MILBERG WEISS BERSHAD

HYNES & LERACH LLP

ALAN SCHULMAN (128661)

JAMES A. CAPUTO (120485)

TRAVIS E. DOWNS, III (148274)

TOR GRONBORG (179109)

600 West Broadway, Suite 1800

San Diego, CA 92101

Telephone: 619/231-1058

Lead Counsel for Plaintiffs

WALTER W. HEAD, III, et al., On Behalf of Themselves

and All Others Similarly Situated,

Plaintiffs,

vs.

NETMANAGE, INC., et al.,

Defendants.

__________________________________________

No. C-97-4385-CRB

CLASS ACTION

DATE: TBA

TIME: TBA

COURTROOM: The Honorable

Charles R. Breyer

I. INTRODUCTION

II. ON A MOTION TO DISMISS, ALL MATTERS OUTSIDE THE COMPLAINT MUST BE EXCLUDED

A. References To Defendants' Proxy Statements And Form 4 Reports Should Be Stricken As They Are Outside The Pleadings

B. Defendants' SEC Filings Are Inaccurate And Therefore Unreliable

III. CONCLUSION

I. INTRODUCTION

Plaintiffs submit this supplemental brief to conform the pending motion to strike to the motion to dismiss currently pending before the Court. Plaintiffs also wish to bring to the Court's attention new authorities that support plaintiffs' request that the Court strike defendants' references to Securities and Exchange Commission ("SEC") filings which were not pleaded in the Second Amended Complaint ("Complaint").

II. ON A MOTION TO DISMISS, ALL MATTERS OUTSIDE THE COMPLAINT MUST BE EXCLUDED

A. References To Defendants' Proxy Statements And Form 4 Reports Should Be Stricken As They Are Outside The Pleadings

It is well settled under 9th Cir. law that SEC filings and materials outside the complaint should not be considered on a motion to dismiss. Cooper v. Pickett, 137 F.3d 616, 622-23 (9th Cir. 1998) (striking transcript of analysts' conference prepared by defendants); Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994) (in ruling on a motion to dismiss, a district court generally "'may not consider any material beyond the pleadings'"); Fecht v. Price Co., 70 F.3d 1078, 1080 n.1 (9th Cir. 1995), cert. denied, 517 U.S. 1136 (1996) (court may consider "documents whose contents are alleged in a complaint and whose authenticity no party questions" on a motion to dismiss); Bonilla v. Oakland Scavenger Co., 697 F.2d 1297, 1301 (9th Cir. 1982) (a court "commits reversible error when it considers matters extraneous to the pleadings while treating the motion as one to dismiss, rather than as one for summary judgment"); see Motion to Strike, at 5-6.

Recent decisions under the Private Securities Litigation Reform Act of 1995 ("PSLRA") are in accord. In Bryant v. Apple South, [Current Binder] Fed. Sec. L. Rep. (CCH) ¶90,275, at 91,274 (M.D. Ga. 1998), the court, addressing the very question raised here, rejected defendants' submission of SEC filings, including Form 4 reports, because "the documents were not quoted or specifically mentioned in the Amended Complaint." Similarly, in In re Digi, Int'l Inc. Sec. Litig., 6 F. Supp. 2d 1089, 1097 n.5 (D. Minn. 1998), defendants were not permitted to "rely on the alleged purchase of shares by [defendants] -- evidence outside the four corners of the complaints -- to support [their] motion to dismiss."

Here, defendants submit NetManage's FY95 and FY96 Proxy Statements and the Individual Defendants' unverified Form 4 reports.⁽¹⁾ Defendants contend that these self-serving documents conclusively demonstrate that their insider trading was neither suspicious in amount or timing and negate any inference that defendants acted with scienter. However as in Cooper, Bryant and Digi, the instant Complaint neither quotes nor cites NetManage's FY95 or FY96 Proxy Statements (see Salceda Decl., Exs. L & M), or the Individual Defendants' Form 4 reports. Because such materials are extraneous to the Complaint, defendants' reliance upon them to buttress their motion to dismiss is improper.⁽²⁾

