Netmanage
July 25, 1995 - January 16, 1996
Daily Stock Prices
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MILBERG WEISS BERSHAD LAW OFFICES OF ALFRED G. SCHIFFRIN & CRAIG, LTD. |
FARUQI & FARUQI, LLP WEISS & YOURMAN |
Attorneys for Plaintiffs and the Class
[Additional counsel appear on signature page.]
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
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WALTER W. HEAD, III, GREGORY |
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No. C.97-0109 |
1. This is a class action on behalf of purchasers of the stock of NetManage, Inc. ("NetManage" or the "Company"), between July 25, 1995 and January 11, 1996 (the "Class Period"), inclusive, seeking to remedy violations of the federal securities laws by the Company and certain of its insiders, which violations involve the issuance of false financial statements and other positive statements, combined with massive insider trading by the individual defendants. The individual defendants sold 715,999 shares of their NetManage stock at artificially inflated prices as high as $24-1/8 per share, pocketing more than $14 million dollars in illegal insider trading proceeds, before the truth concerning NetManage's business and finances was revealed and NetManage's stock price, which had traded as high as $34 per share during the Class Period, collapsed to as low as $10. In addition, defendants used the inflated share value of NetManage stock to acquire other inter-networking software companies.
2. NetManage develops, markets and supports an integrated set of TCP/IP (transmission control protocol/internet protocol) based intra-net applications, internet connectivity software, servers and development tools for Microsoft Windows, Windows '95, Windows NT and Macintosh OS. The Company's software allows corporations to facilitate communication and the sharing of information between work groups using internet technology. TCP/IP enables a standard Windows PC, or a network of Windows systems, to communicate effortlessly with non-Windows systems, including mainframe, mini-computers and workstations. Protocols such as TCP/IP are the rules that govern the interconnectivity of networks. In short, TCP/IP is the intercommunications "plumbing" or "translator" that enables one type of machine to communicate with a different type of machine that is also equipped with TCP/IP.
3. During 1993 and 1994, NetManage was growing at an enormously rapid rate. Total revenue growth was nothing short of amazing since the Company went public in late 1993. The slowest rate of year-over-year revenue growth occurred in the September 1994 quarter, when revenues climbed 137%. In the June 1995 quarter, the reporting of which results commences the Class Period, revenue growth was reported as 150% year-over-year. As a result, NetManage's stock traded at a price-earnings multiple reserved for premier growth companies with track records of meeting the investment community's expectations for high profit growth. NetManage's strong stock performance enabled their corporate executives to exercise stock options and to sell stock at large profits and enabled NetManage to grow by using its stock to make acquisitions of other companies. For these reasons, maintaining NetManage's image of strong growth and its high stock price was extremely important to NetManage's top executives, who closely monitored the trading in NetManage stock on a daily basis.
4. During the Class Period, however, NetManage's growth rate was beginning to slow due to several factors. First, Microsoft was set to release Windows 95, which would contain an embedded TCP/IP, thus eliminating the need for customers to buy the protocol from NetManage. In addition, as the need for interconnectivity products increased within large corporations, competition to provide such products intensified. Notwithstanding these factors, throughout the Class Period, NetManage continued to report strong quarterly results for revenue and income. NetManage repeatedly represented that demand for its most important product, Chameleon, was very strong, a new version of which was released in June. NetManage also introduced new versions of other of its applications products and announced the introduction of additional applications products. NetManage also announced significant expansions of the Company's international sales offices and the initiation of sales through retail distributors, including Ingram Micro, Merisel, Inc., and Tech Data. NetManage proclaimed itself "the fastest growing public software company in the United States." As a result of NetManage's reporting increasingly strong results and its positive statements about the strength of its sales and business, NetManage's stock price steadily rose from $19-1/8 on July 25, 1995 to as high as $34 per share on December 5, 1995.
5. However, each of the defendants' positive statements about NetManage's business during the Class Period was materially false and misleading when issued, and failed to disclose, inter alia, the following adverse information which was then known only to defendants through their access to internal NetManage data:
(a) That NetManage recognized revenues in the second and third quarters of 1995 in violation of Generally Accepted Accounting Principles ("GAAP") on shipments to distributors and other resellers that were contingent on resale or contained other contingent terms, such as customization requirements, new version upgrade provisions, etc.;
(b) That NetManage recognized revenues in the second and third quarters of 1995 in violation of GAAP on shipments to distributors and other resellers where NetManage had no reasonable basis upon which to reasonably estimate future returns, particularly with respect to new and newly upgraded products, which NetManage had only recently begun shipping;
(c) That NetManage recognized revenues in the second and third quarters of 1995 in violation of GAAP on shipments to distributors and other resellers without adequately providing a reserve for returns or price protection that could reasonably be expected in connection with those sales;
(d) That defendant had no reasonable basis for a belief that NetManage's sales would continue to rapidly increase after the second quarter of 1995, because defendants knew that there was already an excess of products in the reseller and distribution channels and that sales recorded in the second quarter were improper and were contingent on resale or other contingencies occurring;
(e) That future demand for many of NetManage's products would be constrained by the excess levels of product already held by distributors, who had accepted shipments of more product than they expected to sell because NetManage agreed that they could return the product if it could not be sold;
(f) That there was no basis for defendants statements that NetManage's sales were strong or robust, and, in fact, growth in demand for NetManage's products was slowing dramatically;
(g) That contrary to their express representations to securities analysts to the effect that nothing had changed to adversely affect the Company's business, demand for NetManage's products and its growth rate were slowing dramatically; and
(h) That there was no basis for defendants' representation to securities analysts that their forecasts were reasonable or that NetManage was "comfortable" with the analysts, projections of revenues and earnings.
6. The chart below shows the performance of NetManage's stock during the Class Period, while defendants were issuing their false and misleading statements and selling off their shares:
7. Taking advantage of NetManage's inflated stock price during the Class Period, the individual defendants sold off substantial amounts of their NetManage stock at inflated prices based on their knowledge of NetManage's misrepresentations, thus profiting from their participation in the fraudulent scheme and course of business that operated as a fraud and deceit on purchasers of NetManage stock:
NAME TOTAL SHARES SOLD TOTAL PROCEEDS
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Alon 204,000 $4,727,225
Ben-Artzi 90,000 1,877,500
Bosch 9,667 172,846
Galil 92,500 1,892,100
Geisler 60,250 1,142,088
Koretz 186,182 3,496,959
Williams 37,400 694,350
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TOTAL: 715,999 $14,003,067
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8. By the beginning of January 1996, defendants realized that NetManage's deteriorating business condition and finances could not be concealed much longer so they began to "manage" NetManage's stock price gradually lower to accomplish a "soft landing" and thus avoid a sharp stock drop that might expose their wrongdoing and result in their being sued. Defendants therefore began to suggest to securities analysts that demand for NetManage's products had unexpectedly weakened and that the results for the fourth quarter would be less than earlier forecasted, causing those analysts to reduce slightly their forecasts for the quarter. For example, a Smith Barney analyst trimmed its fourth quarter revenue estimate to $35.5 million from its prior estimate of $39.5 million and earnings per share from $.23 to $.19.
