of the shares of Series A Stock it beneficially owns and 1,851,800 votes in respect of the shares of Series B Stock it would receive upon exercise of the Series B Warrants, for an aggregate total of 5,555,500 votes. The percentage listed in Line 13 above assumes the exercise of all Series B Warrants and all outstanding warrants to acquire shares of Common Stock. The calculation is based on an aggregate total of 46,147,047 shares of Common Stock outstanding and underlying all warrants of the Issuer, as set forth in the Schedule 14A filed by the Issuer with the SEC on February 11, 2005.

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SCHEDULE 13D

1	NAME OF REPORTING PERSON             Howard S. Jonas I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)  ¨ (b)  x
3	SEC USE ONLY
4	SOURCE OF FUNDS             N/A
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)	¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION             United States

NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH   7    SOLE VOTING POWER                 5,555,500   8    SHARED VOTING POWER                 N/A   9    SOLE DISPOSITIVE POWER                 5,555,500 10    SHARED DISPOSITIVE POWER                 N/A

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON             5,555,500
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES	¨
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)             12.0% of Common Stock*
14	TYPE OF REPORTING PERSON             IN

* The shares beneficially owned by the Reporting Person consist of 37,037 shares of Series A Stock and Series B Warrants to purchase 18,518 shares of Series B Stock at an exercise price of $40.00 per share. Each share of Series A Stock and Series B Stock is convertible into 100 shares of Common Stock without consideration being paid therefor, and has that number of votes equal to the aggregate number of shares of Common Stock into which such share is then convertible. Thus, the Reporting Person is entitled to 3,703,700 votes in respect of the shares of Series A Stock it beneficially owns and 1,851,800 votes in respect of the shares of Series B Stock it would receive upon exercise of the Series B Warrants, for an aggregate total of 5,555,500 votes. The percentage listed in Line 13 above assumes the exercise of all Series B Warrants and all outstanding warrants to acquire shares of Common Stock. The calculation is based on an aggregate total of 46,147,047 shares of Common Stock outstanding and underlying all warrants of the Issuer, as set forth in the Schedule 14A filed by the Issuer with the SEC on February 11, 2005.

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SCHEDULE 13D

Item 1. Security and Issuer

This statement on Schedule 13D (this “Schedule 13D”) relates to the common stock, par value $0.0001 per share (the “Common Stock”), of GraphOn Corporation, a Delaware corporation (“GraphOn” or the “Issuer”), having its principal executive offices at 3130 Winkle Avenue, Santa Cruz, California 95065.

Item 2. Identity and Background

(a) - (b) This statement is being filed jointly by IDT Capital, Inc., a Delaware corporation (“IDT Capital”), IDT Corporation, a Delaware corporation (“IDT”), and Howard S. Jonas, a United States citizen (“Jonas”, and collectively with IDT Capital and IDT, the “Reporting Persons”).

IDT Capital is a holding company that invests in, develops and operates businesses in a variety of industries. IDT Capital is a wholly owned subsidiary of IDT. The address of its principal office and principal place of business is 520 Broad Street, Newark, New Jersey 07102.

IDT is a holding company, which owns approximately 95.2% of IDT Telecom, Inc, 94.4% of IDT Media, Inc., 100% of IDT Capital, 100% of Winstar Communications, LLC and, after the consummation of a pending transaction with Liberty Media Corporation, 41% of Net2Phone, Inc. The address of its principal office and principal place of business is 520 Broad Street, Newark, New Jersey 07102.

Jonas is the Chairman of the Board of Directors of IDT, Chairman of the Board of Directors of IDT Telecom, Inc. and a director of Net2Phone, Inc., and owns capital stock possessing approximately 57.9% of the voting power of IDT. The address of his principal place of business is 520 Broad Street, Newark, New Jersey 07102.

(c) The name, business address, and principal occupation of each executive officer and director of IDT Capital and IDT are set forth in Exhibits 1 and 2, respectively, hereto and are incorporated herein by reference.

(d) - (e) During the last five years, none of the Reporting Persons, nor to the best of IDT Capital’s knowledge any executive officer or director of IDT Capital, nor to the best of IDT’s knowledge any executive officer or director of IDT, has been (i) convicted in any criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body resulting in a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws, or finding any violations with respect to such laws.

(f) To the best of IDT Capital’s knowledge, each of its executive officers and directors named in Exhibit 1 is a United States citizen, except as indicated in Exhibit 1.

To the best of IDT’s knowledge, each of its executive officers and directors named in Exhibit 2 is a United States citizen, except as indicated in Exhibit 2.

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Item 3. Source and Amount of Funds or Other Consideration

The information set forth in Item 4 of this Schedule 13D is hereby incorporated by reference.

Item 4. Purpose of Transaction

IDT Capital purchased the shares of Series A Stock and Series B Warrants for investment purposes. IDT Capital used cash on hand to purchase the shares of Series A Stock and Series B Warrants.

UNIT PURCHASE AGREEMENT. On February 2, 2005 (the “Closing Date”), IDT Capital purchased 37,037 shares of Series A Stock and 18,518 Series B Warrants for an aggregate purchase price of $999,999 pursuant to the Unit Purchase Agreement, dated as of January 31, 2005, by and among the Issuer, IDT Capital and the other parties thereto (the “Unit Purchase Agreement”).

INVESTOR RIGHTS AGREEMENT. In connection with the Unit Purchase Agreement, IDT Capital, the other investors party to the Unit Purchase Agreement (together with IDT Capital, each an “Investor”) and the Issuer entered into the Investor Rights Agreement, dated as of January 31, 2005 (the “Investor Rights Agreement”). Pursuant to the Investor Rights Agreement, the parties agreed that, for a period of five years from the Closing Date, in the event the Issuer wishes to issue additional shares of Common Stock or securities convertible into shares of Common Stock (“Convertible Securities”) each Investor shall be entitled to purchase that number of shares of Common Stock or Convertible Securities proposed to be issued in proportion to the Investor’s proportionate ownership of the outstanding shares of Common Stock.

The descriptions of the Unit Purchase Agreement and Investor Rights Agreement throughout this Schedule 13D are qualified by reference to such Unit Purchase Agreement and Investor Rights Agreement, copies of which are attached hereto as Exhibits 3 and 4, respectively, and are incorporated herein by reference.

Each of the Reporting Persons intends to continuously review its investment in GraphOn, and may in the future determine, either alone or as part of a group (i) to acquire additional securities of GraphOn, through open market purchases, private agreements or otherwise, (ii) to dispose of all or a portion of the securities of GraphOn owned by it or (iii) to take any other available course of action, which could involve one or more of the types of transactions or have one or more of the results described in paragraphs (a) - (j) of Item 4 of Schedule 13D. Notwithstanding anything contained herein, each of the Reporting Persons specifically reserves the right to change its intention with respect to any or all of such matters. In reaching any decision as to its course of action (as well as to the specific elements thereof), each of the Reporting Persons currently expects that it would take into consideration a variety of factors, including, but not limited to, GraphOn’s business and prospects, other developments concerning GraphOn and its businesses generally, other business opportunities available to the Reporting Persons, developments with respect to the business of the Reporting Persons, changes in law and government regulations, general economic conditions and money and stock market conditions, including the market price of the securities of GraphOn.

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Other than the transactions and events described above, the Reporting Persons have no plans or proposals with respect to GraphOn or its securities that relate to, or would result in, any of the transactions described in paragraphs (a) - (j) of Item 4 of Schedule 13D.

Item 5. Interest in Securities of the Issuer

(a) IDT Capital beneficially owns 37,037 shares of Series A Stock and Series B Warrants to purchase 18,518 shares of Series B Stock at an exercise price of $40.00 per share. Each share of Series A Stock and Series B Stock is convertible into 100 shares of Common Stock without consideration being paid therefor, and has that number of votes equal to the aggregate number of shares of Common Stock into which such share is then convertible. Assuming the conversion of all shares of Series A Stock into shares of Common Stock, the exercise of all Series B Warrants into Shares of Series B Stock, and the conversion of all Series B Stock and all other outstanding warrants of the Issuer into shares of Common Stock, IDT Capital owns approximately 12% of the combined voting power of the Issuer. The calculation is based on an aggregate total of 46,147,047 shares of Common Stock outstanding and underlying all warrants of the Issuer, as set forth in the Schedule14A filed by the Issuer with the SEC on February 11, 2005.

IDT does not directly beneficially own any securities of GraphOn. IDT owns all of the outstanding shares of common stock of IDT Capital. IDT may be deemed to be the indirect beneficial owner of all of the shares of Series A Stock and Series B Warrants owned by IDT Capital.

Howard S. Jonas does not directly beneficially own any securities of GraphOn. As of February 10, 2005, Mr. Jonas beneficially owned 1,826,308 shares of Common Stock, par value $0.01 per share, of IDT, 9,816,988 shares of Class A Common Stock, par value $0.01 per share, of IDT and 6,112,096 shares of Class B Common Stock, par value $0.01 per share, of IDT, representing approximately 18.1% of the outstanding shares of stock of IDT and approximately 57.9% of the combined voting power of IDT. Mr. Jonas may be deemed to be the indirect beneficial owner of all of the shares of Series A Stock and Series B Warrants owned by IDT Capital.

The filing of this 13D shall not be construed as an admission by the Reporting Persons that they are, for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Act”), the beneficial owner of securities of GraphOn owned by other parties.

Each of the Reporting Persons disclaims membership in a group with regard to the Common Stock for purposes of Section 13(d) of the Act.

(b) By virtue of his ownership of shares of stock of IDT, representing approximately 57.9% of the combined voting power of IDT, Mr. Jonas has the power to control the election of directors to IDT’s board of directors, which may be deemed as the power to direct the vote of the shares of the Series A Stock owned by IDT Capital and the shares of the Series B Stock acquirable by IDT Capital upon exercise of the Series B Warrants.

(c) Except as described in this Schedule 13D, no transactions in any securities of the Issuer have been effected by the Reporting Persons, nor to the best of IDT Capital’s knowledge by the persons listed on Exhibit 1 hereto, nor to the best of IDT’s knowledge by the persons listed on Exhibit 2 hereto, during the past 60 days.

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(d) Not applicable.

(e) Not applicable.

Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer

Except as described in Item 4 above, none of the Reporting Persons has any contracts, arrangements, understandings, or relationship (legal or otherwise) with respect to any securities of the Issuer.

Item 7. Material to be Filed as Exhibits

Exhibit 1	Name, business address and principal occupation of each executive officer and director of IDT Capital.
Exhibit 2	Name, business address and principal occupation of each executive officer and director of IDT.
Exhibit 3	Unit Purchase Agreement, dated as of January 31, 2005, by and among GraphOn, IDT Capital and the other signatories thereto,
Exhibit 4	Investor Rights Agreement, dated as of January 31, 2005, by and among GraphOn, IDT Capital and the other signatories thereto.
Exhibit 5	Joint Filing Agreement, dated as of February 14, 2005, by and among IDT Capital, IDT and Howard S. Jonas.

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SIGNATURES

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Dated: February 14, 2005

IDT CAPITAL, INC.
By:	/s/ David Greenblatt
Name:	David Greenblatt
Title:	Chief Executive Officer
IDT CORPORATION, INC.
By:	/s/ Joyce J. Mason
Name:	Joyce J. Mason
Title:	Senior Vice President
/s/ Howard S. Jonas
Howard S. Jonas

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EX-1

EXHIBIT 1

Directors and Executive Officers of IDT Capital, Inc.

Set forth below are the name, position, present principal occupation or employment and business address of each director and executive officer of IDT Capital, Inc. (“IDT Capital”). Unless otherwise indicated, each occupation set forth opposite an individual’s name refers to employment with IDT. Each person listed below is a citizen of the United States.

Name	Position	Principal Occupation	Business Address
Howard S. Jonas	Director	Chairman of the Board and Director of IDT Corp.	c/o IDT 520 Broad Street Newark, NJ 07102
James A. Courter	Director	Chief Executive Officer, Vice Chairman of the Board and Director of IDT Corp.	c/o IDT 520 Broad Street Newark, NJ 07102
David Greenblatt	Chief Executive Officer and Director	Chief Executive Officer and Director	c/o IDT 520 Broad Street Newark, NJ 07102
Geoff Rochwarger	Chief Operating Officer and Director	Chief Operating Officer and Director	c/o IDT 520 Broad Street Newark, NJ 07102
Larry Wiseman	President	President	c/o IDT 520 Broad Street Newark, NJ 07102
Joyce J. Mason	Secretary	Senior Vice President, General Counsel and Secretary of IDT Corp.	c/o IDT 520 Broad Street Newark, NJ 07102
Jerrold Rappaport	Assistant Secretary	Assistant Secretary	c/o IDT 520 Broad Street Newark, NJ 07102
Moshe Kaganoff	Director	Executive Vice President of Strategic Planning of IDT Corp.	c/o IDT 520 Broad Street Newark, NJ 07102
Herbert H. Tate	Director	Of Counsel, Wolff and Samson, P.A.	c/o IDT 520 Broad Street Newark, NJ 07102
George Rupp	Director	President of the International Rescue Committee	c/o IDT 520 Broad Street Newark, NJ 07102
Linda Chavez	Director	President of the Center for Equal Opportunity, syndicated columnist and political analyst	c/o IDT 520 Broad Street Newark, NJ 07102
Dennis Reimer	Director	Former Commanding General of the United States Army, Forces Command	c/o IDT 520 Broad Street Newark, NJ 07102

EX-2

EXHIBIT 2

Directors and Executive Officers of IDT Corporation

Set forth below are the name, position, present principal occupation or employment and business address of each director and executive officer of IDT Corporation (“IDT”). Unless otherwise indicated, each occupation set forth opposite an individual’s name refers to employment with IDT. Each person listed below is a citizen of the United States.

