I. INTRODUCTION

1. We, Alan Schulman of the firm Milberg Weiss Bershad Hynes & Lerach LLP ("Milberg Weiss"), and Jeffrey A. Klafter of the law firm of Bernstein Litowitz Berger & Grossmann LLP ("Bernstein Litowitz"), are Co-Lead and Settlement Counsel in this Litigation.⁽¹⁾

2. We submit this Declaration in support of Representative Plaintiffs' motion pursuant to Rule 23 of the Federal Rules of Civil Procedure for: (a) approval of the proposed settlement ("Settlement") of the Settlement Class' claims for Eleven Million Dollars ($11,000,000) in cash (the "Settlement Fund") pursuant to a Stipulation of Settlement dated as of January 6, 1997 (the "Stipulation"), as fair, reasonable, and adequate; (b) approval of the proposed Plan of Allocation of the Settlement Fund; and (c) approval of Representative Plaintiffs' counsel's application for an award of attorneys' fees and reimbursement of out-of-pocket expenses, including experts' fees reasonably incurred in the prosecution of the Litigation.

3. We have been actively involved in the prosecution of the Litigation and are fully familiar with the proceedings set forth herein. If called upon, we would be competent to testify that the following facts are true and correct to the best of our knowledge, information and belief.

4. A favorable early resolution of the Litigation was achieved through aggressive, but efficient prosecution. Plaintiffs' counsel thoroughly analyzed the legal and factual issues in the Litigation, in consultation with experts (including accounting and damages experts), before agreeing to the terms of the Settlement. This declaration outlines the nature and scope of the Litigation, including risk factors and potential problems of proof that plaintiffs' counsel concluded might prevent them from obtaining any award of damages on behalf of the Settlement Class. It also highlights the significant efforts required of plaintiffs' counsel to prosecute one of the first cases filed and settled under the recently enacted Private Securities Litigation Reform Act of 1995 ("PSLRA" or the "New Act").

5. For purposes of Settlement, pursuant to an agreement between the Parties, plaintiffs amended the complaint in this action to: (a) include state law claims that had been asserted in California state court (the "State Action") against defendants herein, i.e., Network Computing Devices, Inc. ("NCD" or the "Company") and certain of its present and former officers and directors, as well as NCD's underwriter and market maker, Morgan Stanley & Co. Incorporated ("Morgan Stanley") and its analyst Steven Milunovich, which arose out of essentially the same facts that formed the basis for the action in this Court; (b) assert federal claims against Morgan Stanley and Milunovich; and, (c) extend the class period to include the period from March 22, 1996 through and including July 3, 1996, the date on which NCD filed its amended Form 10-K in which it issued final revisions to its financial results for 1995.⁽²⁾ As evidenced by the history of the Litigation, resolution of both this action and the State Action by this Settlement will provide significant benefits to the Settlement Class.⁽³⁾

6. Although the following description of the pleadings and discovery in the Litigation is not all-inclusive, it is intended to illustrate the nature of the case, the efforts expended in its prosecution, and the reasons that plaintiffs' counsel believe that it would be unwise to expend additional judicial and litigant resources in continuing the Litigation.⁽⁴⁾ For the reasons set forth herein, and in the accompanying Memorandum of Points and Authorities in Support of Representative Plaintiffs' Motion for Final Approval of Settlement, plaintiffs' counsel believe that the Settlement is fair, reasonable and adequate when the risks of continued litigation are weighed against the potential benefits.

7. To compensate plaintiffs' counsel for achieving this Settlement, they are making an application for attorneys' fees equal to 30 percent of the Settlement Fund. For the reasons set forth herein, and in the accompanying Memorandum of Points and Authorities in Support of Representative Plaintiffs' Application for Attorneys' Fees and Reimbursement of Expenses, we respectfully submit that the requested fee is both reasonable and fully justified. The excellent Settlement achieved on behalf of the Settlement Class was the result of the diligent efforts of plaintiffs' counsel and the requested fee falls well within the percentages awarded by district courts in this Circuit and by this Court in complex securities fraud class actions such as this one. 8. Additionally, as set forth below (see ¶48), the absence of objections from informed class members to the proposed Settlement or plaintiffs' fee request, of which they were fully apprised in the Notice disseminated pursuant to this Court's order, further supports approval of the proposed Settlement and plaintiffs' fee request by the Court.

II. PROSECUTION OF THE LITIGATION

A. Commencement Of The Action And Nature Of The Settlement Class' Claims

9. On April 11, 1996, plaintiffs Jack Woodard, Mary Adele Woodard, Jack Woodard & Mary Adele Woodard, Joint Tenants with Right of Survivorship, and Elizabeth Echevarria filed an action in this Court on behalf of persons who purchased common stock of NCD during a defined period of time styled: Woodard et al. v. Bradley et al., Case No. C-96-1345-CAL. Thereafter, several related class actions were filed in this Court which were consolidated for all purposes with the Woodard action by order dated July 19, 1996 and captioned In re NCD Securities Litigation, Master File No. C-96-1345-CAL (the "Federal Action").⁽⁵⁾ The Federal Action was filed and prosecuted pursuant to the requirements of the PSLRA which, on December 22, 1995, amended the Securities Exchange Act of 1934 ("Exchange Act").⁽⁶⁾

10. On September 13, 1996, plaintiffs in the Federal Action filed an amended consolidated class action complaint (the "First Amended Federal Complaint") asserting violations of §§10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder on behalf of all persons other than defendants, who purchased the common stock of NCD between February 2, 1995 and March 21, 1996, inclusive. The First Amended Federal Complaint names as defendants, NCD, Edward L. Marinaro, Philip Greer, Jack A. Bradley, Michael D. Harrigan, John L. Fraissinet, Lorraine J. Hariton, William M. Crane, Janak T. Pathak and Douglas H. Klein.

