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

Attorneys for Plaintiff and the Class

I. INTRODUCTION

II. FACTUAL OVERVIEW

III. THE PROPOSED LEAD PLAINTIFFS SHOULD BE APPOINTED TO LEAD PLAINTIFF POSITIONS

A. The Procedure Required By The PSLRA

B. The Proposed Lead Plaintiffs Satisfy The PSLRA's "Lead Plaintiff" Requirements

1. The Proposed Lead Plaintiffs Have Complied With The PSLRA And Are Entitled To Be Appointed Lead Plaintiff

2. The Proposed Lead Plaintiffs Have A Significant Financial Interest In The Relief The Class Seeks

3. The Proposed Lead Plaintiffs Are Qualified Under Rule 23

4. The Proposed Lead Plaintiffs' Claims Are Typical Of The Class's Claims

5. The Proposed Lead Plaintiffs Will Fairly And Adequately Represent The Interests Of The Class

C. Counsel Selected By The Proposed Lead Plaintiffs Are Qualified, Experienced Class Counsel And Should Be Appointed As Lead Counsel For The Class

IV. CONCLUSION

TO: THE PARTIES AND THEIR ATTORNEYS OF RECORD

PLEASE TAKE NOTICE that, at the convenience of the Court, on October 6, 1997 in the Courtroom of the Honorable James Ware, United States District Court, 200 South First Street, San Jose, California, plaintiffs Joseph Molinari, Jr., Leo Malcomson, Jonathan P. Bloom, Donald D. Jabro and Michael T. Lattanzi ("Proposed Lead Plaintiffs") will, and hereby do, move the Court, under §21D(a)(3)(B) of the Securities Exchange Act of 1934 (the "Exchange Act"), and 15 U.S.C. §78u-4(a)(3)(B) (as added by the Private Securities Litigation Reform Act of 1995 ("PSLRA")), to be appointed Lead Plaintiffs in this action and to approve their selection of counsel, Milberg Weiss Bershad Hynes & Lerach LLP ("Milberg Weiss").

This motion is made on the grounds that Proposed Lead Plaintiffs are presumptively the most adequate plaintiffs, having collectively purchased 13,500 shares of defendant NetManage, Inc., ("NetManage" or the "Company") and suffered estimated losses of over $75,755.00. In addition, the Proposed Lead Plaintiffs meet the requirements of Rule 23 of the Federal Rules of Civil Procedure in that their claims are typical of the Class's claims and that they will fairly and adequately represent the Class. Finally, Proposed Lead Plaintiffs have appropriately selected and retained Milberg Weiss, a law firm with substantial experience in prosecuting securities fraud class actions, to serve as lead counsel.

This motion is based on this Notice of Motion and Motion and Memorandum in support thereof, the Declaration of Tor Gronborg, the pleadings and other files herein, and such other written or oral argument as may be presented to the Court.

I. INTRODUCTION

Presently pending before this Court is a securities class action against NetManage and certain of its officers and directors.⁽¹⁾ Molinari v. NetManage, Inc., et al., No. C-97-20544-JW(PVT), filed June 19, 1997. Plaintiffs allege violations of §§10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder, on behalf of purchasers of NetManage stock between April 18, 1996 and July 18, 1996 (the "Class"). To the best of plaintiffs' knowledge, this case, to date, is the only such securities fraud action filed in this district against the named defendants.

Plaintiffs purchased their NetManage stock during the Class Period and have been damaged as a result of the alleged federal securities law violations set out in plaintiffs' Complaint for Violations of the Securities Exchange Act of 1934 (the "Complaint"). The Proposed Lead Plaintiffs' losses approximate $75,755.00.

Plaintiffs Joseph Molinari, Jr., Leo Malcomson, Jonathan P. Bloom, Donald D. Jabro and Michael T. Lattanzi now request, under §21D(a)(3)(B) of the Exchange Act, that the Court appoint them as Lead Plaintiffs and approve their selection of Milberg Weiss to represent the Class.

II. FACTUAL OVERVIEW

NetManage develops and markets software protocols which allow computers to connect to and communicate on networks, including the Internet. ¶¶1-2.⁽²⁾ Initially, NetManage was breathtakingly successful, particularly when considering its limited product base. Revenue growth through 1994 and into early 1995 approached 150%. ¶3. With these revenues came strong stock performance which, in turn, rewarded NetManage executives with praise and profits from the exercise of their stock options. ¶¶3, 20. But by early 1995, defendants knew this growth could not be sustained and NetManage's business prospects were changing. Competition was increasing, and Microsoft was set to release Windows 95, which already contained its own connection protocol. ¶4.