Name	Position	Principal Occupation	Business Address
Howard S. Jonas	Chairman of the Board and Director	Chairman of the Board	c/o IDT 520 Broad Street Newark, NJ 07102
James A. Courter	Chief Executive Officer, Vice Chairman of the Board and Director	Chief Executive Officer, Vice Chairman of the Board and Director	c/o IDT 520 Broad Street Newark, NJ 07102
Ira A. Greenstein	President and Director	President	c/o IDT 520 Broad Street Newark, NJ 07102
Stephen R. Brown	Chief Financial Officer, Treasurer and Director	Chief Financial Officer, Treasurer and Director	c/o IDT 520 Broad Street Newark, NJ 07102
Marcelo Fischer	Chief Accounting Officer and Controller	Chief Accounting Officer and Controller	c/o IDT 520 Broad Street Newark, NJ 07102
Joyce J. Mason	Senior Vice President, General Counsel, Secretary and Director	Senior Vice President, General Counsel, Secretary and Director	c/o IDT 520 Broad Street Newark, NJ 07102
Marc E. Knoller	Senior Vice President and Director	President and Chief Operating Officer of IDT Media, Inc.	c/o IDT 520 Broad Street Newark, NJ 07102
Moshe Kaganoff	Executive Vice President of Strategic Planning and Director	Executive Vice President of Strategic Planning	c/o IDT 520 Broad Street Newark, NJ 07102
Morris Lichtenstein	Executive Vice President of Business Development	Executive Vice President of Business Development	c/o IDT 520 Broad Street Newark, NJ 07102
Morris Berger	Executive Vice President of Business Development	Executive Vice President of Business Development	c/o IDT 520 Broad Street Newark, NJ 07102
Kathleen B. Timko	Executive Vice President of Technology	Executive Vice President of Technology	c/o IDT 520 Broad Street Newark, NJ 07102
Dianne Clark	Chief Legal Officer	Chief Legal Officer	c/o IDT 520 Broad Street Newark, NJ 07102

Name	Position	Principal Occupation	Business Address
J. Warren Blaker	Director	Professor, Fairleigh Dickinson University	c/o IDT 520 Broad Street Newark, NJ 07102
Rudy Boschwitz	Director	Chairman of the Advisory Committee of the Center for Global Food Issues; Former U.S. Senator	c/o IDT 520 Broad Street Newark, NJ 07102
Saul K. Fenster	Director	President Emeritus of the New Jersey Institute of Technology	c/o IDT 520 Broad Street Newark, NJ 07102
Jack F. Kemp	Director	Co-Director of Empower America, former U.S. Congressman and former Secretary of Housing and Urban Development	c/o IDT 520 Broad Street Newark, NJ 07102
Michael J. Levitt	Director	Chairman and Chief Executive Officer of Stone Tower Capital LLC	c/o IDT 520 Broad Street Newark, NJ 07102
Jeane J. Kirkpatrick	Director	Professor of Government at Georgetown University and former Permanent Representative of the U.S. to the United Nations	c/o IDT 520 Broad Street Newark, NJ 07102
William F. Weld	Director	Principal, Leeds Weld & Co. and former Governor of Massachusetts	c/o IDT 520 Broad Street Newark, NJ 07102
James S. Gilmore III	Director	Partner, Kelley Drye & Warren LLP and former Governor of Virginia	c/o IDT 520 Broad Street Newark, NJ 07102

EX-3

Exhibit 3

GRAPHON CORPORATION

UNIT SUBSCRIPTION AGREEMENT

COMMON STOCK

AND WARRANTS

UNIT SUBSCRIPTION AGREEMENT (the “Agreement”) dated as of January     , 2005 among GRAPHON CORPORATION, a Delaware corporation (the “Company”), and the persons who execute this Agreement as investors (the “Investors”).

Background: The Company desires to sell to the Investors, and the Investors desire to purchase, an aggregate of 148,148 shares of Series A Stock of the Company (the “Shares”) in Units with 5-year warrants, in substantially the form attached hereto as Exhibit 1A, exercisable to purchase an aggregate of 74,074 shares of Series B Stock of the Company (the “Warrant Shares”) at $40.00 per share (the “Series B Warrants”), all for an aggregate price of $3,999,996. The Shares are convertible into an aggregate of 14,814,800 shares of Common Stock. The Warrant Shares will be convertible into an aggregate of 7,407,400 shares of Common Stock. The Series B Warrants are convertible under certain circumstances into 5-year warrants, in substantially the form attached hereto as Exhibit 1B, exercisable to purchase an aggregate of 7,407,400 shares of Common Stock at $0.40 per share (the “Exchange Warrants”). The proceeds are necessary for the proposed acquisition by the Company of Network Engineering Software, Inc. (“NES”) and the development and continuance of the business of the Company and each of its Subsidiaries.

Certain Definitions:

“Acquisition” shall mean the acquisition by the Company of NES substantially in accordance with the terms set forth in the Agreement and Plan of Merger and Reorganization, dated December 3, 2004, (the “Reorganization Agreement”).

“Action” has the meaning set forth in Section 2.10.

“Agreement” has the meaning set forth in the Preamble.

“Blue Sky Laws” has the meaning set forth in Section 2.7(b).

“Certificate of Amendment” has the meaning set forth in Section 2.2(b)(i).

“Certificate of Incorporation” has the meaning set forth in Section 2.2(a).

“Closing” and “Closing Date” have the meanings set forth in Section 1.2.

“Common Stock” shall mean stock of the Company of any class (however designated) whether now or hereafter authorized, which generally has the right to participate in the voting and in the distribution of earnings and assets of the Company without limit as to amount or percentage, including the Company’s Common Stock, $.0001 par value per share.

“Company” includes the Company and any corporation or other entity that shall succeed to or assume, directly or indirectly, the obligations of the Company hereunder. The term “corporation” shall include an association, joint stock company, business trust, limited liability company or other similar organization.

“Company Disclosure Letter” means the disclosure letter delivered to the Investors prior to the execution of this Agreement, which letter is incorporated in this Agreement as Exhibit 5 hereto.

“Contemplated Transactions” has the meaning set forth in Section 2.1(b).

“Exchange Act” has the meaning set forth in Section 2.7(b).

“Exchange Warrants” has the meaning set forth in Background.

“Existing Investor Rights Agreement” means the Investor Rights Agreement, dated as of January 29, 2004, by and among the Company and the investors party thereto.

“Existing Warrants” means 5-year warrants, dated January 29, 2004, exercisable to purchase an aggregate of 2,500,000 shares of Common Stock at $0.33 per share, issued pursuant to that certain Unit Subscription Agreement, dated as of January 29, 2004, among the Company and the investors party thereto and the warrants of similar tenor, currently exercisable to purchase 720,000 shares, held by the Griffin Holders.

“Financial Advisory Agreement” has the meaning set forth in Section 1.3(b).

“Financial Statements” has the meaning set forth in Section 2.9(g).

“Form 10-K Financial Statements” has the meaning set forth in Section 2.9(d).

“Governmental Body” has the meaning set forth in Section 2.7(b).

“Griffin” has the meaning set forth in Section 2.6.

“Griffin Holders” means Griffin and certain other persons to whom Griffin transferred Existing Warrants, who are also parties to the Waiver.

“Griffin Agreement” means the agreement, dated January 8, 2005, between Griffin and the Company, in form previously provided and acceptable to counsel for the Investors governing compensation of Griffin.

“Hirschman” has the meaning set forth in Section 1.3(b).

“Investor Rights Agreement” has the meaning set forth in Section 1.3(a).

“Investors” has the meaning set forth in the Preamble.

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“June 30 Form 10-Q Financial Statements” has the meaning set forth in Section 2.9(e).

“Legal Fee” has the meaning set forth in Section 6.9.

“Legal Requirement” has the meaning set forth in Section 2.8.

“Loss” has the meaning set forth in Section 5.2(b).

“March 31 Form 10-Q Financial Statements” has the meaning set forth in Section 2.9(f).

“Material Adverse Change” shall mean a material adverse change in the business, financial condition, results of operation, properties or operations of the Company and its Subsidiaries taken as a whole.

“Material Adverse Effect” has the meaning set forth in Section 2.1(a).

“Material Agreements” has the meaning set forth in Section 2.8.

“NES” has the meaning set forth in Background.

“Ordinary Course of Business” has the meaning set forth in Section 2.11.

“Own” means own beneficially, as that term is defined in the rules and regulations of the SEC.

“Person” means any individual, sole proprietorship, partnership, corporation, limited liability company, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity, any university or similar institution, or any government or any agency or instrumentality or political subdivision thereof.

“Proposal” has the meaning set forth in Section 2.2(b)(i).

“Proprietary Assets” has the meaning set forth in Section 2.12.

“Proxy Statement” has the meaning set forth in Section 2.2(b)(i).

“Purchased Shares” has the meaning set forth in Section 1.1(a).

“Purchased Warrants” has the meaning set forth in Section 1.1(a).

“Required Stockholder Approval” has the meaning set forth in Section 2.2(b)(i).

“SEC” means the Securities and Exchange Commission.

“SEC Documents” has the meaning set forth in Section 2.9(a).

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“Securities” has the meaning set forth in Section 1.1(a).

“Securities Act” has the meaning set forth in Section 2.5.

“September 30 Form 10-Q Financial Statements” has the meaning set forth in Section 2.9(g).

“Series A Stock” means the Series A Participating Convertible Preferred Stock, par value $.01 per share, of the Company, having the terms set forth in Exhibit 1C hereto.

“Series B Stock” means the Series B Participating Convertible Preferred Stock, par value $.01 per share, of the Company, having the terms set forth in Exhibit 1C hereto.

“Series B Warrants” has the meaning set forth in Background.

“Shares” has the meaning set forth in Background.

“Stockholders Meeting” has the meaning set forth in Section 2.2(b)(i).

“Subsidiary” shall mean, immediately prior to the Closing, any corporation of which stock or other interest having ordinary power to elect a majority of the Board of Directors (or other governing body) of such entity (regardless of whether or not at the time stock or interests of any other class or classes of such corporation shall have or may have voting power by reason of the happening of any contingency) is, immediately prior to the Closing, directly or indirectly owned by the Company or by one or more Subsidiaries. For purposes of clarity, the definition of Subsidiary shall not include NES for any purpose.

“Transaction Documents” means the Agreement, the Financial Advisory Agreement, the Purchased Warrants and the Investor Rights Agreement.

“Transfer Agent” has the meaning set forth in Section 1.2(b).

“Underlying Shares” shall mean the shares of Common Stock issued or from time to time issuable upon (a) conversion of (i) the Shares or (ii) the Series B Stock issuable upon exercise of the Series B Warrants, and (b) exercise of the Exchange Warrants.

“Unit” shall mean (i) one (1) Share and (ii) one Series B Warrant to purchase one half (0.5) of a Warrant Share.

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In consideration of the mutual covenants contained herein, the parties agree as follows:

1. Purchase and Sale of Stock.

1.1. Sale and Issuance of Securities. (a) The Company shall sell to the Investors and the Investors shall purchase from the Company, 148,148 Units (the “Units”) at a price per Unit equal to $27.00, or an aggregate of (x) 148,148 Shares (the “Purchased Shares”) and (y) Series B Warrants to purchase an aggregate of 74,074 Warrant Shares (the “Purchased Warrants” and, collectively with the Purchased Shares, the “Securities”), for an aggregate purchase price of $3,999,996.00.

(b) The number of Purchased Shares and Purchased Warrants to be purchased by each Investor from the Company is set forth on Schedule 1.1(b) hereto, subject to acceptance, in whole or in part, by the Company.