11. On February 25, 1997, plaintiffs filed the Second Amended Consolidated Class Action Complaint (the "Complaint") which, as noted above, added Morgan Stanley and Steven Milunovich, the Morgan Stanley analyst who followed the Company, as defendants, included the state law claims that had been asserted in the State Action and extended the class period. Thus, the class period in the Complaint is February 2, 1995 through and including July 3, 1996 when NCD filed its Form 10K-A with the SEC, in which it disclosed its revised financial results for 1995 (the "Settlement Class Period" or the "Class Period").

B. Allegations Of The Complaint

12. NCD designs, manufactures and sells hardware and software for information access to networks of heterogeneous computers. Plaintiffs alleged that throughout the Class Period, defendants issued inflated financial results and materially false and misleading statements about NCD's: (i) success at re-positioning itself as a significant provider of software as well as hardware; (ii) the success of its new software ((Mariner, an Internet organizer), Z-Mail (an electronic mail program) and PC-Xware (a package that integrates Windows and DOS-based PCs into X/UNIX networks) and hardware products (X terminal computers); and (iii) NCD's improving financial performance.

13. During 1995, for the first time in two years, NCD's stock price increased significantly, climbing from $4 per share on January 31, 1995, to a high of $12 per share on August 9, 1995, as the Company reported profitable first quarter 1995 results and announced that it was successfully making the transition to a significant provider of software, that it had also introduced new commercially successful upgraded X terminal hardware products that were superior to competitive products, that it had signed an agreement with a major telecommunications company (AT&T) to develop Internet access software, and that its new Z-Mail and PC-Xware software products were succeeding as NCD reported an 84 percent increase in software sales in the second quarter of 1995. The Complaint alleges that in order to create the appearance of financial success in the first half of 1995, the Company reported inflated financial results by failing to adequately accrue for excess and obsolete inventory of its outdated X terminal products and by improperly recognizing revenues on software sales.

14. The Complaint further alleges that prior to the rise in NCD's stock price, in November 1994, NCD's insiders had caused NCD to reprice all their stock options downward to an exercise price of $3-7/8 per share, positioning themselves to profit from the artificial inflation in NCD's stock price. During February-August 1995, as NCD's stock price climbed to its Class Period high of $12 per share and the NCD insiders' repriced stock options went into the money, the individual NCD Defendants sold 1,521,198 of their NCD shares at prices as high as $9-3/8 per share for proceeds of $11,974.063.

15. However, NCD's stock fell again in late August when it was announced that AT&T had picked Netscape's Navigator, rather than NCD's Mariner, as its Internet access product. This decline greatly reduced the value of the shares the individual NCD Defendants owned and made their options virtually worthless. To be able to continue to sell their shares, plaintiffs allege that NCD's insiders had a strong motive to inflate the price of the NCD stock. To do so, they had to convince the market that NCD was still successfully making the transition to a significant provider of software which typically carry much higher profit margins than hardware products, and that the Company was experiencing increasing demand for its three main software products, Z-Mail, PC-Xware and Mariner, which would enable NCD to report growing profits.

16. The Complaint further alleges that in order to inflate the price of NCD stock, NCD continued to misrepresent its financial success in its third and fourth quarters of 1995 by reporting financial results which falsely portrayed significant growth and profitability in NCD's software sales. Plaintiffs allege that these reported financial results were achieved by improperly recognizing software revenue on products that were shipped but subject to rights of return and by failing to adequately reserve for rights of return and cancellation privileges under the software licenses, which had the effect of materially overstating NCD's earnings. As NCD's stock soared, as a result of these materially false financial results, the individual NCD Defendants sold off 232,419 more shares of their NCD stock at as high as $9-5/8 per share, pocketing an additional $1.9 million between October 30, 1995 and early December 1995.

17. On January 31, 1996, NCD reported its results for its fourth quarter ended December 31, 1995. While the Company stated that it was disappointed with software sales, it attributed the shortfall to the fact that a few large orders had not closed by year-end and delays in shipping Windows 95 X server products. It further noted that NCD was "generally pleased" with fourth quarter results, and that its "bright spot" in software sales was the "record revenues for its Z-Mail product line." As the price of NCD stock stabilized, NCD insiders continued to sell off their holdings of NCD stock at inflated prices.

18. Plaintiffs allege that NCD's statements with respect to its fourth quarter results were false. They allege that, contrary to defendants' assertion that the shortfall in the fourth quarter was attributable to the failure of a few large orders to close and shipping delays, and during the fourth quarter of 1995 and first quarter of 1996 NCD experienced massive product returns from distributors who took advantage of their right to return merchandise.