9. Finally, before the market opened on January 12, 1996, NetManage shocked the market by revealing that it expected its revenues for the fourth quarter ended December 31, 1995 to be only approximately $30 to $32 million. Defendant Zvi Alon conceded that the decline was due to the fact that certain of the sales booked were not properly recognized as revenue because it had not yet been earned due to contingencies affecting the sales that precluded the revenue from being realized. In explaining the contingency items that precluded revenue recognition of numerous large contracts, defendants referred to specific product/feature customization, service/maintenance agreements, credit terms, warranty extensions, compatibility guarantees against the future network modifications, new version upgrade clauses, rights of return, etc. Most importantly, the Company conceded to at least one securities analyst that such contingency items had been included in customer orders in prior periods. Thus, NetManage effectively admitted that revenue had been improperly recognized in prior quarters.
10. As a result of these revelations, the market reacted harshly. NetManage's stock price -- which was already significantly lower than its previous highs -- plunged from $14-9/16 on January 11, 1996 to as low as $10 per share on January 12, 1996. Securities analysts hinted that they had been misled. One analyst stated, "Our confidence in the quality of information flow from management has been significantly reduced."
11. Jurisdiction exists pursuant to §27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §78aa, and 28 U.S.C. §1331. The claims asserted arise under §§10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5.
12. (a) Venue is proper in this District pursuant to §27 of the Exchange Act and 28 U.S.C. §1391(b). Many of the acts giving rise to the violations complained of occurred in this District.
(b) Assignment of this action to the San Jose Division is appropriate as a substantial part of the events or omissions identified herein occurred in Santa Clara County.
13. In connection with the wrongs complained of, defendants used the instrumentalities of interstate commerce including the U.S. mails and the facilities of the national securities markets.
14. (a) Plaintiff Walter W. Head, III purchased 70 shares of NetManage stock on October 2, 1995 at $24-1/2 per share and was damaged thereby.
(b) Plaintiff Gregory Selmanson purchased 300 shares of NetManage stock on December 28, 1995 at $23-3/4 per share and was damaged thereby.
(c) Plaintiff Dominic Castaldo purchased 2,000 shares of NetManage stock on January 5, 1996 at $16-1/4 per share and was damaged thereby.
(d) Plaintiff Leila Waldman purchased 500 shares of NetManage stock on December 5, 1995 at $31-3/8 per share and was damaged thereby.
(e) Plaintiff John Velonis, Jr. purchased 200 shares of NetManage stock on December 5, 1995 at $32-3/4 per share and 200 shares on December 15, 1995 at $23-1/2 per share and was damaged thereby.
15. Defendant NetManage is headquartered in Cupertino, California, and develops, markets and supports an integrated set of TCP/IP-based intranet applications, internet connectivity software, servers and development tools for Microsoft Windows, Windows 95, Windows NT and Macintosh OS. NetManage stock trades in an efficient market on the NASDAQ National Market System.
16. (a) Defendant Zvi Alon ("Alon") is the founder of the Company and has served as its Chairman of the Board, President and Chief Executive officer since the Company's formation. From 1986 to 1989, Alon was the President of Halley Systems, a manufacturer of networking equipment including bridges and routers. He also has served as Manager, Standard Product Line at Sytek, Inc., a networking company, and Manager of the Strategic Business Group for Architecture, Graphics and Data Communications at Intel Corporation ("Intel"). Alon is the son-in-law of Uzia Galil, a director of the Company. Because of defendant Alon's position with NetManage, he knew the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including NetManage's operating plans, budgets and forecasts and reports of actual operations compared thereto) , conversations and connections with corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith. Alon sold 240,000 shares of NetManage stock for proceeds of $4.7 million during the Class Period.
(b) Defendant Walter Amaral ("Amaral") has been Senior Vice President, Finance and Chief Financial Officer since April 1995 when he joined the Company. Prior to joining the Company since April 1992, Amaral served as Chief Financial Officer of Maxtor Corporation, a disk-drive manufacturer. From 1977 to 1992, Amaral was at Intel, in numerous positions, most recently as Corporate Controller. Because of defendant Amaral's position with NetManage, he knew the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including NetManage's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management meetings and via reports and other information provided to him in connection therewith.
(c) Defendant Uzia Galil ("Galil") has been a director of the Company since December 1991. Galil is the Chairman of the Board of Directors of Elron Electronic Industries, Ltd. ("Elron"), its founder and has also been its President and Chief Executive Officer since its formation. Galil is the father-in-law of Alon, a director of the Company and the Company's President and Chief Executive Officer. Because of defendant Galil's position with NetManage, he knew the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including NetManage's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith. Galil sold 92,500 shares of NetManage stock for proceeds of nearly $1.9 million during the Class Period.
(d) Defendant John Bosch ("Bosch") has been a director of the Company since December 1991. Since 1981, Bosch has been a general partner of Bay Partners, a venture capital firm. In 1976, he co-founded Cronus Precision Products, Inc., a digital timing company, and he served as its President and Chief Executive Officer until 1981. In 1970, Bosch co-founded Anixter, Bosch & Russell, a consulting firm specializing in marketing and sales consulting for high technology companies and in technical venture analysis for the venture capital community. Because of defendant Bosch's position with NetManage, he knew the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including NetManage's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with corporate officers and employees, attendance at Board of Director's meetings and committees thereof and via reports and other information provided to him in connection therewith. Bosch sold 9,667 shares of NetManage stock for proceeds of $172,846 during the Class Period, 100% of his NetManage holdings.
(e) Defendant Amatzia Ben-Artzi ("Ben-Artzi") was Vice President, Business Development since September 1992 after joining the Company in 1991 as Vice President of Research and Development. Prior to joining NetManage, he was Vice President of Technology Development at Synoptics Communications, a networking company, from 1989 to 1991. Ben-Artzi was Director of Systems Architecture at 3Com, a networking company, from 1988 to 1989. Prior to 1988, he served as a Senior Network Architect at Sytek, a Manager of Network Interfaces at Tadiran, Ltd., a telecommunications company, and held various engineering and management Positions in local area network and network management at Control Data Corporation. Ben-Artzi resigned from the Company effective March 8, 1996. Because of defendant Ben-Artzi's position with NetManage, he knew the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including NetManage's operating plans, budgets and forecast and reports of actual operations compared thereto), conversations and connections with corporate officers and employees, attendance at management meetings and via reports and other information provided to him in connection therewith. Ben-Artzi sold 90,000 shares of NetManage stock for proceeds of $1.8 million during the Class Period.