Faced with a near-certain downturn in revenues and a resulting decline in the Company's stock price, defendants staved off a stock price drop by falsely portraying NetManage's financial picture and business prospects. At least initially, defendants' efforts to prop up NetManage's stock price and sustain the illusion of a premier growth company were successful. ¶¶6-7. In October and November 1995, defendants exchanged NetManage's artificially inflated stock to acquire Syzygy Communications, Inc. ("Syzygy") and AGE Logic, Inc. ("AGE Logic") for 440,000 and 1,000,000 shares, respectively. ¶¶5-7. Under the exchange agreements, the former Syzygy and AGE Logic shareholders ("Acquisition Shareholders") received unregistered, nontransferable and unsalable NetManage shares. To complete the acquisition exchange, NetManage was obligated to finalize a registration statement with the Securities and Exchange Commission ("SEC") within six months after the respective acquisitions and to maintain the registration's effective status. Only through this registration process⁽³⁾ could the Acquisition Shareholders sell their stock, and only at that time of sale would their stock's value be established.

On January 12, 1996, after the acquisitions and extensive profit-taking on insider trading, NetManage finally revealed what defendants had known for some time: fourth quarter revenues for fiscal 1995 would be sharply lower than the defendants had previously led the market to believe. ¶8. Defendant Zvi Alon ("Alon"), NetManage's Chairman, President and CEO, admitted the revenue downturn was due to contingent "sales" from which revenue could not be realized. It was also revealed that these contingencies had been included in customer orders in previous quarters. (This securities fraud is the subject of Head, et al. v. NetManage, Inc., et al. (No. C-97-20061-JW) which is also pending before this Court.)

The market was so surprised by these admissions of accounting manipulation that NetManage's stock lost 25% of its value in a single day, sinking to as low as $10 per share. ¶9. Securities analysts were furious with the unexpected earnings downturn. ¶9. Even more surprised were the Acquisition Shareholders who, only months earlier, had traded their companies to NetManage based on representations that NetManage stock would, at minimum, maintain and, more likely, increase its value. ¶5. Such assurances were the glue of the Syzygy and AGE Logic deals as the Acquisition Shareholders had to wait months to realize any cash from the acquisition exchange.

Almost immediately following the January 12, 1996 price collapse, defendants undertook measures to placate the Acquisition Shareholders. On April 8, 1996, NetManage filed the registration statement for the Acquisition Shareholders' NetManage stock. ¶10. On that date, NetManage stock closed at $9-3/4. Defendants were thus forced to boost NetManage stock prices, notwithstanding the Company's dire financial position. Using the same tactics that had already proven successful, if only temporarily, in 1995 defendants issued false and misleading statements, both directly and through securities analysts, about NetManage's products, business prospects and near-term revenues to unwitting investors. ¶¶10, 28-39. Chief among these was defendant Alon's insupportably false assertion: "We are now expecting to see a major expansion in sales." ¶43.

As hoped, the market reacted positively to these false reports. Between April 17 and May 28, 1996, NetManage's stock price nearly doubled, from $9-29/32 to $18-7/8. ¶10. Defendants themselves took advantage of NetManage's rising stock price by selling almost 200,000 of their own shares for proceeds of over $2.8 million. ¶13. On May 29, the day after NetManage stock hit the Class Period high of $18-7/8, NetManage made its registration statement effective. ¶10. In less than two months, defendants had been able to manipulate NetManage's stock price back to approximately the $20-22 per share range at which it had been trading when NetManage initiated the Syzygy and AGE Logic exchanges.

Less than three weeks later, the NetManage story repeated itself. Defendants could not sustain the illusion of NetManage's "success" and were once again forced to face what they had known throughout the Class Period: NetManage's revenues and earnings would be drastically lower than they had led the market to expect. Desperately seeking to avoid a repeat of the January 12, 1996 stock collapse fiasco, defendants sought to bring about an undetectable "soft landing" for the Company's stock price and began a whisper campaign to securities analysts. Defendants quietly hinted that NetManage would not meet revenue projections in the second and third quarters of fiscal year 1996. Based on the public release of these privately made communications, NetManage stock began to slip. However, it was not until July 19, 1996 that defendants finally and fully revealed that earnings for the second quarter of 1996 (ended June 30, 1996) were only $1.6 million, a 74% drop from earnings for the same period in 1995. NetManage's stock price plunged on the news to a closing price of $9-5/8 on July 19, 1996, ending a more than 50% decline during the Class Period. ¶14.

III. THE PROPOSED LEAD PLAINTIFFS SHOULD BE APPOINTED TO LEAD PLAINTIFF POSITIONS

A. The Procedure Required By The PSLRA

The PSLRA established the procedure governing lead plaintiff appointment in "each private action arising under [the Exchange Act] that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure." 15 U.S.C. §§78u-4(a)(1) and (a)(3)(b)(1).