19. On March 21, 1996, NCD stunned the investment community by reporting that for the fourth quarter of 1995, the Company had suffered a substantial loss of $200,000 to $500,000 as opposed to net income of $1.1 million which NCD had reported on January 31, 1996. The Company also admitted that it had improperly reported $2.0 to $2.5 million in software sales.

20. Ultimately, defendants belatedly admitted that the Company had improperly recognized revenue in the second, third and fourth quarters of 1995 and that its Z-Mail product sales were not succeeding and had questionable viability. In June, 1996 NCD sold its Z-Mail business at a loss. Coupled with its prior sale of its unsuccessful Mariner product line in January 1996, NCD's purported transition to a software company had hardly been successful. The market's reaction to these disclosures was dramatic. On March 21, NCD's shares plunged to a low of $3-3/4 per share. By April 25, 1996, NCD stock traded as low as $2-15/16 per share.

21. On May 15, 1995, 45 days late, NCD filed its 1995 Form 10-K with the SEC in which it stated that in connection with product returns accepted in the first quarter or 1996, the Company undertook a detailed review of the sales documentation related to these and other software orders and as a result of the review, the Company concluded that its financial statements for the year ended December 31, 1995 would be adjusted to reduce software revenues by $2.7 million from revenues originally reported on January 31, 1996. 22. On July 3, 1996, NCD amended its late-filed 1995 Form 10-K to move $753,000 in software revenues improperly recognized in the third quarter to the fourth quarter. The effect of this additional adjustment increased the third quarter net loss from $0.26 per share to $0.30 per share.

C. Overview Of The Litigation

23. Between the filing of the Woodard complaint in April 1996 and the late fall of 1996, pretrial motion practice in the Litigation was extensive. The applicability of the PSLRA to the Federal Action (which in turn also affected the State Action) raised several substantive and procedural issues which plaintiffs' counsel had to consider. While plaintiffs were pressing forward, defendants were not only challenging them in this Court but were simultaneously engaging in extensive motion practice in the State Action in an attempt to thwart any progress in the State forum.

a. Pretrial Motions

The Federal Action

(i) Motion To Be Appointed Lead Plaintiff

(1) Following the timetable set out in the PSLRA, on April 18, 1996, plaintiff Woodard published a notice advising class members of the pendency of the action, the claims asserted, the class period (February 1, 1996 - March 21, 1996), and their right to file motions for appointment as Lead Plaintiff. On April 23, 1996, plaintiff in the second related case filed, the Curley action, also published notice because that action had been brought on behalf of purchasers of NCD common stock during a longer class period, i.e., February 2, 1995 to March 21, 1996. The PSLRA provides that within 60 days after publication of the early notice, i.e., in this case publication of notice in the Woodard action, any person or group of persons who are members of the proposed class may apply to the court to be appointed Lead Plaintiff. PSLRA §21D(a)(3)(A)(II).

24. On June 13, 1996, plaintiffs in the Curley, Cleveland and Paul actions, pursuant to PSLRA §21D(a)(3)(A)(II) and (B), moved the Court to appoint Melvyn Paul, Sidney Nudelman, E. Coe Cleveland, Robert Maizel and Dale Jackson as Lead Plaintiffs and for appointment of Milberg Weiss and Bernstein Litowitz as Lead Plaintiffs' Co-Lead Counsel. On July 19, 1996, the Court issued an Order granting plaintiffs' motion and overruling defendants' request that such appointment be conditioned upon plaintiffs' appending their state law claims to the federal case.

(ii) Motion To Dismiss

25. On October 29, 1996, defendants moved to dismiss the First Amended Federal Complaint asserting, among other things, that this complaint failed to satisfy the PSLRA's standard for pleading scienter and that the alleged misstatements were not actionable because they were accurate statements of historical fact, vague statements of optimism, and/or surrounded by cautionary language. With respect to the statements of analysts complained of, defendants asserted that NCD and the individual defendants could not be held liable because plaintiffs had failed to adequately allege entanglement between defendants and the analysts with sufficient particularity, the complaint failed to demonstrate that defendants lacked a reasonable basis for the statements allegedly attributable to them when made, or that the analysts' statements were materially misleading. The Parties reached an agreement to settle the action before plaintiffs were required to file their opposition.

The State Action

(i) Motion To Stay

26. Because of the more stringent pleading requirements and restrictive discovery limitations imposed by the PSLRA, plaintiffs filed their claims against defendants for securities fraud in state court. Subsequently, an action was filed in federal court by a different set of plaintiffs against NCD based on similar facts for violations of the federal securities laws. In order to ensure that these two actions were properly coordinated, and because it is not yet settled as to whether a California state court will certify a nationwide class seeking damages for securities violations, in an effort to protect the rights of all class members, plaintiffs filed a complaint in this Court on behalf of the same class of investors as defined in the State Action.

27. Upon the filing of the federal complaint, on June 12, 1996, defendants moved for a stay of the State Action, arguing that plaintiffs were not entitled to litigate this case in two forums, and that plaintiffs should either append their state claims to the federal complaint, or their state court case should be stayed. This was the first time, since the enactment of the PSLRA, that this issue was before a California state court. After extensive briefing and lengthy oral argument, on July 12, 1996, defendants' motion to stay was denied.

