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

[Additional counsel appear on signature page.]

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

JOSEPH MOLINARI, JR., On Behalf of
Himself and All Others Similarly Situated,

                      Plaintiff,

           vs.

NETMANAGE, INC., et al.,

                      Defendants.

___________________________________     

No. C-97-20544-JW(PVT)
[filed Jan. 8, 1998]

CLASS ACTION

FIRST AMENDED COMPLAINT
FOR VIOLATION OF THE
SECURITIES EXCHANGE ACT
OF 1934

Plaintiff Demands A
Trial By Jury

SUMMARY OF ACTION

1. This is a class action on behalf of purchasers of the stock of NetManage, Inc. ("NetManage" or the "Company"), between April 18, 1996 and July 18, 1996, inclusive (the "Class Period"), seeking to remedy violations of the federal securities laws by the Company and certain of its officers and directors. These violations involve the issuance of false and misleading positive statements combined with massive insider trading by the Company's directors and senior officers, Zvi Alon ("Alon"), Walter Amaral ("Amaral"), Uzia Galil ("Galil"), Robert Williams ("Williams"), Darrell Miller ("Miller") and Dan Geisler ("Geisler") (the "Individual Defendants"). During the very short Class Period, certain of the Individual Defendants took advantage of the artificially inflated stock price they created and unlawfully sold 198,672 shares of their NetManage stock, pocketing more than $2.8 million in illegal insider trading proceeds. To fulfill the conditions of earlier stock-for-stock acquisitions, defendants also registered 1,243,292 NetManage shares for sale so the acquired companies' insiders could cash out their NetManage interests at artificially inflated prices approaching those at the time the acquisitions were initiated. All of these sales were specifically effected while defendants possessed adverse nonpublic information and before NetManage was forced to disclose the truth concerning its business and finances. NetManage's stock, which was inflated to a high of $18-7/8 per share during the Class Period, collapsed to as low as $7-5/8 as the market reacted to the surprising and negative news, on July 19, 1996, of a significant revenue and earnings shortfall. NetManage stock has not recovered to date and currently trades for approximately $3.00 per share.

2. NetManage's develops and markets software programs allowing connection to computer networks. These software protocols, described as Transmission Control Protocol/Internet Protocol ("TCP/IP"), are the rules of translation which enable one type of computer to communicate with another also programmed with TCP/IP. NetManage's software products facilitate Internet connections and have been adapted to allow corporations or large user groups to communicate and share information internally over intranets. Throughout its corporate history, one product, the Chameleon, was responsible for over 95% of NetManage's revenues.

3. During 1993 and 1994, NetManage grew rapidly. The slowest year-over-year revenue growth rate occurred in the September 1994 quarter, when revenues climbed 137%. As a direct result and despite being only a five-year old company, NetManage's common stock traded at a price-earnings multiple reserved for premier growth companies with track records of consistently meeting the investment community's expectations for high profit growth. NetManage's strong stock performance enabled its corporate executives to exercise stock options and to sell their stock at large profits. It also enabled NetManage to grow and to attempt to stem competition by using its stock to acquire 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. To direct NetManage's growth, defendant Alon created an insular senior management group, referred to as the "Executive Team." As characterized in NetManage's public statements, the Executive Team, whose membership throughout the Class Period included, among others, Alon, Amaral and Galil, reviewed on a weekly basis NetManage's corporate strategies, technologies and tactics and implemented actions to support NetManage's strong growth image. Changes in these corporate strategies were coordinated with upper level executives including defendants Williams, Miller and Geisler.

5. By early 1995, Microsoft Corporation ("Microsoft") was preparing to release its Windows 95 operating system, which already contained its own embedded TCP/IP, thus eliminating the need for customers to buy a separate protocol from NetManage. Microsoft was also preparing the Microsoft Network for launch, further and significantly creating competition in the Internet market. NetManage had received pre-release or "beta" forms of Windows 95 by the late summer of 1994 and early on was well aware of its capabilities and potential. At the same time, the interconnectivity software market was shifting its focus from the Internet to intranet communications. As large corporations increased demand for intranet connectivity products, competition to provide these products intensified. Also, at this time, Netscape Communications, Inc.'s ("Netscape") network browser and applications software was becoming available. Netscape's immediate success and the broad and free release of Netscape Navigator 2.0 further cut into its NetManage's Internet and intranet markets. As a result, NetManage's growth rate began to slow, notwithstanding defendants' misrepresentation that the release of Windows 95 was an endorsement of NetManage's technology and would actually produce an unparalleled opportunity for increased sales of NetManage's applications software.

6. In response to the specter of shrinking demand, NetManage rapidly began to change marketing strategies. To expand the size and number of end-users, NetManage contracted with large distributors and resellers. However at this same time, NetManage insiders scrambled to maximize profits by further supporting and expanding the Company's direct telemarketing sales, historically the Company's primary marketing channel. NetManage boasted that the Company's "telesale professionals" made more than 10,000 calls per week. However, these telesales efforts were in direct competition with NetManage's own distributors and resellers, and consequently served to undercut sales and damage customer relations. NetManage also sought to expand its international sales operation at considerable expense. Even as these marketing changes were being made, NetManage continued to report strong quarterly results for revenue and income throughout 1995.

7. Yet for all their efforts, NetManage's insiders and executives could not conceive of a marketing or pricing strategy to cope effectively with the rapidly changing marketplace, increased competition and shrinking market share NetManage was encountering. In desperation and with knowledge of these adverse facts, NetManage turned to subterfuge and misstatements about product demand, business prospects and revenues to maintain the impression of continued rapid growth and to support its stock price artificially.

8. Defendants also looked to corporate acquisitions as a source of talent, technology and capital which could assist NetManage in distinguishing its product base and maintaining its growth image. Thus, in October and November 1995, NetManage exchanged the Company'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. At the time of the respective exchanges, Syzygy shareholders received stock valued at $8.6 million ($19-1/2 per share), and AGE Logic shareholders received stock valued at $22.5 million ($22-1/2 per share). Under the exchange agreements, the former Syzygy and AGE Logic shareholders received unregistered, nontransferable and unsaleable NetManage shares. To complete the acquisition exchange, NetManage was obligated to use its best efforts 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 could the Syzygy and AGE Logic shareholders sell their NetManage stock.