1.2. Closing. The closing (the ”Closing”) of the purchase and sale of the Securities hereunder shall take place within three (3) days of the date of this Agreement or such other date within fifteen (15) business days of this Agreement as agreed to by the Company and Hirschman (the “Closing Date”). The Closing shall take place at the offices of Hahn & Hessen LLP, the Investors’ counsel, in New York, New York, or at such other location as is mutually acceptable to the Investors and the Company, subject to fulfillment of the conditions of closing set forth in the Agreement. At the Closing:

(a) each Investor purchasing Securities at the Closing shall deliver to the Company or its designees by wire transfer or such other method of payment as the Company shall approve, an amount equal to the purchase price of the Securities purchased by such Investor hereunder, as set forth opposite such Investor’s name on the signature pages hereof;

(b) the Company shall authorize its transfer agent (the “Transfer Agent”) to arrange delivery to each Investor of one or more stock certificates registered in the name of the Investor, or in such nominee name(s) as designated by the Investor in writing, representing the number of Purchased Shares set forth opposite such Investors named on Schedule 1.1(b); and

(c) the Company shall issue and deliver to each Investor the number of Purchased Warrants set forth opposite such Investors named on Schedule 1.1(b).

1.3. Investors’ Conditions of Closing. The obligation of the Investors to complete the purchase of the Securities at the Closing is subject to fulfillment of the following conditions:

(a) the Company shall execute and deliver an Investor Rights Agreement, dated the Closing Date, in the form attached as Exhibit 2, with respect to the Purchased Shares and the Underlying Shares (the “Investor Rights Agreement”);

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(b) the Company and Orin Hirschman (“Hirschman”) shall execute and deliver an amendment to the existing Financial Advisory Agreement, dated January 29, 2004, in the form attached as Exhibit 3 (the “Financial Advisory Agreement Amendment”);

(c) the Company shall cause to be delivered to the Investors an Opinion of Counsel, dated the Closing Date and reasonably satisfactory to counsel for the Investors, with respect to the matters set forth on Exhibit 4;

(d) the representation and warranties of the Company set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (to the extent such representations and warranties speak as of a later date) as of such later date as though made on and as of the Closing Date, and the Company shall have performed in all material respects all covenants and other obligations required to be performed by it under this Agreement at or prior to the Closing Date.

(e) the absence of a Material Adverse Change from the date of this Agreement up to, and including, the Closing Date;

(f) the Company shall have executed and delivered all other documents reasonably requested by counsel for the Investors that are necessary to complete the contemplated transactions;

(g) All Securities delivered at the Closing shall have any necessary stock transfer tax stamps (purchased at the expense of the Company) affixed;

(h) the Company shall pay the Investors’ expenses to the extent set forth in Section 6.9 hereof;

(i) the Company shall deliver to the Investors a certified copy of its Certificate of Incorporation, as amended, and by-laws and a Certificate of Good Standing from the Secretary of State of the State of Delaware;

(j) the Company, Hirschman and Griffin (as defined in Section 2.6) shall have entered into an agreement regarding the fees owed by the Company to Griffin and Hirschman.

(k) the Acquisition shall have been completed;

(l) the Company shall have received a waiver of preemptive rights and antidilution rights and related acknowledgments from each holder of Existing Warrants pursuant to the Existing Investor Rights Agreement and the Existing Warrants with respect to all Securities issued hereunder in the form attached hereto as Exhibit 6 (the “Waiver”);

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(m) the executive officers and members of the Board of Directors of the Company shall have executed and delivered the Voting Agreement in the form attached hereto as Exhibit 7 (the “Voting Agreement”); and

(n) the Investors shall have received a certificate signed on behalf of the Company by the President and Secretary of the Company, in such capacities, to the effect that all covenants and other obligations required to be performed by the Company at a prior to the Closing Date under this Agreement shall have been performed in all material respects (the “Closing Certificate”).

1.4. Company’s Condition of Closing. The obligation of the Company to complete the sale of the Securities at the Closing is subject to fulfillment of the following conditions:

(a) The Investors shall execute and deliver the Investor Rights Agreement.

(b) The Company shall have received the Waiver, executed by each holder of Existing Warrants.

2. Representations, Warranties and Covenants of the Company. The Company hereby represents and warrants to, and covenants with, each of the Investors as follows:

2.1. Corporate Organization; Authority; Due Authorization.

(a) The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has the corporate power and authority to own or lease its properties as and in the places where such business is conducted and to carry on its business as conducted and (iii) is duly qualified as a foreign corporation authorized to do business in every jurisdiction where the failure to so qualify, individually or in the aggregate, would have a material adverse effect on the operations, assets, liabilities, financial condition or business of the Company (a “Material Adverse Effect”). Set forth in the Company Disclosure Letter is a complete and correct list of all Subsidiaries. Each Subsidiary is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and is qualified to do business as a foreign corporation in each jurisdiction in which qualification is required, except where failure to so qualify would not have a Material Adverse Effect.

(b) The Company (i) has the requisite corporate power and authority to execute, deliver and perform the Griffin Agreement, the Waiver, this Agreement and the other Transaction Documents to which it is a party and to incur the obligations herein and therein and (ii) has been authorized by all necessary corporate action to execute, deliver and perform the Griffin Agreement, the Waiver, this Agreement and the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby (the “Contemplated

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Transactions”). Each of the Griffin Agreement, the Waiver, this Agreement and the other Transaction Documents is a valid and binding obligation of the Company enforceable in accordance with its terms except as limited by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights and the availability of equitable remedies (regardless of whether such enforceability is considered in a proceeding at law or equity). Each of the Exchange Warrants, when issued upon conversion of the Series B Warrants, will be a valid and binding obligation of the Company enforceable in accordance with its terms except as limited by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights and the availability of equitable remedies (regardless of whether such enforceability is considered in a proceeding at law or equity).

2.2. Capitalization; Authorization of Additional Shares of Common Stock.

(a) Current Capitalization. As of the date hereof, the authorized capital stock of the Company consists of (i) 45,000,000 shares of Common Stock, $.0001 par value, of which 21,716,765 shares of Common Stock are outstanding and (ii) 5,000,000 shares of Preferred Stock, $.01 par value, of which no shares are outstanding. All outstanding shares were issued in compliance with all applicable Federal and state securities laws, and the issuance of such shares was duly authorized. Except as contemplated by this Agreement or as set forth in the Company Disclosure Letter, there are (i) no outstanding subscriptions, warrants, options, conversion privileges or other rights or agreements obligating the Company to purchase or otherwise acquire or issue any shares of capital stock of the Company (or shares reserved for such purpose), (ii) no preemptive rights contained in the Company’s Certificate of Incorporation, as amended (the “Certificate of Incorporation”), By-Laws of the Company or contracts to which the Company is a party or rights of first refusal with respect to the issuance of additional shares of capital stock of the Company (other than as set forth in the Investor Rights Agreement, including without limitation the Securities and the Underlying Shares, and (iii) no commitments or understandings (oral or written) of the Company to issue any shares, warrants, options or other rights. Except as set forth in the Company Disclosure Letter, none of the shares of Common Stock are subject to any stockholders’ agreement, voting trust agreement or similar arrangement or understanding. Except as set forth in the Company Disclosure Letter, the Company has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter. With respect to each Subsidiary, (i) all the issued and outstanding shares of the Subsidiary’s capital stock have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with applicable federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and (ii) except as disclosed in the Company Disclosure Letter, there are no outstanding options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or

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sell, shares of the Subsidiary’s capital stock or any such options, rights, convertible securities or obligations. Except as disclosed in the Company Disclosure Letter, the Company owns 100% of the outstanding equity of each Subsidiary.

(b) Amendment to Certificate of Incorporation; Proxy Statement; Stockholders Meeting.

(i) The Board of Directors of the Company has approved an amendment to the Certificate of Incorporation authorizing the issuance of additional shares of Common Stock, which, if ratified by the Company’s stockholders, would enable the Company to be in compliance with the covenant set forth in Section 5.1(c) below (the “Certificate of Amendment”). In furtherance thereof, as promptly as possible, but in no event later than 15 business days following the date of this Agreement, the Company shall take all action necessary to call a meeting of its stockholders (together with any adjournments or postponements thereof, the “Stockholders Meeting”), other than actions with respect to the preparation and filing of any Proxy Statement (as defined below) for such meeting, for the purpose of seeking the requisite stockholder approval (the “Required Stockholder Approval”) of the Certificate of Amendment and for all matters to be voted upon incident thereto (collectively, the “Proposal”). In connection therewith, the Company will promptly prepare and file with the SEC proxy materials (including one or more proxy statements (as amended or supplemented, the “Proxy Statement”) and form of proxy) for use at the Stockholders Meeting and, after receiving and promptly responding to any comments of the SEC thereon, shall promptly mail such proxy materials to the stockholders of the Company. The Company will comply with Section 14(a) of the Exchange Act and the rules promulgated thereunder in relation to any proxy statement and any form of proxy to be sent to the stockholders of the Company in connection with the Stockholders Meeting, and the Proxy Statement shall not, on the date the Proxy Statement (or any amendment thereof or supplement thereto) is first mailed to stockholders or at the time of the Stockholders Meeting, contain any statement that, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the Stockholders Meeting or the subject matter thereof which has become false or misleading. If the Company should discover at any time prior to the Closing Date any event relating to the Company or any of its Subsidiaries or any of their respective affiliates, officers or directors that is required to be set forth in a supplement or amendment to the Proxy Statement, in addition to the Company’s obligations under the Exchange Act, the Company will promptly inform its stockholders thereof.

(ii) Subject to its fiduciary obligations under applicable law (as determined in good faith by the Company’s Board of Directors, after having taken

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into account the written advice of the Company’s outside counsel), the Company’s Board of Directors shall recommend to the Company’s stockholders (and not revoke or amend such recommendation) that the stockholders vote in favor of the Proposal and shall cause the Company to take all commercially reasonable action to solicit the Required Stockholder Approval. Whether or not the Company’s Board of Directors determines at any time after the date hereof that, due to its fiduciary duties, it must revoke or amend its recommendation to the Company’s stockholders, the Company is required to, and will take, in accordance with applicable law and its Certificate of Incorporation and Bylaws, all action necessary to convene the Stockholders Meeting as promptly as practicable to consider and vote upon the approval of the Proposal.

(iii) In the event that (x) the Company does not file the Proxy Statement within 15 business days following the date of this Agreement, (y) the Company fails to use its best efforts to cause the Stockholders Meeting to take place within 90 days following the date of this Agreement, or (z) the Company’s Board of Directors has withdrawn or modified its recommendation to its stockholders pursuant to the provisions of Section 2.2(b)(ii), the Company shall pay to each Investor a cash penalty equal to 25% of the aggregate amount invested by such Investor at the Closing; provided, however, that, with respect to clause (y) above, no such penalty shall apply in the event that a delay beyond the 90^th day arises out of review by the SEC as long as the Company continues to use its best efforts to cause the Stockholders Meeting to take place as soon as practicable.

2.3. Validity of Securities. The issuance of the Securities has been duly authorized by all necessary corporate action on the part of the Company and, when issued to, delivered to, and paid for by the Investors in accordance with this Agreement, the Purchased Shares will be validly issued, fully paid and non-assessable.

2.4. Underlying Shares. The issuance of (a) the Underlying Shares upon conversion of the Shares or the Series B Stock or exercise of the Exchange Warrants and (ii) the Warrant Shares upon exercise of the Purchased Warrants has been duly authorized. At all times prior to such exercise, the Series B Stock and, to the extent authorized under the Certificate of Incorporation, the Underlying Shares, will have been duly reserved for issuance upon such exercise and, in each case, when so issued, will be validly issued, fully paid and non-assessable.

2.5. Private Offering. Neither the Company nor anyone acting on its behalf has within the last 12 months issued, sold or offered any security of the Company (including, without limitation, any Common Stock or warrants of similar tenor to the Purchased Warrants) to any Person under circumstances that would cause the issuance and sale of the Securities, as contemplated by this Agreement, to be subject to the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The Company agrees that neither the Company nor anyone acting on its behalf will offer the Securities or any part thereof or any similar securities for issuance or sale to, or solicit any offer to acquire any of the same from, anyone so as to make the issuance and sale of the Securities subject to the registration requirements of Section 5 of the Securities Act.

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2.6. Brokers and Finders. Except as set forth in the Company Disclosure Letter or in this Section 2.6, neither the Company, nor any of its officers, directors, employees or stockholders, has employed any broker or finder. Pursuant to the Griffin Agreement, the Company shall pay to Griffin Securities, Inc. (“Griffin”) a fee consisting of $50,000 in cash and warrants in substantially the same form as the Series B Warrants (A) to purchase an aggregate of 14,815 shares of Series A Stock at $27.00 per share and (B) to purchase an aggregate of 7,407 shares of Series B Stock at $40.00 per share; and Griffin shall be a party to the Investor Rights Agreement.