28. Defendants then petitioned the California Court of Appeal for a writ of mandate or other relief, and for an immediate stay. The Court of Appeal, on August 8, 1996, denied defendants' petition and request for an immediate stay.

29. On September 14, 1996, to obviate defendants' concern of litigating this action in two forums, plaintiffs moved to stay this action, which defendants opposed. On or about December 20, 1996, this Court denied plaintiffs' motion to stay this case.

30. On August 19, 1996, defendants petitioned the California Supreme Court for review, which plaintiffs opposed. The California Supreme Court issued an order on October 30, 1996, in which it transferred the matter to the Court of Appeal with directions to vacate its order denying defendants' petition and request for an immediate stay and to issue an order directing the Superior Court to show cause why the relief sought in the petition should not be granted. By order dated December 19, 1996, the Court of Appeal vacated its previously issued order in this matter and directed that an alternative writ of mandate issue which, in effect, required plaintiffs to show cause why the relief sought by defendants should not be granted. The parties reached an agreement to settle the action before the matter was re-briefed in the Court of Appeal.

(ii) Demurrers And Motions To Strike

31. On October 21, 1996, defendants filed demurrers and motions to strike portions of the First Amended State Complaint. In their demurrers, defendants argued that the first and second causes of action alleging violations of §§25400/25500 of the California Corporations Code and §§17200/17500 of the California Business and Professions Code failed to state causes of action because, according to defendants, §§25400/25500 apply to California purchasers only and the complaint was brought on behalf of a national class, §§25400/25500 do not apply to securities, such as NCD common stock, which trades on a national exchange, Business and Professions Code Sections 17200 and 17500 do not apply to securities transactions, and plaintiffs had not pled that defendants "willfully" misrepresented material facts. The NCD Defendants also moved to strike the class allegations from the First Amended State Complaint arguing that it was improper to attempt to proceed as a class action in state court when there was a "virtually identical" class action pending federal court. Defendants also sought to strike plaintiffs' prayer for punitive damages on the assertion that these damages were not recoverable under either the Corporations Code or the Business and Professions Code. The parties reached agreement to settle the actions before plaintiffs' opposition was due.

b. Discovery, Investigation And Research

32. Plaintiffs' counsel performed a substantial investigation with respect to the claims asserted and the defenses that were or could be asserted in the Litigation. Although plaintiffs could not serve discovery in the Federal Action under the provisions of the PSLRA and the local rules, there is no bar to the service of discovery in the State Action. Plaintiffs' aggressively pursued this course in an effort to advance the Litigation. Thus, discovery included the service of requests for document production in the State Action from eight non-parties as well as defendants. Despite defendants' efforts to thwart any progress in this action as noted above, documents were produced by four non-parties which were reviewed and analyzed by plaintiffs' counsel.

33. In addition to conducting this discovery, plaintiffs' counsel consulted with experts, including accounting and damage experts. Plaintiffs' counsel also reviewed NCD's public filings, annual reports and other public statements; reviewed related public filings and statements by industry representatives; and researched the applicable law with respect to the claims asserted in both complaints and the potential defenses thereto.

34. Plaintiffs' Settlement Counsel also met with counsel for defendants at which time a detailed presentation was made by defendants' counsel relating to the claims asserted by plaintiffs including the accounting treatment afforded the transactions which were the subject of the revisions to NCD's previously reported financial results for 1995. During this meeting, Plaintiffs' Settlement Counsel and their forensic accountant reviewed Company documents made available by defendants' counsel relating to those transactions and questioned defendants' counsel regarding these documents, plaintiffs' allegations and defendants' defenses.

35. The discovery process outlined above enabled plaintiffs' counsel to understand fully the strengths and weaknesses of the claims asserted in the Litigation. Counsel recognized that their case was complex and that various legal and factual hurdles, including defendants' motion to dismiss and demurrers, had to be overcome before any recovery could be obtained for the Class. Based on the discovery conducted, plaintiffs' counsel also recognized that substantial additional time and expense would be required to bring this case to trial and that appeals would be likely. At the same time, the discovery conducted enabled counsel to make an informed analysis of their likelihood of success and the risks of the Litigation. In light of these circumstances, settlement negotiations were undertaken.

III. THE NEGOTIATIONS LEADING TO THE SETTLEMENT

36. Plaintiffs' Settlement Counsel held preliminary settlement negotiations with defendants' counsel beginning in October 1996. Prior to those negotiations, Plaintiffs' Settlement Counsel worked closely with Princeton Venture Research ("PVR"), the damage expert they had retained to prepare an estimate of the damages plaintiffs allege were sustained by the Class as a result of the conduct alleged in the Complaint. During the course of the negotiations, Plaintiffs' Settlement Counsel also worked closely with their forensic accountant to assess the information presented by defendants' counsel in support of their position as to the merits of the action.

37. Thereafter, the Parties sought the assistance of retired United States District Court Judge J. Lawrence Irving as settlement mediator. The negotiations which included not only the Parties but also representatives from four groups of insurance carriers, were difficult. In addition to several direct discussions between counsel for the Parties, three mediation sessions were had under Judge Irving's auspices over a period of three months before an agreement in principle to settle the Litigation was reached.

