10-K

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

/x/
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 31, 2001
or

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-25285

SERENA SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	94-2669809 (I.R.S. Employer Identification No.)
500 Airport Boulevard, 2nd Floor, Burlingame, California (Address of principal executive offices)	94010-1904 (Zip Code)

Registrant's telephone number, including area code: 650-696-1800

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
(Title of Class)

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes /x/  No / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

    The aggregate market value of the voting stock held by non-affiliates of the Registrant based on the closing sale price of the Common Stock on March 31, 2001, as reported on the Nasdaq National Market, was approximately $159,773,476. Shares of Common Stock held by each executive officer and director and by each person who may be deemed to be an affiliate of the Registrant have been excluded from this computation. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 31, 2001, the Registrant had 39,769,237 shares of Common Stock, $0.001 par value, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

    The Registrant has incorporated by reference into Part III of this Form 10-K portions of its Proxy Statement for the 2001 Annual Meeting of Stockholders, which is currently scheduled to be held on June 29, 2001.

SERENA SOFTWARE, INC.
ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page
PART I.		3
	Item 1. Business	3
	Item 2. Properties	14
	Item 3. Legal Proceedings	14
	Item 4. Submission of Matters to a Vote of Security Holders	14
PART II.		16
	Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters	16
	Item 6. Selected Consolidated Financial Data	17
	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 7A. Quantitative and Qualitative Disclosure about Market Risk	37
	Item 8. Financial Statements and Supplementary Data	37
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
PART III.		39
	Item 10. Directors and Executive Officers of the Registrant	39
	Item 11. Executive Compensation	39
	Item 12. Security Ownership of Certain Beneficial Owners and Management	39
	Item 13. Certain Relationships and Related Transactions	39
PART IV.		40
	Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K	40
SIGNATURES		42

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PART I

Item 1. Business

This report contains forward-looking statements under the Private Securities Reform Act of 1995. Certain statements under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report are "forward-looking statements." These forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in this report that are not historical facts. When used in this report, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors discussed under "Factors That May Affect Future Results" under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in, or incorporated by reference into, this report. Factors that could cause or contribute to such differences include but are not limited to, our reliance on our mainframe products for revenue, the percentage of license revenue typically closed at the end of each quarter making estimation of operating results prior to the end of the quarter extremely uncertain, changes in revenue mix and seasonality, our ability to deliver our products on the distributed systems platform, dependence on revenues from our installed base, continued demand for additional mainframe MIPS capacity, expansion of our professional services and international organizations and our ability to manage our growth. We assume no obligation to update the forward-looking information contained in this report.

Overview

    SERENA is a leading provider of eBusiness infrastructure software change management, or SCM, solutions. Our products and services are used to manage and control software change for organizations whose business operations are dependent on managing information technology, or IT. In our 20 year history, we have developed highly effective solutions for managing software change that enable our customers to improve their return on IT investments by improving software quality, accelerating time to market, and increasing programmer productivity while reducing application development and IT infrastructure maintenance costs. All large companies have a process for managing change to software applications, including new version releases, "bug fixes," upgrades and application introductions. Our products help IT managers manage software changes to applications by automating and enforcing the process throughout the software application life cycle. Our consulting services help companies improve their process by identifying where their current practices deviate from standard practices and making appropriate recommendations. As of January 31, 2001, our products have been installed in over 2,750 customer sites worldwide and our customers include 42 of the Fortune 50 companies such as American Express, Bank of America, Caterpillar, Citigroup, General Electric, IBM, MetLife, Prudential, and SBC Communications.

    The Company was incorporated in California in 1980 and reincorporated in Delaware in 1998. Unless the context otherwise requires, references in this report to "SERENA" and the "Company" refer to SERENA Software, Inc., a Delaware corporation, and its predecessor, SERENA Software International, Inc., a California corporation. The Company's executive offices are located at 500 Airport Boulevard, 2^nd Floor, Burlingame, California 94010-1904 and its telephone number is (650) 696-1800.

Industry Background

    The evolution of enterprise computing from centralized, mainframe-based computing to distributed, client/server and Web-based computing has added substantial complexity in recent years to the management of IT infrastructures. Today's IT environment is characterized by distributed information systems, applications and networks, comprising a wide range of hardware platforms, operating systems, databases,

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software and content development tools, networking protocols and packaged and internally developed software. This distributed computing environment has fueled a proliferation of applications disseminated throughout the enterprise as departments and individual users have been empowered to independently sponsor applications. These often disparate applications must be continually maintained and often enhanced to be compatible with emerging technologies and to keep pace with a dynamic business environment. The advent of the Internet, intranets, extranets, and eBusiness has added further complexity by stimulating the development of new applications, extending the reach of applications throughout and beyond the enterprise while placing a higher premium on speed, quality and, more recently, cost containment.

    In connection with the developments associated with the distributed computing environment, the mainframe has continued to be a critical component of IT infrastructures. Many IT organizations maintain applications that are vital to their business on the mainframe because of its unmatched performance, reliability and security.

    According to the Yankee Group, 70% of mission critical applications in Fortune 1000 companies run on mainframe computers. As organizations create new eBusiness applications and "Webify" their existing applications, they typically do so over a multi-tier, multi-platform architecture. Often these applications contain a legacy mainframe application utilizing data in a mainframe database, a middle-tier of UNIX, LINUX or Window NT servers, and Web browser client software.

    Software change management products have historically focused on managing change to applications running on a single platform. eBusiness has introduced a new set of requirements. These include managing change to applications running across the more complex multi-tier, multi-platform architecture utilized by today's eBusiness applications; and coordinating software code changes with Web content changes, which make a critical part of the customer interface.

    A key challenge for IT organizations is managing software change across multiple platforms throughout the enterprise, including new version releases, "bug fixes," upgrades and application introductions. Any software change, if not managed effectively, has the potential to cause system outages or corrupt data, which could result in disruption throughout the enterprise and lost business. For example, a single, undetected error in a software update could have catastrophic results in such critical systems as billing applications and securities trading. Change in software applications can occur at all phases of the software application life cycle, from design and analysis to development, through testing and production and into post-deployment support and maintenance. With the customer facing nature of many eBusiness applications, the cost of application downtime has increased significantly.

    Still most organizations attempt to address their SCM requirements internally either with paper based, manually implemented policies and procedures or by developing their own software solutions. These internal solutions generally require substantial IT resources, have lengthy implementation cycles, lack the robust functionality of commercially available products, frequently fail and are not cost effective. To overcome the costs and risks associated with internally developed software change management solutions, many organizations are now seeking commercially developed SCM solutions that enable them to cost effectively manage and control change throughout the software application life cycle and across the enterprise. We believe sophisticated SCM solutions are required as organizations face increasingly complex and distributed IT infrastructures, limited IT resources, remote IT project teams and tight budget constraints.

    Successful management of IT infrastructures requires the ability to manage rapid and unpredictable technological change within increasingly complex and heterogeneous computing environments. Change drivers include eBusiness initiatives, competitive pressures, short time-to-market windows, mergers and acquisitions, budget pressures, productivity/quality improvement imperatives, and regulatory changes.

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    SERENA provides a full suite of software change management products and services for managing and controlling change throughout the software application life cycle from the mainframe to the Web. Our product suite automates the management of the software application life cycle and creates an IT environment that facilitates concurrent development efforts by separate programming teams, improves process consistency, enhances software integrity and protects valuable software assets. We have announced and are developing products to allow customers to manage Web content changes along with software changes to more completely meet the requirements of eBusiness. Key components of our solution are comprehensive product functionality, a high level of adaptability and ease of use and implementation, the use of our consulting services which complement our product offerings, and improved return on IT investment. Key components of our strategy include maintaining our technology leadership, extending SCM solutions across the enterprise and into Web content management, leveraging our customer base, continuing to expand consulting services offerings, expanding global sales, and pursuing strategic relationships and acquisitions.

Products

    SERENA develops, markets and supports a full suite of mainframe SCM products for managing and controlling change throughout the software application life cycle. SERENA's product offerings support the industry standard IBM mainframe platforms. This product suite automates the software application life cycle and creates an IT environment that facilitates concurrent development efforts by separate programming teams, improves process consistency, enhances software integrity and protects valuable software assets. Our products significantly improve programmer productivity, application availability, and customers' return on IT investments, while reducing software application development costs.

    In September 2000 with the acquisition of UltiMIS Corporation, SERENA announced StarSuite, a suite of products focused on improving mainframe programmer productivity. StarSuite consists of our legacy StarTool product for file and data management, combined with former UltiMIS products StarSpy/390 and StarSpy/CICS for fault diagnostics and Ultimizer for optimizing input/output (I/O) processing functions. In November 2000, SERENA added StarProbe to the suite, adding application performance management capability. In December 2000, SERENA announced StarTest, a test debugging product to be delivered in early 2001.

    In addition, SERENA develops, markets, and supports an SCM product suite for the distributed systems environment to support Microsoft Windows 95/98/NT, UNIX, LINUX, and HP e3000 platforms. eChange Man, released in June 1999 after our acquisition of Diamond Optimum Systems, Inc., automates software change management on Windows 95/98/NT, UNIX, LINUX and HP e3000 platforms. In May 2000, SERENA announced eRequestMan for managing process and work flow associated with change requests throughout the application life cycle. In January 2001, ChangeXpress became generally available. ChangeXpress provides a single point of control for change related approvals and reports for applications running across virtually all major platforms from the mainframe to the Web.

    Customers typically purchase our mainframe products under Million Instructions Per Second, or MIPS-based, perpetual licenses. A description of MIPS-based licenses is included in the "Overview" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations."

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    The following products comprise the mainframe product suite:

	Year Product
Product Name	First Introduced	Last Released	Brief Description
Change Man	1988	2001	Provides automated infrastructure to control and manage software change
ChangeXpress	2001	2001	Enables approvals and reports through a Web browser interface.
Comparex	1981	2000	Performs data comparison for application testing and software quality
Merge+Reconcile	1994	2000	Merges versions of programs to enable concurrent development
StarSpy/390 and StarSpy/CICS	1995	2000	Automates dump and abend analysis and speeds application problem solving activities
StarTool	1989	2000	Facilitates complex file and data management tasks
StarProbe	2000	2000	Monitors and records information for application performance/tuning activities
Ultimizer	1987	2000	Automatically optimizes application I/O operations
Detect+Resolve Mainframe	1993	2000	Detects, tracks and synchronizes changes in multiple environments to improve system integrity and recoverability
Change Transfer	1999	2000	Record level backup and Restore utility for VSAM data

    Change Man, our flagship product, is a comprehensive SCM solution that provides an automated infrastructure to help customers manage and control change throughout the software application life cycle. Change Man manages change by coupling application development and production control and provides developers and their managers with the assurance of technological control and integrity throughout the development process enabling them to focus on software quality and production reliability. Change Man automates the entire software application life cycle, by providing impact analysis, version control, promotion of fixed code into production, online management of approvals and authorizations, management of concurrent development efforts by separate programming teams, code freezing to prevent further development while testing, and auditing and automating the backout of changes. Change Man is a flexible, compatible SCM solution that supports multiple operating systems and database platforms and integrates easily with customers' existing IT environments by using standard IBM programming languages and working with existing customer security systems, libraries and inventory lists.

    ChangeXpress lets Change Man customers approve changes and view reports from a Web browser. This is faster, less complicated and more visually appealing than the previous method of logging on to a "green screen" via the Time Sharing Option. ChangeXpress allows customers to approve changes and view reports from Change Man or eChange Man, giving them a single point of control for change related approvals and reports from the mainframe to the Web.

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    COMPAREX is a comparison SCM product used for efficient application testing and software quality assurance. COMPAREX performs fast, accurate, single-step comparisons of the contents of libraries, directories, files or databases by performing line-by-line byte-level comparisons. COMPAREX performs several functions, including supporting a variety of data types, providing sophisticated comparison algorithms for both data and text, minimizing the scope of comparisons by utilizing key words to compare specific portions of a file, providing direct interfaces to most major databases, and producing detailed reports on the comparison differences.

    Merge+Reconcile, or M+R, facilitates the management of multiple versions of software by providing a comprehensive comparison tool that can merge up to eight versions of source code into a single version, and produces a report that compares the different versions and clearly identifies differences and conflicts. M+R can reduce application development costs by enabling separate programming teams to work concurrently on the same parts of an application. By merging different versions of a program's source code to provide a consolidation of each team's changes, M+R greatly reduces implementation time and improves the quality of new releases. M+R can be closely integrated with Change Man to provide enhanced concurrent development capabilities.

    StarSpy/390 and StarSpy/CICS are full-featured dump management, distribution, analysis and diagnostic systems for both system and application "abends" or abnormal terminations. StarSpy is able to display the failing instruction down to the source code level for both COBOL and Assembler Language and display the last transaction screen for CICS failures. StarSpy greatly reduces the time it takes to analyze code information for solving application abends in batch, CICS and DB2 applications.

    StarTool is used for complex file and data management tasks and has extensive editing tools. StarTool provides a comprehensive workbench of utilities that may be used for application and system testing or conversion and recovery support. StarTool enables users to perform many data management tasks, including locating and replacing data and data sets, automatically tracking changes to applications or systems, recreating lost source code, and diagnosing and mapping recovery strategies for file-related problems. StarTool supports a multitude of data types including sequential, load libraries, VSAM, DB2, and IMS.

    StarProbe is a performance measurement and analysis system that helps to resolve OS/390 job performance issues, whether those jobs are applications, subsystems or tasks. StarProbe provides performance statistics and allows developers to tune specific areas of an application, thereby improving productivity and increasing application availability.

    Ultimizer is an integrated optimization system that automatically and dynamically tunes the major components of OS/390's I/O processing functions to achieve throughput improvements both in batch and on-line. By using Ultimizer, customers have been able to reduce job turnaround time and reduce their nightly batch window.

    Detect+Resolve Mainframe detects, tracks and synchronizes changes in multiple environments to improve system integrity and recoverability. Detect+Resolve Mainframe provides centralized control to software change implementation and distribution after applications are initially deployed. Detect+Resolve Mainframe speeds development and problem resolution by detecting, reporting and recovering from changes across local and remote environments. Detect+Resolve Mainframe provides configuration security for the production environment by using fingerprinting technology to audit and track changes enabling system programmers to repair unauthorized changes and to facilitate the replication of authorized changes to remote environments.

    Change Transfer is a backup utility for Virtual Storage Access Method (VSAM) data. Change Transfer detects VSAM changes at the record level and has the ability to back up only those records that have changed. If VSAM data needs to be restored, Change Transfer provides a simple-to-use function to restore

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those changes to the desired state. Change Transfer improves efficiency by reducing the time and resources it takes to backup and restore VSAM data.

    Customers typically purchase our distributed systems products under a per user based perpetual license. The following products comprise the distributed systems product suite:

	Year Product
Product Name	First Introduced	Last Released	Brief Description
eChange Man	1993	1999	Provides automated infrastructure to control and manage software change
eRequestMan	2000	2000	Manages processes throughout the application development life cycle
ChangeXpress	2000	2001	Single point of control for approvals and reports mainframe to Web

    eChange Man is a comprehensive SCM solution that provides an automated infrastructure to help customers manage and control change throughout the software application life cycle. eChange Man manages change by coupling application development, build management, and application deployment and provides developers and their managers with technological control and integrity throughout the development process enabling them to focus on software quality and reliability. eChange Man automates the software application life cycle, by providing impact analysis, version control, promotion of fixed code into production, online management of approvals and authorizations, management of concurrent development efforts by separate programming teams, code freezing to prevent further development while testing, and auditing and automating the backout of changes.

    eRequestMan automates and enforces the process and work flow associated with software issues, enhancements, and problems that move through the application lifecycle. eRequestMan manages the process of tracking increasingly frequent and critical requests for software change and shortens development cycles by managing, tracking and reporting on the people, processes, and tasks involved with resolving a request. The solution contains a highly customizable out of the box workflow. It improves developer productivity by organizing and prioritizing work assignments, activities and information.

    ChangeXpress lets eChange Man customers approve changes and view reports from a Web browser. ChangeXpress also allows customers to approve changes and view reports from Change Man, giving them a single point of control for change related approvals and reports from the mainframe to the Web.

Products Under Development

    To effectively manage eBusiness applications requires not only managing software changes across the complex multi-tier, multi-platform architecture on which they are deployed, but also coordinating software change with changes to Web content, which constitutes a critical part of the customer interface. In 2000, the company announced ChangeContent, a product for managing Web software code and content. This product is under development and is scheduled for release in the first quarter of fiscal 2002.

    In addition, SERENA continues to execute on its vision of managing change to enterprise applications from a single point of control. ChangeXpress, released in January 2001, is a major step forward in this initiative of providing a single point of control for change related approvals and reports. The company is making enhancements to its Change Man, eChange Man, eRequestMan, and ChangeXpress products to enable change packages with components under the management of Change Man and eChange Man to move together through the application life cycle in a fully integrated fashion.

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    To offer customers a more complete suite of products to address OS/390 application availability, StarTest, a test debugging product, was announced in November 2000, giving customers an alternative to other competitive offerings. Startest will be delivered in early 2001. In February 2001, the Company announced the integration of StarSpy with Change Man. This and future integrations among StarSuite with our SCM products increases the value of our overall solution in the form of additional resource savings, quality improvements and productivity enhancements.