9. On January 12, 1996, after the acquisitions and defendants' extensive profit-taking on insider trading, NetManage shocked the market by revealing that it expected a substantial shortfall in revenues for the fourth quarter, ended December 31, 1995. Alon was forced to concede that the decline was due, in part, to the fact that revenues from certain booked sales could not be recognized because contingencies affecting these sales had not been resolved.(1)

10. As a result of these revelations, the market reacted harshly and NetManage's stock price plunged from $14-9/16 on January 11, 1996 to as low as $10 per share. Securities analysts were furious with the unexpected earnings downturn and hinted that they had been misled. One analyst stated: "Our confidence in the quality of information flow from management has been significantly reduced."

11. Even more surprised were the prior owners and stockholders of AGE Logic and Syzygy 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. Such assurances were the glue of the Syzygy and AGE Logic deals as the former shareholders of these companies had agreed to wait months for NetManage to conclude its acquisition obligations before they could realize any cash.

12. Almost immediately following the January 12, 1996 price collapse, defendants undertook measures to placate the furious Syzygy and AGE Logic shareholders. On April 8, 1996 NetManage filed a Registration Statement for the exchanged shares and made new assurances that the price of NetManage stock would rise so the shares could be sold at an attractive price. On the registration date, NetManage's stock closed at $9-3/4 a share, well below the $20 to $22 price at the time the acquisitions were initiated. Defendants were thus forced to boost NetManage stock prices, notwithstanding the Company's dire financial and marketing position. This new round of artificial inflation would serve not only to appease the Syzygy and AGE Logic shareholders, but to allow defendants to further benefit from unlawful insider sales. Using the same tactics that had already proven successful in 1995, if only temporarily, defendants began issuing false and misleading statements to unwitting investors, both directly and through securities analysts, about NetManage's products, business prospects and near term revenues.

13. On April 18, 1996, and despite the pending stock offering, defendant Amaral asserted that NetManage's revenues would grow 30-40 percent for the year. A securities analyst from Boston Group LP followed Amaral's statements by issuing a very positive research report, based on false information defendants had given him, representing that NetManage's stock price should reach $18-$20 per share within 4 to 6 months as a result of NetManage's increasing intranet market share on the strength of its new products. Defendant Alon furthered the stock price's artificial rise when, on May 20, 1996, he asserted during a nationwide CNBC cable television interview that: "We are now expecting to see a major expansion in sales." Each of these statements was false when made for the reasons stated in ¶¶15, 33, 52, 58, 70, 71.

14. As hoped, the market reacted positively to defendants' false reports. On May 29, 1997, the day after NetManage's share price hit $18-7/8, defendants finalized and made effective NetManage's Registration Statement. Thus, in less than two months, defendants were able to manipulate NetManage's stock price back to the approximate per-share range at which it had been trading when NetManage initiated the Syzygy and AGE Logic acquisitions. As NetManage's stock price rose during late April and May, defendants themselves also took advantage of the artificially inflated stock price, selling almost 200,000 of their own shares for proceeds exceeding $2.8 million.

15. In fact, defendants' positive statements about NetManage's business and prospects during the Class Period were 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 information and data:

16. The chart below shows the performance of NetManage's stock during the Class Period, while defendants were issuing their false and misleading statements:

17. Taking advantage of NetManage's inflated stock price during the three-month Class Period, the Individual Defendants sold substantial amounts of their NetManage stock at inflated prices while knowing or recklessly disregarding NetManage's misrepresentations. These insiders thus profited from their unlawful conduct as follows:

                                                                         % Of  
                Date          Shares                                   Holdings
Name            Sold           Sold          Price         Proceeds      Sold  
----            ----          ------         -----         --------    --------

Alon          05/15/96        40,000        $14.50        $ 580,000            

Amaral        05/28/96         1,523        $18.25         $ 27,795       50%  

Galil         05/09/96         5,000        $13.75         $ 68,750            
              05/10/96         5,000        $13.75           68,750            
              05/13/96         3,000        $14.50           43,500            
              05/14/96         5,000        $14.25           71,250            
              05/16/96         5,000        $14.50           72,500            
              05/30/96        20,000        $16.38          327,600            
                              ------                      ---------            
                              43,000                      $ 652,350            

Geisler       04/26/96         5,750        $12.75         $ 73,313            
              04/26/96         2,500        $13.00           32,500            
              04/26/96         5,000        $12.88           64,400            
              04/29/96         6,250        $13.38           83,625            
              05/01/96         3,625        $14.75           53,469            
              05/01/96         3,000        $14.50           43,500            
              05/08/96         2,200        $13.13           28,886            
              05/08/96         2,200        $13.25           29,150            
              05/10/96         3,125        $13.75           42,969            
                              ------                      ---------            
                              33,650                      $ 451,812       65%  

Miller        04/26/96        46,246        $12.75        $ 589,637            
              04/26/96         7,920        $11.75           93,060            
              05/23/96         3,833        $17.70           67,844            
              05/23/96        22,500        $17.70          398,250            
                              ------                     ----------            
                              80,499                     $1,148,791      100%  
                              ------                     ----------            
Grand Totals                 198,672                     $2,860,748

18. By mid-June 1996, defendants realized that they could no longer sustain the illusion of NetManage's "success." Desperately seeking to avoid a repeat of the disastrous January 12, 1996 stock collapse, defendants sought to control the fall of NetManage's stock price and manipulate a "soft landing" for the Company through 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 analysts' release of some of these privately made communications, NetManage stock prices began to slip. However, it was not until July 19, 1996, that defendants finally revealed in a press release that revenues and earnings for the second quarter (ended June 30) were only $26.8 million and $1.6 million, respectively, compared with $32 million and $6.1 million for the prior year's second quarter, a 74% drop in earnings. NetManage's stock price plunged from a closing price of $10-3/8 on July 18, 1996 to as low as $8-5/8 on July 19, 1996 before closing at $9-5/8.

19. NetManage's business has since continued to worsen, and its stock price has continued to decline. In January 1997, NetManage reported a $5.7 million operating loss for fiscal year 1996. As NetManage's reported income and revenues fell during 1996, unlike 1995 when NetManage stock traded at artificially inflated prices, defendants sold very little, if any, of their personal shares of the Company's stock. In late August 1997, NetManage's Chief Financial Officer, defendant Amaral, resigned. NetManage's stock currently languishes at about $3 per share.

JURISDICTION AND VENUE

20. 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.