(f) Defendant Robert Williams ("Williams") was Vice President, Marketing and currently holds the position of Vice President, Business Development. Prior to joining NetManage, he was Vice President of Sales and Marketing at BOSS Logic, Inc., a developer of document management software, from 1992 to 1993. Because of defendant Williams' position with NetManage, he knew the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including NetManage's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with corporate officers and employees, attendance at management meetings and via reports and other information provided to him in connection therewith. Williams sold 37,400 shares of NetManage stock for proceeds of $694,350 during the Class Period, 94% of his holdings.
(g) Defendant Richard Koretz ("Koretz") was Vice President of North American Sales until he resigned from that position on August 31, 1995. Koretz remained an employee of NetManage to assist his replacement until December 1995. Because of defendant Koretz' position with NetManage, he knew the adverse non-public information about its business, finances, products markets and present and future business prospects via access to internal corporate documents (including NetManage's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with corporate officers and employees, attendance at management meetings and via reports and other information provided to him in connection therewith. Koretz sold 186,182 shares of NetManage stock for proceeds of nearly $3.5 million during the Class Period, 76% of his holdings.
(h) Defendant Dan Geisler ("Geisler") was Vice President, International Marketing since February 1995 and served as Vice President, OEM and International Sales from December 1992 until February 1995. Because of defendant Geisler's position with NetManage, he knew the adverse non-public information about its business, finances, products markets and present and future business prospects via access to internal corporate documents (including NetManage's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with corporate officers and employees, attendance at management meetings and via reports and other information provided to him in connection therewith. Geisler sold 60,250 shares of NetManage stock for proceeds of over $1.1 million during the Class Period, 45% of his holdings.
(i) The defendants named in §16(a)-(h) are referred to herein as the "Individual Defendants."
17. Defendants Alon and Amaral, by reason of Alon's position as CEO and as a director of NetManage, and by reason of Amaral's position as CFO of NetManage, were controlling persons of NetManage and had the power and influence, and exercised the same, to cause NetManage to engage in the conduct complained of herein.
18. The Individual Defendants, because of their positions with the Company, controlled and/or possessed the power and authority to control the contents of its quarterly and annual reports, press releases and presentations to securities analysts and thereby the investing public. Each defendant was provided with copies of the Company's reports and press releases alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their positions and access to material non-public information available to them but not to the public, each of these defendants knew or recklessly disregarded that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the positive representations which were being made were then materially false and misleading. Despite their duty not to sell their NetManage stock under such circumstances, defendants did so.
19. Each of the defendants is liable as a primary violator, in making false and misleading statements, and for participating in a fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of NetManage stock during the Class Period. All of the defendants pursued a fraudulent scheme and course of business in furtherance of their common goal, i.e., inflating the price of NetManage stock by making false and misleading statements and concealing material adverse information. The fraudulent scheme and course of business was designed to and did: (i) deceive the investing public, including plaintiffs and other Class members; (ii) artificially inflate the price of NetManage stock during the Class Period; (iii) cause plaintiffs and other members of the Class to purchase NetManage stock at inflated prices; and (iv) increase the value of options to purchase NetManage stock owned by certain of the defendants, as well as their own NetManage shareholdings and permit them to sell off their holdings at artificially inflated levels to profit from the scheme.
20. The defendants' motive to engage in this conduct included a desire to inflate the price of NetManage's stock sales and to: (i) permit NetManage insiders to sell off large amounts of their NetManage stock at inflated prices; (ii) cover up and conceal NetManage's deteriorating business and prospects to protect and enhance their executive positions and the substantial compensation and prestige they obtained thereby; and (iii) inflate the value of NetManage stock so NetManage could make acquisitions of other companies more cheaply.
21. As part of NetManage's corporate planning, financial reporting and management process, NetManage prepares a corporate business plan and budget for each fiscal year, as well as monthly and quarterly financial statements included in the financial reporting package reviewed by NetManage's top executives. This financial reporting package included NetManage's financial results for each month, a comparison of those results to budget and to, the prior year, and a forecast of results for the remainder of 1995. These reporting packages also include information regarding the sales of Chameleon, ECCO, and other products.
22. During the Spring of 1995, NetManage's top executives were extensively involved in negotiating distribution agreements with Ingram Micro, Merisel, Inc. and Tech Data. Thus, the top executives were aware of the expansive right of return privileges granted to these distributors, and other contingencies related to the licensing agreements with these and other customers. NetManage's top executives were also familiar with the Company's agreements with customers regarding its obligations associated with licensing agreements including, support, customization and acceptance contingencies.
23. NetManage employed a sales force which worked closely with the Company's distributors and customers and which obtained frequent and extensive information on the success distributors were having in selling the Company's products, as well as the amount of product remaining in the channel. This sales force communicated regularly, both in written and oral form with the top executives regarding failures of certain of the products to sell-through to the extent previously anticipated and as to significant contingencies which remained as to certain of the company's "sales." The fact that significant contingencies remained, at June 30, 1995, September 30, 1995 and December 31, 1995, relating to agreements with distributors and other customers was a matter of serious discussion among NetManage's top executives.
24. Based on the reports they reviewed and communications with the Company's sales force, NetManage's top executives were aware that NetManage's products were not as successful as the company publicly represented, and that the Company's forecast for revenue and earnings growth for 1995 and 1996 were unrealistic. Thus, defendants each actually knew that the forward-looking public statements issued during the Class Period about NetManage were false and misleading when made and actually knew or recklessly disregarded that the non-forward-looking statements issued during the Class Period about NetManage were false and misleading when made.
25. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false forward-looking statements pleaded in this Complaint because virtually all of those statements were made prior to the enactment of the statutory safe harbor on December 22, 1995, via legislation that may not be applied retroactively. Alternatively, none of the forward-looking statements pleaded at ¶¶34-37, 40, 42, 49 and 51 was identified as a "forward-looking statement" when made. Nor was it stated that actual results "could differ materially from those projected." Nor did meaningful cautionary statements identifying important factors that could cause actual results to differ materially from that in the forward-looking statements accompany those forward-looking statements. To the extent that the statutory safe harbor does apply to any forward-looking statements pleaded in ¶¶34-37, 40, 42, 49 and 51, the defendants are liable for those false forward-looking statements because at the time each of those forward-looking statements was made, the speaker actually knew that the forward-looking statement was false and that the forward-looking statement was authorized and/or approved by an executive officer of NetManage who actually knew that those statements were false when made.
26. Each of the defendants is liable as a participant in a fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of NetManage stock, including false and misleading statements and/or concealed material, adverse facts. The scheme: (i) deceived the investing public regarding NetManage's business; (ii) artificially inflated the price of NetManage stock; (iii) caused plaintiffs and other ces; and (iv) permitted the Individual Defendants to sell 715,999 shares of NetManage stock at prices as high as $24-1/8 per share, pocketing some $14 million.