    The software change process is usually initiated through a change request. Providing a companion change request management product to a software change management product offers additional opportunities to add value to customers by further automating and improving processes to increase quality and efficiency while reducing time to market. In March 2000, the Company announced eRequestMan, a change request management product that will integrate with, and be able to share the same meta data repository as, eChange Man. eRequestMan provides a request management solution that features predefined processes and business rules. The predefined processes are extremely flexible and easily customized to reflect the multi-level workflow and sub-processes found in many organizations.

    SERENA may be unable, for technological or other reasons, to develop and introduce these products in a timely manner. Any failure by us to successfully develop, market, sell and support distributed systems products would have a material adverse effect on our business, operating results and financial condition. See "Factors That May Affect Future Results—Our Introduction of SERENA SCM Products for Distributed Systems May Not Be Successful" and "We May Experience Delays in Developing Our Products Which Could Adversely Affect Our Business."

Technology

SERNET provides a common platform for the continued enhancement of our existing products and the rapid development of future products. SERNET serves as a repository for our key technologies and provides our product suites with a common and stable infrastructure, a set of common services for product suite integration, an interface that promotes third party integration, a communication module for cross platform interconnectivity, and a common set of modules including licensing management, file access and security. This technology is the key infrastructure that enables our ChangeXpress product to provide a single point of control for reporting and approvals which unites SERENA's multiplatform SCM solution.

    The SERNET technologies are proven and reliable and already part of many of the mainframe products. SERNET provides a broad platform for customers and third parties to integrate into SERENA's technology base. These interfaces which are provided natively and with language specific "wrappers', such as Java, C++ etc., facilitate integration of vended and home grown solutions into the multi-platform and distributed world of software change management.

    In addition to SERNET, we have developed a number of other SCM technologies which are embedded in our products, including:

•

A fourth generation, object-oriented development engine developed entirely in Java and based on extensible markup language (XML) to facilitate integration into third party products. This technology is used to accelerate the time to market of current and future SERENA distributed systems products.



•

A comparison engine detecting differences and tracking changes as small as individual bit values. This technology enables customers to compare extremely large volumes of data rapidly from a diverse set of sources including databases, indexed files and flat file structures. The primary product that uses this technology is COMPAREX.



•

A merge engine processing changes made to the same source code program by different development teams that enables parallel development teams to apply changes to an application concurrently, while determining whether the changes are compatible. The primary product that uses this

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technology is Merge+Reconcile. But, it is also a key component of both our mainframe and distributed systems SCM products, Change Man and eChange Man.

•

A fingerprinting technology enabling application or system changes to be detected with a high level of granularity by reducing each data file in a system to a unique eight-byte token or "fingerprint" which changes if any bit is altered. Fingerprinting allows programmers and systems managers to quickly determine which changes have led to operational errors, thereby facilitating timely problem detection and resolution. Substantially all of SERENA's products use this technology.



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An object factory technology consolidating desktop components into single objects and collecting them in class libraries, allowing for code re-use and enabling customers to develop inventories containing proven, tested and reliable codes, thereby facilitating the rapid development and deployment of products to the desktop. The object factory technology has an open interface structure of class libraries that can be incorporated with original equipment manufacturer tool kits. SERENA uses this technology to develop new SCM products or to upgrade existing products. Known as the XPI and the EPI, these programming interfaces work directly with our mainframe and distributed systems products. The architecture is TCP/IP based thus enabling applications on disparate platforms in diverse locations to interact with SERENA's software products.

Professional Services and Customer Support

    Our services group provides technical consulting, education, customer support and product maintenance to help customers maximize the utilization of SERENA's products.

    Consulting.  SERENA provides a comprehensive range of consulting services to our customers. Our consultants review customers' existing IT systems and applications and make recommendations for changing those systems and applications and customizing SERENA's SCM products so that customers can fully realize their benefits. In addition to helping customers customize, install and deploy our software products, our consulting services may also include process reengineering and developing interfaces with customers' databases, third party proprietary software repositories or programming languages.

    We also offer customers more specialized consulting services. These specialized consulting services include our Best Practices Consulting Services, which provide customers with expertise and assistance in defining and developing a best practice change and configuration management architecture and in identifying corresponding products, methods and procedures. SERENA's consulting services are typically billed on a time and materials basis.

    Education.  We offer hands-on training courses for the implementation and administration of our products. Product training is provided on a periodic basis at our headquarters in Burlingame, California, at our offices in London and also at customer sites throughout the United States and Europe. We also offer custom course development for certain of our products. We bill our education services on a per class basis.

    Customer Support and Product Maintenance.  We have a staff of customer service personnel who provide technical support to customers. We offer technical support services 24 hours a day, seven days a week via our Internet site, toll free telephone lines, electronic mail, bulletin board service and facsimile lines. Customers are notified about the availability of regular maintenance and enhancement releases via Internet-based electronic mail. Initial mainframe product license fees include one year of product software maintenance and support. Thereafter, customers are entitled to receive software updates, maintenance releases and technical support for an annual maintenance fee equivalent to approximately 17% to 18% of the current list price of the licensed product.

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Research and Development

    SERENA believes that the ability to introduce new and enhanced products to customers will be a key factor for future success. As part of our efforts to generate ideas for enhancing our existing products and for developing new ones, we maintain an ongoing dialogue with our customers who are continually facing new SCM challenges in their evolving IT environments. SERENA has devoted and expects to continue to devote significant resources to developing new and enhanced products, particularly distributed systems products and other initiatives aimed at the Web.

    Most of our technical personnel have been employed by SERENA for a substantial length of time and their significant knowledge base contributes to SERENA's ability to understand and address customers' SCM requirements. We believe that attracting and retaining talented software developers who understand the customers' problems is an important component of product development activities. We encourage our developers to assume responsibility for the design and delivery of our products through our product authorship incentive program that rewards our developers with commissions based on the market success of the applications they design, write, market and support. Competition for developers is intense and any failure by us to continue to attract and retain qualified personnel could have a material adverse effect on our business, operating results and financial condition. See "Factors That May Affect Future Results—We May Not Be Able to Recruit and Retain the Personnel We Need to Succeed."

    SERENA's research and development expenses were $4.5 million, $6.8 million and $10.1 million in fiscal 1999, 2000 and 2001, representing 9%, 9% and 10% of total revenues, respectively. We expect research and development expenses will increase as we hire additional research and development personnel to enhance and develop our distributed systems product suite. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."

    We believe that our ability to develop and introduce enhancements to our products and new products on a timely basis is a key success factor. We expect that we will have to respond quickly to rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards that may render existing products and services obsolete. SERENA has in the past devoted and expects in the future to continue to devote a significant amount of resources to developing new and enhanced products. We currently have a number of product development initiatives underway. There can be no assurance that any enhanced products, new products or product suites will be embraced by existing or new customers. The failure of these products to achieve market acceptance could have a material adverse effect on our business, operating results and financial condition. See "Factors That May Affect Future Results—Our Industry Changes Rapidly Due to Evolving Technology Standards And Our Future Success Will Depend on Our Ability to Continue to Meet the Sophisticated Needs of Our Customers."

Sales and Marketing

    In North America, the United Kingdom, Germany and France, we market our software primarily through our direct sales organization. SERENA's North American sales organization includes personnel in the metropolitan areas of Boston, Chicago, Los Angeles, New York, Sacramento, San Francisco, Dallas, Atlanta and Toronto.

    Our direct sales force works closely with customers to understand and address their SCM needs. In particular, we plan to broaden our direct sales and telesales efforts to reduce sales cycles and provide a rapid response to customer product requests.

    In addition to our direct sales and telesales efforts, we have established relationships with distributors and resellers located in North America, Spain, Italy, Latin America, Belgium, Hong Kong, Israel, Australia, Japan, Korea and South Africa. In addition to marketing and selling our software, these distributors and resellers provide technical support as well as educational and consulting services.

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    We market our products through seminars, industry conferences, trade shows, advertising, direct mailing efforts and our Internet site. In addition, we have developed programs that promote an active exchange of information between us and our existing customers. These programs include customer meetings with our senior management at our Executive Briefing Center and focus group meetings with customers to evaluate product positioning. We plan to continue to expand our marketing organization to broaden our market presence.

Competition

    The market for our products and services is highly competitive and diverse. The technology for SCM products may change rapidly. New products are frequently introduced and existing products are continually enhanced. Competitors vary in size and in the scope and breadth of the products and services that they offer. Many of our current and potential competitors have greater financial, technical, marketing and other resources than we have. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements. They may also be able to devote greater resources to the development, promotion and sale of their products than we can. We may not be able to compete successfully against current and future competitors. See "Factors That May Affect Future Results—SERENA is Subject to Intense Competition in the SCM Industry and We Expect to Face Increased Competition in the Future, Including Competition in the SCM Distributed Systems Market."

    Mainframe Competition.  We currently face competition from a number of sources, including:

•

Customers' internal IT departments



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Providers of SCM products that compete directly with Change Man and COMPAREX such as Computer Associates, MERANT, IBM and smaller private companies



•

Providers of SCM application development programmer productivity and system management products such as Compuware, IBM and smaller private companies

    Future Competition.  We may face competition in the future from established companies who have not previously entered the mainframe SCM market or from emerging software companies. Barriers to entry in the software market are relatively low. Increased competition may materially adversely affect our business and future quarterly and annual operating results due to price reductions, reduced gross margins and reduction in market share. Established companies may not only develop their own mainframe SCM solutions, but they may also acquire or establish cooperative relationships with our current competitors, including cooperative relationships between large, established companies and smaller private companies. Because larger companies have significant financial and organizational resources available, they may be able to quickly penetrate the mainframe SCM market through acquisitions or strategic relationships and may be able to leverage the technology and expertise of smaller companies and develop successful SCM products for the mainframe. We expect that the software industry, in general, and providers of SCM solutions, in particular, will continue to consolidate. It is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share.

    Bundling or Compatibility Risks.  Our ability to sell our products also depends, in part, on the compatibility of our products with other third party products, particularly those provided by IBM. Developers of these third party products may change their products so that they will no longer be compatible with our products. These third party developers may also decide to bundle their products with other SCM products for promotional purposes. If that were to happen, our business and future quarterly and annual operating results may be materially adversely affected as we may be priced out of the market or no longer be able to offer commercially viable products.

    Competition in the Distributed Systems SCM Market.  We also face significant competition as we develop, market and sell our distributed systems products, including eChange Man, eRequest Man and

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ChangeContent when delivered. If we are unable to successfully penetrate the distributed systems SCM market, our business and future quarterly and annual operating results will be materially adversely affected. Penetrating the existing distributed systems SCM market will be difficult. Competitors in the distributed systems market include Rational Software, Computer Associates, MERANT, Microsoft, Interwoven, Documentum, and other smaller private companies.

Intellectual Property

    Our success will be heavily dependent upon proprietary technology. We rely primarily on a combination of patent, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary rights. Such laws, procedures and contracts provide only limited protection. We submitted four patent applications for our technology in calendar 1998, four more in calendar 1999 and none in calendar 2000. These applications are still pending and may never be issued. Even if these patents are issued, they may not provide sufficiently broad protection or they may not prove enforceable in actions against alleged infringors. Despite the precautions that we take, it may be possible for unauthorized third parties to copy aspects of our current or future products or to obtain and use information that we regard as proprietary. In particular, we may provide our licensees with access to our data model and other proprietary information underlying our licensed applications. Such means of protecting our proprietary rights may not be adequate. Additionally, our competitors may independently develop similar or superior technology. Policing unauthorized use of software is difficult and some foreign laws do not protect SERENA's proprietary rights to the same extent as United States laws. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Litigation could result in substantial costs and diversion of SERENA's resources and could materially adversely affect our business, operating results, and financial condition.

    Third parties may claim that our current or future products infringe their proprietary rights. See "Factors That May Affect Future Results—Third Parties in the Future Could Assert That Our Products Infringe Their Intellectual Property Rights, Which Could Adversely Affect Our Business." We may receive claims in the future and any such claims could affect our relationships with existing customers and may prevent future customers from licensing our products. Because we are dependent upon a limited number of products, any such claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Royalty or license agreements may not be available on acceptable terms or at all. We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in the software industry segment grows and the functionality of products in different industry segments overlaps. As a result of these factors, infringement claims could materially adversely affect our business, operating results and financial condition.

Employees

    As of January 31, 2001, SERENA had 357 full-time employees, 81 of whom were engaged in research and development, 146 in sales and marketing, 80 in consulting, education and customer and document support, and 50 in finance, administration and operations. Our future performance depends in significant part upon the continued service of our key technical, sales and senior management personnel. The loss of the services of one or more of our key employees could materially adversely affect our business, operating results and financial condition. Our future success also depends on our continuing ability to attract, train and retain highly qualified technical, sales and managerial personnel. Competition for such personnel is intense, and we may not be able to retain our key personnel in the future. None of our employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good.

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Item 2. Properties

    Our principal administrative, sales, marketing, consulting, education, customer support and research and development facilities are located at our headquarters in Burlingame, California. SERENA currently occupies an aggregate of approximately 30,000 square feet of office space in the Burlingame facility and 12,000 square feet of office space in the Woodland Hills facility under the terms of various leases, the first of which terminates, unless renewed, in December 2001. Management believes its current facilities will be adequate to meet SERENA's needs for at least the next twelve months. We believe that suitable additional facilities will be available in the future as needed on commercially reasonable terms.

    SERENA also leases office space for sales and marketing in Roseville, California; Atlanta, Georgia; Addison, Texas; and Sandy, Utah, and has subsidiaries in Canada, the United Kingdom, Germany and France.

Item 3. Legal Proceedings

    On August 7, 2000, the Company and Compuware Corporation settled a lawsuit outstanding which was pending in the United States District Court for the Eastern District of Michigan. The lawsuit was dismissed with prejudice and the settlement will have no material adverse effect on the Company's results of operations or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

    Not applicable.

Executive Officers and Directors of the Registrant

    The following table sets forth certain information with respect to the executive officers and directors of the Company as of January 31, 2001.

Name	Age	Position
Douglas D. Troxel	56	Chairman of the Board and Chief Technology Officer
Mark E. Woodward	42	President, Chief Executive Officer and Director
Kevin C. Parker	44	Vice President, Research and Development
Robert I. Pender, Jr.	43	Vice President, Finance and Administration, Chief Financial Officer and Director
Anthony G. Stayner	45	Vice President, Marketing
Vita A. Strimaitis	41	Vice President, General Counsel and Secretary
Alan H. Hunt(a)(b)	58	Director
Jerry T. Ungerman(a)(b)	56	Director
Richard A. Doerr	58	Director

(a)

Member of Audit Committee

(b)

Member of Compensation Committee

    Douglas D. Troxel is the founder of SERENA and has served as the Chairman of SERENA's Board of Directors since April 1980 and SERENA's Chief Technology Officer since April 1997. From June 1980 to April 1997, Mr. Troxel served as the President and Chief Executive Officer of SERENA. Mr. Troxel holds a B.S. in mathematics from Iowa State University.

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    Mark E. Woodward has served as a member of SERENA's Board of Directors since June 2000 and as President, Chief Executive Officer since May 2000. Mr. Woodward also served as SERENA's Vice President, Worldwide Operations from February 2000 to May 2000 and as Vice President, Sales from November 1998 to February 2000. From August 1997 until November 1998, Mr. Woodward was Senior Vice President, Sales for Live Picture, Inc., a developer of Internet imaging technology. From August 1995 until August 1997, Mr. Woodward was Vice President, Sales for McAfee Associates, a network management firm. From March 1989 until August 1995, Mr. Woodward was Vice President, Sales for Legent, Inc., a developer of SCM products.

    Kevin C. Parker has served as SERENA's Vice President, Research and Development since November 1998. From October 1997 until November 1998, Mr. Parker served as SERENA's Director of Technology Development. From November 1995 until April 1997, Mr. Parker was Director of Product Development for Command Technology Corporation, a developer of mainframe-style programmer's tools. From November 1989 until November 1995, Mr. Parker was Managing Director of IT Independent Training Limited, a developer of software training products.

    Robert I. Pender, Jr. has served as a member of SERENA's Board of Directors since June 2000 and as SERENA's Vice President, Finance and Administration, Chief Financial Officer since December 1997. From December 1996 until August 1997, Mr. Pender was Vice President, Finance of Mosaix, Inc., a customer interaction software company. From April 1993 until December 1996, Mr. Pender served in a variety of positions, most recently as Chief Financial Officer, with ViewStar Corporation, a client/server workflow software company that was acquired by Mosaix, Inc. in December 1996. Mr. Pender holds a B.A. in accounting from Baylor University and a M.S. in financial planning and tax from Golden Gate University.

    Anthony G. Stayner has served as SERENA's Vice President, Marketing since April 1999. From June 1998 until March 1999, Mr. Stayner served as SERENA's Vice President, Services. From February 1996 until January 1998, Mr. Stayner was Director of Product Marketing, Services Business Unit for Network Associates, Inc., a network security and performance management company. From November 1994 until February 1996, Mr. Stayner was the Principal for Stayner & Associates, a marketing and management consulting services firm. From March 1992 until November 1994, Mr. Stayner was the Vice President of Marketing for Common Ground Software, a developer of software for the distribution of electronic documents across multiple platforms. Mr. Stayner holds a B.A. in economics and mathematics from the University of California, Davis, a J.D. from the University of California, Berkeley and a M.B.A. from Stanford University.