21. 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.

22. 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.

THE PARTIES

23. Plaintiff Joseph Molinari, Jr. purchased 5,000 shares of NetManage stock on June 7, 1996 at $15-3/8 per share, 500 shares on June 10, 1996 at $16-1/8 per share, 500 shares on June 10, 1996 at $16-3/8 per share, and 4,000 shares on July 2, 1996 at $11-1/2 per share and was damaged thereby.

24. (a) Defendant Alon is the founder of the Company, Chairman of the Board, President and Chief Executive Officer ("CEO") and as such was primarily responsible for NetManage's communications to securities analysts and was actively involved in NetManage's direct telesales marketing effort and sales via distributors and resellers. Alon was also actively involved in the daily management of NetManage's business and affairs and authored, reviewed and signed NetManage's required SEC filings 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 and responsibilities within NetManage, he knew the adverse nonpublic 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. During the Class Period, Alon sold 40,000 shares of NetManage stock for proceeds of $580,000.

(b) Defendant Amaral was Senior Vice President, Finance and Chief Financial Officer ("CFO") until he resigned in August 1997. As such, he was actively involved in the daily management of NetManage's business and affairs and prepared, reviewed and authorized NetManage's required SEC filings and financial statements and reports, and in communicating with securities analysts. Prior to joining the Company, 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 and responsibilities within NetManage, he knew the adverse nonpublic 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. During the Class Period, defendant Amaral sold 1,523 shares of NetManage stock, or 50% of his holdings, for proceeds of $27,795.

(c) Defendant Galil has been a director of the Company since December 1991. Galil, together with defendant Miller, comprised two of the Company's three Audit Committee members. In this role Galil oversaw accounting procedures and controls, determined the adequacy of staff and management performance, and prepared, reviewed and authorized 1996 quarterly and annual financial reports as various internal accounting reviews. Galil and Miller met as members of the Audit Committee five times during 1996. Galil is also the former President, Chief Executive Officer and Chairman of the Board of Directors of Elron Electronic Industries, Ltd. ("Elron"), a company with substantial holdings in NetManage. Galil is the father-in-law of Alon, NetManage's President and Chief Executive Officer. Because of defendant Galil's position, participation in weekly Executive Team meetings and responsibilities within NetManage, he knew the adverse nonpublic 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. During the Class Period, Galil sold 43,000 shares of NetManage stock for proceeds of nearly $652,350.

(d) Defendant Williams was Vice President, Marketing and currently holds the position of Vice President, Business Development and Corporate Marketing. As such, he was intimately involved in NetManage's direct telesales marketing efforts and sales via distributors and resellers, as well as daily preparation and review of marketing and sales reports and information which became part of NetManage's SEC filings and public statements. 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 and responsibilities within NetManage, he knew the adverse nonpublic 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.

(e) Defendant Miller was a director of the Company since February 1994 and served as Executive Vice President, Corporate Strategic Marketing for the Company from December 1994 to February 1996 and, together with Galil, served on the Company's Audit Committee during the Class Period. From 1987 to 1993, Miller was at Novell, Inc., a computer network company, in numerous positions including Executive Vice President responsible for strategic and marketing operations and Executive Vice President responsible for product development. From 1984 to 1987, Miller acted as the Director of Marketing for Ungermann-Bass, a manufacturer of networking equipment. Since 1994, Miller has served on the Board of Directors of Xpoint Technologies, Inc., a switched ethernet company. Because of defendant Miller's position, participation in weekly Executive Team meetings, and responsibilities within NetManage, he knew the adverse nonpublic 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 Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period, Miller sold 80,499 shares of NetManage stock for proceeds of $1.1 million, or 100% of his holdings.

(f) Defendant Geisler was Vice President, International Marketing since February 1995 and served as Vice President, OEM and International Sales from December 1992 until February 1995. Geisler played a significant role in opening Asian and European sales channels and monitored the performance of both NetManage's Asian and European offices and resellers. As such, he was intimately involved daily in NetManage's international and OEM sales efforts and tracking and reporting of NetManage's sales and earnings. He authored, prepared and reviewed reports and information regarding sales which became a part of NetManage's SEC filings and public statements. Because of defendant Geisler's position and responsibilities within NetManage, he knew the adverse nonpublic 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 theetManage stock for proceeds of over $450,000, or 65% of his holdings.

(g) The defendants named in ¶24(a)-(f) are referred to herein as the "Individual Defendants."

25. As officers, directors and/or controlling persons of a publicly-held company whose stock is registered, the Individual Defendants had a duty to disseminate accurate and truthful information promptly concerning the Company's operations, business, products, markets, management, earnings and present and future business prospects; to correct any previously issued statements that had become untrue; and to disclose any adverse trends that would materially affect the present and future financial operating results of the Company so that the market price of the Company's stock would be based upon truthful and accurate information. Notwithstanding their duty to refrain from selling NetManage stock while in possession of material, adverse nonpublic information concerning the Company, certain of the Individual Defendants sold over 198,000 shares of the Company's stock in 3-month's time, pocketing over $2.8 million and thus personally profited from their deliberate and dishonest acts that were part of the fraudulent scheme.

26. The Individual Defendants, because of their positions within the Company and the small size of the management team involved in corporate communications, controlled and participated in the drafting and preparation of information for the contents of NetManage's annual and quarterly reports, press releases and presentations to securities analysts and thereby the investing public. Each defendant was provided with copies of the Company's 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 respective positions and access to material, adverse, nonpublic information, 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 were thus false and misleading when made. The adverse nonpublic information about NetManage's business set forth at ¶¶15, 33, 52, 58, 70, 71 was known to or recklessly disregarded by the Individual Defendants. As a result of defendants' positions within NetManage's small and tight-knit management structure and their unique access to nonpublic corporate information, each of them is responsible for the accuracy of the releases detailed at ¶¶45, 48, 53, 60, 62, 63, 66, 68, 72 which were the result of defendants' collective work and respective obligations and as such were a "group-publication" effort. Each defendant is thus responsible and liable for the representations contained therein.

27. Each of the "Director Defendants" (i.e., Alon, Galil and Miller) is also liable as a direct participant in the unlawful conduct complained of herein. The Director Defendants, because of their positions of control and authority as directors of NetManage, were able to and did, control the conduct of its business, the activities of its employees, as well as the contents of the 1996 annual and quarterly financial reports, statements to stockholders, public statements and press releases made by NetManage.