38. In an effort to foster these negotiations, the Parties agreed to extend certain briefing schedules. However, plaintiffs made it clear to defendants that they remained committed to prosecuting the action, if necessary. Thus, for example, during the pendency of settlement discussions, plaintiffs' counsel refused to defer holding "meet and confers" with defendants' counsel to resolve disputes over the discovery served in the State Action.

39. One of the obstacles that arose during the settlement discussions was the allocation formula in the directors' and officers' insurance that was available to cover plaintiffs' claims. The underlying insurance policy provided that for securities actions brought against the Company and its officers and directors, the insurer would pay 100% of an insured loss. This gave the insurance carriers little incentive to contribute any funds for an early resolution, preferring instead to throw up innumerable obstacles to recovering on the policies. In the end, the strengths of plaintiffs' claims as developed throughout the case led defendants and the carriers to agree to this substantial settlement.

IV. TERMS OF THE SETTLEMENT

40. On or about January 6, 1997, the Parties agreed in principle to settle the Litigation for $11 million in cash. This agreement was memorialized in a Memorandum of Understanding ("MOU") dated January 14, 1997. Under the terms of the MOU, the Settlement Fund was to be either deposited in escrow on or before 45 days from the signing of the MOU, i.e., February 28, 1997, or in the event such payment was not timely made, defendants were to pay simple interest of 8% per annum from February 28, 1997 until payment was fully made.

41. During the weeks following execution of the MOU, continuing difficult negotiations ensued over the specific terms of the Stipulation. This complex and lengthy document was the subject of considerable give and take between counsel for both sides. Multiple drafts of the Stipulation and its exhibits were exchanged. The Stipulation was not executed until February 27, 1997.

42. The Settlement Fund was deposited in escrow on February 28, 1997 and has been earning interest for the benefit of the Settlement Class. Further, as provided in the Stipulation, plaintiffs' counsel have invested the Settlement Fund in short-term securities backed by the full faith and credit of, or fully insured by, the United States Government or an agency thereof, to produce interest income while the fund is held in trust for the Class members. As of April 25, 1997, the amount of interest earned on the Settlement Fund was approximately $85,000.

43. The Settlement Fund will be used to compensate Class members for their losses in purchasing NCD stock in accordance with the Plan of Allocation approved by the Court, to pay the costs of notice and administration of the Settlement Fund and, to the extent granted by this Court, to pay plaintiffs' counsel a reasonable award of attorneys' fees and to reimburse counsel for their out-of-pocket expenses.

44. On February 28, 1997, the Court entered its Order preliminarily approving the Settlement. If final approval of the Settlement is granted by this Court, upon the entry of judgments of dismissal by this Court and in the State Action, all claims of Class members who have not opted-out of the Class that have been or could have been asserted in the Actions and arising from the purchase of securities from defendants during the Class Period will be dismissed, released and discharged.

45. By order dated February 28, 1997 (the "Notice Order"), this Court directed that notice of the Settlement be provided to all Settlement Class Members whose names and addresses appear on the transfer records of NCD as having transferred to their names NCD common stock during the Settlement Class Period and that a summary notice of the proposed settlement be published in the national edition of a nationally distributed business newspaper. (a) Notices in the form approved by the Court were mailed on and after March 14, 1997 and a summary notice was published in Investor's Business Daily on March 20, 1997. Over 8,200 notices have been mailed to potential Settlement Class Members. See Declaration of Cheryl Washington Re Mailing of (A) Notice of Pendency and Settlement of Class Action and Settlement Hearing and Proof of Claim and Release Form; and (B) Publication of Summary Notice, sworn to on April 17, 1997, and filed herewith.

46. The Notice Order further provided that the hearing for final consideration of the proposed settlement, as set forth in the Stipulation, be held on May 2, 1997 at 9:30 a.m. The time to request exclusion from the Settlement Class or to file objections to the Settlement, the Plan of Allocation set forth in the Notice or counsel's application for attorneys' fees and reimbursement of expenses expired on April 18, 1997.

47. In conformity with the requirements of the PSLRA, the Notice provided Settlement Class Members with very specific information as to the average recovery per damaged share of NCD common stock under the Settlement, the maximum average per share recovery that could have been obtained if the action proceeded to trial and plaintiffs prevailed on all their claims and contentions and their expert's assessment of the damages were accepted by the jury, and the average per share amount that Representative Plaintiffs' counsel's application for fees and reimbursement of expenses represents. Thus, Settlement Class Members were fully and clearly informed as to the economic substance of the Settlement, how the settlement proceeds would be distributed to Class members who file valid and timely Proofs of Claim, and the fee and expense application.