2.7. No Conflict; Required Filings and Consents.

(a) The execution, delivery and performance of the Griffin Agreement, the Waiver, this Agreement and the other Transaction Documents by the Company do not, and the consummation by the Company of the Contemplated Transactions will not, (i) conflict with or violate the Certificate of Incorporation (as to be amended by the Certificate of Amendment) or By-Laws of the Company or its Subsidiaries, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to the Company or its Subsidiaries or by which any property or asset of the Company or its Subsidiaries is bound or affected or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, result in the loss of a material benefit under, or give to others any right of purchase or sale, or any right of termination, amendment, acceleration, increased payments or cancellation of, or result in the creation of a lien or other encumbrance on any property or asset of the Company or of any of its Subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its Subsidiaries is a party or by which the Company or of any of its Subsidiaries or any property or asset of the Company or of any of its Subsidiaries is bound or affected; except, in the case of clauses (ii) and (iii) above, for any such conflicts, violations, breaches, defaults or other occurrences that would not prevent or delay consummation of any of the Contemplated Transactions in any material respect or otherwise prevent the Company from performing its obligations under the Griffin Agreement, the Waiver, this Agreement or any of the other Transaction Documents in any material respect, and would not, individually or in the aggregate, have a Material Adverse Effect.

(b) The execution and delivery of the Griffin Agreement, the Waiver, this Agreement and the other Transaction Documents by the Company do not, and the performance of the Griffin Agreement, the Waiver, this Agreement and the other Transaction Documents and the consummation by the Company of the Contemplated Transactions will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Body (as hereinafter defined) except for the filing of a Form D with the Securities and Exchange Commission and the filing of the Proxy Statement and the filing of a Form 8-K and

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other applicable requirements, if any, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or any state securities or “blue sky” laws (“Blue Sky Laws”), any approval required by applicable rules of the markets in which the Company’s securities are traded and any required filing of the Voting Agreement with the appropriate Governmental Body. For purposes of this Agreement, “Governmental Body” shall mean any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or entity and any court or other tribunal). Without limitation on the foregoing, the consummation of the Contemplated Transactions, with the exception of the Acquisition, does not require the approval of The Nasdaq Stock Market (or any related regulatory body) or, other than the Required Stockholder Approval, the stockholders of the Company.

2.8. Compliance. Except as set forth in the Company Disclosure Letter, neither the Company nor any Subsidiary is in conflict with, or in default or violation of (i) any law, rule, regulation, order, judgment or decree applicable to the Company or such Subsidiary or by which any property or asset of the Company or such Subsidiary is bound or affected (“Legal Requirement”) or (ii) any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or such Subsidiary is a party or by which the Company or such Subsidiary or any property or asset of the Company or such Subsidiary is bound or affected (the “Material Agreements”), in each case except for any such conflicts, defaults or violations that would not, individually or in the aggregate, have a Material Adverse Effect. Neither the Company nor any Subsidiary has received any written notice or communication from any Governmental Body regarding any actual or possible violation of, or failure to comply with, any Legal Requirement.

2.9. SEC Documents; Financial Statements.

(a) The information contained in the following documents did not, as of the date of the applicable document, include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, as of their respective filing dates or, if amended, as so amended (the following documents, together with any other filings made by the Company with the SEC after the date of this Agreement prior to the Closing Date, collectively, the “SEC Documents”), provided that the representation in this sentence shall not apply to any misstatement or omission in any SEC Document filed prior to the date of this Agreement which was superseded by a subsequent SEC Document filed prior to the Closing Date:

(i) the Company’s Annual Report on Form 10-K for the year ended December 31, 2003;

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(ii) the Company’s definitive Proxy Statement with respect to its 2004 Annual Meeting of Stockholders, filed with the Commission on November 24, 2004;

(iii) the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004; and

(iv) The Company’s Current Reports on Form 8-K, filed with the Commission on February 3, 2004, February 6, 2004, March 4, 2004, May 12, 2004, December 9, 2004 and December 16, 2004.

(b) In addition, as of the date of this Agreement and as of the Closing Date, the Company Disclosure Letter, when read together with the information, qualifications and exceptions contained in this Agreement, does not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made and the time period about which they were made, not misleading.

(c) The Company has filed all forms, reports and documents required to be filed by it with the SEC since December 31, 2000, including, without limitation, the SEC Documents. As of their respective dates, the SEC Documents have complied, and will have complied, as to form in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations thereunder.

(d) The Company’s Annual Report on Form 10-K for the year ended December 31, 2003 includes consolidated balance sheets as of December 31, 2002 and 2003 and consolidated statements of income for the one year periods then ended (collectively, the “Form 10-K Financial Statements”).

(e) The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, includes consolidated balance sheets as of June 30, 2004 and December 31, 2003 and consolidated statements of operations and comprehensive loss for the quarters ended June 30, 2003 and 2004 and the six months ended June 30, 2003 and 2004 (the “June 30 Form 10-Q Financial Statements”).

(f) The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, includes consolidated balance sheets as of March 31, 2004 and December 31, 2003 and consolidated statements of operations and comprehensive loss for the quarters ended March 31, 2003 and 2004, (the “March 31 Form 10-Q Financial Statements”).

(g) The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, includes consolidated balance sheets as of December 31, 2003 and September 30, 2004 and consolidated statements of operations and comprehensive loss for the quarters ended September 30, 2003 and

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September 30, 2004 and the nine months ended September 30, 2004 and September 30, 2003 (the “September 30 Form 10-Q Financial Statements” and together with the Form 10-K Financial Statements, the March 31 Form 10-Q Financial Statements and the June 30 Form 10-Q Financial Statements, the “Financial Statements”).

(h) The Financial Statements (including the related notes and schedules thereto and all other financial information included in the SEC Documents) fairly present in all material respects the consolidated financial position, the results of operations, retained earnings or cash flows, as the case may be, of the Company for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments that would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein.

(i) Any SEC Documents filed after the date of this Agreement and prior to the Closing Date will not, as of the date of the applicable document, include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, as of their respective filing dates or, if amended, as so amended.

2.10. Litigation. Except as set forth in the SEC Documents or the Company Disclosure Letter, there are no claims, actions, suits, investigations, inquiries or proceedings (each, an “Action”) pending against the Company or any of its Subsidiaries or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, at law or in equity, or before or by any court, tribunal, arbitrator, mediator or any federal or state commission, board, bureau, agency or instrumentality, that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality.

2.11. Absence of Certain Changes. Except (i) as specifically contemplated by this Agreement or the Reorganization Agreement and related agreements and the transactions contemplated thereby, or (ii) as set forth in the Company Disclosure Letter, the SEC Documents, or the Financial Statements, since September 30, 2004, there has not been (a) any Material Adverse Change; (b) any return of any capital or other distribution of assets to stockholders of Company (except to Company); (c) except for the Acquisition, any acquisition (by merger, consolidation, acquisition of stock and/or assets or otherwise) of any Person; or (d) any transactions, other than in the ordinary course of business, consistent with past practices and reasonable business operations (“Ordinary Course of Business”), with any of its officers, directors, principal stockholders or employees or any Person affiliated with any of such persons.

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2.12. Proprietary Assets.

(a) For purposes of this Agreement, “Proprietary Assets” shall mean all right, title and interest of the Company and the Subsidiaries in and to the following items or types of property: (i) every patent, patent application, trademark (whether registered or unregistered), trademark application, trade name, fictitious business name, service mark (whether registered or unregistered), service mark application, copyright (whether registered or unregistered), copyright application, maskwork, maskwork application, trade secret, know-how, customer list, franchise, system, computer software, computer program, invention, design, blueprint, engineering drawing, proprietary product, technology, proprietary right or other intellectual property right or intangible asset other than goodwill; and (ii) all licenses and other rights to use or exploit any of the foregoing.

(b) Except as set forth in the Company Disclosure Letter, the Company or its Subsidiaries have good, valid and marketable title to each of the Proprietary Assets as owned by it, free and clear of all liens and other encumbrances; has a valid right to use all Proprietary Assets of third parties; and is not obligated to make any payment to any Person for the use of any Proprietary Asset except as set forth in the applicable license agreement. Except as set forth in the Company Disclosure Letter, neither the Company nor any of its Subsidiaries has developed jointly with any other Person any material Proprietary Asset with respect to which such other Person has any rights.

(c) Each of the Company and its Subsidiaries has taken commercially reasonable and customary measures and precautions to protect and maintain the confidentiality and secrecy of all Proprietary Assets of the Company and its Subsidiaries (except Proprietary Assets whose value would be unimpaired by public disclosure) and otherwise to maintain and protect the value of all Proprietary Assets of the Company and its Subsidiaries. Except as set forth in the Company Disclosure Letter, neither the Company nor any of its Subsidiaries has (other than pursuant to license agreements identified in the Company Disclosure Letter) disclosed or delivered to any Person, or permitted the disclosure or delivery to any Person of, (i) the source code, or any portion or aspect of the source code, of any Proprietary Asset, (ii) the object code, or any portion or aspect of the object code, of any Proprietary Asset of the Company and its Subsidiaries, except in the ordinary course of its business or (iii) any patent applications (except as required by law).

(d) To the knowledge of the Company, (i) none of the Proprietary Assets of the Company and its Subsidiaries infringes or conflicts with any Proprietary Asset owned or used by any other Person; (ii) neither the Company nor any Subsidiary is infringing, misappropriating or making any unlawful use of any Proprietary Asset owned or used by any other Person; and (iii) no other Person is infringing, misappropriating or making any unlawful use of, and no Proprietary Asset owned or used by any other Person infringes or conflicts with, any Proprietary Asset of the Company or any of its Subsidiaries.

(e) Except as set forth in the Company Disclosure Letter, excluding warranty claims received by Company or any of its Subsidiaries in the

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ordinary course of business, there has not been any claim by any customer or other Person alleging that any Proprietary Asset of the Company or any of its Subsidiaries (including each version thereof that has ever been licensed or otherwise made available by the Company to any Person) does not conform in all material respects with any specification, documentation, performance standard, representation or statement made or provided by or on behalf of the Company.

(f) To the knowledge of the Company, the Proprietary Assets of the Company and its Subsidiaries constitute all the Proprietary Assets necessary to enable the Company and its Subsidiaries to conduct their respective businesses in the manner in which such businesses have been and are being conducted. Except as set forth in the Company Disclosure Letter, (i) neither the Company nor any Subsidiary has licensed any of its Proprietary Assets to any Person on an exclusive, semi-exclusive or royalty-free basis and (ii) neither the Company nor any Subsidiary has entered into any covenant not to compete or contract limiting such entity’s ability to exploit fully any of such entity’s material Proprietary Assets or to transact business in any material market or geographical area or with any Person.

(g) Except as set forth in the Company Disclosure Letter, neither the Company nor any of its Subsidiaries has at any time received any notice or other communication (in writing or otherwise) of any actual, alleged, possible or potential infringement, misappropriation or unlawful use of, any Proprietary Asset owned or used by any other Person.

2.13. No Adverse Actions. Except as set forth in the Company Disclosure Letter, there is no existing, pending or, to the knowledge of the Company, threatened termination, cancellation, limitation, modification or change in the business relationship of the Company or any of its Subsidiaries, with any supplier, customer or other Person except such as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

2.14 Registration Rights. Except as set forth in the Investor Rights Agreement, the SEC Documents, or in the Company Disclosure Letter, the Company is not under any obligation to register under the Securities Act any of its currently outstanding securities or any securities issuable upon exercise or conversion of its currently outstanding securities nor is the Company obligated to register or qualify any such securities under any state securities or blue sky laws.

2.15. Corporate Documents. The Company’s Certificate of Incorporation and Bylaws, each as amended to date and prior to the Closing Date, which have been requested and previously provided to the Investors are true, correct and complete and contain all amendments thereto.

2.16. Disclosure. No representation or warranty of the Company herein, no exhibit or schedule hereto, and no information contained or referenced in the SEC Documents, when read together, contains or will contain any untrue statement of a material

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fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. On or before 9:00 a.m., New York City Time, on the third business day after the Closing Date, the Company shall file a Current Report on Form 8-K describing the material terms of the transactions contemplated by this Agreement, and disclosing such portions of the Griffin Agreement, the Waiver and the other Transaction Documents as contain material nonpublic information with respect to the Company that has not previously been publicly disclosed by the Company, and attaching as an exhibit to such Form 8-K a form of this Agreement. Except for information that may be provided to the Investors pursuant to this Agreement, the Company shall not, and shall use commercially reasonable efforts to cause each of its officers, directors, employees and agents not to, provide any Investor with any material nonpublic information regarding the Company from and after the filing of such Form 8-K without the express prior consent of such Investor. Notwithstanding the foregoing, this prohibition shall not extend to information received by Hirschman in the normal course of the performance of Hirschman’s financial advisory and other services to the Company.

2.17. Use of Proceeds. The net proceeds received by the Company from the sale of the Securities shall be used by the Company for working capital and general corporate purposes, including without limitation to support the operations, if any, of each of the Subsidiaries.

3. Representations and Warranties of the Investors. Each Investor represents and warrants to the Company as follows:

3.1. Authorization. Such Investor (a) has full power and authority to execute, deliver and perform this Agreement and the other Transaction Documents to which it is a party and to incur the obligations herein and therein and (b) if applicable has been authorized by all necessary corporate or equivalent action to execute, deliver and perform this Agreement and the other Transaction Documents and to consummate the Contemplated Transactions. Each of this Agreement and the other Transaction Documents is a valid and binding obligation of such Investor enforceable in accordance with its terms, except as limited by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights and the availability of equitable remedies (regardless of whether such enforceability is considered in a proceeding at law or equity).