28. In addition, the Director Defendants are responsible for the oversight and monitoring of NetManage's corporate activities. The Director Defendants' responsibilities included providing effective auditing procedures so that the Board of Directors would be adequately informed of the corporation's financial status and adopting sound accounting policies and insisting upon their execution. To adequately perform these duties, the Director Defendants monitored the performance of NetManage's officers and management, reviewed financial reports and statements, and participated in the adoption of accounting procedures.

29. The Director Defendants were provided with copies of NetManage's public statements and press releases alleged herein to be misleading prior to their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. They each violated their respective legal obligation to act in the best interest of NetManage and its shareholders by participating in the drafting and dissemination of statements quoted at ¶¶45, 48-49, 53, 60, 63, 66, 68, 72 that were false and misleading when made. As a result, Alon, Galil and Miller are each responsible for the accuracy of the Company's public statements and press releases and are therefore responsible and liable for the misrepresentations contained therein.

30. Additionally, defendants Alon and Amaral, by reason of Alon's position and responsibilities as CEO and as a director of NetManage and by reason of Amaral's position and responsibilities 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. Also, NetManage controlled each of the Individual Defendants and all of its employees.

31. Defendants' motive to engage in the misconduct alleged herein 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 and/or directorial positions and the substantial compensation and prestige they obtained thereby; and (iii) allow the registration and sale of NetManage stock held by former Syzygy and AGE Logic shareholders at prices close to those at the time the acquisitions were initiated.

DEFENDANTS' ACTUAL KNOWLEDGE OR RECKLESS DISREGARD OF THE UNDISCLOSED ADVERSE CONDITIONS IMPACTING NETMANAGE'S BUSINESS

32. In order to monitor NetManage's overall corporate performance throughout the year, NetManage's top executives receive monthly financial reports, including internal corporate reports known variously as "Monthly Sales Analysis by Product and Time," "Monthly Sales Analysis by Revenues and Units," "Revenue Trend Analysis Reports," "Build Schedules," and "Domestic/International Resell Reports." NetManage's finance department prepared these reports under the guidance of defendants Alon, NetManage's President and CEO, and Amaral, NetManage's CFO (until he resigned). NetManage's executives also received and reviewed other written and oral reports from members of management, including defendants Williams (Vice President/Marketing), Miller (Executive Vice President/Corporate Strategic Marketing), Geisler (Vice President/OEM and International Sales). In order to effectively manage its business and monitor its revenues, NetManage's management information system and telesales departments were capable of generating reports on a daily basis showing sales revenue and cost of goods sold by customer, product, office and order size, as well as overall corporate revenue, expenses, cash balances, etc. Through the Company's "Bookings Reports," which showed overall bookings by sales category (end user, reseller, OEM, channel), by office (domestic, Japan, Asia Pacific, United Kingdom, France, Germany, Israel), and by order size, defendants closely monitored NetManage's sales revenues. For example, the "International Bookings Report" evidences a marked downturn in Asian orders, and consequently sales revenues from those offices. Through this information system and review process, the Individual Defendants, who were NetManage's top managers, knew the corporation's daily performance and were thus aware, virtually immediately, of any significant problems with sales revenue or expenses associated with any NetManage product, customer or office.

33. NetManage's finance department also generated "Monthly Budget Reports" for the Company's "Corporate," "Retail Channel Sales," "Manufacturing" and "Marketing" functions which provided detailed data respecting overall corporate revenue, net income and earnings per share ("EPS"), as well as sales by product, customer and office -- all presented so as to compare performance for that month, that quarter and the year-to-date compared to the 1996 plan/budget. The Monthly Budget Reports include a report prepared immediately after the monthly close and distributed to top management within 48 to 72 hours, which provides summary, sales, expense and income data. These reports also include a monthly financial statement package that provided even more detailed information, including graphic comparisons of actual performance to forecasted performance and a narrative explanation of material variances of actual results compared to forecasted or budgeted results, which is completed within 10 days after the monthly close and immediately provided to members of top management.

34. Because of the foregoing, each of the Individual Defendants was aware of NetManage's 1996 forecasts and budgets and of the internal reports detailing the sales revenue and distribution problems, and the financial reports comparing NetManage's actual results to those budgeted and/or forecasted. Based on the negative information from the internal reports specified earlier and reports of the Company's actual performance compared to budgeted and forecasted expectations, the Individual Defendants each knew NetManage's business was not performing as well as publicly represented. Thus, defendants each actually knew or recklessly disregarded that the positive statements issued during the Class Period about NetManage were false and misleading when made and actually knew or recklessly disregarded that such statements were false and misleading when made.

DEFENDANTS' FRAUDULENT SCHEME
AND COURSE OF BUSINESS

35. Each defendant is liable for participating in a fraudulent scheme and course of business in furtherance of defendants' 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 acted as a fraud and deceit on purchasers of NetManage stock and was designed to and did: (i) conceal and cover up defendants' mistakes and faulty management of NetManage; (ii) deceive the investing public, including plaintiff and other Class members; (iii) artificially inflate the price of NetManage stock during the Class Period; (iv) cause plaintiff and other members of the Class to purchase NetManage stock at inflated prices; (v) increase the value of options to purchase NetManage stock owned by certain of the defendants, as well as their own NetManage shareholdings; (vi) permit the Individual Defendants to sell off their holdings at artificially inflated levels to profit from the scheme; and (vii) allow the stock exchanged in the Syzygy and AGE Logic acquisitions to be publicly traded at close-to-promised prices, thereby avoiding litigation and other challenges to the acquisitions.

NETMANAGE'S "GUIDANCE" TO SECURITIES ANALYSTS AND USE OF THEM TO TRANSMIT FALSE INFORMATION TO THE SECURITIES MARKETS AND NETMANAGE'S ADOPTION OF ANALYSTS' REPORTS AS ITS OWN

36. Analysts employed by securities firms prepare written reports and make recommendations from time to time about public companies such as NetManage. In writing their reports about NetManage, these analysts relied in substantial part upon information provided by the Company and assurances by the Company that information in the analysts' reports was not at material variance from the Company's internal knowledge of its operations and prospects.

37. NetManage is specifically followed by securities analysts employed by Boston Group LP, Smith Barney (Elliot S. Prince), Oppenheimer & Co., Inc. (Randall A. Yuen), and Robertson Stephens & Co. (John F. Powers and Jennifer Yeu).