First, the plaintiff who files the initial action must publish, within 20 days of filing the action, a notice informing class members of their right to file a motion for appointment as lead plaintiff. 15 U.S.C. §78I-4(a)(3)(H)(i). Plaintiff Molinari in this case caused the notice to be published on June 23, 1997. See Declaration of Tor Gronborg in Support of Plaintiffs' Motion to be Appointed Lead Plaintiffs Pursuant to §21D(a)(3)(B) of the Securities Exchange Act of 1934 and for Appointment of Lead Plaintiffs' Counsel ("Gronborg Decl."), Ex. A. Within 60 days after publication of the notice, any person or group of persons who are members of the proposed class may apply to the court to be appointed lead plaintiff, whether or not they had previously filed a complaint in this action. As is evident from the statutory language, nothing precludes appointment of a group of lead plaintiffs under the PSLRA. See In re Read Rite Corp. Sec. Litig., No. C-97-20059 RMW (N.D. Cal. May 27, 1997), Gronberg Decl., Ex. B.

Second, the PSLRA provides that within 90 days after the notice's publication, the court shall consider any motion made by a class member and shall appoint as lead plaintiff the member or members of the class that the court determines to be most capable of adequately representing the class members' interests. 15 U.S.C. §78u-4(9)(3)(B). In determining the "most adequate plaintiff," the PSLRA provides:

[T]he court shall adopt a presumption that the most adequate plaintiff in any private action arising under this chapter is the person or group of persons that --

(aa) has either filed the complaint or made a motion in response to a notice under subparagraph (A)(i);

(bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and

(cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure [pertaining to class actions].

15 U.S.C. §78u-4(a)(3)(B)(iii).

B. The Proposed Lead Plaintiffs Satisfy The PSLRA's "Lead Plaintiff" Requirements

1. The Proposed Lead Plaintiffs Have Complied With The PSLRA And Are Entitled To Be Appointed Lead Plaintiff

On June 23, 1997, within 20 days after filing the Complaint, plaintiff published his notice informing Class members of their right to file a lead plaintiff motion. The time period in which Class members may now move for lead plaintiff appointment in this case closes on August 22, 1997.

The Proposed Lead Plaintiffs have filed the only complaint in this action, have timely published the required notice, and have now moved this Court timely to be appointed as lead plaintiffs. To the best of the Proposed Lead Plaintiffs' knowledge, no other class member has filed a competing application seeking lead plaintiff appointment.

The Proposed Lead Plaintiffs are more than qualified to represent the Class. Each has reviewed the Complaint and either authorized its filing or the maintenance of this action. Each is also willing to serve as a representative on the Class's behalf and has signed and filed a certification attesting thereto. The Proposed Lead Plaintiffs have thus satisfied the individual requirements of §21D (a)(3)(B)(iii).

2. The Proposed Lead Plaintiffs Have A Significant Financial Interest In The Relief The Class Seeks

During the Class Period, Proposed Lead Plaintiffs purchased 13,500 shares of NetManage common stock at prices artificially inflated by defendants' false and misleading statements and were damaged severely. The Proposed Lead Plaintiffs purchased NetManage stock for their own respective accounts and retained their stock holdings throughout the Class Period. The respective holdings and the losses for the Proposed Lead Plaintiffs are set out at Table 1, attached hereto. In total, the Proposed Lead Plaintiffs' estimated losses approach $75,755.00. To the best of their knowledge, no class member with a larger financial interest in the relief the Class seeks has moved to be Lead Plaintiff. The Proposed Lead Plaintiffs satisfy the requirement of §21D(a)(B)(iii)(I)(bb) and are presumptively the most adequate lead plaintiffs.

3. The Proposed Lead Plaintiffs Are Qualified Under Rule 23

Section 21D(a)(3)(B)(iii)(cc) of the Exchange Act provides that, in addition to possessing the largest financial interest in the outcome of the litigation, lead plaintiffs must also "otherwise satisf[y] the requirements of Rule 23 of the Federal Rules of Civil Procedure." With regard to Class representative's qualifications, Rule 23(a) requires that the representative's claims be typical of the Class claims and that the representative will fairly and adequately protect the interests of the class.

As detailed below, each of the Proposed Lead Plaintiffs satisfies the typicality and adequacy requirements of Rule 23(a), thereby justifying their appointment.