3.2. Brokers and Finders. Such Investor has not retained any investment banker, broker or finder in connection with the Contemplated Transactions.

4. Securities Laws.

4.1. Securities Laws Representations and Covenants of Investors.

(a) This Agreement is made with each Investor in reliance upon such Investor’s representation to the Company, which by such Investor’s execution of this Agreement such Investor hereby confirms, that the Securities to be received

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by such Investor will be acquired for investment for such Investor’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof such that such Investors would constitute an “underwriter” under the Securities Act; provided that this representation and warranty shall not limit the Investor’s right to sell the Underlying Shares pursuant to the Investor Rights Agreement or in compliance with an exemption from registration under the Securities Act or the Investor’s right to indemnification under this Agreement or the Investor Rights Agreement.

(b) Each Investor understands and acknowledges that the offering of the Securities pursuant to this Agreement will not be registered under the Securities Act or qualified under any Blue Sky Laws, on the grounds that the offering and sale of the Securities are exempt from registration and qualification, respectively, under the Securities Act and the Blue Sky Laws.

(c) Each Investor covenants that, unless the Purchased Shares, the Purchased Warrants, the Exchange Warrants, the Underlying Shares or any other shares of capital stock of the Company received in respect of the foregoing have been registered pursuant to the Investor Rights Agreement being entered into among the Company and the Investors, such Investor will not dispose of such securities unless and until such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with an opinion of counsel reasonably satisfactory in form and substance to the Company to the effect that (i) such disposition will not require registration under the Securities Act and (ii) appropriate action necessary for compliance with the Securities Act and any applicable state, local or foreign law has been taken; provided, however, that an investor may dispose of such securities without providing the opinion referred to above if the Company has been provided with adequate assurance that such disposition has been made in compliance with Rule 144 under the Securities Act (or any similar rule).

(d) Each Investor represents that: (i) such Investor has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of such Investor’s prospective investment in the Securities; (ii) such Investor has the ability to bear the economic risks of such Investor’s prospective investment and can afford the complete loss of such investment; (iii) such Investor has been furnished with and has had access to such information as is in the Company Disclosure Letter together with the opportunity to obtain such additional information as it requested to verify the accuracy of the information supplied; and (iv) such Investor has had access to officers of the Company and an opportunity to ask questions of and receive answers from such officers and has had all questions that have been asked by such Investor satisfactorily answered by the Company.

(e) Each Investor further represents by execution of this Agreement that such Investor qualifies as an “accredited investor” as such term is

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defined under Rule 501 promulgated under the Securities Act. Any Investor that is a corporation, a partnership, a limited liability company, a trust or other business entity further represents by execution of this Agreement that it has not been organized for the purpose of purchasing the Securities.

(f) By acceptance hereof, each Investor agrees that the Purchased Shares, the Purchased Warrants, the Exchange Warrants, the Underlying Shares and any shares of capital stock of the Company received in respect of the foregoing held by it may not be sold by such Investor without registration under the Securities Act or an exemption therefrom, and therefore such Investor may be required to hold such securities for an indeterminate period.

4.2. Legends. All certificates for the Purchased Shares, Purchased Warrants, Exchange Warrants and the Underlying Shares, and each certificate representing any shares of capital stock of the Company received in respect of the foregoing, whether by reason of a stock split or share reclassification thereof, a stock dividend thereon or otherwise and each certificate for any such securities issued to subsequent transferees of any such certificate (unless otherwise permitted herein) shall bear the following legend:

“THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.”

5. Additional Covenants of the Company.

5.1. Reports, Information, Authorization of Sufficient Shares.

(a) The Company shall cooperate with each Investor in supplying such information as may be reasonably requested by such Investor to complete and file any information reporting forms presently or hereafter required by the SEC as a condition to the availability of an exemption, presently existing or hereafter adopted, from the Securities Act for the sale of any of the Purchased Shares, the Purchased Warrants, the Exchange Warrants, the Underlying Shares and shares of capital stock of the Company received in respect of the foregoing.

(b) For so long as an Investor (or the successor or assign of such Investor) holds either Securities or Underlying Shares, the Company shall deliver to such Investor (or the successor or assign of such Investor), contemporaneously with delivery to other holders of Common Stock, a copy of each report of the Company delivered to holders of Common Stock.

(c) Upon receiving the Required Stockholder Approval and at every time thereafter, the Company shall keep reserved for issuance a sufficient number of

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authorized but unissued shares of Series B Stock and Common Stock (or other securities into which the Series A Stock or Series B Stock are convertible or for which the Purchased Warrants and Exchange Warrants, respectively, are then exercisable) so that the Shares, the Series B Stock, the Purchased Warrants and the Exchange Warrants may be converted or exercised to purchase Series B Stock or Common Stock, as applicable (or such other securities).

5.2. Expenses; Indemnification.

(a) The Company agrees to pay on each Closing Date and hold the Investors harmless against liability for the payment of, any stamp or similar taxes (including interest and penalties, if any) that may be determined to be payable in respect of the execution and delivery of this Agreement, the issue and sale of any Securities, Series B Stock and Underlying Shares, the expense of preparing and issuing the Securities, Series B Stock and Underlying Shares, the cost of delivering the Securities, Series B Stock and Underlying Shares of each Investor to such Investor’s address, insured in accordance with customary practice, and the costs and expenses incurred in the preparation of all certificates and letters on behalf of the Company and of the Company’s performance and compliance with all agreements and conditions contained herein on its part to be performed or complied with. Each Investor shall be responsible for its out-of-pocket expenses arising in connection with the Contemplated Transactions, except that, at the Closing, the Company shall pay fees and disbursements of counsel to the Investors as set forth in Section 6.9.

(b) The Company hereby agrees and acknowledges that the Investors have been induced to enter into this Agreement and to purchase the Securities hereunder, in part, based upon the representations, warranties and covenants of the Company contained herein. The Company hereby agrees to pay, indemnify and hold harmless the Investors and any director, officer, partner, member, employee or other affiliate of any Investor against all claims, losses and damages resulting from any and all legal or administrative proceedings, including without limitation, reasonable attorneys’ fees and expenses incurred in connection therewith (collectively, “Loss”), resulting from a breach by the Company of any representation or warranty of the Company contained herein or the failure of the Company to perform any covenant made herein; provided that the Company’s liability under this Section 5.2(b) shall be limited to the aggregate purchase price of the Securities.

(c) As soon as reasonably practicable after receipt by an Investor of notice of any Loss in respect of which the Company may be liable under this Section 5.2, the Investor shall give notice thereof to the Company. Each Investor may, at its option, claim indemnity under this Section 5.2 as soon as a claim has been threatened by a third party, regardless of whether an actual Loss has been suffered, so long as counsel for such Investor shall in good faith determine that such claim is not frivolous and that such Investor may be liable or otherwise incur a Loss as a result thereof and shall give notice of such determination to the Company. Each Investor shall permit the Company, at the Company’s option and expense, to assume the

20

defense of any such claim by counsel mutually and reasonably satisfactory to the Company and the Investors who are subject to such claim, and to settle or otherwise dispose of the same; provided, however, that each Investor may at all times participate in such defense at such Investor’s expense; and provided, further, that the Company shall not, in defense of any such claim, except with the prior written consent of each Investor subject to such claim, (i) consent to the entry of any judgment that does not include as an unconditional term thereof the giving by the claimant or plaintiff in question to each Investor and its affiliates of a release of all liabilities in respect of such claims or (ii) consent to any settlement of such claim. If the Company does not promptly assume the defense of such claim irrespective of whether such inability is due to the inability of the afore-described Investors and the Company to mutually agree as to the choice of counsel, or if any such counsel is unable to represent one or more of the Investors due to a conflict or potential conflict of interest, then an Investor may assume such defense and be entitled to indemnification and prompt reimbursement from the Company for such Investor’s costs and expenses incurred in connection therewith, including without limitation, reasonable attorneys’ fees and expenses. Such fees and expenses shall be reimbursed to the Investors as soon as practicable after submission of invoices to the Company.

(d) The Company shall maintain the effectiveness of the Registration Statement (as defined in the Investor Rights Agreement) under the Securities Act for as long as is required under the Investor Rights Agreement.

6. Miscellaneous.

6.1. Entire Agreement; Successors and Assigns. This Agreement and the other Transaction Documents constitute the entire contract between the parties relative to the subject matter hereof and thereof, and no party shall be liable or bound to the other in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. This Agreement and the other Transaction Documents supersede any previous agreement among the parties with respect to the Securities. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective executors, administrators, heirs, successors and assigns of the parties. Except as expressly provided herein, nothing in this Agreement, expressed or implied, is intended to confer upon any party, other than the parties hereto, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

6.2. Survival of Representations and Warranties. Notwithstanding any right of the Investors fully to investigate the affairs of the Company and notwithstanding any knowledge of facts determined or determinable by any Investor pursuant to such right of investigation, each Investor has the right to rely fully upon the representations, warranties, covenants and agreements of the Company contained in this Agreement or in any documents delivered pursuant to this Agreement. All such representations and warranties of the Company shall survive the execution and delivery of this Agreement and the Closing hereunder and shall continue in full force and effect for one year after the Closing. The covenants of the Company set forth in Section 5 shall remain in effect as set forth therein.

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6.3. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of law. Each party hereby irrevocably consents and submits to the jurisdiction of any New York State or United States Federal Court sitting in the State of New York, County of New York, over any action or proceeding arising out of or relating to this Agreement and irrevocably consents to the service of any and all process in any such action or proceeding by registered mail addressed to such party at its address specified in Section 6.6 (or as otherwise noticed to the other party). Each party further waives any objection to venue in New York and any objection to an action or proceeding in such state and county on the basis of forum non conveniens. Each party also waives any right to trial by jury.

6.4. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

6.5. Headings. The headings of the sections of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement.

6.6. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, delivery by fax (with answer back confirmed), addressed to a party at its address or sent to the fax number shown below or at such other address or fax number as such party may designate by three days advance notice to the other party.

Any notice to the Investors shall be sent to the addresses set forth on the signature pages hereof, with a copy to:

Hahn & Hessen LLP

488 Madison Avenue

New York, New York 10022

Attention: James Kardon

Fax Number: (212) 478-7400

Any notice to the Company shall be sent to:

GraphOn Corporation

3130 Winkle Avenue

Santa Cruz, California 95065

Attention: William Swain

Fax Number: (831) 475-3017

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with a copy to:

Cooley Godward LLP

One Maritime Plaza, 20th Floor

San Francisco, CA 94111-3580

Attention: Kenneth Guernsey

Fax: 415-951-3699

6.7. Rights of Transferees. Any and all rights and obligations of each of the Investors herein incident to the ownership of Securities or the Underlying Shares shall pass successively to all subsequent transferees of such securities until extinguished pursuant to the terms hereof.

6.8. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or any other provision of this Agreement.

6.9. Expenses. Irrespective of whether any Closing is effected, the Company shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement. Each Investor shall be responsible for all costs incurred by such Investor in connection with the negotiation, execution, delivery and performance of this Agreement including, but not limited to, legal fees and expenses, except that the Company shall pay at the Closing the reasonable legal fees and expenses of Hahn & Hessen LLP (the “Legal Fee”), as counsel to the Investors, and shall pay additional legal expenses of the Investors relating to this Offering as incurred. Hirschman may, at his option, deduct the Legal Fee from the purchase price paid to the Company for his Securities for payment to Hahn & Hessen LLP.

6.10. Amendments and Waivers. Unless a particular provision or section of this Agreement requires otherwise explicitly in a particular instance, any provision of this Agreement may be amended and the observance of any provision of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of 75% of the Purchased Shares (not including for this purpose any Purchased Shares that have been sold to the public pursuant to a registration statement under the Securities Act or an exemption therefrom). Any amendment or waiver effected in accordance with this Section 6.10 shall be binding upon each holder of any Securities at the time outstanding (including securities into which such Securities are convertible), each future holder of all such Securities, and the Company.

[REMAINDER OF PAGE INTENTIONALLY BLANK]

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SIGNATURE PAGE

TO

GRAPHON CORPORATION

SUBSCRIPTION AGREEMENT

Dated January     , 2005

IF the PURCHASER is an INDIVIDUAL, please complete the following:

IN WITNESS WHEREOF, the undersigned has executed this Agreement this      day of January     , 2005.