38. Because NetManage stock was a "growth stock," the stock price was particularly sensitive to the Company's and analysts' statements regarding NetManage's potential for future profits. NetManage used its communications with analysts to assure them that NetManage's business was strong, demand for NetManage's interconnectivity products was increasing, Microsoft and Netscape products not only did not pose a threat to the Company's sales, but offered an unparalleled sales opportunity, numerous intranet acquisitions and licensing agreements would increase NetManage's earnings per share, the markets for its products were large and expanding, NetManage was successfully adopting and marketing its TCP/IP-based Internet products for the expanding intranet market and the Company would achieve significant earnings per share growth in 1996 and beyond.

39. Defendants Alon and Amaral were the primary NetManage executives who communicated with the analysts on behalf of NetManage, who reviewed and approved the analysts' reports about NetManage and who conducted the quarterly conference calls with analysts for NetManage. The securities analysts following NetManage reiterated these representations in their research reports which stated that NetManage would earn $0.18 per share in the second quarter of 1996, and $0.85 per share for the full 1996 fiscal year. See ¶¶50, 65, 68. During the Class Period, NetManage copied the favorable analysts reports and directly distributed them to the public by including them in NetManage's financial public relations package which the Company gave to potential investors, members of the financial press, securities companies, brokers, and other persons requesting information about NetManage, thus endorsing those reports and adopting them as its own.

40. Before and during the Class Period, it was the Company's practice to have its top officers and key members of NetManage's Executive Team (Alon and Amaral) communicate regularly with securities analysts at the firms whose reports have been identified above, to discuss, among other things, the Company's prospects, its products, operating results, anticipated revenues and to provide detailed "guidance" to these analysts with respect to the Company's business and projected revenues and earnings. These communications included, but were not limited to, frequent telephone conference calls, meetings, and analyst briefings where the defendants discussed many aspects of the Company's operations and financial prospects. Defendants knew that by participating in these regular, periodic communications with analysts, the Company could disseminate information to the investment community and investors would rely and act upon such information (i.e., make purchases and sales of the Company's securities). Defendants Alon and Amaral had these communications with analysts in order to issue false and misleading information to the market by the means of and through the analysts, thus using them as instrumentalities to issue favorable reports on NetManage and to falsely present the business and future prospects of NetManage to the marketplace.

41. The information about NetManage contained in the various securities analysts' reports, set out at ¶¶47, 50, 57, 61, 65, 68 was obtained from or based on information obtained from NetManage, as discussed above. NetManage knew of these reports and their contents, that they were based on information provided by the Company, and that they would fall issued to members of the investing public, circulated throughout the investment community and impact the trading price of NetManage's common stock. The Company endorsed these reports, adopted them as its own and placed its imprimatur on them as well as the projections, forecasts and statements contained therein, by approving their issuance and by copying and distributing those reports to potential investors, members of the financial press and other securities analysts. Despite their duty to do so, defendants failed to correct these statements during the Class Period.

42. The investment community, and in turn, investors, relied and acted upon the information communicated in these written reports that recommended that investors purchase NetManage common stock. Defendants manipulated the market price of NetManage stock by falsely presenting to analysts, through regular meetings and during telephonic and written communications, the prospects of the Company and by failing to disclose the true adverse information about the Company that was known only to them.

BACKGROUND TO THE CLASS PERIOD

43. In mid-January 1996, as it was revealed that NetManage's fourth quarter revenues would fall below estimates and that certain sales had been improperly recorded as revenue, defendants attempted to reassure the market and particularly the prior owners and stockholders of AGE Logic and Syzygy, whose NetManage stock had plummeted in value.

44. Under the terms of the Syzygy and AGE Logic acquisition agreements, NetManage was required to use its "best efforts" to make effective a Registration Statement within six months, thereby permitting the sale or transfer of the exchanged NetManage stock. However, on April 16, 1995, six months after the Syzygy acquisition, NetManage stock languished at $10 per share. The Syzygy shareholders of NetManage were disgruntled by this low stock price and the losses it would bring, particularly in light of assurances made to them during the acquisition. To placate these large NetManage shareholders and to avoid the repercussions of public disclosures concerning, and a possible lawsuit arising from, the acquisition agreement, defendants finally filed, but did not make effective, a Registration Statement for the shares on April 8, 1996. They immediately undertook to artificially inflate NetManage's stock price so shares could be sold at its previous and higher price.

45. Contemporaneous with this registration, NetManage announced the introduction of its IntraNet Server for the Windows NT platform, which was purported to provide a powerful, yet simple and affordable shared communication framework for any size office environment. On April 15, 1996, NetManage announced its new sales strategy for the IntraNet Server product, in which NetManage would concentrate on partnering with value-added resellers to distribute the package. In a press release, the Company stated: "While direct sales have been a successful strategy for the company's wide range of client applications, NetManage believes its aggressive new reseller channel sales group is best suited to market its new line of server products."

FALSE AND MISLEADING STATEMENTS
DURING THE CLASS PERIOD

46. On April 17, 1996 and shortly before that date, Alon and Amaral had conversations with securities analysts, including a representative of the Boston Group, and told them that:

47. On April 18, 1996, based on communications with defendants, including Alon and Amaral, Boston Group LP initiated coverage of NetManage stock with a buy rating, stating that NetManage should reach $18-$20 per share in 4-6 months, resulting from the strength of its new products, including its new server product, and increasing international sales. As a result of these positive statements, NetManage's stock price jumped from a close on April 17, 1996 of $9-29/32 per share to close at $11-1/4 on April 18 and $13-11/16 per share on April 19, 1996.

48. On April 24, 1996, NetManage issued a press release announcing its first quarter 1996 operating results, reporting revenues and net income of $33 million and $5 million, respectively, compared with revenues and net income for the fourth quarter of 1995 of $31.2 million and $3.2 million. The press release quoted defendant Alon:

"Our first quarter results are a strong indication of the continued demand for standards-based Intranet solutions in corporations. We are pleased that we were able to maintain our year to year EPS, in spite of a substantially increased investment in R&D, sales and infrastructure."

Alon continued:

"NetManage is committed to staying at the forefront of standards-based Intranet solutions and we will continue to invest in this significant and evolving market.