27. In recent years, NetManage reported revenue, net income and earnings per share growth exceeding 100% on an annual basis. For instance, during the four quarters preceding the Class Period, NetManage reported the following results:
FY 1995
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6/30/94 9/30/94 12/31/94 3/31/95
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Revenue $12.1 million $16.6 million $23.8 million $25.8 million
Net
Income $ 3.6 million $ 3.8 million $ 6.3 million $ 5.7 million
EPS $.09 $.09 $.15 $.14
In fiscal 1994 and 1993, NetManage earned $.41 and $.17 per share, respectively.1
28. As a result of this track record, NetManage stock traded at a price earnings multiple reserved for premier growth companies with track records of meeting market expectations for high profit growth. For the reasons pleaded elsewhere, maintaining an image of strong growth and thus a high stock price was extremely important to NetManage's top executives.
29. On July 25, 1995, NetManage issued a press release announcing record quarterly results for revenue and income for the 1995 second quarter, ended June 30, 1995, with revenue of $30.2 million, compared to $12.1 million for the same quarter of the prior year, an increase of 150%. Net income for the second quarter was reported as $6.8 million, or $.16 per share, compared to net income of $3.6 million or $.09 per share in the same period of 1994, an increase in net income of 89%. The release represented that revenue from single orders with dollar amounts greater than $100,000 exceeded $3 million. Defendant Alon was quoted in the release as representing:
"We are pleased with NetManage's financial performance during this quarter and our continued success in expanding our sales and support capabilities to include a new domestic channel program and the opening of our Tokyo based office . . . . We announced and shipped Swift, a new product addressing the needs of the host connectivity market. In addition, version 4.5 of Internet Chameleon and version 3.0 of ECCO PRO were released in June."
30. In a conference call and other communications with analysts following the announcement, defendants represented that revenue growth continued to be driven primarily by strong sales of the Company's core Chameleon products. Defendants also noted that expenses were higher than would normally be expected due to certain expenses in connection with an acquisition during the quarter and in connection with opening international sales offices.
31. On August 9, 1995, Elron, an affiliate of NetManage of which defendant Galil is Chairman of the Board and Chief Executive Officer, filed a notice under SEC Rule 144 of its intent to sell 75,000 shares of NetManage stock.
32. On August 14, 1995, NetManage filed with the SEC its report on Form 10-Q for its second quarter ended June 30, 1995, signed by defendants Amaral and by NetManage's controller. The report on Form 10-Q reported the same financial results as had been announced previously. The report also represented:
The interim financial statements for the six months ended June 30, 1995 and 1994 have been prepared on the same basis as the year end financial statements and, in the opinion of management, include all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial information set forth therein, in accordance with generally accepted accounting principals.
33. The financial statements in the July 25, 1995 press release and in the report on Form 10-Q were false and misleading for the reasons described below in ¶¶57-65.
34. On August 17, 1995, a Smith Barney analyst initiated coverage of NetManage with a buy recommendation. The report was prepared after extensive communications with NetManage executives, and contains information obtained directly from NetManage. This report represented that:
Financially, NetManage is one of the most attractive software companies on the market. Its growth rate remains staggering, up 150% in the June 1995 quarter, driven entirely by market demand, for the Chameleon product. Pricing remains stable as penetration rates are extremely low. We believe that NetManage can maintain annual earnings growth rates of 40%-50% for the next few years creating excellent long term value for investors. With the shares trading at only 17.3x our 1996 estimate, a si gnificant discount to its growth rate, we believe that the shares offer good long term value.
As a result of these positive representations, NetManage's stock rose $1-1/8 to $19-1/4 on large volume.
35. On August 21, 1995, Smith Barney issued a lengthy company report on NetManage, rating the stock a buy, and highlighting that NetManage was one of the leading suppliers of TCP/IP applications for the Windows market, that the market for TCP/IP on the desktop was "expected to explode over the next five years," that revenue growth in 1995 should exceed 100%, and that Smith Barney expected the stock price to rise to $26 per share. Repeating information obtained from the Company, the report represented that, while Microsoft would include a TCP/IP protocol in Windows 95, NetManage had long been preparing for this and looked forward to selling TCP/IP applications to the expanded market created through its inclusion in Windows 95. The report noted that NetManage had been investing heavily in expanding its application product line and that the most recent version of Chameleon contained more than 40 applications. The report also described NetManage's new Internet Chameleon product, which was being sold through traditional retail distributors as well as by top independent suppliers of Internet access services.
36. The report also noted that NetManage had been expanding its international operations, which had added to expenses in several prior quarters, but that expenses would begin to decline as the expansion was completed. The report represented that NetManage planned to expand its use of distributors in the United States, as well as add to its direct sales force. Initially, NetManage intended to use the retail distribution channel for the Internet Chameleon and ECCO products. The Smith Barney report also represented that while NetManage generates income from its base Chameleon family, Internet Chameleon and the ECCO products, the vast majority, about 95%, comes from the Chameleon and ChameleonNFS families, with the Internet Chameleon, ECCO, Swift and Israeli Internet business generating only 5%. The report represented:
Despite the insignificant contribution to the top line from some of NetManage's newer products, total revenue growth has been nothing short of amazing since the company went public in late 1993. The slowest rate of year-over-year revenue grow th occurred in the September 1994 quarter, when revenue climbed 137%. In the June 1995 quarter, revenue growth was 150%. . . . We believe that the investments made over the past year to open and staff offices outside the U.S. are only beginning to pay of f in revenues and have not really begun to boost earnings. In addition, the recent move to expand distribution channels has not materially influenced results. This should begin to occur in 1996, especially in light of the recent release of the ECCO 3.0 to the retail channel.
The report further represented that it expected the Company to report sequential revenue growth exceeding 10% in each of the next two quarters. Moreover, the report represented that margins should increase going forward, because expenses in the second quarter were always the highest due to the timing of new product releases. NetManage typically shipped upgraded versions of products to maintenance-paying customers during the second quarter incurring unusually high expense but not recording commensurate revenue, which is recorded ratably over the year. In addition, sales and marketing expenses had been high in each of the prior two quarters due to upfront costs to open international offices. As a result of these unusually high expenses, the report noted that operating margins had fallen from 44.8% to 29.4% over the prior three quarters. The report stated:
We believe that margins will start to improve primarily because there are no further plans for international infrastructure expansion in the form of new offices. As revenues from these investments start to come in, at the same time that expen se growth is slowing, we should see margins begin to improve. We expect the turnaround to occur in the fourth quarter of this year.
37. The report concluded that, in light of the Company's extremely high level of revenue and earnings growth, it seemed modestly priced, and that investors would "begin to pay more for the shares if the margin trends improve; in our opinion, this will start to happen in late 1995 and throughout 1996."