Amount of Subscription:
$
	Print Name
Number of Units to be Purchased:
, including
Purchased Shares and related	Signature of Investor
Purchased Warrants
	Social Security Number
	Address and Fax Number
	E-mail Address

ACCEPTED AND AGREED:

GRAPHON CORPORATION

By:

Dated:

24

SIGNATURE PAGE

TO

GRAPHON CORPORATION

SUBSCRIPTION AGREEMENT

Dated January     , 2005

IF the INTERESTS will be held as JOINT TENANTS, as TENANTS IN COMMON, or as COMMUNITY PROPERTY, please complete the following:

IN WITNESS WHEREOF, the undersigned has executed this Agreement this      day of January     , 2005.

Amount of Subscription:
$	Print Name of Purchaser
Number of Units to be Purchased:
, including	Signature of a Purchaser
Purchased Shares and related
Purchased Warrants
	Social Security Number
	Print Name of Spouse or Other Purchaser
	Signature of Spouse or Other Purchaser
	Social Security Number
	Address
	Fax Number
	E-mail Address

ACCEPTED AND AGREED:

GRAPHON CORPORATION

By:

Dated:

25

SIGNATURE PAGE

TO

GRAPHON CORPORATION

SUBSCRIPTION AGREEMENT

Dated January     , 2005

IF the PURCHASER is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY, TRUST or OTHER ENTITY, please complete the following:

IN WITNESS WHEREOF, the undersigned has executed this Agreement this      day of January, 2005.

Number of Units to be Purchased:

                    , including

                     Purchased Shares and related

Purchased Warrants

Print Full Legal Name of Partnership, Company, Limited Liability Company, Trust or Other Entity
By:	/s/
	(Authorized Signatory)
Name:
Title:
Address and Fax Number:
Taxpayer Identification Number:

Date and State of Incorporation or Organization:

Date on which Taxable Year Ends:

E-mail Address:

ACCEPTED AND AGREED:
GRAPHON CORPORATION
By:	/s/
Name:
Title:
Dated:

Schedule 1.1(b)

INVESTORS

[Note: will be updated upon receipt of information from Hirschman re: $4 million of funds]

Name	Purchased Shares	Purchased Warrants	Total Purchase Price
Hershel Berkowitz
Paul Packer
Globis Capital Partners
Globis Overseas Fund Ltd.
Richard Grossman
Joshua Hirsch
James Kardon
Orin Z. Hirschman
IDT/Net2Phone
The Hewlett Fund
Dr. Jack Dodick
Steven W. Spira
Fame Associates
Cam Co
Anfel Trading Limited
Ganot Corporation
Mazel D&K, Inc.
Lyon Polk
Nicholas Sprinkel

EXHIBITS AND SCHEDULES TO THE UNIT SUBSCRIPTION AGREEMENT

Schedule 1.1(b)	Investors
Exhibit 1A:	Form of Purchased Warrants
Exhibit 1B:	Form of Exchange Warrants
Exhibit 1C	Form of Certificate of Designations for Series A Stock and Series B Stock
Exhibit 2:	Form of Investor Rights Agreement
Exhibit 3:	Form of Amendment to Financial Advisory Agreement
Exhibit 4:	Legal Opinion
Exhibit 5:	Company Disclosure Letter
Exhibit 6:	Waiver
Exhibit 7:	Voting Agreement

EX-4

Exhibit 4

INVESTOR RIGHTS AGREEMENT

This INVESTOR RIGHTS AGREEMENT (this “Agreement”) is made as of January     , 2005 by and among GraphOn Corporation, a Delaware corporation (the “Company”) and the investors listed on Exhibit A hereto (collectively the “Investors”).

WHEREAS, the Company desires to sell to the Investors, and the Investors desire to purchase an aggregate of 148,148 shares of Series A Stock of the Company (the “Shares”) and 5-year warrants, exercisable to purchase an aggregate of 74,074 shares of Series B Stock of the Company (the “Warrant Shares”) at $40.00 per share (the “Series B Warrants”), upon the terms and conditions set forth in that certain Unit Subscription Agreement, dated of even date herewith, between the Company and the Investors (the “Unit Subscription Agreement”);

WHEREAS, the terms of the Unit Subscription Agreement provide that it shall be a condition precedent to the closing of the transactions thereunder for the Company and the Investors to execute and deliver this Agreement; and

WHEREAS, at the Closing, Griffin Securities, Inc. (“Griffin”) is receiving warrants in substantially the same form as the Warrants, exercisable to purchase an aggregate of 14,815 shares of Series A Stock and 7,407 shares of Series B Stock, (the “Griffin Warrants”), and Griffin is entitled to share the Investors’ rights under this Agreement;

WHEREAS, capitalized terms used herein and not otherwise defined are defined in the Unit Subscription Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows:

1. Definitions. The following terms shall have the meanings provided below:

“Additional Shares” shall mean any additional shares of Common Stock which may be issued or become issuable from time to time upon conversion of the Shares or Series B Stock or the exercise of a Purchased Warrant or a Griffin Warrant, or a distribution with respect to, or in exchange for, or in replacement of a Purchased Warrant, a Griffin Warrant, Shares or Warrant Shares, as a result of anti-dilution provisions of a Purchased Warrant, a Griffin Warrant, Shares or otherwise.

“Board of Directors” shall mean the board of directors of the Company.

“Convertible Securities” means (i) options to purchase or rights to subscribe for Common Stock, (ii) securities by their terms convertible into or exchangeable for Common Stock or (iii) options to purchase or rights to subscribe for such convertible or exchangeable securities.

“Demand Registrable Shares” shall mean the Shares, the Warrant Shares and all Other Securities and Additional Shares.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and all of the rules and regulations promulgated thereunder.

“Exchange Warrants” shall mean 5-year warrants, exercisable as of the date hereof to purchase an aggregate of 7,407,400 shares of Common Stock at $0.40 per share, subject to adjustment.

“Exchange Shares” shall mean shares of Common Stock from time to time issuable upon exercise of Exchange Warrants.

“Excluded Stock” shall mean (i) all shares of Common Stock issued or issuable to employees, directors or consultants pursuant to any equity compensation plan that is in effect on the date of this Agreement, (ii) all shares of Common Stock issued or issuable to employees or directors pursuant to any equity compensation approved by the stockholders of the Company after the date of this Agreement, (iii) all shares of Common Stock issued or issuable to employees or directors in the form of a hiring bonus, (iv) all shares of Common Stock issued or issuable to bona fide leasing companies, strategic partners, or major lenders, (v) all shares of Common Stock issued or issuable as the purchase price in a bona fide acquisition or merger (including reasonable fees paid in connection therewith) or (vi) all shares of Common Stock issued upon conversion or exercise of the Shares, Purchased Warrants, Exchange Warrants or other Convertible Securities outstanding on the date hereof.

“Griffin Exchange Shares” shall mean shares of Common Stock from time to time issuable upon exercise of Griffin Exchange Warrants.

“Griffin Exchange Warrants” shall mean 5-year warrants exercisable to purchase 1,481,400 shares of Common Stock at $.27 per share and 740,700 shares of Common Stock at $.40 per share.

“Griffin Warrants” shall mean warrants issued to Griffin Securities Inc. (“Griffin”) in substantially the same form as the Series B Warrants to purchase an aggregate of 14,815 shares of Series A Stock at $27.00 per share and 7,407 shares of Series B Stock at $40.00 per share.

“Holder” shall mean the Investors and Griffin or any transferee of the Purchased Warrants, Registrable Shares or Demand Registrable Shares that were held by Investors or Griffin.

“Majority Holders” shall mean, at the relevant time of reference thereto, those Holders holding more than fifty percent (50%) of the Registrable Shares (or Demand Registrable Shares, to the extent that the Holders have a right to make a Demand Registration Request pursuant to Section 3A hereof) Owned by all of the Holders.

“Other Stockholders” refers to stockholders of the Company other than the Holders.

“Other Securities” refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) that the Holders of the

2

Shares or Purchased Warrants at any time shall be entitled to receive, or shall have received, upon conversion of the Shares, the exercise of the Purchased Warrants or conversion of the Warrant Shares, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to the terms of the Shares, Purchased Warrants, Warrant Shares or otherwise.

“Own” shall mean to own beneficially, as that term is defined in the rules and regulations of the SEC.

“Purchased Warrants” shall mean the Series B Warrants and any securities into which the Series B Warrants may be converted (other than by exercise of the Purchased Warrants by the holder thereof), including without limitation, the Exchanged Warrants.

“Registrable Shares” shall mean any shares of Common Stock or Other Securities issued or issuable from time to time upon conversion of the Shares, the Warrant Shares, the Exchange Shares, the Griffin Exchange Shares or the exercise of a Purchased Warrant, or a distribution with respect to, in exchange for, or in replacement of Shares, the Warrant Shares, the Exchange Shares, the Griffin Warrants or Purchased Warrants, including without limitation Additional Shares.

“Rule 144” shall mean Rule 144 promulgated under the Securities Act and any successor or substitute rule, law or provision.

“SEC” shall mean the Securities and Exchange Commission.

“Securities Act” shall mean the Securities Act of 1933, as amended, and all of the rules and regulations promulgated thereunder.

“Selling Expenses” shall mean all underwriting discounts, brokerage and selling commissions applicable to the sale of Registrable Shares or Demand Registrable Shares, including standard underwriters’ cutbacks.

“Series A Stock” means the Series A Participating Convertible Preferred Stock, par value $.01 per share, of the Company.

“Series B Stock” means the Series B Participating Convertible Preferred Stock, par value $.01 per share, of the Company.

2. Effectiveness. This Agreement shall become effective upon the Closing.

3. Mandatory Registration. (a) No later than sixty (60) days after the Closing, the Company will prepare and file with the SEC a registration statement on Form S-1 for the purpose of registering (such registration, the “Mandatory Registration”) under the Securities Act all of the Registrable Shares for resale by, and for the account of, the Investors and Griffin as selling stockholders thereunder (the “Registration Statement”). The Registration Statement shall permit the Investors to offer and sell, on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, any or all of the Registrable Shares. Such Registration

3

Statement also shall cover, to the extent allowable under the Securities Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Shares.

(b) The Company agrees to use commercially reasonable efforts to cause the Registration Statement to become effective as soon as practicable after filing, but in no event later than one hundred twenty (120) days after filing.

(c) The Company shall be required to keep the Registration Statement, as amended, effective until such date that is the earlier of (i) two years after the Closing, (ii) the date when all of the Registrable Shares registered thereunder shall have been sold or (iii) such time as all the Registrable Shares held by the Investors can be sold pursuant to Rule 144(k) and without compliance with the registration requirements of the Securities Act (such date is referred to herein as the “Mandatory Registration Termination Date”). Thereafter, the Company shall be entitled to withdraw the Registration Statement and the Investors shall have no further right to offer or sell any of the Registrable Shares pursuant to the Registration Statement (or any prospectus relating thereto).

(d) The Company shall not grant any registration rights that are senior to the registration rights of the Investors under this Agreement if such registration rights would adversely affect the Investors’ ability to sell Registrable Shares pursuant to the Registration Statement. The Company represents that no stockholders other than the Investors and Griffin have the right to sell any Common Stock or other securities of the Company pursuant to the Registration Statement other than rights granted pursuant to the transactions contemplated by the Reorganization Agreement.

3A. Demand Registration

(a) Request for Registration. In the event that the Company has not adopted the Certificate of Amendment on or prior to July 1, 2005, any Holder shall have the right to make a written request to the Company (such request, a “Demand Registration Request”) that the Company effect a registration with respect to all or a part of the Demand Registrable Shares held by such Holder (such Holder, an “Initiating Holder”). In response to such Demand Registration Request, the Company shall:

(i) promptly give written notice of the proposed registration (“Demand Registration”) to all other Holders (such notice, a “Demand Registration Notice”); and

(ii) use its best efforts to file a registration statement on Form S-3, if the Company is eligible for Form S-3, or, if not so eligible, on Form S-1 (it being understood that the Company shall use commercially reasonable efforts to qualify for registration on Form S-3 for secondary sales) (such registration statement filed pursuant to this Section 3A, a “Demand Registration Statement”) as soon as practicable, but not later than thirty (30) days following receipt of the Demand Registration Notice in order to permit or facilitate the sale and distribution of all or such portion of such Demand

4

Registrable Shares as are specified in the Demand Registration Request, together with all or such portion of the Demand Registrable Shares of any Holder or Holders joining in such request (each such Holder, a “Requesting Holder”) as are specified in a written request received by the Company from such Holder or Holders within ten (10) days after the Demand Registration Notice is given by the Company. In the event any Holder requests a Demand Registration pursuant to this Section 3A in connection with a distribution of Demand Registrable Shares to its partners or other beneficial owners, the registration shall provide for the resale by such partners or beneficial owners, assuming such distribution was effected in accordance with applicable securities laws.