48. The Settlement Class has reacted positively to the terms of the Settlement. No Member of the Settlement Class has objected to the Settlement, the Plan of Allocation or the request for fees and reimbursement of expenses. Moreover, there have been but four Class members of the Settlement Class who requested exclusion from the Class. The absence of any objections is especially significant because, according to a survey of institutional investors prepared by Vickers Stock Research Corporation ("Vickers"), approximately 36.5% of the shares damaged by the decline in the market price of NCD common stock during the Settlement Class Period (February 2, 1995 -- July 3, 1996) were held by large institutional investors, such as financial institutions, benefit plans and investment funds. During the Settlement Class Period, approximately 53 institutions purchased over 3.4 million shares of NCD common stock.⁽⁷⁾ Many of these institutional Settlement Class Members have their own in-house and outside attorneys capable of evaluating the proposed Settlement and fee request and advising them as to their adequacy and fairness. Not one of these institutions has voiced any objection. Members of the Settlement Class may be deemed to have concluded that the Settlement and counsel's application for fees and expenses merit the Court's approval.

V. THE SETTLEMENT IS IN THE BEST INTEREST OF THE CLASS AND WARRANTS APPROVAL

A. Settlement Avoids The Risks Of Continued Litigation

49. Settlement negotiations took place at arm's-length at all times, with counsel for the Parties steadfastly maintaining their respective positions on the merits of the Litigation. Based on a thorough analysis of the defenses set forth by defendants in their motions to dismiss the Federal Action and their demurrers to the complaint in the State Action, the documents produced in the State Action, the detailed presentation made by defendants' counsel relating to the claims asserted by plaintiffs including the accounting treatment afforded the transactions which were the subject of the revisions to NCD's previously announced financial results for 1995, plaintiffs' counsel believe that plaintiffs could establish liability against defendants at trial. It is our belief that plaintiffs could establish that defendants knew or recklessly disregarded that the positive financial results the Company reported in and for 1995 were achieved by means of revenue recognition practices that violated Generally Accepted Accounting Practices and that NCD was not successfully transitioning into a software provider but rather was experiencing poor product sales on its highly touted software products, which were of questionable viability.

50. Nevertheless, plaintiffs' counsel recognize that there were significant legal hurdles affecting plaintiffs' case that militated in favor of the settlement. First, plaintiffs faced the difficult burden of establishing liability based upon defendants' alleged misrepresentations. Indeed, defendants would likely argue, as they did in their motion to dismiss, that the alleged misstatements were not actionable because they were not materially misleading and/or they were accurate statements of historical fact, vague statements of optimism, and/or surrounded by cautionary language. With respect to the statements of analysts complained of, defendants would argue that NCD and the individual defendants could not be held liable because the requisite "entanglement" between the NCD Defendants and the analysts did not exist, and they would argue that defendants had a reasonable basis for the statements allegedly attributable to them when made.

51. Second, plaintiffs faced the added burden of establishing that defendants acted with scienter. Defendants have maintained that they had a good faith belief in the propriety of the accounting treatment afforded the transactions at issue and that the other challenged statements are not actionable because they were either accurate statements of historical fact, vague statements of optimism, or surrounded by cautionary language and, therefore, cannot support a finding of scienter.

52. Establishing scienter has always been a significant challenge for plaintiffs. With the enactment of the PSLRA it has now also become an even more significant hurdle at the pleading stage. Prior to enactment of the PSLRA, under controlling Ninth Circuit law plaintiffs were able to satisfy pleading requirements by averring scienter generally. In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547 (9th Cir. 1994). The PSLRA has imposed a stricter pleading standard, i.e., a complaint under §10(b) must state with particularity facts giving rise to a strong inference of scienter. The law is not yet settled as to what is required in order to satisfy this standard. There have been several decisions holding that in enacting the PSLRA Congress effectively codified the Second Circuit pleading standard. See, e.g., Marksman Partners, L.P. v. Chantal Pharm. Corp., 927 F. Supp. 1297, 1310-12 (C.D. Cal. 1996); Zeid v. Kimberley, 930 F. Supp. 431, 434 (N.D. Cal. 1996). In their motion to dismiss, defendants argued that the pleading standard for scienter under the PSLRA is even more stringent than the Second Circuit standard citing to the decision of Judge Fern Smith in In re Silicon Graphics Sec. Litig., [1996-1997 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶99,325 (N.D. Cal. Sept. 25, 1996). The risk of failing to satisfy the pleading standard for scienter is thus far greater under the PSLRA than under prior Ninth Circuit law even if this Court were to follow the decisions holding that the PSLRA codified the Second Circuit standard. If this Court were to accept defendants' assertion that the standard is even more stringent than the Second Circuit standard (a position plaintiffs' counsel submit is contrary to the language and intent of the PSLRA), plaintiffs would be facing the very real additional substantial risk that the complaint would not survive the motion to dismiss. Although the complaint is replete with specific allegations regarding the accounting treatment afforded the transactions that became the subject of the restatement and there are allegations of insider trading, defendants argued that alleging restatement of financial results does not plead fraud absent the pleading of facts with particularity that support a strong inference that defendants knew the figures reported were false when issued, and that the insider trading here does not support a strong inference of scienter because neither the volume nor the pattern and timing of sales, indicia which can support the inference, were sufficient to do so.⁽⁸⁾

53. Plaintiffs also considered the risks attendant to establishing damages at trial. While defendants concede that the damage amount calculated by plaintiffs' expert is correct under the methodology employed, at trial defendants would present their own expert who would use a different methodology which would likely yield lower or no damages. The evidence at trial regarding damages would be based on a "battle of experts" and there is no way of predicting which methodology or testimony the jury will accept.