    Vita A. Strimaitis has served as SERENA's Vice President, General Counsel and Assistant Secretary since July 1997 and was appointed Secretary in November of 2000. Ms. Strimaitis also served as SERENA's Director of Licensing from September 1996 until July 1997. From April 1995 until February 1996, Ms. Strimaitis was Vice President and General Counsel for Financial Benefit Group, an annuity insurance company. From August 1994 until April 1995, Ms. Strimaitis was a Senior Corporate Attorney for Uniforce Staffing Services, a professional services resources company. From June 1986 until January 1993, Ms. Strimaitis was Assistant General Counsel and Corporate Secretary for Pioneer Financial Services, Inc., an insurance holding company. Ms. Strimaitis holds a B.A. in political science and psychology from Loyola University and a J.D. from Northern Illinois University College of Law.

    Alan H. Hunt has served as a member of SERENA's Board of Directors since February 1998. From October 1995 to January 1998, Mr. Hunt was the President and Chief Executive Officer and a member of the Board of Directors of Peregrine Systems, Inc., a provider of infrastructure management software solutions. From July 1994 until November 1995, Mr. Hunt was President and Chief Executive Officer and a member of the Board of Directors of XVT Software Inc., a development tools software company. From March 1991 until May 1994, Mr. Hunt was Senior Vice President of Sales and Marketing (North America) for BMC Software, Inc., a vendor of software system utilities for IBM mainframe computing environments. Mr. Hunt holds a B.S. in business administration and industrial management from San Jose State College.

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    Jerry T. Ungerman has served as a member of SERENA's Board of Directors since December 1998. Since October 1998, Mr. Ungerman has served as an Executive Vice President of Check Point Software Technologies Ltd., a developer of computer network security access software. From July 1971 to October 1998, Mr. Ungerman was the Executive Vice President of Operations of Hitachi Data Systems Corp., a provider of computer networking and data storage solutions for computing environments. Mr. Ungerman holds a B.S.B. in Business from the University of Minnesota.

    Richard A. Doerr has served as a member of SERENA's Board of Directors since April 1997 and was SERENA's President, Chief Executive Officer from April 1997 through April 2000. From April 1995 until October 1996, Mr. Doerr was Vice President of Sales, Service and Distribution for Wall Data Incorporated, a software connectivity company. From October 1991 until October 1994, Mr. Doerr was Vice President, Worldwide Operations for Oracle Corporation, a developer of relational database management software. From August 1986 until October 1991, Mr. Doerr was Vice President, Western Area and U.S. Healthcare Industry for Digital Equipment Corporation, a developer of networking solutions for computer environments. Mr. Doerr holds a B.S. from California Polytechnic State University.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

    The Company's Common Stock has been traded on the Nasdaq National Market under the trading symbol "SRNA" since the Company's initial public offering in February 1999. Prior to February 1999, there was no established public trading market for the Company's Common Stock.

    As of March 31, 2001, the Company had issued and outstanding 39,769,237 shares of its Common Stock held by 71 stockholders of record.

    The following table sets forth the range of high and low closing sales prices for each period indicated, adjusted for the three-for-two stock split effective March 21, 2000.

		High		Low
Fiscal Year Ending January 31, 2002:
	First quarter (through March 31, 2001)	$	31.938	$	9.125
Fiscal Year Ended January 31, 2001:
	Fourth quarter	$	57.438	$	26.375
	Third quarter	$	51.375	$	24.750
	Second quarter	$	50.000	$	17.063
	First quarter	$	40.250	$	16.938
Fiscal Year Ended January 31, 2000:
	Fourth quarter	$	22.667	$	14.083
	Third quarter	$	12.500	$	5.500
	Second quarter	$	9.083	$	5.917
	First quarter (from February 12, 1999)	$	11.333	$	5.750

    The market price of the Company's Common Stock could be subject to significant fluctuations in the future based on a number of factors, including any shortfall in the Company's revenues or net income from revenues or net income expected by securities analysts; announcements of new products by the Company or its competitors; quarterly fluctuations in the Company's financial results or the results of other software companies, including those of direct competitors of the Company; changes in analysts' estimates of the Company's financial performance, the financial performance of competitors, or the financial performance of software companies in general; general conditions in the software industry; changes in prices for the Company's products or competitors' products; changes in revenue growth rates for the Company or its competitors; and conditions in the financial markets. In addition, the stock market may from time to time experience extreme price and volume fluctuations, which particularly affect the market price for the

16

securities of many technology companies and which have often been unrelated to the operating performance of the specific companies. There can be no assurance that the market price of the Company's Common Stock will not experience significant fluctuations in the future. See "Factors That May Affect Future Results—Our Share Price Has Been, and Will Likely Continue to be, Volatile."

Dividend Policy

    The Company has never declared or paid cash dividends on its capital stock. The Company currently expects to retain future earnings, if any, for use in the operation and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

    During fiscal 2001 we issued common stock of 91,954, 130,612 and 173,758 shares in connection with our May 2000 acquisition of High Power Software, Inc., our August 2000 acquisition of the StarTool Technology and our September 2000 acquisition of UlitMIS Corporation, respectively.

    The sale of securities in each of these acquisition transactions were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) thereof, transactions not involving a public offering.

Use of Proceeds

    In February 1999, SERENA completed the sale of 9 million shares of its Common Stock, including 3 million shares on behalf of selling stockholders, at a per share price of $8.67 in a firm commitment underwritten public offering. The offering was underwritten by JP Morgan H&Q LLC, SG Cowen Securities Corporation and Wit Soundview Technology Group, Inc. In March 1999, an over-allotment option granted by SERENA to the underwriters for the purchase of up to 1,350,000 additional shares of SERENA Common Stock was exercised in full by the underwriters.

    SERENA received aggregate gross proceeds of $63.7 million in connection with its initial public offering. Of such amount, approximately $4.4 million was paid to the underwriters in connection with underwriting discounts, and approximately $1.2 million was paid by SERENA in connection with offering expenses, including legal, accounting, printing, filing and other fees. There were no direct or indirect payments to directors or officers of the Company or any other person or entity. None of the offering proceeds have been used for the construction of plant, buildings or facilities or other purchase or installation of machinery or equipment or for purchases of real estate or the acquisition of other businesses. The Company is currently investing the net offering proceeds for future use as additional working capital. Such remaining net proceeds may be used for potential strategic investments or acquisitions that complement SERENA's products, services, technologies or distribution channels.

Item 6. Selected Consolidated Financial Data

    The selected historical data presented below are derived from the consolidated financial statements of SERENA Software, Inc. The selected consolidated financial data set forth below is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial

17

Condition and Results of Operations," and the Consolidated Financial Statements of SERENA and notes thereto included elsewhere in this report.

			Fiscal Year Ended January 31,
			1997		1998		1999		2000		2001
			(in thousands, except per share data)
Consolidated Statement of Income Data:
Revenue:
	Software licenses		$	8,229	$	17,839	$	27,199	$	41,808	$	58,037
	Maintenance			8,730		12,258		16,960		26,818		37,227
	Professional services			495		2,050		4,157		6,781		8,345
	Total revenue			17,454		32,147		48,316		75,407		103,609
Cost of revenue:
	Software licenses			1,298		1,087		2,207		2,897		1,600
	Maintenance			3,503		4,009		4,524		6,070		5,610
	Professional services			406		1,717		3,532		5,455		6,938
	Total cost of revenue			5,207		6,813		10,263		14,422		14,148
	Gross profit			12,247		25,334		38,053		60,985		89,461
Operating expenses:
	Sales and marketing			4,605		7,947		13,862		22,158		27,154
	Research and development			4,321		5,518		4,465		6,848		10,101
	General and administrative			2,296		3,296		3,932		6,116		8,511
	Stock-based compensation			—		880		2,499		732		223
	Amortization of intangible assets			—		—		739		2,226		5,146
	Acquired in-process research and development			—		—		—		992		2,972
		Total operating expenses		11,222		17,641		25,497		39,072		54,107
	Operating income			1,025		7,693		12,556		21,913		35,354
	Interest and other income, net			115		321		929		4,569		7,475
		Income before income taxes		1,140		8,014		13,485		26,482		42,829
	Income taxes			278		3,253		6,155		11,839		18,575
		Net income	$	862	$	4,761	$	7,330	$	14,643	$	24,254
	Net income per share:
		Basic	$	0.04	$	0.21	$	0.29	$	0.40	$	0.63
		Diluted	$	0.04	$	0.21	$	0.27	$	0.38	$	0.60
	Weighted average shares used in per share calculations:
		Basic		23,625		22,872		25,396		36,751		38,522
		Diluted		23,625		22,908		27,032		38,819		40,729

		As of January 31,
		1997		1998		1999		2000		2001
Consolidated Balance Sheet Data:
	Cash and cash equivalents	$	4,031	$	9,024	$	21,469	$	80,931	$	112,658
	Working capital		618		6,942		16,505		89,631		105,010
	Total assets		9,233		20,567		59,678		149,059		203,818
	Total liabilities		7,187		13,582		21,573		34,535		46,674
	Total stockholders' equity		2,046		6,985		38,105		114,524		157,144

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements of SERENA and the notes thereto included elsewhere in this report. Our discussion contains forward-looking statements under the Private Securities Reform Act of 1995 which include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in this report that are not historical facts. When used in this report, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions. Factors that could cause or contribute to such differences include but are not limited to, our reliance on our mainframe products for revenue, the percentage of license revenue typically closed at the end of each quarter making estimation of operating results prior to the end of the quarter extremely uncertain, changes in revenue mix and seasonality, our ability to deliver our products on the distributed systems platform, dependence on revenues from our installed base, continued demand for additional mainframe MIPS capacity, expansion of our professional services and international organizations, our ability to manage our growth and those set forth under "Factors That May Affect Future Results" under "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business", and elsewhere in, or incorporated by reference into, this report. We assume no obligation to update the forward-looking information contained in this report.

Overview

    SERENA Software, Inc. is an industry leading provider of software infrastructure products and consulting best practices that automate enterprise software and Web content changes. SERENA's eBusiness Infrastructure Change Management strategy manages the change process throughout the entire eBusiness lifecycle across multiple platforms—from the mainframe to the Web. SERENA was founded in 1980 and we introduced our first Software Change Management ("SCM") product, COMPAREX, in 1981. Since then, SERENA has developed a full suite of mainframe products, including our flagship product Change Man, which was introduced in 1988. In June 1999, SERENA introduced eChange Man, a distributed systems product providing an end-to-end solution to SCM across the enterprise from the mainframe to the desktop to the Web. IT managers use our products to track software changes during the software application design and development process, manage separate programming teams that are concurrently developing and enhancing applications, and oversee the deployment of the software applications across both the mainframe and distributed systems environments. In May 2000, we introduced eRequestMan for managing process and work flow associated with change requests throughout the application life cycle.

    On September 25, 1998, we acquired Optima Software, Inc. ("Optima"), the primary distributor of our flagship Change Man product. In certain markets, Optima had been the exclusive distributor of Change Man. This acquisition significantly expanded our professional services and sales and marketing capabilities enabling us to market Change Man directly through our distribution channels as well as the historical distribution channels of Optima. The Optima acquisition was accounted for under the purchase method of accounting and the results of operations of Optima are included in SERENA's historical results after the acquisition date.

    On June 14, 1999, we acquired Diamond Optimum Systems, Inc. ("Diamond"), a provider of enterprise SCM solutions for the Web, NT and UNIX environments. This acquisition accelerated the development and introduction of our distributed systems product offerings and allowed us to provide SCM solutions across the enterprise from the mainframe to UNIX/NT servers and the Web. The Diamond acquistion was accounted for under the purchase method of accounting and the results of operations of Diamond are included in SERENA's historical results after the acquisition date.

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    On May 1, 2000, the Company acquired High Power Software, Inc. ("HPS"), which we shared ownership rights in our Detect+Resolve Mainframe technology. This acquisition allowed the Company to market and sell the Detect+Resolve Mainframe technology exclusively without incurring software sublicense fees. The HPS acquisition was accounted for under the purchase method of accounting and the results of operations of HPS are included in SERENA's historical results after the acquisition date.

    On August 18, 2000, the Company acquired the StarTool technology from its principal developer, an employee, in an asset purchase. Prior to the acquisition, the developer had granted the Company an exclusive, worldwide and non-transferable license to copy, market and distribute the StarTool Program technology and all options thereto. This acquisition gave the Company all rights, title and interests in and to the StarTool technology, allowing the Company to exclusively market and sell the StarTool technology without incurring software sublicense fees.

    On September 18, 2000, the Company acquired UltiMIS Corporation ("UltiMIS"), a leading provider of data center performance and programmer productivity software products which allowed the Company to accelerate its time to market for StarSuite, an integrated suite of products for file and data management, fault diagnostics, application performance monitoring, testing and debugging. The UltiMIS acquisition was accounted for under the purchase method of accounting and the results of operations of UltiMIS are included in SERENA's historical results after the acquisition date.

    SERENA has grown rapidly as total revenue has increased from $17.5 million in fiscal 1997 to $103.6 million in fiscal 2001. The growth in total revenue has been primarily attributable to increased demand for our mainframe products, and to a lesser extent in the last two fiscal years, the introduction of our distributed systems products, primarily eChange Man, into the marketplace. In general, demand is increasing as a result of greater awareness of and need for automated third party SCM solutions. We derive our revenue from software licenses, maintenance and professional services.

    In fiscal 2001, 88% of our software license revenue was derived from our mainframe products and 12% from our distributed systems products. Customers typically purchase the mainframe products under Million Instructions Per Second, or MIPS-based, perpetual licenses. Mainframe software products and applications are usually priced based on hardware computing capacity. MIPS is a capacity measurement used by hardware manufacturers to rate computer size to determine the amount of capacity for running applications and supporting users. The higher a hardware's MIPS capacity, the more expensive a software license will be. Customers increasing their MIPS capacity are required to purchase an additional software license when upgrading the hardware. Our distributed systems products are licensed on a per user seat basis. Software products are also typically priced based on a perpetual license agreement, which entitles a customer to use the product on an ongoing basis. Initial mainframe license transactions generally include one year of software maintenance and support. Revenue from license agreements, excluding maintenance revenue included with the license, is recognized upon receipt and acceptance of a signed contract and delivery of the software, provided the related fee is fixed, determinable and does not involve an extended payment term, collectibility of the revenue is probable and the arrangement does not involve significant customization of the software. Any factors adversely affecting the pricing of, demand for or market acceptance of our mainframe or distributed systems products, such as competition or technological change, could materially adversely affect our business, operating results and financial condition. See "Factors That May Affect Future Results—We Have Relied and Expect to Continue to Rely on Sales of Our Mainframe Products for Our Revenue" and "Our Business is Dependent on the Continued Market for IBM and IBM-Compatible Mainframes."

    We also provide ongoing maintenance, which includes technical support, version upgrades and enhancements, for an annual fee of approximately 17% to 18% of the current list price of the licensed product. We recognize maintenance revenue over the term of the contracts, typically one year, on a straight-line basis.

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    Professional services revenue is derived from consulting and educational services, including implementation and integration of licensed software, specialized consulting services such as "best practices" design, development and deployment of SCM solutions, and education courses for SERENA's products. Our professional services are typically billed on a time and materials basis and revenue is recognized as the related services are performed.

    Historically, SERENA's revenue has primarily been attributable to sales in North America. In fiscal 1999, 2000 and 2001, revenue attributable to sales in North America accounted for approximately 84%, 85% and 82% of SERENA's total revenue, respectively. Our plan is to expand our international operations significantly, particularly in Europe, as we believe international markets represent a significant growth opportunity. Consequently, we anticipate that international revenue will increase as a percentage of total revenue in the future. Our expansion of our international operations will be subject to a variety of risks that could materially adversely affect our business, operating results and financial condition. See "Factors That May Affect Future Results—We Intend to Expand Our International Operations And May Encounter a Number of Problems Doing So; There Are Also a Number of Factors Associated with International Operations that Could Adversely Affect Our Business." In North America, SERENA's revenue is generally denominated in United States dollars while international sales are generally denominated in local currencies, principally the British pound, German deutsche mark and French franc. As SERENA's international sales and operations expand, we anticipate that our exposure to foreign currency fluctuations will increase. See "Factors That May Affect Future Results—Fluctuations in the Value of Foreign Currencies Could Result in Currency Transaction Losses for SERENA."

    Maintenance revenue and professional services revenue have lower gross profit margins than software license revenue as a result of costs inherent in operating our customer support and professional services organizations. Acquisitions in the current fiscal year, namely HPS and StarTool, have resulted in the elimination of sublicense fee obligations with respect to our Detect+Resolve Mainframe and StarTool products. Prior to these acquisitions, sublicense fees were incurred on the revenue we recognized in connection with license and maintenance transactions involving these products. As a result, prior to these acquisitions, our license and maintenance revenues for our Detect+Resolve Mainframe and StarTool products had lower gross profit margins than license and maintenance revenue from other products. This is no longer the case.

    We expect operating expenses to increase substantially in the future as we continue to develop new and enhanced versions of our products, including our distributed systems product suite, increase our sales and marketing activities, expand our distribution channels, increase our professional services capabilities and pursue strategic relationships and acquisitions. Any failure by SERENA to significantly increase revenue as we implement these initiatives could materially adversely affect our business, operating results and financial condition. See "Factors That May Affect Future Results—We Expect that Our Operating Expenses Will Increase Substantially in the Future and These Increased Expenses May Adversely Affect Our Future Operating Results and Financial Condition."