We recently shipped a series of products tailored to address the needs of the corporate Intranet. Chameleon 5.0 for Windows 95, architected on ActiveX Controls, is the first completed 32-bit Intranet desktop suite. The NetManage IntraNet Server introduced the first discussion forum server for corporations based on the Internet NNTP protocol for the NT platform. A series of products were also introduced to address the host connectivity needs of the Intranet. XoftWare for Windows and XoftWare for Windows 95 deliver the highest performance PC X server for the Windows, Windows 95 and Windows NT platforms. We also announced Swift 2.0, the most comprehensive terminal and printer emulation product optimized for corporate Intranets."

Defendant Amaral assisted in the drafting and/or reviewed the press release before its issuance and was identified in the press release as a contact person regarding its contents.

49. In connection with the April 24, 1996 release, Alon and Amaral hosted a conference call with institutional investors, money and portfolio managers, members of the financial press and securities analysts. That same day, Reuters reported on NetManage's quarterly conference call at which Alon and Amaral stated to the assembled investors, money managers, financial press and securities analysts that NetManage expected to remain profitable in 1996 and post increased revenues and EPS of $0.85 per share for 1996 and $1.25 per share in 1997. Amaral also stated:

50. Also on April 24, 1996, Smith Barney issued a research report on NetManage, authored by Elliot S. Prince, which repeated the information Alon and Amaral had earlier provided. The report reiterated defendants' forecast of 1996 and 1997 EPS of $.85 and $1.25, respectively, for NetManage, and stated:

We continue to believe that NETM will gain recognition among investors as the leading supplier of intranet application solutions, with the ability to differentiate itself from weaker competitors. . . . With what we view as good 1Q96 results, especially relative to the competition, it should become clear that there is no widespread deterioration of this market. . . . We have argued this for the past few months, but have understood that NETM needed to report good numbers for this message to get across. The increase in revenues, improvement in gross margins, and EPS in-line with our estimates give us confidence that the turnaround is occurring. . . . As confidence starts to build, we would expect the share price to more adequately reflect NETM's competitive positioning in this market and the Street's estimates. We are maintaining our 1H rating and 12 month price target of the mid-$20 level and continue to recommend purchase of the stock.

* * *

51. Immediately following NetManage's press releases and favorable interview reports, defendants Geisler and Miller sold 73,666 shares of their NetManage stock at prices up to $13.38 per share, pocketing $852,910.

52. The statements made between April 17 and 24, 1996, set out at ¶¶46-50, were each false and misleading when made. The true facts were, which defendants concealed, were that:

53. In late April 1996/early May 1996, Alon published his "President's Letter To Our Stockholders" distributed to stockholders, analysts and members of the public throughout the Class Period. There, he stated NetManage has "created a strong foundation for supporting a new era of business networking based on Internet standards. NetManage is now using this foundation as the basis for continued success in 1996 and beyond." Commenting on the corporate intranet market, Alon noted: "NetManage is positioned to drive the development and adoption of Intranet technologies. This strength is reflected in the evolution of NetManage products, partnerships, sales and management strategies to meet the needs of the Intranet explosion." NetManage's intranet strategy, Alon asserted, was to "build on the success of our TCP/IP products to become a complete Intranet solution provider." To this end, Alon claimed that the acquisition of Syzygy gave "NetManage the core technology and engineering expertise to deliver the next generation of Intranet applications." Concerning NetManage sales and distribution, Alon further stated, that "[t]o meet the needs of a growing product line and an increasingly sophisticated audience of Intranet customers, NetManage expanded its sales and distribution strategy to address the needs of a full customer spectrum." Alon concluded: "we believe that our core expertise in Internet technologies and the needs of corporate customers will make NetManage the company truly prepared to service the needs of the Intranet."

54. During the Internet World Conference on April 29, 1996 through May 2, 1996, in San Jose, California, NetManage executives, including Alon, reiterated that NetManage expected to profit from the expanding corporate intranet market and emphasized the continued demand for NetManage products.

55. On May 1, 1996, while defendants were appearing at the Internet World Conference, defendant Geisler sold 6,625 shares of his NetManage stock at prices up to $14.75 per share, pocketing $96,969.

56. Between April 24 and May 5, 1996, Galil had conversations with securities anaof Oppenheimer & Co., and told them that NetManage had strong customer demand for its Internet software products and expected to achieve higher sales and earnings throughout 1996.

57. On May 6, 1996, Oppenheimer & Co. issued a report on Elron, the corporation defendant Galil founded and of which he served as Chairman of the Board, President and CEO, written by Kanton and Bergman and based on and repeated information about NetManage provided by Galil between April 24 and May 5, 1996. The report stated NetManage's "market value has more than tripled resulting with high gains for Elron. [NetManage] continues to enjoy healthy industry demand for internetworking software applications and [the] company's market remains strong. We expect this robust trend to continue along with higher sales and earnings."

58. The statements made between late April and May 6, 1996, set out at ¶¶53, 54, 56, 57, were each false and misleading when made. The true facts, which defendants concealed, were that:

59. Within ten days after the Oppenheimer & Co. report, based on information provided by Alon and Amaral and trumpeting "higher sales and earnings" for NetManage, defendants Alon, Galil and Geisler sold 70,525 shares of the NetManage stock at prices up to $14.50 per share for total proceeds of $1,005,755.

60. The surge in NetManage's stock price, prompted by the April 24, 1996 press releases and interviews and maintained by defendants' communications to analysts, was taken to yet a higher level by defendant Alon's May 20, 1996 broadcast interview on CNBC. In the course of the interview, Alon asserted that NetManage was starting to see improved sales as a result of an expansion of its sales force in telemarketing and other direct sales channels. In addition, he noted that NetManage had begun selling to wholesalers and resellers during the past two years, boosting indirect distribution by more than 20%. He represented: "We are now expecting to see a major expansion in sales." On the same day, NetManage, through Alon, made a presentation at the Smith Barney Technology Conference, at which it was represented that NetManage's turnaround was succeeding and NetManage was expecting strong second half revenue growth as a result of the record number of new products that had been released in the first quarter of 1996.