54. Representative Plaintiffs counsel also recognize and acknowledge the expense and length of continued proceedings necessary to prosecute the Litigation against defendants through trial and through appeals. The Settlement confers a very significant benefit on the Settlement Class at a relatively early stage in the Litigation.

55. Plaintiffs also considered the extent of recovery that the Class could receive if the case were to go to trial, even if plaintiffs prevailed on each of their claims and the Court accepted plaintiffs' methodology of computing damages, when compared with the significant costs to be incurred during the discovery process and proceeding to trial. Indeed, plaintiffs' damage expert estimated the maximum damages that could be awarded after trial to be approximately $29.2 million. Thus, the value of the Settlement, which represents an immediate recovery of approximately 40% of the maximum obtainable recovery, constitutes a fair, adequate and reasonable sum, especially in view of the significant hurdles that plaintiffs faced and the considerable time it would take to prosecute the Litigation through trial and the appeals process.

56. Given the risks inherent in any jury trial -- particularly the trial of a complex securities class action, and the arguments set forth in the accompanying Memorandum of Points and Authorities in Support of Representative Plaintiffs' Motion for Final Approval of Settlement, we respectfully submit on behalf of all Representative Plaintiffs' counsel that the proposed Settlement is fair, reasonable, and in the best interests of the Settlement Class.

VI. COUNSEL'S APPLICATION FOR ATTORNEYS' FEES AND REIMBURSEMENT OF EXPENSES

57. Representative Plaintiffs' counsel seek an aggregate award of 30 percent of the Settlement Fund established for the benefit of the Settlement Class as legal fees for services rendered on a wholly contingent basis and reimbursement of their out-of-pocket expenses reasonably incurred in the prosecution of the Litigation, plus interest on the fees and expenses at the same rate as earned by the Settlement Fund.

58. The Notice sent to Settlement Class Members informed them of Representative Plaintiffs' counsel intention to file a fee petition for an amount up to one-third of the Settlement Fund. As discussed in the accompanying Memorandum in Support of Representative Plaintiffs' Application for Attorneys' Fees and Reimbursement of Expenses, an award of 30 percent of the benefits achieved for the Class is well within the range of fees commonly awarded as a percentage of the recovery in cases of this type and is a percentage which has been previously approved by this Court. 59. Representative Plaintiffs' Counsel also requested all plaintiffs' law firms to set forth in declarations descriptions and amounts of all expenses incurred in this Litigation. Plaintiffs' counsel have incurred reimbursable expenses in the amount of $397,420.44 during the prosecution of these Actions. The expenses for all firms are broken down as follows:

Meals, Hotel and Transportation $ 30,704.24

Photocopying 18,324.93

Postage 2,068.72

Telephone, Facsimile 6,902.09

Messenger, Courier, Federal Express 11,999.99

Filing and Legal Fees (including attorney

services and witness fees) 1,774.06

Lexis, Westlaw, Online Library Research 19,872.16

Experts/Consultants/Investigators 157,893.25

Mediation Fees 5,603.25

Paralegal 142,277.75

TOTAL: $397,420.44

The undersigned were in charge of the overall supervision of the prosecution of the Actions and are familiar with and have reviewed the expenses incurred. We believe that the expenses were reasonably incurred, are reasonable in amount, and should be reimbursed in full. The following information is provided on the more significant items of expense.

A. Experts

60. Plaintiffs retained Princeton Ventures Research, a firm comprised of professional securities and financial analysts, and its president, John B. Torkelsen, as a consultant and testimonial expert to develop plaintiffs' damage analysis. PVR has extensive experience in providing expert opinions and analyses on issues relating to violations of securities regulations and the damages resulting from such violations. PVR spent considerable time and effort in analyzing the damages to the Class under the new provisions of the PSLRA. The work performed by PVR is described in detail in the Declaration of John B. Torkelsen submitted herewith.

61. Plaintiffs also retained Rossi, O'Brien & Company LLP, ("Rossi") a licensed firm of Certified Public Accountants in the State of California to provide consultation as to the accounting and financial statement practices engaged in by NCD during its 1995 fiscal year. Besides discussions with counsel, Rossi prepared a written report summarizing the analysis it had performed, and the basis for its conclusions. See the Declaration of Albert Rossi, C.P.A. submitted herewith for further details of the work performed by Rossi.

VI. THE PLAN OF ALLOCATION

62. Representative Plaintiffs also seek the Court's approval of the proposed Plan of Allocation of the Net Settlement Fund, which is described in the Notice disseminated to Settlement Class Members. The Plan of Allocation summarized below, is based on, inter alia, factual and legal considerations in assessing plaintiffs' claims and analyses performed by plaintiffs' damage expert.

63. Based on these considerations, as well as others, the principal provisions of the Plan of Allocation are as follows:

(a) For purposes of determining the amount an Authorized Claimant may recover under the Plan of Allocation, the Settlement Class Period was divided into six sub-periods which correspond to the dates on which the mix of information concerning NCD in the marketplace changed. For each sub-period, plaintiffs' damage expert estimated the amount by which the price of NCD common stock was inflated because of the allegedly false or misleading information then in the market, i.e., the inflation per share during that sub-period.