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Historical Results of Operations

    The following table sets forth the historical results of operations for SERENA expressed as a percentage of total revenue and are not necessarily indicative of the results for any future period. Historical results include the post-acquisition results of Optima from September 25, 1998, Diamond from June 14, 1999, HPS from May 1, 2000, StarTool from August 18, 2000 and UlitMIS from September 18, 2000.

			Percentage of Revenue Fiscal Year Ended January 31,
			1999		2000		2001
Revenue:
	Software licenses		56.3	%	55.4	%	56.0	%
	Maintenance		35.1	%	35.6	%	35.9	%
	Professional services		8.6	%	9.0	%	8.1	%
		Total revenue	100.0	%	100.0	%	100.0	%
Cost of revenue:
	Software licenses		4.6	%	3.8	%	1.6	%
	Maintenance		9.3	%	8.1	%	5.4	%
	Professional services		7.3	%	7.2	%	6.7	%
		Total cost of revenue	21.2	%	19.1	%	13.7	%
		Gross profit	78.8	%	80.9	%	86.3	%
Operating expenses:
	Sales and marketing		28.7	%	29.4	%	26.2	%
	Research and development		9.3	%	9.1	%	9.7	%
	General and administrative		8.1	%	8.1	%	8.2	%
	Stock-based compensation		5.2	%	1.0	%	0.2	%
	Amortization of intangible assets		1.5	%	2.9	%	5.0	%
	Acquired in-process research and development		—		1.3	%	2.9	%
		Total operating expenses	52.8	%	51.8	%	52.2	%
Operating income			26.0	%	29.1	%	34.1	%
Interest and other income, net			1.9	%	6.0	%	7.2	%
	Income before income taxes		27.9	%	35.1	%	41.3	%
Income taxes			12.7	%	15.7	%	17.9	%
	Net income		15.2	%	19.4	%	23.4	%

Comparison of Fiscal Years Ended January 31, 1999, 2000 and 2001

Revenue

    SERENA's total revenue was $48.3 million, $75.4 million and $103.6 million in fiscal 1999, 2000 and 2001, respectively, representing a 56% increase from fiscal 1999 to 2000 and 37% from fiscal 2000 to 2001.

    Software Licenses.  Software licenses revenue was $27.2 million, $41.8 million and $58.0 million in fiscal 1999, 2000 and 2001, representing 56%, 55% and 56% of total revenue, respectively. Software licenses revenue increased $14.6 million or 54% from fiscal 1999 to 2000 and $16.2 million or 39% from fiscal 2000 to 2001. The dollar increases are generally attributed to increased demand for new licenses of our products as a result of greater customer awareness of and need for third party SCM solutions, fueled by new IT initiatives associated with the Internet, eCommerce and the webification of legacy systems. The

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introduction of our distributed systems products, primarily eChange Man in the second half of fiscal 2000, has contributed significantly to the dollar increase when comparing the current fiscal year to the same period a year ago. To a lesser extent, an increase in sales force productivity and personnel and software license price increases also contributed to the dollar increases year over year. In particular, sales of our Change Man, COMPAREX, and StarTool products continue to make up a significant portion of our total software licenses revenue. Combined, they accounted for $23.8 million, $39.1 million and $47.3 million in fiscal 1999, 2000 and 2001, representing 87%, 94% and 82% of total software licenses revenue, respectively. More recently, sales of our distributed systems products, predominantly eChange Man, make up an increasing proportion of total software licenses revenue. Distributed systems products accounted for $7.0 million or 12% of total software licenses revenue in fiscal 2001 as compared to $1.0 million or 2% in fiscal 2000. The Company expects that its distributed systems revenues will increase, and that Change Man, eChange Man, COMPAREX, and StarTool will continue to account for a substantial portion of software licenses revenue in the future.

    Maintenance.  Maintenance revenue was $17.0 million, $26.8 million and $37.2 million in fiscal 1999, 2000 and 2001, representing 35%, 36% and 36% of total revenue, respectively. Maintenance revenue increased $9.8 million or 58% from fiscal 1999 to 2000 and $10.4 million or 39% from fiscal 2000 to 2001. The dollar increases reflect growth in installed software licenses base, as new licenses generally include one year of maintenance, renewals of maintenance agreements by existing customers and, to a lesser extent, maintenance price increases.

    Professional Services.  Professional services revenue was $4.2 million, $6.8 million and $8.3 million in fiscal 1999, 2000 and 2001, representing 9%, 9% and 8% of total revenue, respectively. Professional services revenue increased $2.6 million or 63% from fiscal 1999 to 2000 and $1.5 million or 23% from fiscal 2000 to 2001. In general, the dollar increases are attributable to greater consulting opportunities resulting from our larger installed customer base and our expanded consulting service capabilities. Both the rate of growth and absolute dollar increase was larger in fiscal 2000 over 1999 when compared to fiscal 2001 over 2000 predominantly due to our acquisition of Optima on September 25, 1998 which resulted in a full year of expanded consulting service capabilities in fiscal 2000 and 2001 as compared to only four months in fiscal 1999.

Cost of Revenue

    Cost of revenue, which consists of cost of software licenses, cost of maintenance and cost of professional services, was $10.3 million, $14.4 million and $14.1 million in fiscal 1999, 2000 and 2001, representing 21%, 19% and 14% of total revenue, respectively. Cost of revenue increased $4.1 million or 41% from fiscal 1999 to 2000 and decreased $0.3 million or 2% from fiscal 2000 to 2001. As a percentage of total revenue, cost of revenue has been decreasing year over year as the rate of growth in revenue has been greater than the rate of growth in costs associated with our customer support and professional services infrastructures, including personnel additions to support maintenance and professional services revenue growth, and decreases in software sublicense fees. The margin improvement from 21% in fiscal 1999 to 19% in fiscal 2000 was predominantly the result of cost containment offset by growth in sublicense fees as the rate of growth in lower margin revenue exceeded the rate of growth in higher margin revenue. The margin improvement from 19% in fiscal 2000 to 14% in fiscal 2001, was predominantly the result of the elimination of sublicense fees associated with our Detect+Resolve Mainframe and StarTool products in fiscal 2001.

    Software Licenses.  Cost of software licenses consists principally of sublicense fees associated with our StarTool product through our fiscal quarter ended October 31, 2000 and our Detect+Resolve Mainframe product through the first fiscal quarter ended April 30, 2000. Cost of software licenses was $2.2 million, $2.9 million and $1.6 million in fiscal 1999, 2000 and 2001, representing 8%, 7% and 3% of total software licenses revenue, respectively. Cost of software licenses increased $0.7 million or 31% from fiscal 1999 to

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2000 and decreased $1.3 million or 45% from fiscal 2000 to 2001. In fiscal 2000, when compared to fiscal 1999, the dollar increase in cost of software licenses was principally due to the growth in royalty-bearing software licenses. In fiscal 2001, when compared to fiscal 2000, the decrease in absolute dollar terms and as a percentage of total software licenses revenue, is attributable to decreases in royalty-bearing software licenses, predominantly StarTool, as a percentage of total software licenses revenue and the elimination of royalty fees associated with our Detect+Resolve Mainframe and StarTool products. Royalty bearing software licenses represented 19%, 21% and 5% of total software license revenue in fiscal 1999, 2000 and 2001, respectively.

    Maintenance.  Cost of maintenance consists primarily of salaries, bonuses and other costs associated with our customer support organizations, and to a lesser extent, sublicense fees associated with our StarTool product through the middle of the third fiscal quarter ended October 31, 2000 and our Detect+Resolve Mainframe product through the first fiscal quarter ended April 30, 2000. Cost of maintenance was $4.5 million, $6.1 million and $5.6 million in fiscal 1999, 2000 and 2001, representing 27%, 23% and 15% of total maintenance revenue, respectively. Cost of maintenance increased $1.6 million or 34% from fiscal 1999 to 2000 and decreased $0.5 million or 8% from fiscal 2000 to 2001. In fiscal 2000, when compared to fiscal 1999, the dollar increase was predominately due to increased expenses associated with our customer support organization including personnel additions needed to support the maintenance revenue growth and, to a lesser extent, increases in sublicense fees. Sublicense fees were paid to owners of third party products for providing maintenance enhancements and code fixes. In fiscal 2001, when compared to fiscal 2000, the dollar decrease was predominantly due to decreases in sublicense fees associated with our StarTool and Detect+Resolve Mainframe products, partially offset by increases in expenses associated with our customer support organization. Cost of maintenance as a percentage of total maintenance revenue has decreased year over year as the rate of increase in maintenance revenue has been greater than the rate of increase in costs associated with our customer support organization and as sublicense fees have been eliminated.

    Professional Services.  Cost of professional services consists of salaries, bonuses and other costs associated with supporting our professional services organization. Cost of professional services was $3.5 million, $5.5 million and $6.9 million in fiscal 1999, 2000 and 2001, representing 85%, 81% and 83% of total professional services revenue, respectively. Cost of professional services increased $2.0 million or 54% from fiscal 1999 to 2000 and $1.4 million or 27% from fiscal 2000 to 2001. The dollar increases are predominately due to increased expenses associated with our professional services organization including personnel additions and other infrastructure costs needed to support the professional services revenue growth, offset in part by reductions in fiscal 2000 and early fiscal 2001 of independent contractors and reallocations of professional services resources to other parts of the organization as the result of our customers putting projects on hold to address issues associated with becoming Year 2000 compliant.

Operating Expenses

    Sales and Marketing.  Sales and marketing expenses consist primarily of salaries, commissions and bonuses, payroll taxes and employee benefits as well as travel, entertainment and marketing expenses. Sales and marketing expenses were $13.9 million, $22.2 million and $27.2 million in fiscal 1999, 2000 and 2001, representing 29%, 29% and 26% of total revenue, respectively. Sales and marketing expenses increased $8.3 million or 60% from fiscal 1999 to 2000 and $5.0 million or 23% from fiscal 2000 to 2001. The dollar increases are due primarily to the continued expansion of our direct sales and marketing organizations to support license revenue growth, and to a lesser extent, our marketing initiatives surrounding our distributed systems products and the development of our international sales and telesales efforts. Sales and marketing expenses as a percentage of total revenue remained unchanged in fiscal 1999 and 2000, as the rate of increase in revenues offset the costs of our continued expansion of the sales and marketing organizations. In fiscal 2001, when compared to the prior fiscal year, sales and marketing expenses as a percentage of total revenue decreased as the rate of increase in total revenue was greater

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than the rate of increase in sales and marketing expenses. In absolute dollar terms, we expect sales and marketing expenses to increase as we continue to hire additional sales and marketing personnel, market our distributed systems products and undertake additional marketing programs.

    Research and Development.  Research and development expenses consist primarily of salaries, bonuses, payroll taxes and employee benefits and costs attributable to research and development activities. Research and development expenses were $4.5 million, $6.8 million and $10.1 million in fiscal 1999, 2000 and 2001, representing 9%, 9% and 10% of total revenue, respectively. Research and development expenses increased $2.3 million or 53% from fiscal 1999 to 2000 and $3.3 million or 48% from fiscal 2000 to 2001. The dollar increase in fiscal 2000 from 1999 was primarily due to increases in salaries, bonuses, payroll taxes, employee benefits and other headcount related costs which resulted from a 41% increase in headcount, primarily associated with the Company's acquisition of Diamond in June 1999, and to a lesser extent, increases in infrastructure costs also associated with the acquisition. Prior to fiscal 2000, the Company's development efforts were primarily focused in the mainframe market and with the acquisition of Diamond, the Company's development efforts have expanded to other platforms, including the Web, UNIX, NT and other distributed system platforms. The dollar increase in fiscal 2001 from 2000 was also due to increased costs generally associated with the expansion of our research and development efforts and more recently, due to the Company's acquistion of UltiMIS and the StarTool asset purchase. We expect research and development expenses to increase, both in absolute dollar terms and as a percentage of total revenue, as we continue to hire additional research and development personnel primarily to develop our distributed systems product suite.

    General and Administrative.  General and administrative expenses consist primarily of salaries, bonuses, payroll taxes and benefits and certain non-allocable administrative costs, including legal and accounting fees and bad debts. General and administrative expenses were $3.9 million, $6.1 million and $8.5 million in fiscal 1999, 2000 and 2001, respectivley, representing 8% of total revenue in each of the three fiscal years. General and administrative expenses increased $2.2 million or 55% from fiscal 1999 to 2000 and $2.4 million or 39% from fiscal 2000 to 2001. The dollar increases in each fiscal year are primarily due to salary, bonus, payroll tax and employee benefit costs associated with the expansion of our administrative infrastructure in order to support our increased sales, marketing, professional services and maintenance activities, and to a lesser extent, costs associated with being a public company. In the most recent fiscal year, when compared to the same period a year ago, the absolute dollar increase in general and administrative expenses was partially offset by a decrease in legal fees as a result of the Company's lawsuit settlement early in the third fiscal quarter. We expect general and administrative expenses to increase in absolute dollar terms as we expand our infrastructure and our operations.

    Stock-Based Compensation.  In the fourth quarter of fiscal 1998, SERENA recorded aggregate deferred stock-based compensation of $4.0 million in connection with the issuance of restricted stock and grant of options to purchase common stock in January 1998. An additional $0.7 million of deferred stock-based compensation was recorded in fiscal 1999 for stock-based awards granted during this period. No deferred stock-based compensation was recorded in fiscal 2000 or 2001. In fiscal 2000, the repurchase in May 1999 of restricted common stock originally issued in January 1998 and the return to the plan of unexercised common stock options resulted in the removal of unamortized deferred stock-based compensation of $215,250 and $11,353, respectively. Deferred stock-based compensation is generally being amortized over the 36 to 48 month vesting periods of the related awards. This amortization is being recorded in a manner consistent with the Financial Accounting Standards Board ("FASB") Interpretation No. 28. Of the total deferred stock-based compensation, $2.5 million, $0.7 million and $0.2 million was amortized in fiscal 1999, 2000 and 2001, respectively. We expect to amortize an additional $0.1 million in fiscal 2002. See Note 7 of Notes to Consolidated Financial Statements of SERENA.

    Amortization of Intangible Assets.  In connection with the acquistions of Optima in September 1998, Diamond in June 1999, HPS in May 2000 and UltiMIS in September 2000, and the StarTool asset purchase

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in August 2000, the Company has recorded $65.6 million in intangible assets, of which $57.5 million is unamortized as of January 31, 2001. Combined, intangible assets are being amortized over periods of one year or less on $0.9 million, two to seven years on $43.5 million and fifteen years on the remaining $21.2 million. Of the total intangible assets, $0.7 million, $2.2 million and $5.1 million was amortized in fiscal 1999, 2000 and 2001, respectively. We expect to amortize approximately $2.0 million per quarter over the next eight quarters through fiscal 2003. Intangible assets will be fully amortized by the end of fiscal 2014. See Notes 9 and 11 of Notes to Consolidated Financial Statements of SERENA.

    Acquired In-process Research and Development.  In connection with the Company's acquisition of Diamond in June 1999, the Company took a one-time charge in fiscal 2000 of $1.0 million for acquired in-process research and development. In connection with the Company's acquisitions of HPS in May 2000 and UltiMIS in September 2000, the Company took one-time charges in fiscal 2001 of $0.5 million and $2.5 million, respectively, for acquired in-process research and development. See Note 10 of Notes to Consolidated Financial Statements of SERENA.

Interest and Other Income, Net

    Interest and Other Income, Net.  Interest and other income, net was $0.9 million, $4.6 million and $7.5 million in fiscal 1999, 2000 and 2001, respectively, representing increases of $3.7 million or 392% in fiscal 2000 over 1999 and $2.9 million or 64% in fiscal 2001 over 2000. The dollar increases in interest and other income, net is generally due to increases in balances on interest-bearing accounts, such as cash and cash equivalents, and both short and long-term investments, resulting from accumulation of earnings. The increase in fiscal 2000 over fiscal 1999 was predominantly the direct result of the Company's initial public offering in February 1999 which generated net proceeds to the Company totaling $48.4 million and $10.9 million in February 1999 and March 1999, respectively.

Income Taxes

    Income Taxes.  Income taxes were $6.2 million, $11.8 million and $18.6 million in fiscal 1999, 2000 and 2001, representing effective income tax rates of 46%, 45% and 43%, respectively. The Company's effective income tax rate has decreased slightly year over year predominantly due to increased revenue growth offset by increases in non-deductible charges of $2.5 million in fiscal 2000 over 1999 and $4.9 million in fiscal 2001 over 2000. SERENA's effective income tax rate has historically benefited from the United States research and experimentation tax credit and tax benefits generated from export sales made from the United States.