38. On September 19, 1995, NetManage issued a press release announcing the introduction of Chameleon Enterprise, a set of three core technologies that "revolutionizes the way people in corporate environments utilize their internal network." The press release described NetManage as "the fastest growing software company in the United. States."
39. On September 15, 1995, several officers and directors of NetManage reported to the SEC that they had sold substantial amounts of NetManage shares during the month of August. As a result, NetManage's stock declined by $1-3/4 on that date. On September 11, 1995, Laurence Hootnik, an affiliate and a former director of NetManage, filed a notice under Rule 144 of his intent to sell 93,333 shares of NetManage stock.
40. On October 6, 1995, a Smith Barney analyst issued a brief report on NetManage based on information obtained from NetManage's senior management. The report stated:
We believe that the recent weakness in NetManage's stock over the past week represents an excellent buying opportunity. Short and long term growth prospects for the company remain strong, for both the Windows-based TCP/IP products as well as for the new ECCO product in the retail channel. We have spoken with company management and nothing has changed, from their perspective, to explain the recent price decline.
41. On October 18, 1995, NetManage announced that it was acquiring Syzygy Communications, Inc. in exchange for 440,000 shares of NetManage stock. Several securities analysts reiterated "Buy" recommendations based on communications with the Company.
42. On October 24, 1995, NetManage issued a press release reporting record quarterly results for revenue and income for the third quarter, ended September 30, 1995. Revenue was represented to have been $32.7 million, compared to $16.6 million for the same quarter of the prior year, an increase of 97%. Net income for the third quarter was represented to be $7.4 million or $0.18 per share compared to net income of $3.8 million or $0.09 per share in the same period of the prior year. These results exceeded analysts' expectations. In the press release, NetManage represented that revenues from single orders with dollar amounts greater than $100,000 were approximately $2 million. The press release quoted defendant Alon as representing:
"We are very pleased that our investment in expanded products and services has enabled NetManage to continue with positive growth . . . . We have continued our leadership in TCP/IP applications for Windows by shipping our third generation version for Windows NT. This new version extends our capabilities to include a commercial NFS and Web server on Microsoft NT."
In a conference call and other communications with analysts following the earnings announcement, NetManage's senior management told analysts that NetManage's business continued to be "robust." A Smith Barney analyst reported:
Operating margins improved from last quarter's, earlier and better than we expected. After expanding its international facilities over the last four quarters, NetManage has begun to reap its benefits. International sales grew at more than tw ice the rate of domestic sales, and has come to represent 30% of total sales, vs. 21% in 1994. NetManage also has begun to roll out a new generation of its Chameleon product as part of its new enterprise strategy. Looking forward, we remain confident wi th regard to our fourth quarter estimates and beyond.
While NetManage's outstanding accounts receivable increased, and day's sales outstanding climbed to 58 days from 50 days, NetManage's senior management represented to analysts that these increases were the result of a "delay in shipping Japanese versions of Chameleon from August to September because the company ran out of inventory."
43. On November 8, 1995, Elron filed a notice pursuant to SEC Rule 144 of its intent to sell 75,000 shares of NetManage.
44 On November 13, 1995, NetManage filed with the SEC its Report on Form 10-Q for the quarter ended September 30, 1995. This report contained the same financial results as had been previously announced. The report represented:
The interim financial statements for the nine months ended September 30, 1995 and 1994 for NetManage, Inc. . . . have been prepared on the same basis as the year end financial statements and, in the opinion of management, include all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial information set forth therein, in accordance with generally accepted accounting principles.
The report was signed by defendant Amaral.
45. The financial statements in the October 24, 1995 press release and in the report on Form 10-Q were false and misleading for the reasons described below in ¶¶57-65.
46. On November 20, 1995, NetManage issued a press release announcing that it had signed an agreement to acquire AGE Logic, Inc. On December 1, 1995, NetManage issued a press release announcing that it had completed the acquisition of AGE Logic, Inc. for 1 million shares of NetManage stock, then valued at about $22 million.
47. On December 4, 1995, NetManage issued a press release announcing that it had signed a Software Licensing and Joint Development Agreement with Microsoft Corporation to develop OLE controls supporting internet protocols, which would be released by Microsoft in the following year. On the news of this announcement, NetManage's stock price rose sharply from $22-1/2 to $29-1/2.
48. Following the close of the market on December 14, 1995, a Federal Filings Newswire announced that Reports on Form 4 had been filed by defendants Alon, Ben-Artzi and Galil, reporting that they had sold significant amounts of their stockholdings in NetManage during the month of November. NetManage's stock price declined on the following day from $25-1/2 to $23-3/4, on large volume, and declined even further the following trading day.
49. To stem the decline in NetManage's stock price, NetManage's senior management communicated with a Smith Barney analyst who issued a report before the market opened on December 19, 1995. The report noted that recent weakness in the shares of NetManage offered a buying opportunity:
We do not see any evidence of any changes in the Corporate market despite the potential competitive threats that we previously outlined and which we believe are already factored into the stock. The shares are trading at a significant discount to its P/E based on both 1996 and 1997 estimates. We are maintaining our 12-month price target of $35-$40 per share and our 1H [buy] rating.
As a result of these representations, NetManage's stock price rebounded from $21-3/4 on December 18, 1995 to close on December 19, 1995 at $24-5/8.
50. By early January 1996, defendants knew that NetManage's business and finances were deteriorating, and that many of its distributor and reseller customers were refusing to accept additional product due to the fact that their inventories on hand were far in excess of anything they could sell in the immediate future, and in fact, that they wanted to return certain of these products. Thus, NetManage was going to have to "come clean" and reveal its true financial condition, especially since NetManage's auditors were about to audit it's books for the year end and would discover NetManage's illicit practices during fiscal 1995 to boost its revenues and profits during the interim reporting periods. However, defendants hoped that by gradually trickling out negative information about NetManage's finances rather than properly and fully disclosing the complete truth, they could "manage" NetManage's stock price downward gradually over several weeks and thus avoid a sudden catastrophic collapse in NetManage's stock price that would infuriate investors, attract attention, and likely lead to their being sued for fraud. Thus, in an attempt to manage the stock price down slowly, in early January 1996, defendants began to make partially, but incomplete and misleading, revelations about NetManage's business through securities analysts.
51. Thus, after communicating with NetManage's senior management, a Smith Barney analyst issued a brief report on NetManage before the market opened on January 4, 1996, reducing its expectations for large order sales in the fourth quarter by $4 million, thus reducing its fourth quarter revenue estimate of $39.5 million to $35.5 million. The report represented that NetManage's base business remained strong and would constitute revenue growth of about 80%. This reduction cut the earnings per share estimate by $0.04 to $0.19 per share for the fourth quarter. This report was issued as part of an overall scheme by defendants to manage down the earnings expectations of the market knowing that the Company would be forced to report a significant decline in earnings for its fourth quarter. As a result of these revelations by other companies and the estimate cut by the Smith Barney analysts, NetManage's stock price declined from a close of $20-3/4 on January 3, 1996 to close at $15-3/8 on January 4, 1996, on volume exceeding 8.8 million shares traded.