(b) Limitations on Demand Registration. The Company shall not be obligated to effect, or take any action to effect, any Demand Registration pursuant to this Section 3A:

(i) if the Company has effected three (3) Demand Registrations, provided that each of such Demand Registration Statements has been declared or ordered effective in accordance with the terms of this Agreement and provided that the Demand Registrable Shares subject to the current Demand Registration Request could have been included for registration, sale and distribution in connection with such previous two effective registrations, but were not, for reasons other than the marketing limitations connected to the underwriting of such previous Demand Registrations, as described in Section 3A(c)(iii) below;

(ii) if the Demand Registrable Shares included in the written registration requests of all Requesting Holders pursuant to Section 3A(a) above (including the Demand Registrable Shares of the Initiating Holder) do not have an anticipated aggregate public offering price (before any underwriting discounts and commissions) of at least US$3,000,000;

(iii) for a period of time not to exceed 90 days following receipt of a Demand Registration Request if, in the discretion of the Company’s Board of Directors, effecting such Demand Registration at the time of receipt of such Demand Registration Request would be seriously detrimental to the Company;

(iv) if the Demand Registration Request is received by the Company after January     , 2009; or

(v) if the Certificate of Amendment is filed in Delaware prior to the date which is thirty (30) days after receipt of the Demand Registration Request.

(c) Underwriting.

(i) Request Regarding Underwriting. If the Requesting Holders intend to distribute the Demand Registrable Shares covered by their Demand Registration Request by means of an underwriting, they shall so advise the Company as a part of such Demand Registration Request or their response to any Demand Registration Notice given pursuant to Section 3A(a)(i).

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(ii) Participation of Other Stockholders and the Company in Underwritten Offering. The Demand Registration Statement may, subject to the provisions described herein, include securities of the Company which are held by Other Stockholders. If Other Stockholders request such inclusion, Requesting Holders with more than 50% in interest of the Demand Registrable Shares to be included in the Demand Registration Statement may in their discretion offer to include the securities of such Other Stockholders in the underwriting and may condition such offer on their acceptance of the further applicable provisions of this Section 3A. If the underwriter has not limited the number of Demand Registrable Shares to be underwritten, the Company may include its or their securities for its own account in such Demand Registration if the Underwriter Representative (as defined below) so agrees and if the number of Demand Registrable Shares will not thereby be limited.

(iii) Underwriting Agreement; Exclusion of Shares from Offering. All Requesting Holders whose shares are to be included in an underwriting pursuant to this Section 3A and the Company shall (together with all Other Stockholders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by the vote of the Holders of a majority of the Demand Registrable Shares subject to the Demand Registration Request (and reasonably acceptable to the Company) (such representative, the “Underwriter Representative”). Notwithstanding any other provision of this Section 3A, if the Underwriter Representative advises the Requesting Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, the securities of the Company held by Other Stockholders and then the Company shall be excluded from such Demand Registration to the extent so required by such limitation. If, after the exclusion of such shares, further reductions are still required, the number of Demand Registrable Shares included in the registration by each Requesting Holder (other than the Initiating Holder) shall be reduced on a pro rata basis (based on the number of Demand Registrable Shares requested to be so registered by each such Requesting Holder) by such minimum number of shares as is necessary to comply with the requisite reduction. If, after the exclusion of such shares, further reductions are still required, the number of shares included in the registration by the Initiating Holder shall be reduced by such minimum number of shares as is necessary to comply with the requisite reduction; provided, however, that any Demand Registrable Shares proposed to be included by any Requesting Holder in a given registration that are excluded due to marketing limitations of the underwriter shall not be subject to exclusion from future Demand Registration Requests on the basis of Section 3A(i) above. No Demand Registrable Shares or any other securities excluded from an underwriting by reason of the underwriter’s marketing limitation shall be included in the Demand Registration related to such underwriting. If any Requesting Holder, or Other Stockholder who has requested inclusion in such Demand Registration as provided above disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the underwriter and the Initiating Holder. Any securities so withdrawn shall also be withdrawn from the Demand Registration.

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(d) Expenses of Registration. Expenses related to the registration and sale of the Demand Registrable Shares pursuant to this Section 3A shall be borne as provided by Section 6 hereof.

(e) Termination of Demand Registration Statement. At its expense, the Company will keep any Demand Registration Statement effective for a period of one hundred twenty (120) days or until the Holders (or in the case of a distribution to the partners of such Holder, such partners), as applicable, have completed the distribution described in the Demand Registration Statement relating thereto, whichever first occurs (such date on which the Demand Registration Statement need no longer be kept effective, subject to the further provisions of this Section 3A(e), the “Demand Registration Termination Date”); provided, however, that (i) such 120-day period shall be extended for a number of days equal to the number of days of all suspensions (as defined in Section 9(b)) occurring during such 120-day period; and (ii) in the case of any Demand Registrations on Form S-3 (which are intended to be offered on a continuous or delayed basis), such 120-day period shall be extended to the earlier of one year from the date of the Demand Registration Statement’s effectiveness or until all Demand Registrable Shares registered pursuant to such Form S-3 are sold, provided that Rule 415 under the Securities Act, or any successor rule under the Securities Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment that (y) includes any prospectus required by Section 10(a) of the Securities Act or (z) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (y) and (z) above to be contained in periodic reports filed pursuant to Section 12 or 15(d) of the Exchange Act in the Demand Registration Statement.

4. Obligations of the Company. In connection with the Company’s obligations (i) under Sections 3 and 3A hereof to file the Registration Statement and Demand Registration Statements, respectively, with the SEC and to use its reasonable efforts to cause the Registration Statement and Demand Registration Statement to become effective as soon as practicable after filing, the Company shall, as expeditiously and as reasonably as possible, subject to Section 9 hereof:

(a) prepare and file with the SEC such amendments and supplements to the Registration Statement or Demand Registration Statement, as the case may be, and the prospectus used in connection therewith, as may be necessary, and, in the case of the Mandatory Registration or a Demand Registration, as necessary to keep the Registration Statement or Demand Registration Statement effective until the Mandatory Registration Termination Date or Demand Registration Termination Date, as the case may be;

(b) furnish to the selling Holders such reasonable number of copies of the Registration Statement or Demand Registration Statement, as the case may be, and a prospectus and preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents (including, without limitation, prospectus amendments and supplements as are prepared by the Company in accordance with Section 4(a) above) as the selling Holders may reasonably request, in order to facilitate the public or other disposition of such selling Holders’ Registrable Shares and Demand Registrable Shares;

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(c) use reasonable efforts to register and qualify the Registrable Shares and Demand Registrable Shares covered by the Registration Statement or Demand Registration Statement under such other securities laws or blue sky (“Blue Sky”) laws of all states requiring such securities or Blue Sky registration or qualification, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;

(d) use reasonable efforts to cause all such Registrable Shares and Demand Registrable Shares registered hereunder to be listed on each securities exchange (including without limitation any Nasdaq market) on which securities of the same class issued by the Company are then listed; and

(e) in the case of an underwritten Demand Registration pursuant to Section 3A(c), on the date that such Demand Registrable Shares are delivered to the underwriters for sale, (i) furnish an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering addressed to the underwriters, and (ii) cause the Company’s independent certified public accountants to furnish a letter, dated as of such date, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters.

5. Furnish Information. (a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement that the selling Holders and Griffin shall furnish to the Company such information regarding them and the securities held by them as the Company shall reasonably request and as shall be required in order to effect any registration by the Company pursuant to this Agreement.

(b) The Registration Statement and, except in the case of an underwriting pursuant to Section 3A(c), any Demand Registration Statement will provide for a plan of distribution with respect to the Registrable Shares or Demand Registrable Shares (as the case may be) substantially as follows: The Registrable Shares and Demand Registrable Shares may be sold from time to time by the Holders, or by pledgees, donees, transferees or other successors in interest. Such sales may be made on one or more exchanges or in the over-the-counter market, or otherwise at prices and at terms then prevailing or at prices related to the then-current market price, or in negotiated transactions. The Registrable Shares and Demand Registrable Shares may be sold by one or more of the following: (i) a block trade in which the broker or dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (ii) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to the resale registration statement; (iii) an exchange distribution in accordance with the rules of such exchange; (iv) one or more underwritten offerings on a firm commitment or best efforts basis; (v) ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (vi) transactions between sellers and purchasers without a broker/dealer. In addition, any securities covered by the Registration Statement and any Demand Registration Statement that qualify for sale pursuant

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to Rule 144 may be sold under Rule 144 rather than pursuant to the Registration Statement or Demand Registration Statement. From time to time the selling Holders may engage in short sales, short sales versus the box, puts and calls and other transactions in securities of the issuer or derivatives thereof, and may sell and deliver the shares in connection therewith. For so long as an Holder owns any Registrable Shares, such Holder shall not maintain a Net Short Position. For purposes of this Section, a “Net Short Position” by a person means a position whereby such person has executed one or more sales of Common Stock that is marked as a short sale and that is executed at a time when such Holder has no equivalent offsetting long position in the Common Stock. For purposes of determining whether an Holder has an equivalent offsetting long position in the Common Stock, all Common Stock that is beneficially owned by such Holder shall be deemed to be held long by such Holder. The Holders may also distribute the shares to their partners, members, stockholders or shareholders to the extent such distributions are effected in full compliance with applicable securities laws and provided that the distributing Holders and the distributees provide the Company with such documents and other information as reasonably requested by the Company. In effecting sales, brokers or dealers engaged by the selling Holders may arrange for other brokers or dealers to participate. Brokers or dealers will receive commissions or discounts from selling Holders in amounts to be negotiated immediately prior to the sale.

6. Expenses of Registration. All expenses incurred in connection with the registration of the Registrable Shares and Demand Registrable Shares pursuant to this Agreement, including without limitation all registration and qualification and filing fees, printing expenses, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders selected by the selling Holders, shall be borne by the Company; provided, however, that all Selling Expenses shall be borne by the Holders of the Registrable Shares and Demand Registrable Shares so registered and sold, pro rata on the basis of the number of their Registrable Shares and Demand Registrable Shares (as the case may be) so registered and sold.

7. Indemnification.

(a) To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder (including the partners or officers, directors and stockholders of such Holder), and each person, if any, who controls such selling Holder within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which they may become subject under the Securities Act, the Exchange Act, and other federal or state securities laws, or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) (i) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in the Registration Statement or Demand Registration Statement, in any preliminary prospectus or final prospectus relating thereto or in any amendments or supplements to the Registration Statement or Demand Registration Statement or any such preliminary prospectus or final prospectus, (ii) arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading or (iii) arise out of any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other federal or state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any other federal or

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state securities law; and will reimburse such selling Holder, or such officer, director or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable in any such case for any such loss, damage, liability or action, to the extent that it arises out of or is based upon an untrue statement or alleged untrue statement or omission made in connection with the Registration Statement, or Demand Registration Statement, any preliminary prospectus or final prospectus relating thereto or any amendments or supplements to the Registration Statement or Demand Registration Statement or any such preliminary prospectus or final prospectus, in reliance upon and in conformity with written information furnished expressly for use in connection with the Registration Statement or Demand Registration Statement or any such preliminary prospectus or final prospectus by the selling Holders, any broker/dealer acting on their behalf or controlling person with respect to them.

(b) To the extent permitted by law, Griffin and each selling Holder will severally and not jointly indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement or Demand Registration Statement, as the case may be, each person, if any, who controls the Company within the meaning of the Securities Act, or any selling Holders, and all other selling Holders against any losses, claims, damages or liabilities to which the Company or any such director, officer, controlling person or such other selling Holder may become subject to, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in the Registration Statement or Demand Registration Statement or any preliminary prospectus or final prospectus, relating thereto or in any amendments or supplements to the Registration Statement or Demand Registration Statement or any such preliminary prospectus or final prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent and only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement or Demand Registration Statement, in any preliminary prospectus or final prospectus relating thereto or in any amendments or supplements to the Registration Statement or Demand Registration Statement or any such preliminary prospectus or final prospectus, in reliance upon and in conformity with written information furnished by the selling Holder expressly for use in connection with the Registration Statement or Demand Registration Statement, or any preliminary prospectus or final prospectus; and such selling Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, or other selling Holder in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the liability of each selling Holder hereunder (when aggregated with amounts contributed, if any, pursuant to Section 7(d)) shall be limited to the difference (the “Difference”) between the amount received by such Holder from the sale of the Registrable Shares or Demand Registrable Shares pursuant to the Registration Statement or Demand Registration Statement, as the case may be, and the amount paid by such Holder to the Company for such Registrable Shares or Demand Registrable Shares pursuant to the Unit Subscription Agreement, and

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provided further, however, that the indemnity agreement contained in this Section 7(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of those selling Holder(s) against which the request for indemnity is being made (which consent shall not be unreasonably withheld or delayed).