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Liquidity and Capital Resources

    Since SERENA's inception, we have financed our operations and met our capital expenditure requirements through cash flows from operations. As of January 31, 2001, SERENA had $85.2 million in cash and cash equivalents, and an additional $27.5 million in short-term investments consisting principally of high grade commercial paper, certificates of deposit and short-term bonds. Cash flows provided by operating activities were $14.9 million, $26.0 million and $32.0 million in fiscal 1999, 2000 and 2001, respectively. SERENA's cash flows provided by operating activities exceeded net income during each of these periods principally due to cash collections in advance of revenue recognition for maintenance contracts, the inclusion of non-cash expenses in net income and growth in accrued expenses and corporate taxes payable; all partially offset by growth in accounts receivable and net deferred tax assets during the periods. Non-cash expenses included in net income consisted of amortization of deferred stock-based compensation and intangible assets for all periods, and one-time charges in fiscal 2000 and 2001 for acquired in-process research and development totaling $1.0 million and $3.0 million, respectively, in connection with the Company's acquisitions of Diamond in June 1999, HPS in May 2000 and UltiMIS in September 2000. In fiscal 2000, cash used in investing activities was predominantly related to the purchase of short- and long-term investments totaling $23.3 million, and cash paid in connection with the Diamond acquisition in June 1999, net of cash received totaling $1.5 million. In fiscal 2001, cash used in investing activities predominantly related to cash paid, net of cash received, in connection with the HPS acquisition, UltiMIS acquisition and StarTool asset purchase totaling $1.6 million, $7.5 million and $16.0 million, respectively, in addition to purchases of short-term investments totaling $4.2 million. Predominantly in fiscal 1999, and to a lesser extent in fiscal 2000 and 2001, cash used in investing activities were also related to the purchase of computer equipment and office furniture and equipment totaling $1.1 million, $1.5 million and $2.1 million, respectively. Cash provided by financing activities in fiscal 2000 predominantly related to the Company's initial public offering in February 1999 which generated cash totaling $57.9 million, net of IPO costs. In fiscal 2001 and, to a lesser extent in fiscal 2000, cash provided by financing activities was also related to the sale of the Company's common stock under the employee stock purchase plan totaling $1.5 million and $0.9 million, the repayment of principal on notes receivable from stockholders totaling $1.2 million and $0.2 million, and the exercise of stock options under the Company's employee stock option plan totaling $1.0 million and $0.4 million, respectively.

    At January 31, 2001, the Company did not have any material commitments for capital expenditures and has no revolving credit agreement or other term loan agreements with any bank or other financial institution.

    At January 31, 2001, the Company had working capital of $105.0 million and accounts receivable, net of allowances, of $20.9 million. Total deferred revenue increased to $24.2 million at January 31, 2001 from $19.0 million at January 31, 2000 primarily as a result of increased billings of maintenance fees.

    We believe that the net proceeds from the offering and cash from operations will satisfy our working capital and capital expenditure requirements for at least the next twelve months.

Effect of Recent Accounting Pronouncements

    In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement becomes effective for all fiscal quarters of fiscal years beginning after June 15, 2000, as amended by SFAS No. 137 "Accounting for Derivative Instruments —Deferral of the Effective Date of SFAS Statement No. 133" and SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities, Amendment of SFAS No. 133." The Company will be required to adopt SFAS No. 133 in fiscal 2002. The Company does not expect the adoption of SFAS No. 133 to have a material affect on the financial statements.

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Factors That May Affect Future Results

This report, including this Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements under the Private Securities Reform Act of 1995 and other prospective information relating to future events. These forward-looking statements and other information are subject to certain risks and uncertainties that could cause results to differ materially from historical results or anticipated results, including but not limited to, our reliance on our mainframe products for revenue, the percentage of license revenue typically closed at the end of each quarter making estimation of operating results prior to the end of the quarter extremely uncertain, changes in revenue mix and seasonality, our ability to deliver our products on the distributed systems platform, dependence on revenues from our installed base, continued demand for additional mainframe MIPS capacity, expansion of our professional services and international organizations, our ability to manage our growth and the following:

There Are Many Factors, Including Some Beyond Our Control, That May Cause Fluctuations in Our Quarterly Operating Results

    Our quarterly operating results have varied greatly in the past and may vary greatly in the future depending upon a number of factors described below and elsewhere in this "Factors That May Affect Future Results" section of this report, including many that are beyond our control. As a result, we believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful, and you should not rely on them as an indication of our future performance.

    Our software license revenue in any quarter depends on orders booked and shipped in the last month, weeks or days of that quarter. At the end of each quarter, we typically have either minimal or no backlog of orders for the subsequent quarter. If a large number of orders or several large orders do not occur or are deferred, our revenue in that quarter could be substantially reduced. This would materially adversely affect our operating results and could impair our business in future periods. Because we do not know when, or if, our potential customers will place orders and finalize contracts, we cannot accurately predict our revenue and operating results for future quarters.

    Historically, a majority of our revenue has been attributable to the licenses of our mainframe software products. Changes in the mix of software products and services sold by us, including the mix between higher margin software products and lower margin maintenance and services, could materially affect our operating results for future quarters.

Seasonal Trends in Sales of Our Software Products May Affect Our Quarterly Operating Results

    We have experienced and expect to continue to experience seasonality in sales of our software products. These seasonal trends materially affect our quarter-to-quarter operating results. Revenue and operating results in our quarter ending January 31 are typically higher relative to our other quarters, because many customers make purchase decisions based on their calendar year-end budgeting requirements. In addition, our January quarter tends to reflect the effect of the incentive compensation structure for our sales organization, which is based on satisfaction of fiscal year-end quotas. As a result, we have historically experienced a substantial decline in revenue in the first quarter of each fiscal year relative to the preceding quarter. We are also currently attempting to expand our presence in international markets, particularly in Europe. We expect our quarter ending October 31 to reflect the effects of summer slowing of international business activity and spending activity generally associated with that time of year.

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We Expect That Our Operating Expenses Will Increase Substantially in the Future and These Increased Expenses May Adversely Affect Our Future Operating Results and Financial Condition

    Although SERENA has been profitable in recent years, we may not remain profitable on a quarterly or annual basis in the future. We anticipate that our expenses will increase substantially in the foreseeable future as we:

•

Increase our sales and marketing activities, including expanding our United States and international direct sales forces and extending our telesales efforts



•

Develop our technology, including our distributed systems products



•

Broaden our professional services offerings and delivery capabilities



•

Expand our distribution channels



•

Pursue strategic relationships and acquisitions

    With these additional expenses, in order to maintain our current levels of profitability, we will be required to increase our revenue correspondingly. Any failure to significantly increase our revenue as we implement our product, service and distribution strategies would materially adversely affect our business, quarterly and annual operating results and financial condition. Although our revenue has grown in recent years, we do not believe that we will maintain this rate of revenue growth. In addition, we may not experience any revenue growth in the future, and our revenue could in fact decline. Our efforts to expand our software product suites, sales and marketing activities, direct and indirect distribution channels and professional service offerings and to pursue strategic relationships or acquisitions may not succeed or may prove more expensive than we currently anticipate. As a result, we cannot predict our future operating results with any degree of certainty.

Our Future Revenue is Substantially Dependent Upon Our Installed Customers Renewing Maintenance Agreements for Our Products and Licensing Additional SERENA SCM Products; Our Future Professional Service and Maintenance Revenue is Dependent on Future Sales of Our Software Products

    We depend on our installed customer base for future revenues from maintenance renewal fees and licenses of additional SCM products. If our customers do not purchase additional products or cancel or fail to renew their maintenance agreements, this could materially adversely affect our business and future quarterly and annual operating results. The terms of our standard license arrangements provide for a one-time license fee and a prepayment of one year of software maintenance and support fees. The maintenance agreements are renewable annually at the option of the customers and there are no minimum payment obligations or obligations to license additional software. Therefore, our current customers may not necessarily generate significant maintenance revenue in future periods. In addition, our customers may not necessarily purchase additional products, upgrades or professional services. Our professional service revenue and maintenance revenue are also dependent upon the continued use of these services by our installed customer base. Any downturn in our software license revenue would have a negative impact on the growth of our professional service revenue and maintenance revenue in future quarters.

We Have Relied and Expect to Continue to Rely on Sales of Our Mainframe Products for Our Revenue

    Historically, the majority of our software license revenue has resulted from the sale of our mainframe products. Any factors adversely affecting the pricing of, demand for or market acceptance of our mainframe products, such as competition or technological change, could materially adversely affect our business and quarterly and annual operating results. In particular, Change Man and COMPAREX, two of our mainframe products, have been responsible for a substantial majority of our revenue. In each of the last three fiscal years ending January 31, 2001, 2000 and 1999, sales of Change Man and COMPAREX

29

together accounted for approximately 72%, 75% and 77% of our software licenses revenue, respectively. We expect that these products will continue to account for a large portion of our software licenses revenue for the foreseeable future. Our future operating results depend on the continued market acceptance of our mainframe products, including future enhancements.

Our Introduction of SERENA SCM Products for Distributed Systems May Not Be Successful

    We introduced our eChange Man product in fiscal 2000 and our eRequestMan and ChangeXpress products in fiscal 2001. We plan to introduce our ChangeContent product in the first quarter of fiscal 2002, and are currently developing new products and enhancing our product suite to support additional distributed systems platforms. If we do not successfully develop, market, sell and support our distributed systems products, this would materially adversely affect our business and our future quarterly and annual operating results. Historically, the majority of our products have been designed for the mainframe platform, and the majority of our software license revenue, maintenance revenue and professional services revenue to date have been attributable to licenses for these mainframe products. We have limited experience developing, marketing, selling or supporting distributed systems products. Developing, marketing and selling our distributed systems products will require significant resources that we may not have. Our sales and marketing organizations have historically focused exclusively on sales of our products for the mainframe and have limited experience marketing and selling distributed systems products. Additionally, we have limited experience in providing support services for distributed systems products. Competition for experienced software engineers, sales personnel and support staff is intense and if we fail to attract qualified personnel this would impair our ability to support our distributed systems products. Many of our competitors have substantially greater experience providing distributed systems compatible software products than we do, and many also have significantly greater financial and organizational resources.

If the SCM Market Does Not Evolve as We Anticipate, Our Business Will Be Adversely Affected

    If we fail to properly assess and address the SCM market or if our products and services fail to achieve market acceptance for any reason, our business and quarterly and annual operating results would be materially adversely affected. The SCM market is in an early stage of development. IT organizations have traditionally addressed SCM needs internally and have only recently become aware of the benefits of third-party SCM solutions as their SCM requirements have become more complex. Since the market for our products is still evolving, it is difficult to assess the competitive environment or the size of the market that may develop. Our future financial performance will depend in large part on the continued growth in the number of businesses adopting third-party SCM products and the expansion of their use on a company-wide basis. The SCM market for third-party products may grow more slowly than we anticipate. In addition, technologies, customer requirements and industry standards may change rapidly. If we cannot improve or augment our products as rapidly as existing technologies, customer requirements and industry standards evolve, our products or services could become obsolete. The introduction of new or technologically superior products by competitors could also make our products less competitive or obsolete. As a result of any of these factors, our position in existing markets or potential markets could be eroded.

Our Business is Dependent on the Continued Market for IBM and IBM-Compatible Mainframes

    We are substantially dependent upon the continued use and acceptance of IBM and IBM-compatible mainframes and the growth of this market. If the role of the mainframe does not increase as we anticipate, or if it in any way decreases, this would materially adversely affect our business, future quarterly and annual operating results and financial condition. Additionally, if there is a wide acceptance of other platforms or if new platforms emerge that provide enhanced enterprise server capabilities, our business and future operating results may be materially adversely affected. The majority of our software license revenue to date has been attributable to sales of our mainframe products. We expect that, for the foreseeable future, the majority of our software license revenue will continue to come from sales of our

30

mainframe products. As a result, future sales of our existing products and associated maintenance revenue and professional service revenue will depend on continued use of mainframes.

We May Experience Delays in Developing Our Products Which Could Adversely Affect Our Business

    If we are unable, for technological or other reasons, to develop and introduce new and improved products in a timely manner, in particular our ChangeContent product, this could materially adversely affect our business and future quarterly and annual operating results. We have experienced product development delays in new version and update releases in the past and may experience similar or more significant product delays in the future. To date, none of these delays has materially affected our business. Difficulties in product development could delay or prevent the successful introduction or marketing of new or improved products or the delivery of new versions of our products to our customers. In particular, we may experience delays in introducing our ChangeContent product. Any delay in releasing our new distributed systems products, for whatever reason, would impair our revenue growth.

We Have Experienced Significant Growth in Our Business in Recent Periods and Our Ability to Manage this Growth and Any Future Growth Will Affect Our Business

    Our ability to compete effectively and to manage our recent growth, any future growth and our future quarterly and annual operating results will depend in part on our ability to implement and expand operational, customer support and financial control systems and to hire, train and manage our employees. We may not be able to augment or improve existing systems and controls or implement new systems and controls in response to future growth, if any. Any failure to manage growth could materially adversely affect our business. Our business has grown substantially in recent years, with total revenue increasing from $48.3 million in fiscal 1999 to $75.4 million in fiscal 2000 and to $103.6 million in fiscal 2001. In connection with this revenue growth, we continue to expand our sales, marketing and professional service activities and organizations. Additionally, our acquisitions of Diamond, HPS, the StarTool product and UltiMIS expanded our research and development organization. This growth has resulted, and any future growth will result, in new and increased responsibilities for management personnel.

We Intend to Expand Our International Operations and May Encounter a Number of Problems in Doing So; There Are Also a Number of Factors Associated With International Operations that Could Adversely Affect Our Business

    Expansion of International Operations.  We intend to expand the scope of our international operations and currently have sales subsidiaries in the United Kingdom, Germany and France. If we are unable to expand our international operations successfully and in a timely manner, this could materially adversely affect our business and quarterly and annual operating results. Our continued growth and profitability will require continued expansion of our international operations, particularly in Europe. We intend to open additional international offices over the next twelve months. We have only limited experience in marketing, selling and supporting our products internationally. Additionally, we do not have any experience in developing foreign language versions of our products. Such development may be more difficult or take longer than we anticipate. We may not be able to successfully market, sell, deliver and support our products internationally.

    Risks of International Operations.  International sales represented approximately 22% of our total licenses revenue in the current fiscal year ended January 31, 2001, up from 16% and 18% in each of the fiscal years ended January 31, 2000 and 1999, respectively. Our international revenue is attributable principally to our European operations. Our international operations are, and any expanded international operations will be, subject to a variety of risks associated with conducting business internationally that could materially adversely affect our business and future quarterly and annual operating results, including the following:

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•

Difficulties in staffing and managing international operations



•

Problems in collecting accounts receivable



•

Longer payment cycles



•

Fluctuations in currency exchange rates



•

Seasonal reductions in business activity during the summer months in Europe and certain other parts of the world



•

Recessionary environments in foreign economies



•

Increases in tariffs, duties, price controls or other restrictions on foreign currencies or trade barriers imposed by foreign countries

Fluctuations in the Value of Foreign Currencies Could Result in Currency Transaction Losses for SERENA

    A majority of our international business is conducted in foreign currencies, principally the British pound, the German deutsche mark and French franc. Fluctuations in the value of foreign currencies relative to the U.S. dollar will continue to cause currency transaction gains and losses. We cannot predict the effect of exchange rate fluctuations upon future quarterly and annual operating results. We may experience currency losses in the future. To date, we have not adopted a hedging program to protect SERENA from risks associated with foreign currency fluctuations.

Any Delays in Our Normally Lengthy Sales Cycles Could Result in Significant Fluctuations in Our Quarterly Operating Results

    Our sales cycle typically takes six to 18 months to complete and varies from product to product. Any delay in the sales cycle of a large license or a number of smaller licenses could result in significant fluctuations in our quarterly operating results. The length of the sales cycle may vary depending on a number of factors over which we may have little or no control, including the size and complexity of a potential transaction and the level of competition that we encounter in our selling activities. Additionally, the emerging market for SCM products and services contributes to the lengthy sales process in that during the sales cycle we often have to teach potential customers about the use and benefits of our products. In certain circumstances, we license our software to customers on a trial basis to assist the customers in their evaluation of our products. Our sales cycle can be further extended for product sales made through third party distributors.

We May Be Unable to Successfully Complete Strategic Relationships or Acquisitions

    We may be unable to successfully complete strategic relationships or acquisitions in pursuit of our growth strategy. One component of our growth strategy, entering into strategic relationships or the strategic acquisition of businesses, involves certain risks, including, among others, the following:

•

Difficulty of assimilating the acquired operations and personnel



•

Disruption to our ongoing business



•

Inability of our management to successfully incorporate acquired technology and rights into our product offerings



•

Inability to maintain uniform standards, controls, procedures and policies



•

Impairment of relationships with employees as a result of changes in management

32

    In addition, any such acquisition could materially adversely affect our financial results due to dilutive issuances of equity securities, the incurrence of additional debt and the amortization of expenses related to goodwill and other intangible assets, if any.

Our Executive Officers and Certain Key Personnel Are Critical to Our Business and Such Officers and Key Personnel May Not Remain with SERENA in the Future

    Our success will depend to a significant extent on the continued service of our senior executives and certain other key employees, including certain sales, consulting, technical and marketing personnel. If we lost the services of one or more of our executives or key employees, including if one or more of our executives or key employees decided to join a competitor or otherwise compete directly or indirectly with SERENA, this could materially adversely affect our business. In particular, we have historically relied on the experience and dedication of our product authors. With the exception of Douglas D. Troxel, SERENA's founder, Chief Technology Officer and Chairman of SERENA's board of directors, the employment of all of our senior and key employees, including key product authors, is at will. Mr. Troxel's employment is on a year-to-year basis. In addition, we do not maintain key man life insurance on our employees and have no plans to do so.