61. On May 21, 1996, Smith Barney issued a report on the Technology Conference, written by analyst Elliot Prince, and based on the information provided to Prince by Alon on May 20, 1996. The report stated that Smith Barney remained positive on NetManage's turnaround and was looking for good second quarter 1996 results and better second half 1996 comparisons. The market responded favorably to this positive, yet false report, sending NetManage's stock price higher. Immediately thereafter, defendants finalized and made effective NetManage's Registration Statement, permitting the Syzygy and AGE Logic acquisition shareholders to dump 1,243,292 shares of NetManage common stock at prices up to $18-7/8 per share.

62. On May 28, 1996, NetManage issued a press release announcing the shipment of Swift 2.0 and Swift IntraNet Package 2.0, which provided company-wide host access services over multiple protocols for all three major Windows platforms. On the same day, defendant Amaral sold 50% of his NetManage holdings, reaping proceeds of $27,795. Two days later, defendant Galil sold 20,000 shares of his NetManage stock for $16.38 per share for $327,600 in illegal insider trading proceeds.

63. On June 4, 1996, NetManage issued a press release trumpeting the Company's "industry-leading license agreement" with Microsoft. NetManage stated that the agreement to utilize Microsoft's Visual Basic Programming System would "speed intranet application and development" and that "Visual Basic . . . will become a core piece of infrastructure in Chameleon." That same day, NetManage, misleadingly characterizing itself as "the leading provider of standards-based IntraNet solutions" issued a second press release announcing that the Company had signed a licensing agreement permitting Borland International ("Borland") to incorporate NetManage's Active X Internet Control Pack into Borland products. Following the agreement. NetManage reported "[i]t is rewarding to see a leading product such as [Borland's] Delphi adopt our solutions as standards in themselves."

64. Between May 20 and June 3, 1996, Alon and Amaral had conversations with securities analysts, including Elliot Prince of Smith Barney, and told them that:

65. On June 4, 1996, Smith Barney issued a research report, written by Elliot Prince, which was based on and repeated the information provided by Alon and Amaral between May 21 and June 3, 1996. The report forecast 2Q96 and 1996 EPS of $0.18 and $0.85 and maintained a mid-$20 per share price target for the first half of 1996.

66. On June 5, 1996, NetManage issued a press release announcing its acquisition of ZMail, an electronic mail and messaging system from Network Computing Devices, Inc. In its announcement, NetManage again proclaimed it was "the leading provider of standards-based Intra-Net solutions" and "a recognized industry leader in the Window's desktop workplace." Defendant Amaral prepared in the drafting of and/or reviewed this press release before it was issued.

67. Between June 3 and June 17, 1996, Alon and Amaral had conversations with securities analysts, including Elliot Prince of Smith Barney, and told them that:

68. On June 18, 1996, Smith Barney issued a research report on NetManage, written by Elliot Prince, which was based on and repeated information provided Prince by Alon and Amaral between May 21 and June 17, 1997. The report forecast EPS of $0.18 in 2Q96 and $0.85 for fiscal 1996, respectively, and stated:

"Web management software is going to be an important market segment."

"We believe NETM will continue to make acquisitions to expand its product lead in the market."

Based on these same conversations, Smith Barney raised its target stock price for NetManage stock to $25 per share.

69. On the same day, NetManage announced its acquisition of Maximum Information, Inc. ("Maximum"), producers of web management systems. The Company's press release stated that "the strategic merger affirms NetManage's pioneering role in defining what full service IntraNets are and the infrastructure required to create and maintain them." Defendant Alon, commenting on the market among corporations for intranet management, said Maximum's IntraChange "is a technologically-advanced product which will undoubtedly force others competing in this space to re-think their strategy." The release concluded that Maximum's "technology will play an important role in NetManage's industry-leading vision."

70. The statements made between May 20 and June 18, 1996, set out at ¶¶60-69, were each false and misleading when made. The true facts, which defendants concealed, were that:

71. Defendants knew that NetManage would be required to report a significant shortfall in revenues for the quarter ended June 30, compared to the earnings estimates defendants had led the market to expect. Defendants became concerned that, as the news became public, NetManage's stock price would decline dramatically, raising suspicions concerning their representations' truthfulness about NetManage's business condition. To avoid this scenario and continue their deception, defendants began to leak vague information to securities analysts concerning a possible weakness in NetManage's second quarter results.

72. Finally, on July 19, 1996, NetManage issued a press release announcing second quarter results of revenues and net income of $26.8 million and $1.6 million ($0.04 per share), respectively, compared with $32 million and $6.1 million ($0.14 per share), respectively, in the prior year. Nearly 80% of the income reported was from interest income. The report explained: "We believe that our second quarter revenues were affected by the delayed release of Windows NT 4.0, the slow adoption of Windows 95 in corporate accounts and the general confusion within the IntraNet market, all of which caused delays in buying decisions."

73. As a result of these revelations before the market opened, NetManage's stock price declined to as low as $8-5/8 per share from a closing price of $10-3/8 on July 18, 1996, before closing at $9-5/8 on July 19, 1996.

74. NetManage's business and finances have only worsened. In January 1997, NetManage revealed that its revenues and net loss for the fourth quarter of 1996 were $19.4 million and $12.6 million, respectively, compared to revenues and net income for the same quarter of the prior year of $31.2 million and $3.3 million, respectively. The Company incurred a $7.2 million operating loss for the fourth quarter excluding a $13.4 million write-off for acquired in-process research and development. NetManage's stock price has never recovered as sales and earnings continue their decline. NetManage's stock price today trades at approximately $2.50 per share.

STATUTORY SAFE HARBOR

75. 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 at ¶¶13, 46-50, 53-54, 56-57, 60-61, 64-65, 67-68. 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 those 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 ¶¶13, 46-50, 53-54, 56-57, 60-61, 64-65, 67-68, 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 the forward-looking statement was false and 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.