4. The Proposed Lead Plaintiffs' Claims Are Typical Of The Class's Claims

The typicality requirement of Rule 23(a)(3) is satisfied when the named plaintiffs have: (a) suffered the same injuries as the absent class members; (b) as a result of the same course of conduct by defendants; and (c) their claims are based on the same legal issues. Shields v. Smith, [1992 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶97,001, at 94,376 (N.D. Cal. 1992); In re Activision Sec. Litig., 621 F. Supp. 415 (N.D. Cal. 1985). The questions of law and fact common to the Class members here which predominate over questions which may affect individual claims include:

(a) Whether the federal securities laws were violated by defendants' acts;

(b) Whether defendants omitted and/or misrepresented material facts;

(c) Whether defendants pursued the fraudulent scheme and course of conduct complained of;

(d) Whether defendants knew, had reason to know or recklessly disregarded that their statements were false and misleading or lacked a reasonable basis;

(e) Whether the price of NetManage stock was artificially inflated during the Class Period; and

(f) The extent of damage Class members sustained and the appropriate measure of damages.

There is a well-defined community of interest in the questions of law and fact involved in this case. Thus, the claims asserted by the Proposed Lead Plaintiffs are typical of the claims of the members of the proposed Class. Each of the Proposed Lead Plaintiffs alleges, as do the Class members, that defendants violated the Exchange Act by publicly disseminating a series of false and misleading statements concerning NetManage's products, financial status and business prospects. Each of the Proposed Lead Plaintiffs also acquired NetManage stock at prices inflated by defendants' misrepresentations and omissions and was damaged thereby. See Table 1.

Thus, typicality is satisfied because the claims the Proposed Lead Plaintiffs advance are based on the same legal theory and arise "from the same event or course of conduct giving rise to the claims of other class members." In re United Energy Corp. Solar Power Modules Tax Shelter Inv. Sec. Litig., 122 F.R.D. 251, 256 (C.D. Cal. 1988); see also generally Shump v. Balka, 574 F.2d 1341, 1344 (10th Cir. 1978); American Employers' Ins. Co. v. King Resources Co., 545 F.2d 1265, 1269 (10th Cir. 1976).

5. The Proposed Lead Plaintiffs Will Fairly And Adequately Represent The Interests Of The Class

The interests of the Proposed Lead Plaintiffs are clearly aligned with the members of the proposed Class. There is no evidence of any antagonism between the interests of these individuals and the proposed Class members. As detailed above, the Proposed Lead Plaintiffs share substantially similar questions of law and fact with the members of the proposed Class, and their claims are typical of the Class members. The Proposed Lead Plaintiffs are willing to serve as and assume the responsibilities of Class representatives. In addition, the Proposed Lead Plaintiffs have selected and retained experienced class counsel to represent them and zealously prosecute this action.

C. Counsel Selected By The Proposed Lead Plaintiffs Are Qualified, Experienced Class Counsel And Should Be Appointed As Lead Counsel For The Class

The PSLRA vests authority in lead plaintiffs to select and retain lead counsel, subject to court approval. See 15 U.S.C. §78u-4(a)(3)(B)(v). Thus, the Court should not disturb the Lead Plaintiffs' choice of counsel unless "necessary to protect the interests of the plaintiff class." See H.R. Conf. Rpt. No. 104-369, at 62, 104th Cong. 1st Sess., Statement of Managers (November 28, 1995). The Proposed Lead Plaintiffs have selected the law firm of Milberg Weiss to serve as Lead Counsel for the Class. This firm possesses extensive experience in class action litigation and has successfully prosecuted numerous securities fraud class actions on behalf of injured investors. See Gronberg Decl., Ex. C. Thus, the Court may be assured that in granting the instant motion, the Class members will receive the highest caliber legal representation available.

IV. CONCLUSION

For the above reasons, the Proposed Lead Plaintiffs respectfully request that the Court grant this motion to appoint them as Lead Plaintiffs and to approve their selection of Lead Counsel.

NETMAN-2\RC03686.BRF

1. Individual Defendants include: Zvi Alon, Chairman of the Board, President, and CEO of NetManage; Walter Amaral, Senior Vice President of Finance and CFO of NetManage; Uzia Galil, Chairman of the Board of Elron Electronic Industries, Ltd. and a Director of NetManage; Robert Williams, Vice President and of Business Development for NetManage; Darrell Miller, a NetManage Director and Executive Vice President for Corporate Strategic Marketing; and Dan Geisler, Vice President, International Marketing for NetManage.

2. Unless otherwise noted, all "¶_" and "¶¶_" references are to the Complaint and all emphasis is added and citations are omitted.

3. The exchange agreements also provided for an extremely limited resale of some unregistered stock in even more limited exempt transactions, as set out in SEC Rule 144.

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 August 14, 1997, declarant served the NOTICE OF MOTION AND MOTION TO BE APPOINTED LEAD PLAINTIFFS UNDER §21D(a)(3)(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND FOR APPOINTMENT OF LEAD PLAINTIFFS' SELECTION OF LEAD COUNSEL, AND SUPPORTING MEMORANDUM OF POINTS AND AUTHORITIES 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 14th day of August, 1997, at San Diego, California.