Defendants also submit a newly created table compiling data purportedly reflecting the Individual Defendants' total holdings, including vested options, during the Class Period. Motion to Dismiss the Second Amended Complaint ("MTD") at 15. This table should also be stricken. The table is not authenticated and does not describe how the "information" therein was compiled, other than by referencing SEC filings which defendants prepared themselves. MTD at 15. Defendants' table was developed specifically for this motion to dismiss, conveniently omits certain defendants and "derives" information from SEC filings which are not alleged in the Complaint. Even if defendants' unverified information was available to the Court, it could not be used to "prove" that defendants did not act with scienter. To do so would impermissibly require the Court to engage in speculative fact-finding on a motion to dismiss. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984) (dismissal improper if any set of facts could be provided consistent with allegations); Campanelli v. Bockrath 100 F.3d 1476, 1479 (9th Cir. 1996) (allegations of material facts must be accepted as true and construed in light most favorable to plaintiff on motion to dismiss); Miller v. Material Sciences Corp., 1998 U.S. Dist. LEXIS 10052 (N.D. Ill. 6/25/98) (court is not required to accept defendants' characterizations of the complaint's allegations on a motion to dismiss); Digi, 6 F. Supp. 2d at 1097 n.5 (court has "no way to determine the nature of, or reason behind [defendants'] alleged purchases" or sales of securities); Voit v. Wonderware Corp., 977 F. Supp. 363, 374 (E.D. Pa. 1997) (plaintiffs' allegations regarding the amount of each defendant's stock sales must be accepted as true).

B. Defendants' SEC Filings Are Inaccurate And Therefore Unreliable

As discussed at pages 4-5 of plaintiffs' Motion to Strike, defendants SEC filings are inaccurate. Accordingly, they cannot be used to prove defendants' stockholdings. For example, NetManage insiders sold nearly 200,000 shares of NetManage stock for proceeds exceeding $3.8 million that were never reported on defendants' Form 4 reports or SEC filings. ¶111. Plaintiffs discovered these sales through a review of internal securities transaction reports for several defendants. Transaction reports for the remaining defendants have not been made available. Whether there may be more underreported sales is uncertain. What is certain, however, is that defendants' SEC filings are inaccurate and should not be considered on this motion. Given the unreliability of defendants' SEC filings, defendants' references to NetManage's FY95 and FY96 Proxy Statements and the Form 4 reports are not subject to judicial notice and should be stricken.

III. CONCLUSION

For the reasons stated above, plaintiffs' Motion to (1) Strike Defendants' References to the Contents of Their "Public Records" or, in the Alternative; (2) Plaintiffs Objection to the Court's Taking Judicial Notice of Same should be granted.

DATED: September 24, 1998

Respectfully submitted,

MILBERG WEISS BERSHAD

HYNES & LERACH LLP

ALAN SCHULMAN

JAMES A. CAPUTO

TRAVIS E. DOWNS, III

TOR GRONBORG

____________________________________

TRAVIS E. DOWNS, III

600 West Broadway, Suite 1800

San Diego, CA 92101

Telephone: 619/231-1058

Lead Counsel for Plaintiffs

NETMANAG\CLC02089.brf

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 September 25, 1998, declarant served the SUPPLEMENTAL BRIEF IN SUPPORT OF PLAINTIFFS' MOTION TO (1) STRIKE DEFENDANTS' REFERENCES TO THE CONTENTS OF THEIR "PUBLIC RECORDS," OR, IN THE ALTERNATIVE, (2) PLAINTIFFS' OBJECTIONS TO THE COURT'S TAKING JUDICIAL NOTICE OF SAME by depositing a true copy thereof in a United States mailbox at San Diego, California in a sealed envelope with postage thereon fully prepaid and addressed to the parties listed on the attached Service List and that this document was forwarded to the following designated Internet site at:

http://securities.milberg.com

3. That there is a regular communication by mail between the place of mailing and the places so addressed.

I declare under penalty of perjury that the foregoing is true and correct. Executed this 25th day of September, 1998, at San Diego, California.

______________________________

DEBORAH D. HAYES

1. The Individual Defendants are Zvi Alon (Chairman/CEO/Pres.), Walter Amaral (SVP/CFO), Uzia Galil (Director), Amatzia Ben-Artzi (VP/Bus. Develop.), John Bosch (Director), Richard Koretz (VP/Sales), Robert Williams (VP/Marketing), and Dan Geisler (VP/Int'l Marketing).

2. Defendants make the tenuous argument that, because plaintiffs' allegations are based in part on certain SEC filings (such as NetManage's Form 10-Q quarterly reports), they should be able to reference all SEC filings. Of course, this is incorrect. Bryant, ¶90,275, at 91,247. Defendants can only reference materials actually cited in the Complaint. Cooper, 137 F.3d at 622-23; Digi, 6 F. Supp. 2d at 1097 n.5. There is no exception to allow defendants to begin referencing entire categories of documents, as this exception would undoubtedly swallow the rule.