SERENA is Subject to Intense Competition in the SCM Industry and We Expect to Face Increased Competition in the Future, Including Competition in the SCM Distributed Systems Market

    We may not be able to compete successfully against current or future competitors and such inability would materially adversely affect our business, quarterly and annual operating results and financial condition. The market for our products is highly competitive and diverse. Moreover, the technology for SCM products may change rapidly. New products are frequently introduced, and existing products are continually enhanced. Competition may also result in changes in pricing policies by SERENA or our competitors which could materially adversely affect our business and future quarterly and annual operating results. Competitors vary in size and in the scope and breadth of the products and services that they offer. Many of our current and potential competitors have greater financial, technical, marketing and other resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements. They may also be able to devote greater resources to the development, promotion and sale of their products than we can.

    Mainframe Competition.  We currently face competition from a number of sources, including:

•

Customers' internal IT departments



•

Providers of SCM products that compete directly with Change Man and COMPAREX such as Computer Associates, MERANT, IBM and smaller private companies



•

Providers of SCM application development programmer productivity and system management products such as Compuware, IBM and smaller private companies

    Competition in the Distributed Systems SCM Market.  We also face significant competition as we develop, market and sell our distributed systems products, including eChange Man, eRequest Man, ChangeXpress and ChangeContent when delivered. If we are unable to successfully penetrate the distributed systems SCM market, our business and future quarterly and annual operating results will be materially adversely affected. Penetrating the existing distributed systems SCM market will be difficult. Competitors in the distributed systems market include Rational Software, Computer Associates, MERANT, Microsoft, Interwoven, Documentum, and other smaller private companies.

    Future Competition.  We may face competition in the future from established companies who have not previously entered the mainframe SCM market, from emerging software companies, or from other web content management software companies. Barriers to entry in the software market are relatively low.

33

Increased competition may materially adversely affect our business and future quarterly and annual operating results due to price reductions, reduced gross margins and reduction in market share. Established companies may not only develop their own mainframe or distributed systems SCM solutions, but they may also acquire or establish cooperative relationships with our current competitors, including cooperative relationships between large, established companies and smaller private companies. Because larger companies have significant financial and organizational resources available, they may be able to quickly penetrate the mainframe or distributed systems SCM market through acquisitions or strategic relationships and may be able to leverage the technology and expertise of smaller companies and develop successful SCM products for the mainframe. We expect that the software industry, in general, and providers of SCM solutions, in particular, will continue to consolidate. It is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share.

    Bundling or Compatibility Risks.  Our ability to sell our products also depends, in part, on the compatibility of our products with other third party products, particularly those provided by IBM. Developers of these third party products may change their products so that they will no longer be compatible with our products. These third party developers may also decide to bundle their products with other SCM products for promotional purposes. If that were to happen, our business and future quarterly and annual operating results may be materially adversely affected as we may be priced out of the market or no longer be able to offer commercially viable products.

Third Parties in the Future Could Assert That Our Products Infringe Their Intellectual Property Rights, Which Could Adversely Affect Our Business

    Third parties may claim that our current or future products infringe their proprietary rights. Any claims of this type could affect our relationships with existing customers and may prevent future customers from licensing our products. Because we are dependent upon a limited number of products, any such claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Royalty or license agreements may not be available on acceptable terms or at all. We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in the software industry segment grows and the functionality of products in different industry segments overlaps. As a result of these factors, infringement claims could materially adversely affect our business.

We May Not Be Able to Recruit and Retain the Personnel We Need to Succeed

    Our future success will likely depend in large part on our ability to attract and retain additional experienced sales, technical, marketing and management personnel. In addition, we will need to attract and retain sufficient numbers of qualified software engineers, as well as sales and marketing and support personnel, and successfully develop, market and support our distributed systems product suite. Competition for such personnel in the computer software industry is intense, and in the past we have experienced difficulty in recruiting qualified personnel, especially developers and sales personnel. We expect competition for qualified personnel to remain intense, and we may not succeed in attracting or retaining such personnel. If we do not, this could materially adversely affect our business and future quarterly and annual operating results. In addition, new employees generally require substantial training in the use of our products. This training will require substantial resources and management attention.

    International Operations.  We intend to expand the scope of our international operations and these plans will require us to attract experienced management, service, marketing, sales and support personnel for our international offices. Competition for such personnel is intense, and we may not be able to attract or retain such experienced personnel.

    Non-U.S. Citizens Working in the United States.  To achieve our business objectives, we may recruit and employ skilled technical professionals from other countries to work in the United States. Limitations

34

imposed by federal immigration laws and the availability of visas could materially adversely affect our ability to attract necessary qualified personnel. This may have a material adverse effect on our business and future quarterly and annual operating results.

We Will Need to Expand Our Distribution Channels in Order to Expand Our Business and a Number of Factors May Hinder Our Ability to Accomplish this Goal

    If we fail to significantly expand our direct sales and telesales force, our ability to sell our products into new markets and to increase our product penetration into our existing markets will be impaired. Failure to expand our distribution channels through any of these means could materially adversely affect our business and our future quarterly and annual operating results. In addition, our ability to achieve revenue growth in future periods will be heavily dependent on our success in recruiting and training sufficient direct sales personnel. We are planning to significantly expand our direct sales efforts in North America and Europe and while we are investing, and plan to continue to invest, substantial resources on this expansion, we have at times experienced, and expect to continue to experience, difficulty in recruiting and retaining qualified direct sales personnel. In addition to expanding our direct sales efforts, we are also currently investing, and we intend to continue to invest, substantial resources in selling our products through telesales personnel. We also intend to extend our distribution channels by partnering with leading helpdesk management, web application server companies, software distribution application and system framework providers and may also attempt to develop additional sales and marketing channels through system integrators, original equipment manufacturers and other partners.

We Will Need to Expand Our Professional Services Organization in Order to Expand Our Business and a Number of Factors May Hinder Our Ability to Accomplish this Goal

    Our existing professional services and customer support organizations may not be sufficient to manage the future growth in our business. The failure to expand our professional services and customer support organizations could materially adversely affect our business. While we intend to significantly expand our professional services and customer support organizations, including providing these services for both distributed systems and mainframe applications and systems, we may not be able to do so. Competition for additional qualified technical personnel to perform these services is intense.

    We believe that providing high quality consulting, training, customer support and education is essential to maintaining our competitive position. If we are unable to provide comprehensive consulting and support services to our existing and prospective customers, this may materially adversely affect our business and ability to sell our products. Consulting services and customer support are critical to our future success because the market for third party SCM solutions is still evolving, and many organizations have limited experience using third party SCM solutions. Customers have only recently begun to look to third party providers for SCM solutions as the complexity of computer networks and number of applications has increased.

Our Industry Changes Rapidly Due to Evolving Technology Standards And Our Future Success Will Depend on Our Ability to Continue to Meet the Sophisticated Needs of Our Customers

    Our future success will depend on our ability to address the increasingly sophisticated needs of our customers by supporting existing and emerging hardware, software, database and networking platforms particularly for our distributed systems products. We will have to develop and introduce enhancements to our existing products and new products on a timely basis to keep pace with technological developments, evolving industry standards and changing customer requirements. We expect that we will have to respond quickly to rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards that may render existing products and services obsolete. As a result, our position in existing markets or potential markets could be eroded rapidly by product advances. The life cycles of our products are difficult to estimate. Our growth and future financial performance will depend in

35

part upon our ability to enhance existing applications, develop and introduce new applications that keep pace with technological advances, meet changing customer requirements and respond to competitive products. We expect that our product development efforts will continue to require substantial investments. We may not have sufficient resources to make the necessary investments. Any of these events could have a material adverse effect on our business, quarterly and annual operating results and financial condition.

Errors in Our Products or the Failure of Our Products to Conform to Specifications Could Result in Our Customers Demanding Refunds from Us or Asserting Claims for Damages Against Us

    Because our software products are complex, they often contain errors or "bugs" that can be detected at any point in a product's life cycle. While we continually test our products for errors and work with customers through our customer support services to identify and correct bugs in our software, we expect that errors in our products will continue to be found in the future. Although many of these errors may prove to be immaterial, certain of these errors could be significant. Detection of any significant errors may result in, among other things, loss of, or delay in, market acceptance and sales of our products, diversion of development resources, injury to our reputation, or increased service and warranty costs. These problems could materially adversely affect our business and future quarterly and annual operating results. In the past we have discovered errors in certain of our products and have experienced delays in the shipment of our products during the period required to correct these errors. These delays have principally related to new version and product update releases. To date none of these delays have materially affected our business. However, product errors or delays in the future, including any product errors or delays associated with the introduction of our distributed systems products, could be material. In addition, in certain cases we have warranted that our products will operate in accordance with specified customer requirements. If our products fail to conform to such specifications, customers could demand a refund for the software license fee paid to us or assert claims for damages.

Product Liability Claims Asserted Against Us in the Future Could Adversely Affect Our Business

    We may be subject to claims for damages related to product errors in the future. A material product liability claim could materially adversely affect our business. Our license agreements with our customers typically contain provisions designed to limit exposure to potential product liability claims. SERENA's standard software licenses provide that if our products fail to perform, we will correct or replace such products. If these corrective measures fail, we may be required to refund the license fee for such non-performing product. However, our standard license agreement limits our liability for non-performing products to the amount of license fee paid, if the license has been in effect for less than one year, or to the amount of the licensee's current annual maintenance fee, if the license is more than one year old. Our standard license also provides that SERENA shall not be liable for indirect or consequential damages caused by the failure of our products. Such limitation of liability provisions may, however, not be effective under the laws of certain jurisdictions to the extent local laws treat certain warranty exclusions as unenforceable. Although we have not experienced any product liability claims to date, the sale and support of our products entail the risk of such claims.

Our Share Price Has Been, and Will Likely Continue to be, Volatile

    The market price of our common shares has fluctuated significantly in recent months, and we expect that the market price of our common shares may fluctuate substantially as a result of variations in our quarterly operating results and market conditions. These fluctuations may be exaggerated if the trading volume of our common shares is low. In addition, the market price of our common shares may fall dramatically in response to a variety of factors, including:

•

changes in estimates of our financial performance;



•

general market or economic conditions;

36

•

the gain or loss of a significant customer or strategic relationship;



•

changes in recommendations from securities analysts regarding us, our industry or our customers' industries;



•

announcements of technological or competitive developments; and



•

acquisitions or entry into strategic alliances by us or our competitors.

    Because of this volatility, we may fail to meet the expectations of our stockholders or of securities analysts at some time in the future and the trading prices of our securities could decline as a result.

    In addition, equity securities of many technology companies have recently experienced significant price and volume fluctuations. These price and volume fluctuations are sometimes unrelated to the operating performance of the affected companies. Volatility in the market price of our common shares could result in securities class action litigation. This type of litigation, regardless of the outcome, could result in substantial costs to us and a diversion of our management's attention and resources.

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

    The Company does not use derivative financial instruments in its investment portfolio and has no foreign exchange contracts. Its financial instruments consist of cash and cash equivalents, short and long-term investments, trade accounts and contracts receivable, accounts payable, and long-term obligations. The Company considers investments in highly liquid instruments purchased with a remaining maturity of 90 days or less to be cash equivalents. All of the Company's cash equivalents and short and long-term investments, principally consist of commercial paper and debt securities, and are classified as available-for-sale as of January 31, 2001. The Company's exposure to market risk for changes in interest rates relates primarily to its short and long-term investments and short-term obligations, thus, fluctuations in interest rates would not have a material impact on the fair value of these securities.

    Sales to foreign countries accounted for approximately 18% of the total sales for fiscal 2001 compared to 15% and 16% in fiscal 2000 and 1999, respectively. Because the Company invoices certain of its foreign sales in currencies other than the United States dollar, predominantly the British Pound Sterling and German deutsche mark, and does not hedge these transactions, fluctuations in exchange rates could adversely affect the translated results of operations of the Company's foreign subsidiaries. Therefore, foreign exchange fluctuation could create a risk of significant balance sheet gains or losses on the Company's consolidated financial statements. However, given the Company's foreign subsidiaries' net book values as of January 31, 2001 and net cash flows for the most recent fiscal year then ended, the Company believes that such foreign denominated balances and activity are not material.

Item 8. Financial Statements and Supplementary Data

FINANCIAL STATEMENTS

    Our financial statements required by this item are submitted as a separate section of this Form 10-K. See Item 14(a)1 for a listing of financial statements provided in the section titled, "FINANCIAL STATEMENTS".

SUPPLEMENTARY DATA

The following tables (presented in thousands, except per share amounts) set forth quarterly unaudited supplementary data for each of the years in the two-year period ended January 31, 2001. All share and per share

37

amounts referred to in the table below have been adjusted to reflect the three-for-two stock split in the form of a stock dividend of our common stock effected March 21, 2000.

		2001
		Quarter Ended
										Year Ended Jan. 31,
		Apr. 30,		Jul. 31,		Oct. 31,		Jan. 31,
Revenue		$	21,155	$	25,209	$	26,619	$	30,626	$	103,609
Gross profit			17,977		21,653		22,959		26,872		89,461
Operating income			6,442		8,493		7,368		13,051		35,354
Income before income taxes			8,223		10,564		9,186		14,856		42,829
Net income			4,712		5,914		5,236		8,392		24,254
Net income per share:
	Basic		0.12		0.15		0.14		0.22		0.63
	Diluted		0.12		0.15		0.13		0.20		0.60
Weighted average shares used in per share calculations:
	Basic		37,792		38,390		38,726		38,999		38,522
	Diluted		39,784		40,361		41,444		41,326		40,729

		2000
		Quarter Ended
										Year Ended Jan. 31,
		Apr. 30,		Jul. 31,		Oct. 31,		Jan. 31,
Revenue		$	14,221	$	17,762	$	19,051	$	24,373	$	75,407
Gross profit			10,640		13,984		15,546		20,815		60,985
Operating income			3,093		3,754		5,831		9,235		21,913
Income before income taxes			3,928		4,814		7,188		10,552		26,482
Net income			2,194		2,380		4,059		6,010		14,643
Net income per share:
	Basic		0.06		0.07		0.11		0.16		0.40
	Diluted		0.06		0.06		0.11		0.15		0.38
Weighted average shares used in per share calculations:
	Basic		35,204		36,899		37,301		37,602		36,751
	Diluted		37,337		38,892		39,387		39,660		38,819

Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure

    During the 24-month period preceeding January 31, 2001 we neither changed accountants nor had disagreements with our accountants on any matter of accounting principles or practices, financial statement disclosure or auditing scope and procedures.

38

PART III

Item 10. Directors and Executive Officers of the Registrant

    Information required by this Item concerning the Company's directors is incorporated by reference from the section captioned "Election of Directors" contained in the Company's Proxy Statement related to the 2001 Annual Meeting of Stockholders scheduled to be held on June 29, 2001, which will be filed by the Company with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year pursuant to General Instruction G(3) of Form 10-K (the "Proxy Statement"). The information required by this Item concerning compliance with Section 16(a) of the Securities and Exchange Act of 1934 is incorporated by reference from the section of the Proxy Statement captioned "Section 16(a) Beneficial Ownership Reporting Compliance."

Item 11. Executive Compensation

    The information required by this Item is incorporated by reference to the information under the section captioned "Executive Compensation" contained in the Proxy Statement.

Item 12. Security Ownership of Management and Certain Beneficial Owners

    The information required by this Item is incorporated by reference to the information under the section captioned "Security Ownership of Management and Certain Beneficial Owners" contained in the Proxy Statement.

Item 13. Certain Relationships and Related Transactions

    The information required by this Item is incorporated by reference to the information under the sections captioned "Interlocks and Insider Participation" and "Certain Transactions" contained in the Proxy Statement.

39

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)

1. Financial Statements

    The following statements are filed as part of this Report:

		Page
SERENA Software, Inc. Consolidated Financial Statements
	Independent Auditors' Report	F-2
	Consolidated Balance Sheets	F-3
	Consolidated Statements of Income and Comprehensive Income	F-4
	Consolidated Statements of Stockholders' Equity	F-5
	Consolidated Statements of Cash Flows	F-6
	Notes to Consolidated Financial Statements	F-7
	2. Financial Statement Schedules
	Independent Auditors' Report on Financial Statement Schedule	S-1
	Valuation and Qualifying Accounts	S-2
	3. Exhibits

Exhibit Number		Exhibit Title
3.1	(b)	Amended and Restated Certificate of Incorporation of SERENA
3.2	(b)	Bylaws of SERENA, as currently in effect
4.1	(b)	Specimen Common Stock Certificate
4.2	(b)	Registration Rights Agreement, dated September 25, 1998, by and among SERENA and certain shareholders of Optima Software Inc. (related to SERENA's acquisition of Optima Software, Inc.)
10.1	(b)	Form of Indemnification Agreement between SERENA and each of its directors and officers
10.2A	(b)	Amended and Restated 1997 Stock Option Plan
10.2B	(b)	Form of Option Agreement under the Amended and Restated 1997 Stock Option Plan
10.2C	(b)	Form of Restricted Stock Purchase Agreement under the Amended and Restated 1997 Stock Option Plan
10.3A	(b)	1999 Employee Stock Purchase Plan
10.3B	(b)	Form of Subscription Agreement under the 1999 Employee Stock Purchase Plan
10.4A	(b)	1999 Director Plan
10.4B	(b)	Form of Option Agreement under 1999 Director Plan
10.6	(b)	Employment Agreement, dated June 24, 1980, between SERENA and Douglas D. Troxel
10.10A	(b)	Lease Agreement, dated August 15, 1994, between SERENA and Waterfront Towers Partners, L.P. (for Burlingame headquarters)
10.10B	(b)	Addendum to Lease Agreement (for Burlingame headquarters facility), dated November 21, 1994
10.10C	(b)	Second Addendum to Lease Agreement (for Burlingame headquarters) dated November 15, 1994
10.10D	(b)	Amendment No. 1 to Lease Agreement (for Burlingame headquarters facility) dated May 21, 1996
10.10E	(b)	Amendment No. 2 to Lease Agreement (for Burlingame headquarters facility) dated August 24, 1996

40

10.10F	(b)	Amendment No. 3 to Lease Agreement (for Burlingame headquarters facility) dated June 3, 1997
10.10G	(b)	Amendment No. 4 to Lease Agreement (for Burlingame headquarters facility) dated June 9, 1998
10.11	(b)	Lease Agreement between SERENA and Waterfront Tower Partners, L.P. dated May 18, 1998 (for additional space at Burlingame headquarters facility)
10.12	(b)	Form of Restricted Stock Purchase Agreement entered into between SERENA and certain of its executive officers
10.13	(a)	Lease Agreement between Waterfront Tower Partners, L.P. and SERENA Software, Inc. dated June 21, 1999 (for additional space at Burlingame headquarters facility)
21.1	(a)	List of Subsidiaries of SERENA Software, Inc.
23.1	(a)	Consent of KPMG LLP

(a)

Filed herewith.