52. Unable to conceal any longer the weakness in its business and finances, NetManage issued a press release on January 12, 1996, revealing that the Company expected its revenues from the fourth quarter ended December 31, 1995 to be only approximately $30 million to $32 million, representing an increase of 30% over the fourth quarter of 1994, rather than the much higher figures defendants had previously led the market to expect. The release also revealed that earnings from operations for the quarter were expected to be lower than in the same quarter of 1994. The release quoted defendant Alon as stating:
"While we had a record bookings quarter, we were not able to recognize some of these bookings as revenue due to our accounting policies. The overall business is very solid. We do not see any fundamental change in our market. We have the technology and products to allow our continued growth and success in this exciting market."
In an interview with Reuters, defendant Amaral represented that earnings per share for the fourth quarter would be lower than $0.15." Amaral was quoted as stating that NetManage's "'order rates are still very solid -- we just couldn't recognize all the revenue' because of financial accounting policies. 'Otherwise we would have been very close to the earnings estimates' of Wall Street analysts . . . . 'Our business is still in relatively good shape . . . .'"
53. NetManage later reported revenues of $125.4 million for 1995, an increase of only 75% over 1994 on a pooled basis, compared to the 100% increase projected for the Company. Moreover, operating margins deteriorated over time, as opposed to improving as projected:
54. Securities analysts called the revelations a "significant disappointment." One analyst stated: "Our confidence in the quality of information flow from management has been significantly reduced." In discussions with analysts, NetManage's senior management indicated that the revenue and earnings shortfall was due to NetManage's inability to convert a handful of large bookings of over $100,000 into revenue due to contingencies that existed in connection with the contracts. Management also revealed that not all of these deals would be converted to revenue in the following, quarter. One analyst concluded that it would be some time before NetManage could re-establish investor confidence.
55. Most importantly, NetManage's senior management revealed to at least one analyst that contingency items had existed in customer orders in earlier financial periods.
56. As a result of these revelations, NetManage's stock price -- which was already down significantly from its earlier highs -- plunged from a close of $14-9/16 on January 11, 1996 to as low as $10 per share on January 12, 1996.
57. In order to overstate its revenues, gross profit, net income and earnings per share in the second and third quarters of 1995, the defendants caused NetManage to improperly recognize revenue on sales to distributors (including Ingram Micro, Merisel and Tech Data), resellers and other customers, where NetManage granted the distributors or resellers the right to return unsold merchandise as well as other contingent contract terms, such as customization, acceptance contingencies and other significant ongoing vendor obligations, which contingencies were still unresolved at the time NetManage recognized revenue associated with these agreements. This caused NetManage's financial statements for the second and third quarters of 1995 to be presented in violation of GAAP and SEC rules.
58. GAAP are those principles recognized by the accounting profession as the conventions, rules and procedures necessary to define accepted accounting practice at a particular time. SEC Regulation S-X (17 C.F.R. §210.4-01)(a)(1)) states that financial statements filed with the SEC, which are not prepared in compliance with GAAP, are presumed to be misleading and inaccurate, despite footnote or other disclosures.
59. GAAP, as set forth in FASB Statement of Accounting Standard ("SFAS") No. 48 (Revenue Recognition When the Right of Return Exists), requires that when an entity grants its customers the right of return, certain conditions must be met prior to revenue recognition, including the following:
b. The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product.
* * *
e. The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer.
f. The amount of future returns can be reasonably estimated.
60. GAAP, as set forth in Statement of Position ("SOP") 91-1 (software revenue recognition) imposes additional requirements on entities that license software, including that prior to revenue recognition three tests must be met: (i) delivery has occurred; (ii) other remaining vendor obligations are no longer significant; and (iii) collectibility is probable. SOP 91-1 requires that where "other vendor obligations remaining after delivery are significant, revenue should not be recognized, because the earnings process is not substantially completed." SOP 91-1, ¶68. Moreover, an important concept in SOP 91-1 states: "If, after delivery, there is significant uncertainty about customer acceptance of the software, license revenue should not be recognized until the uncertainty becomes insignificant." SOP 91-1, ¶36.
61. In the second quarter ended June 30, 1995, NetManage reported revenue of $30.2 million, an increase of 17% over the first quarter of 1995, and net income per share of $.16. In the third quarter of 1995, NetManage reported revenues of $32.7 million, an 8% increase over the second quarter, and earnings per share of $.18.
62. The results reported for the second and third quarters of 1995 and the statements accompanying those results in the reports on Form 10-Q for those quarters were false and misleading as the Company had materially overstated its revenues associated with shipments and licenses granted to resellers and distributors, which included the right of return, significant vendor obligations such as customization and other acceptance contingencies, and the financial statements did not fairly present NetManage's financial information in accordance with GAAP. These distributors and resellers, including Ingram Micro, Merisel and Tech Data, required that NetManage provide them with the right to return unsold merchandise, customization and other acceptance privileges, and price protection on their unsold inventories, prior to accepting any shipments of NetManage products. These distributors' right to return unsold merchandise and NetManage's other obligations with respect to these licenses effectively made the sales contingent on resale or acceptance and necessitated that NetManage defer recognition of such revenue until the product had been sold through to end users. If NetManage had not improperly reported this revenue, its second and third quarter results would have shown very little growth over the first quarter.
63. Ultimately, at the end of the fourth quarter of 1995, NetManage could no longer conceal this improper revenue recognition, as it was in the midst of an audit by its outside accountants who were analyzing the contract terms NetManage had granted many of its reseller customers. Due to the return privileges, acceptance contingencies and significant ongoing obligations of NetManage, NetManage knew it would not be able to recognize much of its bookings as revenue and that much of its revenue recognized in the second and third quarters had been improper. NetManage thereby reported much lower revenues in the fourth quarter than in either the second or third quarters of 1995. NetManage later acknowledged that the shortfall in revenue for the fourth quarter was the result of being required to defer recognition of revenue on certain of its sales to large distributors.
64. NetManage later filed its annual report to shareholders and changed its description of its revenue recognition policy from that used in the 1994 annual report. Moreover, the 1994 annual report stated that NetManage recognized revenue on sales to distributors where the right of return existed and reserved for estimated returns. In 1995, the Company changed its policy to defer revenue where the right of return had not expired. This change presumably occurred in the fourth quarter since the second and third quarter reports on Form 10-Q represented that the quarterly results were prepared on the same basis as in 1994:
The interim financial statements for the six [nine] months ended June 30, 1995 [September 30, 1995] and 1994 have been prepared on the same basis as the year end financial statements and, in the opinions of management, include all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial information set forth therein, in accordance with generally accepted accounting principles. The Company believes the results of operations for the interim periods are subject to fluctuation and may not be an indicator of future financial performance.