(b) Generally, the amount of a claimant's recovery will be affected by the amount of inflation in the price of NCD common stock at the time of purchase as compared to the amount of inflation in the price of the stock at the time it was sold, if sold during the Settlement Class Period. These amounts are referred to in the Plan of Allocation as "Defined Loss(es)".

(c) For shares purchased and sold within the same sub-period, there is no recoverable amount since the inflation in the price of the shares was the same at the time of purchase and sale. (d) For shares that were purchased during one sub-period and sold during another, the recoverable amount will be the lesser of the difference between the inflation per share when the share was purchased and sold, or the purchase price per share less the sale price per share.

(e) For shares that were purchased during the Settlement Class Period that were still owned at the close of trading on July 3, 1996 -- the close of the Settlement Class Period -- the recoverable amount will be the calculated inflation in the price of the stock at the time of purchase.

64. For Settlement Class Members who made multiple purchases or multiple sales during the Settlement Class Period, the earliest subsequent sale shall be matched with the earliest purchase and chronologically thereafter for purposes of the Claim calculations.

65. All profits shall be subtracted from the total of all Defined Losses to determine the Claim of each Settlement Class Member. Only if a Settlement Class Member had a net loss after profits from all transactions in NCD common stock during the Settlement Class Period are subtracted from the total of his Defined Losses will he be eligible to receive a distribution from the Net Settlement Fund.

66. To the extent there are sufficient funds in the Net Settlement Fund, each Authorized Claimant will receive an amount equal to the Authorized Claimant's Claim.

VIII. CONCLUSION

67. This Settlement was arrived at after substantial investigation, research, discovery and vigorous, arms-length bargaining. Based on an understanding of, among other things, the facts and circumstances concerning the subject matter of the Litigation, the principles of law applicable to them, and the relative risks of litigation, Plaintiffs' Settlement Counsel believe that the Settlement represents an extremely favorable result for the Settlement Class and that the proposed Plan of Allocation fairly apportions the Net Settlement Fund among all Settlement Class Members who file valid and timely Proofs of Claim and both should be approved by the Court. Plaintiffs' Settlement Counsel also respectfully request that the application by Representative Plaintiffs' counsel for fees and reimbursement of expenses should be granted.

We declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. If called as a witness, I could and would competently testify thereto.

Executed this 24th day of April 1997, at San Diego, California.

___________________________________

ALAN SCHULMAN

Executed this 24th day of April 1997, at New York, New York.

___________________________________

JEFFREY A. KLAFTER

NETWORK.FED\TLC01421.DEC

I, the undersigned, declare:

1. That declarant is and was, at all times herein mentioned, a citizen of the United States and a resident of the County of San Diego, over the age of 18 years, and not a party to or interested in the within action; that declarant's business address is 600 West Broadway, Suite 1800, San Diego, California 92101.

2. That on April 24, 1997, declarant caused true copies of JOINT DECLARATION OF ALAN SCHULMAN AND JEFFREY A. KLAFTER IN SUPPORT OF APPROVAL OF SETTLEMENT, ATTORNEYS' FEES AND REIMBURSEMENT OF EXPENSES AND PLAN OF ALLOCATION to be delivered to Federal Express for service on each of the parties listed on the attached Service List on April 25, 1997.

I declare under penalty of perjury that the foregoing is true and correct. Executed this 24th day of April, 1997, at San Diego, California.

______________________________

DANELLE L. McNERTNEY

1. All capitalized terms herein which have been defined in the Stipulation of Settlement and exhibits thereto have the same meaning as set forth therein.

2. This action and the State Action are collectively referred to herein as the "Litigation" or the "Actions."

3. After entry of the Judgment in this action, plaintiffs will move to conditionally dismiss the State Action. Said conditional dismissal shall become a final dismissal without further action of the State Court when the Judgment herein becomes Final.

4. A brief description of the procedural history of the State Action is also included.

5. The related actions and their respective dates of commencement are: Curley et al. v. Marinaro et al., Case No.

C-96-1466-CAL (4/19/96); Cleveland et al. v. Marinaro et al., Case No. C-96-1725-CAL (5/8/96); Paul et al. v. Marinaro et al., Case No. C-96-1848-CAL (5/17/96).

6. On April 10, 1996, certain of the Representative Plaintiffs filed the State Action. On September 6, 1996, that complaint was amended to provide additional allegations supporting the claims asserted and to join certain additional Representative Plaintiffs as plaintiffs in that action ("First Amended State Complaint").

7. The figures cited were obtained by averaging the figures reported by Vickers for each quarter of 1995 and the first and second quarters of 1996.

8. Defendants also sought dismissal of the State Action on similar grounds, and further argued in support of their demurrers that §§25400/25500 of the California Corporations Code apply only to California purchasers and do not apply to securities, like NCD stock, which trade on a national exchange and that Sections 17200 and 17500 do not apply to securities transactions. Defendants' demurrers were pending when the Settlement of the Litigation was reached. In addition, defendants sought to stay the State Action in favor of the Federal Action. While the Superior Court and Appellate Division rejected defendants' arguments, the California Supreme Court remanded the case to the Appellate Court for further proceedings. This Settlement ended those proceedings as well.