(b)

Incorporated by reference to the exhibit bearing the same number filed with the Registrant's Registration Statement on Form S-1 (Registration No. 333-67761), which the Securities and Exchange Commission declared effective on February 11, 1999.

(b)

Reports on Form 8-K

    The Registrant filed a report on Form 8-K dated August 18, 2000 reporting an event under Item 2 and 7.

(c)

Exhibits

    See Item 14(a)(3) above.

(d)

Financial Statement Schedules

    See Item 14(a)(2) above.

41

SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned, thereunto duly authorized in the City of Burlingame, State of California, this 30th day of April, 2001.

SERENA SOFTWARE, INC.
BY:	/S/ MARK E. WOODWARD Mark E. Woodward President, Chief Executive Officer and Director

POWER OF ATTORNEY

    NOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Mark E. Woodward and Robert I. Pender, Jr. and each of them acting individually, as his or her attorney-in-fact, each with the full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission.

    Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report on Form 10-K has been signed on behalf of the Registrant by the following persons and in the capacities and on the dates indicated:

Signature	Title	Date
/s/ MARK E. WOODWARD (Mark E. Woodward)	President, Chief Executive Officer and Director	April 30, 2001
/s/ ROBERT I. PENDER, JR. (Robert I. Pender, Jr.)	Vice President, Finance and Administration, Chief Financial Officer (Principal Financial and Accounting Officer) and Director	April 30, 2001
/s/ DOUGLAS D. TROXEL (Douglas D. Troxel)	Chairman of the Board of Directors and Chief Technology Officer	April 30, 2001
/s/ ALAN H. HUNT (Alan H. Hunt)	Director	April 30, 2001
/s/ JERRY T. UNGERMAN (Jerry T. Ungerman)	Director	April 30, 2001
/s/ RICHARD A. DOERR (Richard A. Doerr)	Director	April 30, 2001
/s/ ROBERT I. PENDER, JR. (Robert I. Pender, Jr. Attorney-In-Fact)	Director	April 30, 2001

42

SERENA Software, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
SERENA Software, Inc. Consolidated Financial Statements
	Independent Auditors' Report	F-2
	Consolidated Balance Sheets	F-3
	Consolidated Statements of Income and Comprehensive Income	F-4
	Consolidated Statements of Stockholders' Equity	F-5
	Consolidated Statements of Cash Flows	F-6
	Notes to Consolidated Financial Statements	F-7

F-1

Independent Auditors' Report

The Board of Directors and Stockholders
SERENA Software, Inc.

    We have audited the accompanying consolidated balance sheets of SERENA Software, Inc. and subsidiaries as of January 31, 2000 and 2001, and the related consolidated statements of income and comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended January 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SERENA Software, Inc. and subsidiaries as of January 31, 2000 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended January 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

San Francisco, California
February 13, 2001

F-2

SERENA SOFTWARE, INC.

Consolidated Balance Sheets

			January 31,
			2000			2001
Assets
Current assets:
	Cash and cash equivalents		$	80,930,648		$	85,178,946
	Short-term investments			20,213,259			27,479,016
	Accounts receivable, net of allowance of $983,367 and $1,071,670 in fiscal 2000 and 2001, respectively			15,380,341			20,904,067
	Deferred taxes			1,818,313			7,875,267
	Prepaid expenses and other current assets			595,040			1,429,828
		Total current assets		118,937,601			142,867,124
Long-term investments				3,041,650			—
Property and equipment, net				2,419,871			3,308,908
Deferred taxes				1,927,822			—
Intangible assets, net				22,612,525			57,472,005
Other assets				119,327			169,650
		Total assets	$	149,058,796		$	203,817,687
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	365,771		$	904,433
	Income taxes payable			3,000,485			6,498,967
	Accrued expenses			11,307,366			12,090,817
	Deferred revenue			14,632,947			18,362,375
		Total current liabilities		29,306,569			37,856,592
Deferred revenue, net of current portion				4,391,827			5,847,141
Deferred taxes				836,093			2,969,561
		Total liabilities		34,534,489			46,673,294
Commitments and contingencies:
Stockholders' equity:
	Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding			—			—
	Common stock, $0.001 par value; 60,000,000 shares authorized; 38,285,612 and 39,688,513 shares issued and outstanding at January 31, 2000 and 2001, respectively			38,286			39,689
	Additional paid-in capital			89,280,527			116,454,758
	Deferred stock-based compensation			(380,790	)		(157,438	)
	Notes receivable from stockholders			(3,181,875	)		(12,113,518	)
	Accumulated other comprehensive losses			(40,014	)		(140,965	)
	Retained earnings			28,808,173			53,061,867
		Total stockholders' equity		114,524,307			157,144,393
		Total liabilities and stockholders' equity	$	149,058,796		$	203,817,687

See accompanying notes to consolidated financial statements

F-3

SERENA SOFTWARE, INC.

Consolidated Statements of Income and Comprehensive Income

			Fiscal Year Ended January 31,
			1999		2000			2001
Revenue:
	Software licenses (includes a related party amount of $3,762,455 in fiscal 1999 only)		$	27,199,243	$	41,808,021		$	58,037,172
	Maintenance (includes a related party amount of $3,060,770 in fiscal 1999 only)			16,959,714		26,817,530			37,226,539
	Professional services			4,157,501		6,780,909			8,345,123
		Total revenue		48,316,458		75,406,460			103,608,834
Cost of revenue:
	Software licenses			2,206,898		2,896,023			1,600,033
	Maintenance			4,523,796		6,070,337			5,609,718
	Professional services			3,532,736		5,455,294			6,938,574
		Total cost of revenue		10,263,430		14,421,654			14,148,325
		Gross profit		38,053,028		60,984,806			89,460,509
Operating expenses:
	Sales and marketing			13,861,711		22,157,656			27,154,022
	Research and development			4,465,527		6,847,634			10,100,874
	General and administrative			3,932,687		6,115,892			8,511,106
	Stock-based compensation			2,498,608		731,638			223,352
	Amortization of intangible assets			738,670		2,226,351			5,146,302
	Acquired in-process research and development			—		992,341			2,971,687
		Total operating expenses		25,497,203		39,071,512			54,107,343
Operating income				12,555,825		21,913,294			35,353,166
Interest and other income, net				929,487		4,568,994			7,475,182
	Income before income taxes			13,485,312		26,482,288			42,828,348
Income taxes				6,155,205		11,838,774			18,574,654
	Net income		$	7,330,107	$	14,643,514		$	24,253,694
Comprehensive income:
	Net income		$	7,330,107	$	14,643,514		$	24,253,694
	Other comprehensive income (loss) net of tax Foreign currency translation adjustments			5,026		(14,436	)		(201,776	)
		Unrealized gains on marketable securities		—		—			100,825
	Other comprehensive income (loss)			5,026		(14,436	)		(100,951	)
		Total comprehensive income	$	7,335,133	$	14,629,078		$	24,152,743
Net income per share:
	Basic		$	0.29	$	0.40		$	0.63
	Diluted		$	0.27	$	0.38		$	0.60
Weighted average shares used in per share calculations:
	Basic			25,395,761		36,751,147			38,521,954
	Diluted			27,031,701		38,818,617			40,728,502

See accompanying notes to consolidated financial statements

F-4

SERENA SOFTWARE, INC.

Consolidated Statements of Stockholders' Equity

Fiscal Years Ended January 31, 1999, 2000 and 2001

	Common Stock
						Additional Paid-in Capital			Deferred Stock-based Compensation			Notes Receivable from Stockholders			Accumulated Other Comprehensive Gains (Losses)			Retained Earnings		Total Stockholders' Equity
	Shares		Amount
Balance as of January 31, 1998	25,440,750		$	25,441		$	5,094,062		$	(3,098,197	)	$	(1,840,500	)	$	(30,604	)	$	6,834,552	$	6,984,754
Issuance of restricted common stock for notes receivable	379,689			380			1,492,118			(233,069	)		(1,259,429	)		—			—		—
Deferred stock-based compensation related to grants of stock options	—			—			506,372			(506,372	)		—			—			—		—
Amortization of stock-based compensation	—			—			—			2,498,608			—			—			—		2,498,608
Issuance of common stock under Optima acquisition	4,781,250			4,781			21,415,219			—			—			—			—		21,420,000
Accrued interest on note receivable	—			—			—			—			(133,445	)		—			—		(133,445	)
Net income	—			—			—			—			—			—			7,330,107		7,330,107
Other comprehensive income	—			—			—			—			—			5,026			—		5,026
Balance as of January 31, 1999	36,601,689			30,602			28,507,771			(1,339,030	)		(3,233,374	)		(25,578	)		14,164,659		38,105,050
Issuance of common stock under initial public offering	7,350,000			7,350			59,233,650			—			—			—			—		59,241,000
Costs of initial public offering	—			—			(1,338,774	)		—			—			—			—		(1,338,774	)
Issuance of common stock under Diamond acquisition	262,500			263			2,234,112			—			—			—			—		2,234,375
Issuance of common stock under the employee stock purchase plan	123,770			124			876,578			—			—			—			—		876,702
Issuance of restricted common stock for notes receivable, net of repurchases	(18,109	)		(19	)		(315,089	)		—			(48,663	)		—			—		(363,771	)
Common stock options exercised	127,200			127			416,346			—			—			—			—		416,473
Common stock options returned to plan	—			—			(11,353	)		11,353			—			—			—		—
Cancellation of restricted common stock	(161,438	)		(161	)		(322,714	)		215,250			107,625			—			—		—
Payments of accrued interest and principal on restricted common stock	—			—			—			—			190,708			—			—		190,708
Amortization of stock-based compensation	—			—			—			731,637			—			—			—		731,637
Accrued interest on note receivable	—			—			—			—			(198,171	)		—			—		(198,171	)
Net income	—			—			—			—			—			—			14,643,514		14,643,514
Other comprehensive loss	—			—			—			—			—			(14,436	)		—		(14,436	)
Balance as of January 31, 2000	38,285,612			38,286			89,280,527			(380,790	)		(3,181,875	)		(40,014	)		28,808,173		114,524,307
Issuance of common stock under HPS, StarTool and UltiMIS acquisitions	396,324			397			14,281,427			—			—			—			—		14,281,824
Issuance of common stock under the employee stock purchase plan	183,449			183			1,483,536			—			—			—			—		1,483,719
Issuance of restricted common stock for notes receivable, net of repurchases	484,500			484			9,293,517			—			(9,294,001	)		—			—		—
Common stock options exercised	338,628			339			1,048,868			—			—			—			—		1,049,207
Payments of accrued interest and principal on restricted common stock	—			—			—			—			1,378,748			—			—		1,378,748
Amortization of stock-based compensation	—			—			—			223,352			—			—			—		223,352
Accrued interest on note receivable	—			—			—			—			(1,016,390	)		—			—		(1,016,390	)
Tax benefit from employee stock plans	—			—			1,066,883			—			—			—			—		1,066,883
Net income	—			—			—			—			—			—			24,253,694		24,253,694
Other comprehensive loss	—			—			—			—			—			(100,951	)		—		(100,951	)
Balance as of January 31, 2001	39,688,513		$	39,689		$	116,454,758		$	(157,438	)	$	(12,113,518	)	$	(140,965	)	$	53,061,867	$	157,144,393

See accompanying notes to consolidated financial statements

F-5

SERENA SOFTWARE, INC.

Consolidated Statements of Cash Flows

					Fiscal Years Ended January 31,
					1999			2000			2001
Cash flows from operating activities:
	Net income				$	7,330,107		$	14,643,514		$	24,253,694
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation				646,012			998,662			1,160,692
		Deferred income taxes				(193,681	)		(2,772,110	)		(3,335,830	)
		Increase in allowance for bad debts				113,972			671,913			88,303
		(Gain) loss on sale of property and equipment				5,379			13,037			(1,271	)
		Accrued interest on notes receivable, net of cash received				(133,445	)		(198,171	)		(853,294	)
		Amortization of deferred stock-based compensation				2,498,608			731,638			223,352
		Amortization of intangible assets				738,670			2,226,351			5,146,302
		Acquired in-process research and development				—			992,341			2,971,687
		Changes in operating assets and liabilities:
			Accounts receivable			(4,251,819	)		(3,016,457	)		(5,174,591	)
			Prepaid expenses and other assets			247,274			(51,051	)		(893,997	)
			Accounts payable			(51,345	)		(56,588	)		538,034
			Income taxes payable			791,324			1,481,717			3,498,165
			Accrued expenses			2,535,469			3,698,230			544,879
			Deferred revenue			4,639,576			6,667,786			3,841,674
				Net cash provided by operating activities		14,916,101			26,030,812			32,007,799
Cash flows used in investing activities:
	Purchases of property and equipment					(1,138,630	)		(1,459,525	)		(2,055,059	)
	Cash and cash equivalents acquired in Optima acquisition					439,092			—			—
	Purchases of short-term and long-term investments					—			(23,254,909	)		(4,123,282	)
	Issuance of notes due from stockholder					(600,000	)		—			—
	Payment of notes due from stockholder					173,136			599,659			—
	Cash paid in acquisitions of Diamond in fiscal 2000, and HPS, StarTool and UltiMIS in fiscal 2001, net of cash acquired					—			(1,462,031	)		(25,127,962	)
				Net cash used in investing activities		(1,126,402	)		(25,576,806	)		(31,306,303	)
Cash flows from financing activities:
	Issuance of common stock					—			57,902,226			—
	Repurchase of common stock					—			(363,771	)		—
	Sale of common stock under the employee stock purchase plan					—			876,701			1,483,719
	Exercise of employee stock options					—			416,474			1,049,207
	Payment of principal on notes receivable from stockholders					—			190,708			1,215,652
	Payment of notes to stockholders of Optima					(1,350,000	)		—			—
				Net cash (used in) provided by financing activities		(1,350,000	)		59,022,338			3,748,578
Effect of exchange rate changes on cash						5,026			(14,436	)		(201,776	)
Net increase in cash and cash equivalents						12,444,725			59,461,908			4,248,298
Cash and cash equivalents at beginning of year						9,024,015			21,468,740			80,930,648
Cash and cash equivalents at end of year					$	21,468,740		$	80,930,648		$	85,178,946
Supplemental disclosures of cash flow information:
	Income taxes paid				$	5,540,277		$	12,912,006		$	18,478,384
Non-cash investing and financing activity:
	Issuance of common stock and notes for acquisition of Optima Software, Inc.				$	21,420,000			—			—
	Common stock issued in acquisitions of Diamond in fiscal 2000, and HPS, StarTool and UltiMIS in fiscal 2001					—		$	2,234,375		$	14,283,380
	Restricted stock issued (cancelled) for notes receivable from stockholders				$	1,492,498		$	(107,625	)	$	9,294,001
	Unrealized gains on marketable equity securities				$	—		$	—		$	100,825

See accompanying notes to consolidated financial statements

F-6

SERENA SOFTWARE, INC.

Notes to Consolidated Financial Statements

Fiscal Years Ended January 31, 1999, 2000, 2001

(1) Description of Business and Summary of Significant Accounting Policies

(a) Description of Business

    SERENA Software, Inc. (the "Company") is an industry-leading provider of software infrastructure products and consulting best practices that automate enterprise software and Web content changes. Its principal markets are North America, and to a lesser extent, Europe. Export sales represented approximately 16%, 15%, and 18% of total revenue in fiscal 1999, 2000 and 2001, respectively.

(b) Principles of Consolidation

    The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

(c) Foreign Currency Translation

    The functional currency of the Company's U.K., German and French subsidiaries are the British pound, the German deutsche mark and the French franc, respectively. These foreign subsidiaries' financial statements are translated using current exchange rates for balance sheet accounts and average rates for income statement accounts. Translation adjustments are recorded as accumulated other comprehensive income or loss in stockholders' equity. Foreign currency transaction gains and losses are included in operating expenses, and have not been material to date.