In the 1994 annual report, NetManage had represented that returns from distributors had been insignificant in the past, whereas in the 1995 annual report NetManage did not make this statement. NetManage's lower than expected fourth quarter results were partly the result of its improper revenue recognition in these prior quarters.
65. Due to these improprieties, the Company presented its results for the second and third quarters of fiscal 1995 in a manner which violated GAAP. Further, the undisclosed adverse information concealed by defendants during the Class Period is the type of information which, because of SEC regulations, regulations of the national stock exchanges and customary business practice, is expected by investors and securities analysts to be disclosed and is known by corporate officials and their legal and financial advisors to be the type of information which is expected to be and must be disclosed.
66. While NetManage's insiders were issuing false and misleading statements about NetManage's business, the defendants sold 715,999 shares of the NetManage stock they owned for proceeds of $14 million to profit from the artificial inflation in NetManage's stock price their fraud had created. Notwithstanding their access to non-public information as a result of their positions with the Company, the Individual Defendants sold the following amounts of NetManage shares at artificially inflated prices throughout the Class Period while in possession of material non-public information:
% Of
Date Shares Holdings
Name Sold Sold Prices Proceeds Sold
Alon 07-31-95 10,000 $19.00 $ 190,000
08-07-95 20,000 18.88 377,600
08-09-95 2,500 18.75 46,875
08-17-95 10,000 19.00 190,000
08-17-95 15,000 19.50 292,500
08-17-95 17,500 19.50 341,250
08-17-95 25,000 19.13 478,250
10-27-95 20,000 19.00 380,000
10-30-95 10,000 20.00 200,000
10-30-95 20,000 19.50 390,000
10-30-95 20,000 20.00 400,000
10-31-95 35,000 20.75 726,250
10-31-95 2,500 20.38 50,950
10-31-95 10,000 20.50 205,000
11-01-95 22,500 20.38 458,550
TOTAL 240,000 $4,727,225 3%
Ben-Artzi 11-09-95 20,000 20.75 $ 415,000
11-09-95 30,000 20.50 615,000
11-09-95 10,000 20.25 202,500
11-10-95 10,000 21.50 215,000
11-10-95 10,000 22.00 220,000
11-10-95 10,000 21.00 210,000
TOTAL 90,000 $1,877,500 10%
Bosch 08-14-95 0,000 19.50 $ 390,000
08-21-95 2,500 20.00 50,000
08-24-95 10,000 20.00 200,000
10-26-95 10,000 20.00 200,000
10-30-95 20,000 20.00 400,000
10-31-95 10,000 20.38 203,800
11-03-95 10,000 20.70 207,000
11-14-95 10,000 24.13 241,300
TOTAL 92,500 $1,892,100 14%
Geisler 07-31-95 5,000. 18.75 $ 93,750
07-31-95 5,000 18.50 92,500
07-31-95 10,000 19.00 190,000
08-01-95 5,000 18.38 91,900
08-02-95 5,000 18.38 91,900
08-07-95 5,000 18.75 93,750
08-07-95 5,000 19.00 95,000
08-07-95 5,000 18.63 93,150
08-17-95 5,250 19.25 101,063
10-30-95 2,500 20.00 50,000
10-30-95 2,500 20.13 50,325
10-30-95 5,000 19.75 98,750
TOTAL 60,250 $1,142,088 45%
Koretz 07-27-95 5,000 19.25 $ 96,250
07-31-95 10,000 19.00 190,000
08-01-95 12,500 18.38 229,750
08-01-95 5,245 18.25 95,721
08-02-95 42,000 18.25 766,500
08-04-95 20,000 17.50 350,000
08-04-95 20,000 17.63 352,600
08-31-95 60,187 19.25 1,158,600
09-01-95 1,25O 19.25 24,063
10-02-95 2,500 23.25 58,125
10-02-95 7,500 23.38 175,350
TOTAL 186,182 $3,496,959 76%
Williams 08-15-95 15,000 17.63 $ 264,450
08-16-95 10,000 17.88 178,800
10-31-95 12,400 20.25 251,100
TOTAL 37,400 $ 694,350 94%
GRAND TOTAL: 715,999 $14,003,067
67. Plaintiffs incorporate by reference ¶¶1-66.
68. Each of the defendants: (a) knew or had access to the material adverse non-public information about NetManage's financial results and then existing business conditions which was not disclosed; and (b) participated in drafting, reviewing and/or approving the misleading statements, releases, reports and other public representations of and about NetManage.
69. During the Class Period, defendants, with knowledge of or reckless disregard for the truth, disseminated or approved the false statements specified above, which were misleading in that they contained misrepresentations and failed to disclose material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.
70. Defendants have violated §10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder in that they: (a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material facts or omitted to state material facts necessary in order to make statements made, in light of the circumstances under which they were made, not misleading; or (c) engaged in acts, practices and a course of business that operated as a fraud or deceit upon the purchasers of NetManage stock during the Class Period.
71. Plaintiffs and the Class have suffered damage in that, in reliance on the integrity of the market, they paid artificially inflated prices for NetManage stock. Plaintiffs and the Class would not have purchased NetManage stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants' false and misleading statements.
72. Plaintiffs incorporate by reference ¶¶1-71.
73. Defendants Alon and Amaral acted as controlling persons of NetManage within the meaning of §20 of the Exchange Act. By reason of their positions as Chief Executive Officer and Chief Financial Officer of NetManage, Alon and Amaral had the power and authority to cause NetManage to engage in the wrongful conduct complained of herein. Also, NetManage controlled each of the Individual Defendants and all of its employees.
74. By reason of such wrongful conduct, NetManage, Alon and Amaral are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result of these defendants' wrongful conduct, plaintiffs and the other members of the Class suffered damages in connection with their purchases of NetManage stock during the Class Period.
75. Plaintiffs bring this class action pursuant to Federal Rules of Civil Procedure 23 (a) and 23 (b) (3) on behalf of all persons who purchased the stock of NetManage (the "Class") during the Class Period, except defendants, members of their families and any entity in which a defendant has a controlling interest.
76. The members of the Class are so numerous that joinder of all members is impracticable. NetManage has more than 43 million shares of stock outstanding. During the Class Period, millions of shares of NetManage stock were purchased by hundreds or thousands of persons who were damaged thereby.
77. Plaintiffs' claims are typical of the claims of the Class because plaintiffs and the Class members sustained damages from defendants' wrongful conduct.
78. Plaintiffs will adequately protect the interests of the Class. Plaintiffs have retained counsel who are experienced and competent in class action securities litigation. Plaintiffs have no interests which are in conflict with those of the Class.