DEFENDANTS' INSIDER SELLING

76. While NetManage's insiders were issuing false and misleading statements about NetManage's business, new products, and sales and revenue growth, defendants sold 198,672 shares of their NetManage stock for proceeds of over $2.86 million, thereby profiting from the artificial inflation in NetManage's stock price their unlawful conduct had created, in some instances selling large portions of the shares they owned or had acquired through the exercise of options during the Class Period. Notwithstanding their access to nonpublic information as a result of their positions and responsibilities within the Company, the Individual Defendants failed to disclose adverse information known to them before undertaking their trades, thereby permitting the violation of federal securities laws to continue and further evidencing their participation in these violations. Defendants' failure to disclose the adverse, nonpublic information known to them before undertaking their trades permitted their violation of federal securities laws to continue and further evidences their participation in it. The Individual Defendants identified below sold the following amounts of NetManage stock at artificially inflated prices throughout the Class Period while possessing material, nonpublic information:

                                                                         % Of  
                Date          Shares                                   Holdings
Name            Sold           Sold          Price         Proceeds      Sold  
----            ----          ------         -----         --------    --------

Alon          05/15/96        40,000        $14.50        $ 580,000            

Amaral        05/28/96         1,523        $18.25         $ 27,795       50%  

Galil         05/09/96         5,000        $13.75         $ 68,750            
              05/10/96         5,000        $13.75           68,750            
              05/13/96         3,000        $14.50           43,500            
              05/14/96         5,000        $14.25           71,250            
              05/16/96         5,000        $14.50           72,500            
              05/30/96        20,000        $16.38          327,600            
                              ------                      ---------            
                              43,000                      $ 652,350            

Geisler       04/26/96         5,750        $12.75         $ 73,313            
              04/26/96         2,500        $13.00           32,500            
              04/26/96         5,000        $12.88           64,400            
              04/29/96         6,250        $13.38           83,625            
              05/01/96         3,625        $14.75           53,469            
              05/01/96         3,000        $14.50           43,500            
              05/08/96         2,200        $13.13           28,886            
              05/08/96         2,200        $13.25           29,150            
              05/10/96         3,125        $13.75           42,969            
                              ------                      ---------            
                              33,650                      $ 451,812       65%  

Miller        04/26/96        46,246        $12.75        $ 589,637            
              04/26/96         7,920        $11.75           93,060            
              05/23/96         3,833        $17.70           67,844            
              05/23/96        22,500        $17.70          398,250            
                              ------                     ----------            
                              80,499                     $1,148,791      100%  
                              ------                     ----------            
Grand Totals                 198,672                     $2,860,748

77. These insider stock sales were unusual in timing and amount. Amaral, Geisler and Miller all sold large portions of their holdings. As the above table and ¶¶17, 24(a)-(f), 51, 55, 59, 62 illustrate, the Individual Defendants who sold NetManage stock did so when the stock was artificially inflated due to the nondisclosure of adverse facts regarding NetManage's impending revenue shortfall and business downturn. These stock sales were also carefully timed to follow defendants' specific and highly positive, yet false statements regarding NetManage's business prospects through 1996 and beyond. Immediately after defendants had successfully inflated NetManage's stock price and finalized the Syzygy and AGE Logic registration, all insider sales ceased.

CLAIM FOR RELIEF I

For Violations Of Section 10(b) Of The Exchange Act
And Rule 10b-5 Against All Defendants

78. Plaintiff incorporates by reference ¶¶1-77.

79. Each of the defendants: (a) knew or had access to 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.

80. 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.

81. 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.

82. Plaintiff and the Class have suffered damage in that, in reliance on the integrity of the market, they paid artificially inflated prices for NetManage stock. Plaintiff 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.

CLAIM FOR RELIEF II

For Violation Of Section 20(a) Of The Exchange Act
Against Defendants Alon, Amaral And NetManage

83. Plaintiff incorporates by reference ¶¶1-82.

84. 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. NetManage controlled each of the Individual Defendants and all of its employees.

 

85. 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, plaintiff and the other members of the Class suffered damages in connection with their purchases of NetManage stock during the Class Period.

CLASS ALLEGATIONS

86. Plaintiff bring this action as a 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 during the Class Period (the "Class"), except defendants, members of their immediate families and any entity in which a defendant has a controlling interest.

87. 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.

 

88. Plaintiff's claims are typical of the claims of the Class because plaintiff and the Class members sustained damages from defendants' wrongful conduct.

89. Plaintiff will adequately protect the interests of the Class. Plaintiff has retained counsel who are experienced and competent in class action securities litigation. Plaintiff has no interests which are in conflict with those of the Class.

90. A class action is superior to other available methods for the fair and efficient adjudication of this controversy.

91. 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:

92. A class action is superior to other available methods for the fair and efficient adjudication of this controversy.

BASIS OF ALLEGATIONS

93. Plaintiff has alleged the foregoing based upon the investigation of his counsel, which included a review of NetManage's SEC reports on Forms 10-K and Form 10-Q, securities analysts' reports and advisories about the Company, press releases issued by the Company, media reports about the Company and discussions with private investigators, and believe that substantial additional evidentiary support will exist for the allegations set forth herein at ¶¶4, 9, 15, 18, 26, 31, 33-35, 46, 52, 56, 58, 64, 67 and 70 after a reasonable opportunity for discovery and additional investigation.

PRAYER FOR RELIEF

WHEREFORE, plaintiff prays for judgment as follows:

JURY DEMAND

Plaintiff demands a trial by jury.

DATED: January 7, 1998

MILBESS BERSHAD
HYNES & LERACH LLP
ALAN SCHULMAN
JAMES A. CAPUTO
TRAVIS E. DOWNS, III
TOR GRONBORG

______________________________
JAMES A. CAPUTO

600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058

DYER DONNELLY
ROBERT J. DYER III
825 Logan Street
Denver, CO 80203-3114
Telephone: 303/861-3003

BURT & PUCILLO
MICHAEL J. PUCILLO
222 Lakeview Avenue
Suite 300 East
W. Palm Beach, FL 33401
Telephone: 561/835-9400

LAW OFFICES OF JAMES V.
BASHIAN, P.C.
JAMES V. BASHIAN
500 Fifth Avenue
Suite 2700
New York, NY 10110
Telephone: 212/921-4110

Attorneys for Plaintiff and the Class
NETMAN-2\KFC00372.CPT



1. The unlawful conduct involving this manipulation of the Company's stock price is the subject of Head, et al. v. NetManage, Inc., et al., No. C-97-20061-CRB (N.D. Cal.), which also alleges numerous violations of federal securities laws.



DECLARATION OF SERVICE BY MAIL
PURSUANT TO NORTHERN DISTRICT LOCAL RULE 23-3(c)(2)

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 January 7, 1998, declarant served the FIRST AMENDED COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 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. Declarant also caused the above to be served via facsimile and overnight mail on defendants, as noted on the Service List.4. 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 7th day of January, 1998, at San Diego, California.

______________________________
DEBORAH D. HAYES




2 Feb 1998
Source: Milberg Weiss website