(c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7, notify the indemnifying party in writing of the commencement thereof and the indemnifying party shall have the right to participate in and, to the extent the indemnifying party desires, jointly with any other indemnifying party similarly noticed, to assume at its expense the defense thereof with counsel mutually satisfactory to the indemnifying parties with the consent of the indemnified party, which consent will not be unreasonably withheld, conditioned or delayed. In the event that the indemnifying party assumes any such defense, the indemnified party may participate in such defense with its own counsel and at its own expense, provided, however, that the counsel for the indemnifying party shall act as lead counsel in all matters pertaining to such defense or settlement of such claim and the indemnifying party shall only pay for such indemnified party’s reasonable legal fees and expenses for the period prior to the date of its participation in such defense, and provided further, however, that the indemnified party (together with all indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses of such separate counsel to be paid by the indemnifying party, if the representation of the indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between the indemnified party and any other party represented by such counsel in such proceeding. Notwithstanding the foregoing, the indemnifying party shall not be obligated to pay the fees of more than one separate counsel. The failure to notify an indemnifying party of the commencement of any such action will not relieve such indemnifying party of any liability to the indemnified party under this Section 7 (except to the extent that such failure materially and adversely affects the indemnifying party’s ability to defend such action), nor shall the omission so to notify an indemnifying party relieve such indemnifying party of any liability which it may have to any indemnified party otherwise other than under this Section 7. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation and otherwise in form and substance reasonably satisfactory to the indemnified party.

(d) If the indemnification provided in this Section 7 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that shall have resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations; provided that in no event shall any contribution by an Holder under this

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Section 7(d), when aggregated with amounts paid, if any, pursuant to Section 7(b), exceed the Difference. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

(e) The obligations of the Company, Griffin and Holders under this Section 7 shall survive the completion of any offering of Registrable Shares or Demand Registrable Shares in a Registration Statement or Demand Registration Statement under Sections 3 and 3A, respectively, and otherwise.

8. Reports Under the Exchange Act. With a view to making available to the Holders the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit the Holders to sell the Registrable Shares and Demand Registrable Shares to the public without registration, the Company agrees to use reasonable efforts: (a) to make and keep public information available, as those terms are understood and defined in Rule 144, (b) to file with the SEC in a timely manner all reports and other documents required to be filed by an issuer of securities registered under the Securities Act or the Exchange Act and (c) undertake any additional actions reasonably necessary to maintain the availability of the Registration Statement and Demand Registration Statement or the use of Rule 144.

9. Selling Procedures. Any sale of Registrable Shares or Demand Registrable Shares pursuant to a registration statement filed in accordance with Section 3 or 3A hereof shall be subject to the following conditions and procedures:

(a) Updating the Prospectus.

(i) If the Company informs the selling Holder that the Registration Statement or Demand Registration Statement or final prospectus then on file with the SEC is not current or otherwise does not comply with the Securities Act, the Company shall use its commercially reasonable efforts to provide to the selling Holder a current prospectus that complies with the Securities Act as soon as practicable, but in no event later than three (3) business days after delivery of such notice.

(ii) If the Company requires more than three (3) business days to update the prospectus under Section 9(a)(i) above, the Company shall have the right to delay the preparation of a current prospectus that complies with the Securities Act without explanation to Griffin or such Holder, subject to the limitations set forth in Section 9(b) below, for a total of not more than ninety (90) days in the aggregate during any twelve-month period.

(b) General. Notwithstanding the foregoing, upon receipt of any notice from the Company of (i) any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement or Demand Registration Statement for amendments or supplements to the Registration Statement or Demand Registration Statement or related prospectus or for additional information relating to the Registration Statement or Demand Registration Statement (ii) the issuance by the SEC

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or any other federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or Demand Registration Statement or the initiation of any proceedings for that purpose, (iii) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Shares or Demand Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (iv) the happening of any event which makes any statement made in the Registration Statement or Demand Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or which requires the making of any changes in the Registration Statement or Demand Registration Statement or prospectus so that, in the case of the Registration Statement or Demand Registration Statement, it will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the prospectus, it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or (v) that, in the judgment of the Board of Directors, it is advisable to suspend use of the prospectus for a discrete period of time due to pending corporate developments, public filings with the SEC or that there exists material nonpublic information about the Company that the Board of Directors, acting in good faith, determines not to disclose in a registration statement, then the Company may suspend use of the prospectus (each a “Suspension”), in which case the Company shall promptly so notify each Holder and each Holder shall not dispose of Registrable Shares or Demand Registrable Shares (as the case may be) covered by the Registration Statement or Demand Registration Statement or prospectus until copies of a supplemented or amended prospectus are distributed to the Holders or until the Holders are advised in writing by the Company that the use of the applicable prospectus may be resumed; provided, however, that, notwithstanding the foregoing, the Company may suspend use of the prospectus pursuant to Sections 9(a)(ii), 9(b)(iv) and 9(b)(v), and an Holder may be prohibited from selling or otherwise disposing of the Registrable Shares or Demand Registrable Shares covered by the Registration Statement or Demand Registration Statement or prospectus, for no more than ninety (90) days in the aggregate during any such twelve-month period. The Company shall use its best efforts to ensure the use of the prospectus may be resumed as soon as practicable. The Company shall use its best efforts to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement or Demand Registration Statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the securities for sale in any jurisdiction, at the earliest practicable moment. The Company shall, upon the occurrence of any event contemplated by clause (iv), prepare a supplement or post-effective amendment to the Registration Statement or Demand Registration Statement or a supplement to the related prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares or Demand Registrable Shares being sold thereunder, such prospectus will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

10. Pre-emptive Rights. In the event that at any time after the date hereof until the date that is five (5) years after the Closing Date, the Company proposes to issue additional shares

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of Common Stock or Convertible Securities, other than Excluded Stock, the Company shall send a notice (an “Additional Share Notice”) to the Holder setting forth the terms of such proposed issuance. The Holder shall be entitled to purchase the proposed number of shares of Common Stock or Convertible Securities, proposed to be issued in proportion to the Holder’s Proportionate Percentage (as hereafter defined) on substantially the same terms set forth in the Additional Share Notice by (a) notice to the Company (the “Purchase Notice”) within 10 days of the date of the Additional Share Notice and (b) payment of the price for such shares of Common Stock or Convertible Securities, by wire transfer of immediately available funds or such other method of payment as the Company may approve, within 10 days after delivery to the Company of the Purchase Notice. The “Proportionate Percentage” of the Holder means the percentage obtained by dividing (x) the aggregate number shares of Common Stock Owned by the Holder by (y) the aggregate number of shares of Common Stock of the Company then issued and outstanding.

11. Issuance of Certain Securities. The Company shall not issue any (a) Convertible Securities or similar securities that contain a provision that provides for any change or determination of the applicable conversion price, conversion rate, or exercise price (or a similar provision which might have a similar effect) based on any determination of the market price or other value of the Company’s securities or any other market based or contingent standard, such as so-called “toxic” or “death spiral” convertible securities; provided, however, that this prohibition shall not include Convertible Securities or similar securities the conversion or exercise price or conversion rate of which is (i) fixed on the date of issuance, (ii) subject to adjustment as a result of or in connection with a business combination or similar transaction or (iii) subject to adjustment based upon the issuance by the Company of additional securities, including without limitation, standard anti-dilution adjustment provisions which are not based on calculations of market price or other variable valuations; and provided, further, that in no event shall this provision be deemed to prohibit the transactions contemplated in the Unit Subscription Agreement; (b) any preferred stock, debt instruments or similar securities or investment instruments providing for (i) preferences or other payments substantially in excess of the original investment by purchasers thereof or (ii) dividends, interest or similar payments other than dividends, interest or similar payments computed on an annual basis and not in excess, directly or indirectly, of the lesser of a rate equal to (A) twice the interest rate on 10 year US Treasury Notes and (B) 20%.

12. Assignment. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the Holders shall also be for the benefit of and enforceable by any subsequent holder of any Registrable Shares who has executed a copy of this Agreement or otherwise indicated its agreement to be bound hereby. Without limitation on the Holders’ rights to transfer Registrable Shares, the Company acknowledges that any Holder may, at any time, transfer any of the Registrable Shares which they may own, beneficially or of record, to (a) their affiliates or (b) their partner(s), investor(s), security holder(s) or beneficial holder(s) pursuant to their organization documents or other agreements, and that, upon the consummation of any such transfer, the provisions of this Agreement shall be binding upon and inure to the benefit of each transferee of such Registrable Shares.

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13. Entire Agreement. This Agreement (including the exhibits hereto), the Unit Subscription Agreement and the Purchased Warrants constitute and contain the entire agreement and understanding of the parties with respect to the subject matter hereof, and such agreements also supersede any and all prior negotiations, correspondence, agreements or understandings with respect to the subject matter hereof.

14. Miscellaneous.

(a) Amendments. This Agreement may not be amended, modified or terminated, and no rights or provisions may be waived, except with the written consent of the Majority Holders and the Company.

(b) Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. Each party hereby irrevocably consents and submits to the jurisdiction of any New York State or United States Federal Court sitting in the State of New York, County of New York, over any action or proceeding arising out of or relating to this Agreement and irrevocably consents to the service of any and all process in any such action or proceeding by registered mail addressed to such party at its address specified herein (or as otherwise noticed to the other party). Each party further waives any objection to venue in New York and any objection to an action or proceeding in such state and county on the basis of forum non conveniens. Each party also waives any right to trial by jury.

(c) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors or assigns. This Agreement shall also be binding upon and inure to the benefit of any transferee of any of the Registrable Shares or Demand Registrable Shares. Notwithstanding anything in this Agreement to the contrary, if at any time any Holder shall cease to own any Registrable Shares or Demand Registrable Shares, all of such Holder’s rights under this Agreement shall immediately terminate.

(d) Notices

(i) Any notices, reports or other correspondence (hereinafter collectively referred to as “correspondence”) required or permitted to be given hereunder shall be sent by mail, courier (overnight or same day) or fax or delivered by hand to the party to whom such correspondence is required or permitted to be given hereunder (except that notices of Suspensions or stop orders must be made by fax). The date of giving any notice shall be the date of its actual receipt.

(ii) All correspondence to the Company shall be addressed as follows:

GraphOn Corporation

3130 Winkle Avenue

Santa Cruz, California 95065

Attention: William Swain

Fax number: (831) 475-3017

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with a copy to:

Cooley Godward LLP

One Maritime Plaza, 20th Floor

San Francisco, CA 94111-3580

Attention: Kenneth Guernsey

Fax number: (415) 951-3699.

(iii) All correspondence to any Holder shall be sent to the most recent address furnished by the Holder to the Company.

(iv) Any Holder may change the address to which correspondence to it is to be addressed by notification as provided for herein.

(e) Injunctive Relief. The parties acknowledge and agree that in the event of any breach of this Agreement, remedies at law may be inadequate, and each of the parties hereto shall be entitled to seek specific performance of the obligations of the other parties hereto and such appropriate injunctive relief as may be granted by a court of competent jurisdiction.

(f) Attorney’s Fees. If any action at law or in equity is necessary to enforce or interpret any of the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

(g) Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable under applicable law, such provision shall be replaced with a provision that accomplishes, to the extent possible, the original business purpose of such provision in a valid and enforceable manner, and the balance of the Agreement shall be interpreted as if such provision were so modified and shall be enforceable in accordance with its terms.

(h) Aggregation of Shares. Registrable Shares and Demand Registrable Shares held or acquired by affiliated entities or persons shall be aggregated for the purpose of determining the availability of any rights under this Agreement.

(i) Counterparts. This Agreement may be executed in a number of counterparts, any of which together shall for all purposes constitute one Agreement, binding on all the parties hereto notwithstanding that all such parties have not signed the same counterpart.

[Remainder of Page Intentionally Left Blank]

16

SIGNATURE PAGE TO GRAPHON INVESTOR RIGHTS AGREEMENT

IN WITNESS WHEREOF, the parties hereto have executed this Investor Rights Agreement as of the date and year first above written.

GRAPHON CORPORATION
By:	/s/
Name:
Title:
INVESTORS:
Name:
[	]
By:	/s/
Name:
Title:
GRIFFIN SECURITIES, INC.
By:	/s/
Name:
Title:

17

Exhibit A

SCHEDULE OF INVESTORS

Hershel Berkowitz

Paul Packer

Globis Capital Partners

Richard Grossman

Joshua Hirsch

James Kardon

Orin Hirschman

Anthony Altamura

The Hewlett Fund

Griffin Securities, Inc.

18

EX-5

EXHIBIT 5

Joint Filing Agreement

In accordance with Rule 13d-1(k)(1) under the Securities Exchange Act of 1934, as amended, the undersigned hereby agree to the joint filing of IDT Capital, Inc., IDT Corporation and Howard S. Jonas on behalf of each of them of a statement on Schedule 13D (including amendments thereto) with respect to shares of Common Stock, par value $0.0001 per share, of GraphOn Corporation, and that this Agreement be included as an Exhibit to such joint filing. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the undersigned hereby execute this Agreement this 14th day of February, 2005.

IDT CAPITAL, INC.
By:	/s/    David Greenblatt
Name:	David Greenblatt
Title:	Chief Executive Officer
IDT CORPORATION
By:	/s/    Joyce J. Mason
Name:	Joyce J. Mason
Title:	Senior Vice President
/s/    Howard S. Jonas
Howard S. Jonas