79. Common questions of law and fact predominate over questions which affect only individual members. Among the questions of law and fact common to the Class are:
(a) Whether the federal securities laws were violated by defendants' acts;
(b) Whether NetManage's statements during the Class Period misrepresented and/or omitted material facts;
(c) Whether defendants pursued the fraudulent scheme and course of business complained of;
(d) Whether defendants acted intentionally or recklessly;
(e) Whether the market price of NetManage stock was artificially inflated due to the activities complained of; and
(f) The extent and measure of damage sustained by the Class.
80. A class action is superior to other available methods for the fair and efficient adjudication of this controversy.
81. Plaintiffs have alleged the foregoing based upon the investigation of their counsel, which included a review of NetManage's SEC filings, securities analysts reports and advisories about the Company, press releases issued by the Company, media reports about the Company and discussions with consultants, and believe that substantial evidentiary support will exist for the allegations set forth in ¶¶1, 4-9, 17-24, 26, 33, 42, 45, 49-55, 57, 62-66, 68-71 and 73-74 after a reasonable opportunity for discovery.
WHEREFORE, plaintiffs pray for judgment as follows:
1. Declaring this action to be a proper class action pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on behalf of the Class defined herein;
2. Awarding plaintiffs and the members of the Class compensatory damages;
3. Awarding plaintiffs and the members of the Class prejudgment and post-judgment interest, as well as reasonable attorneys' fees, expert witness fees and other costs;
4. Awarding extraordinary, equitable and/or injunctive relief as permitted by law, equity and the federal statutory provisions sued hereunder, pursuant to Rules 64, 65 and any appropriate state law remedies; and
5. Awarding such other relief as this Court may deem just and proper.
Plaintiffs demand a trial by jury.
DATED: January 9, 1997
|
MILBERG WEISS BERSHAD |
1 1994 quarterly results are adjusted to reflect the April 1995 2-for-1 stock split.
Walter W. Head, III ("Plaintiff") declares, as to the claims asserted under the federal securities laws, that:
1. Plaintiff has reviewed the complaint and authorized its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of plaintiff's counsel or in order to participate in this private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary.
4. Plaintiff's transaction(s) in the security that is the subject of this action during the Class Period is/are as follows:
PURCHASES
Security Transaction Date
-------- ----------- ----
Common Stock Purchased 70 shares October 2, 1995
SALES
Security Transaction Date
-------- ----------- ----
Common Stock Sold 30 shares November 14, 1995
Common Stock Sold 40 shares January 12, 1996
5. During the three years prior to the date of this Certificate, Plaintiff has sought to serve or served as a representative party for a class in the following actions filed under the federal securities laws: NONE
6. Plaintiff has sought to serve or served as a representative party for a class in the following actions filed subsequent to December 22, 1995: NONE
7. The plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiff's pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to representation of the class as ordered or approved by the court.
I declare under penalty of perjury that the foregoing is true and correct. Executed this 7 day of Jan., 1997, at Lexington, Kentucky.
|
______________________________ |
Gregory Selmanson ("Plaintiff") declares, as to the claims asserted under the federal securities laws, that:
1. Plaintiff has reviewed the complaint and authorized its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of plaintiff's counsel or in order to participate in this private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary.
4. Plaintiff's transaction(s) in the security that is the subject of this action during the Class Period is/are as follows:
Security Transaction Date -------- ----------- ---- Common Stock Purchased 300 shares December 28, 1995
5. During the three years prior to the date of this Certificate, Plaintiff has sought to serve or served as a representative party for a class in the following actions filed under the federal securities laws: NONE
6. Plaintiff has sought to serve or served as a representative party for a class in the following actions filed subsequent to December 22, 1995: NONE
7. The plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiff's pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to representation of the class as ordered or approved by the court.
I declare under penalty of perjury that the foregoing is true and correct. Executed this 7th day of January, 1997, at Los Alamitos, California.
|
/s/ |
DOMINIC CASTALDO ("Plaintiff") declares, as to the claims asserted under the federal securities laws, that:
1. Plaintiff has reviewed the complaint and authorized its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of plaintiff's counsel or in order to participate in this private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary.
4. Plaintiff's transactions in the security that is the subject of this action during the Class Period is/are as follows:
Security Transaction Date -------- ----------- ---- Common Stock Purchased 2,000 shares 01/05/96 Common Stock Purchased 3,000 shares 01/12/96
5. During the three years prior to the date of this Certificate, Plaintiff has sought to serve or served as a representative party for a class in the following actions filed under the federal securities laws: In re Asante Securities Litigation, Case No. C-94-20499(A)-RMW(EAI), in the United States District Court for the Northern District of California, San Jose Division and Castaldo, et al. v. Riscorp, Inc., et al., Case No. 96-2535-CIV-T-17B, in the United States District Court for the Middle District of Florida, Tampa Division
6. Plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiff's pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to representation of the class as ordered or approved by the court.
I declare under penalty of perjury that the foregoing is true and correct. Executed this 8 day of January, 1997.
|
/s/ |
LEILA WALDMAN ("Plaintiff") declares, as to the claims asserted under the federal securities laws, that:
1. Plaintiff has reviewed the complaint and authorized its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of plaintiff's counsel or in order to participate in this private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary.
4. Plaintiff's transactions in the security that is the subject of this action during the Class Period is/are as follows:
Security Transaction Date
-------- ----------- ----
Common Stock Purchased 500 shares 12/05/95
at $31 3/8
5. During the three years prior to the date of this Certificate, Plaintiff has sought to serve or served as a representative party for a class in the following actions filed under the federal securities laws: None. Plaintiff has sought to serve or served as a representative party for a class in the following actions filed in the three years prior to January 8, 1997: None
6. The Plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiff's pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to representation of the class as ordered or approved by the court.
I declare under penalty of perjury that the foregoing is true and correct. Executed this 8th day of January, 1997, at Queens, New York.
|
/s/ |
John Velonis, Jr. ("Plaintiff") declares, as to the claims asserted under the federal securities laws, that:
1. Plaintiff has reviewed the complaint and authorized its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of plaintiff's counsel or in order to participate in this private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary.
4. Plaintiff's transactions in the security that is the subject of this action during the Class Period is/are as follows:
Security Transaction Date -------- ----------- ---- Common Stock Purchased 200 shares December 5, 1995 Common Stock Purchased 200 shares December 15, 1995
5. During the three years prior to the date of this Certificate, Plaintiff has sought to serve or served as a representative party for a class in the following actions filed under the federal securities laws: No
6. Plaintiff has sought to serve or served as a representative party for a class in the following actions filed subsequent to December 22, 1995: No
7. The plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiff's pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to representation of the class as ordered or approved by the court.
I declare under penalty of perjury that the foregoing is true and correct. Executed this 10th day of Jan., 1997, at N. Palm Beach, Palm Beach County.
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/s/ |