(d) Cash, Cash Equivalents and Investments

    The Company considers all highly liquid investments purchased with original remaining maturities of three months or less to be cash equivalents. As of January 31, 2000 and 2001, cash equivalents consisted of commercial paper and money market funds.

    The Company has classified its investments as "available-for-sale." These investments are carried at fair value, based on quoted market prices, and unrealized gains and losses, net of taxes, are recorded as accumulated other comprehensive income or loss in stockholders' equity. Realized gains and losses upon sale or maturity of these investments are determined using the specific identification method.

    Interest and other income, net consists principally of earnings generated from interest-bearing accounts held by the Company and, to a lesser extent, earnings accrued from stockholder notes.

    Cash equivalents consist of securities with original remaining maturities of three months or less. Investments as of January 31, 2001 were $27,479,000, all of which consisting of maturities less than one year. Investments as of January 31, 2000 consisted of $20,213,000 of securities which mature in less than

F-7

one year and $3,042,000 of securities which mature in one to five years. Cash, cash equivalents and investments consisted of the following as of January 31, 2000 and 2001 (in thousands).

		As of January 31, 2000						As of January 31, 2001
		Cost		Unrealized Gains		Market		Cost		Unrealized Gains		Market
Cash and Cash Equivalents:
	Cash	$	12,847	$	—	$	12,847	$	7,917	$	—	$	7,917
	CD's/Bonds		14,926		18		14,944		6,154		1		6,155
	Money Market Funds		38,041		187		38,228		45,312		—		45,312
	Corporate Notes		14,537		375		14,912		25,707		88		25,795
		$	80,351	$	580	$	80,931	$	85,090	$	89	$	85,179
Investments:
	CD's/Bonds	$	16,961	$	460	$	17,421	$	3,057	$	12	$	3,069
	Corporate Notes		5,743		91		5,834		24,410		—		24,410
		$	22,704	$	551	$	23,255	$	27,467	$	12	$	27,479

(e) Property and Equipment

    Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, generally three to five years.

(f) Intangible Assets

    Intangible assets include work-force-in-place, non-compete, acquired technology and goodwill associated with the acquisitions of Optima Software, Inc., Diamond Optimum Systems, Inc., High Power Software, Inc., the StarTool product and UltiMIS Corporation. Intangible assets are amortized using the straight-line method over the estimated useful lives of the related assets, from 6 months to 15 years.

(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of

    The Company evaluates its long-lived assets, including goodwill and certain identifiable intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or intangibles may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. If an asset is to be disposed of, it is reported at the lower of the carrying amount or fair value less costs to sell. To date, there has been no impairment of long-lived assets.

F-8

(h) Software Development Costs

    Development costs related to software products are expensed as incurred until technological feasibility of the product has been established. Based on the Company's product development process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working model and the point at which the product is ready for general release have not been significant. Accordingly, no costs have been capitalized to date. The Company has, however, capitalized certain costs totaling $295,000 and $535,000 in fiscal 2000 and 2001, respectively, associated with computer software it has acquired for internal use. The capitalization and amortization of these costs have been consistent with generally accepted accounting principles as stated in AICPA Statement of Position ("SOP")98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Software development costs are being amortized over periods of three to five years.

(i) Income Taxes

    Income taxes are recorded using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(j) Concentrations of Credit Risk

    Financial instruments, potentially subjecting the Company to concentrations of credit risk, consist primarily of temporary cash investments. The Company places its temporary cash investments with two major financial institutions. The Company maintains an allowance for potential credit losses on customer trade accounts receivable.

(k) Fair Value of Financial Instruments

    The fair value of the Company's cash and cash equivalents, short-term investments, accounts receivable, and accounts payable approximate their respective carrying amounts.

(l) Use of Estimates

    The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(m) Revenue Recognition

    In December 1998, the American Institute of Certified Public Accountants issued SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions." SOP 98-9 amends SOP 97-2 to require the entity to recognize revenue for multiple element arrangements by means of the

F-9

"residual method" when: (1) there is vendor-specific evidence of the fair values of all of the undelivered elements; (2) vendor-specific evidence of fair value does not exist for one or more of the delivered elements; and (3) the revenue recognition criteria of SOP 97-2 are satisfied. SOP 98-9 became effective February 1, 2000 for transactions entered into for fiscal years beginning after March 15, 1999. The Company adopted SOP 98-9 on February 1, 2000 without any material effect on its results of operations, financial position or cash flows.

    In December 1999, the Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements," as amended by SAB No. 101A and 101B, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB No. 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. The Company adopted SAB No. 101 in the fourth quarter of fiscal 2001 without any material effect on its results of operations, financial position or cash flows.

    The Company sells its products to its end users and distributors under license agreements. Each new mainframe license includes maintenance, which includes the right to receive telephone support, "bug fixes" and unspecified upgrades and enhancements, for a specified duration of time, usually one year. The fee associated with such agreements is allocated between software license revenue and maintenance revenue based on their respective fair values as determined based on list price. Software license revenue from these agreements is recognized upon receipt and acceptance of a signed contract and delivery of the software, provided the related fee is fixed and determinable, collectibility of the revenue is probable and the arrangement does not involve significant customization of the software. If an acceptance period is required, revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period, as defined in the applicable software license agreement.

    The Company recognizes maintenance revenue ratably over the life of the related contract, generally 12 months. Maintenance contracts on perpetual licenses are available annually. The Company typically invoices and collects maintenance revenue on an annual basis at the anniversary date of the license. Service and other revenue includes fees derived from the delivery of training, installation, and consulting services. Revenue from training, installation, and consulting services is recognized on a time and materials basis as the related services are performed. Deferred revenue represents amounts received by the Company in advance of product delivery or service performance.

(n) Stock-Based Compensation

    The Company uses the intrinsic value method to account for stock-based compensation. The Company amortizes deferred stock-based compensation on an accelerated basis in accordance with Financial Accounting Standards Board ("FASB") Interpretation No. 28 "Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans".

    In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation—an Interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of Accounting Practice Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), regarding (a) the definition of employee for purposes of applying APB 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of

F-10

various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions in this Interpretation cover specific events that occurred after either December 15, 1998, or January 12, 2000. The Company's adoption of the provisions of FIN 44 has not had a material effect on the Company's results of operations, financial position or cash flows.

    The Company's 1999 Director Option Plan provides that options will be granted to non-employee directors pursuant to an automatic nondiscretionary grant mechanism. Each new non-employee director is automatically granted an option to purchase 37,500 shares of common stock at the time he or she is first elected to the board of directors. Each non-employee director will subsequently be granted an option to purchase 7,500 shares of common stock at the beginning of each fiscal year. Each such option will be granted at the fair market value of the common stock on the date of grant. Options granted to non-employee directors under the 1999 Director Option Plan will become exercisable over four years, with one quarter of the shares subject to the option vesting after one year and the remaining shares vesting ratably in monthly installments thereafter.

(o) Net Income Per Share

    Basic net income per share is computed using the weighted-average number of shares of common stock outstanding. Diluted net income per share is computed using the weighted-average number of shares of common stock outstanding and, when dilutive, potentially dilutive shares from restricted stock and options to purchase common stock using the treasury stock method.

(p) Accumulated Other Comprehensive Losses

    Accumulated other comprehensive income and loss consist entirely of cumulative translation adjustments resulting from the Company's application of its foreign currency translation policy and unrealized gains (losses) on marketable securities. The tax effects of both translation adjustments and unrealized gains (losses) were not significant during any of the periods presented.

(q) Segment Reporting

    In June 1997, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The method for determining what information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company's chief operating decision-maker is considered to be the Company's chief executive officer ("CEO"). The CEO reviews financial information presented on an entity level basis accompanied by disaggregated information about revenues by product type and certain information about geographic regions for purposes of making operating decisions and assessing financial performance. The entity level financial information is identical to the information presented in the accompanying statements of operations. Therefore, the Company has determined that it operates in a single operating segment: change management software.

F-11

(r) Advertising

    Advertising costs are expensed as incurred. Advertising expense is included in sales and marketing expense and amounted to $0.6 million, $1.3 million and $1.4 million in fiscal 1999, 2000 and 2001, respectively.

(s) Reclassifications

    Certain prior period amounts have been reclassified to conform to current period presentation.

(t) Stock Splits

    In March 2000, the Company's Board of Directors authorized a 3-for-2 stock split. Share information has been retroactively restated in the accompanying consolidated financial statements to reflect the stock split for all periods presented.

(2) Property and Equipment

    Property and equipment consisted of the following:

	January 31,
	2000		2001
Computers and equipment	$	3,549,913	$	5,200,175
Furniture and fixtures		1,146,847		1,521,195
Automobiles		107,110		107,110
		4,803,870		6,828,480
Less: accumulated depreciation		2,383,999		3,519,572
	$	2,419,871	$	3,308,908

(3) Intangible Assets

    Intangible assets consisted of the following:

	January 31,
	2000		2001
Work-force-in-place	$	479,100	$	738,900
Non-compete agreement		427,451		943,884
Acquired technology		1,917,276		27,625,883
Goodwill		22,801,650		36,322,593
		25,625,477		65,631,260
Less: accumulated amortization		3,012,952		8,159,255
	$	22,612,525	$	57,472,005

F-12

SERENA SOFTWARE, INC.

Notes to Consolidated Financial Statements (Continued)

Fiscal Years Ended January 31, 1999, 2000, 2001

(4) Accrued Expenses

    Accrued expenses consisted of the following:

	January 31,
	2000		2001
Management incentive bonuses and commissions	$	3,341,691	$	4,294,544
Payroll-related items		1,599,007		2,226,338
Royalties		2,896,450		532,628
Other		3,470,218		5,037,307
	$	11,307,366	$	12,090,817

(5) Stockholders' Equity

(a) Repurchase of Common Stock

    In connection with the Company's Stock Repurchase Program, the Company repurchased 33,750 shares of its common stock for cash at an average price of $10.78 per share in fiscal 2000.

(b) Initial Public Offering

    On February 12, 1999, the Company offered and sold 6,000,000 shares of its common stock generating net proceeds of $48,360,000 after underwriting discounts and commissions. On March 12, 1999, the Company's lead underwriter exercised its over-allotment option by acquiring an additional 1,350,000 shares from the Company generating additional net proceeds to the Company of $10,881,000 after underwriting discounts and commissions. The Company has used the proceeds to finance the growth of its operations in general and for other strategic initiatives.

(c) Restricted Stock Agreements

    In March 1998, the Company issued 84,375 shares of restricted common stock to a director at $0.96 per share in exchange for a full recourse note. In May 1999, 161,438 shares associated with the original restricted common stock issuance in January 1998 were repurchased at the original purchase price. In the fourth quarter of fiscal 2000, two officers early exercised common stock options and received 295,314 shares of restricted stock at an average price of $3.99 per share. The early exercise feature was included in the original stock option plan. On February 16, 2000 and under the Company's 1997 Stock Option and Incentive Plan, certain officers early exercised common stock options and the Company issued 817,500 shares of restricted common stock of the Company at $19.33 per share in exchange for promissory notes. Restrictions lapse over two to four years, depending upon the individual and the earnings per share performance of the Company. In the event an employee is terminated or the director leaves the service of the Board, the Company has the right to repurchase, for a price equal to the individual's original purchase price, any remaining restricted shares held by the individual.

    In connection with restricted common stock issued in January 1998, the Company recorded deferred stock-based compensation of $3,681,000 representing the difference between the issuance price and the fair value of the Company's common stock at the date of issuance. An additional $158,063 and $75,256 of deferred stock-based compensation was recorded for the March 1998 issuance and fourth quarter of fiscal

F-13

1999 early exercise, respectively. There was no deferred stock-based compensation recorded in connection with the February 2000 issuance. These amounts are being amortized over the restriction period of the individual shares. Amortization of deferred stock-based compensation related to restricted common stock of $2,498,608, $731,638 and $223,352 was recognized in fiscal 1999, 2000 and 2001, respectively.

    On June 1, 2000 and in connection with a certain officer's resignation from the Company, the Company exercised in full its repurchase rights with respect to the restricted common stock originally issued to the officer on February 16, 2000 under the Company's 1997 Stock Option and Incentive Plan. The Company repurchased 337,500 shares of restricted common stock at the original purchase price of $19.33 per share. There had been no deferred stock-based compensation recorded in connection with the original restricted common stock issuance.

(d) Net Income Per Share

    The following is a reconciliation of the shares used in the computation of basic and diluted net income per share:

	Fiscal Year Ended January 31,
	1999	2000	2001
Basic net income per share—weighted average number of common shares outstanding	25,395,761	36,751,147	38,521,954
Effect of potentially dilutive securities outstanding—restricted stock and options	1,635,940	2,067,470	2,206,548
Shares used in diluted net income per share computation	27,031,701	38,818,617	40,728,502

    Options to purchase shares of common stock at an average share price which is greater than the average market price of the shares are not included in the computation of diluted earnings per share, or EPS, because the effect of their inclusion would have been anti-dilutive. For the year ended January 31, 1999, there were no options excluded from the computation of diluted EPS. For each of the years ended January 31, 2000 and 2001, 64,500 and 234,500, respectively, of options to purchase shares of common stock at an average share price of $18.635 and $40.735, respectively, were excluded from the computation of diluted EPS.

F-14

(6) Income Taxes

    Income taxes are as follows:

			Fiscal Year Ended January 31,
			1999			2000			2001
Current:
	Federal		$	5,396,687		$	11,490,757		$	16,815,052
	State			908,646			3,017,803			3,740,502
	Foreign			43,553			102,324			241,820
				6,348,886			14,610,884			20,797,374
Deferred:
	Federal			(204,108	)		(2,271,025	)		(1,940,679	)
	State			10,427			(501,085	)		(282,041	)
				(193,681	)		(2,772,110	)		(2,222,720	)
		Total income taxes	$	6,155,205		$	11,838,774		$	18,574,654

    The Company's effective tax rate differs from the statutory federal income tax rate of 35% for fiscal 1999, 2000 and 2001, primarily due to the following:

	Fiscal Year Ended January 31,
	1999			2000			2001
Tax expense at federal statutory rate	$	4,719,853		$	9,293,299		$	14,989,922
Research and experimentation credit		(263,062	)		(70,600	)		(732,084	)
State tax, net of federal benefit		597,398			1,327,847			2,272,553
Foreign sales corporation benefit		(80,330	)		(149,260	)		(316,760	)
Nondeductible stock-based compensation		874,513			256,073			78,173
Nondeductible intangible asset amortization		258,535			683,937			866,285
In-process research and development		—			347,319			1,040,090
Other		48,298			150,159			376,475
Total income taxes	$	6,155,205		$	11,838,774		$	18,574,654

    Undistributed earnings of foreign subsidiaries for which U.S. income taxes have not been provided were immaterial during the periods presented.

F-15

    The Company's net deferred tax assets are summarized as follows:

		January 31,
		2000			2001
Deferred tax assets:
	Allowance for doubtful accounts	$	432,178		$	451,709
	Accrued expenses		633,528			2,870,143
	State taxes		739,196			1,004,214
	Other		1,941,233			3,549,209
	Total deferred tax assets		3,746,135			7,875,267
Deferred tax liabilities:
	Long lived assets acquired in a business combination		(737,291	)		(2,899,866	)
	Property and equipment		(98,802	)		(69,695	)
Total deferred tax liabilities			(836,093	)		(2,969,561	)
Net deferred tax assets		$	2,910,042		$	4,905,706

(7) Employee Benefit Plans

(a) Retirement Plan

    The Company has a defined contribution retirement plan for all eligible employees. Participants may make contributions to the plan in accordance with provisions of the plan. The Company may make discretionary contributions to the plan. For the years ended January 31, 1999, 2000, and 2001, the Company made contributions of $558,528, $560,643 and $855,779, respectively. Such contributions generally vest over six years.

(b) Stock Option Plan

    In October 1997, the Company's Board of Directors approved the Company's 1997 Stock Option and Incentive Plan (the Plan). The Plan allows for grants to officers, directors and employees of the Company incentive stock options, nonqualified stock options and restricted stock. Options are generally granted for a 10-year term (5 years if the employee is more than a 10% shareholder) and generally vest over 4 years. Options are generally granted at fair market value (110% of fair market value if optionee is more than a 10% shareholder), as determined by the Board of Directors. Restricted stock may be granted pursuant to the Plan, as evidenced by agreement and determined by the Board of Directors.

    The Plan automatically terminates in September 2007. Each option and award granted under the Plan will remain in effect until such option or award has been satisfied by the issuance of shares or terminated in accordance with its terms and the terms of the Plan.

F-16

    Stock option activity under the Plan is as follows:

	Shares Available For Grant		Options Outstanding		Weighted- Average Exercise Price		Weighted Average Grant Date Fair Value Per Share
Balances as of January 31, 1998	1,994,625		307,125		$	0.67	$	2.00
Authorized	1,012,500		—
Restricted stock issued	(84,375	)	—
Granted with an exercise price below the fair value of common stock	(151,875	)	151,875			1.03		2.74
Granted with an exercise price equal to the fair value of common stock	(1,773,975	)	1,773,975			3.95		3.95
Cancelled	156,750		(156,750	)		2.18
Exercised	—		(295,314	)		3.99
Balances as of January 31, 1999	1,153,650		1,780,911			3.27
Restricted stock cancelled	161,438
Restricted stock issued	(15,641	)	—
Granted with an exercise price equal to the fair value of common stock	(576,000	)	576,000			9.64		9.64
Cancelled	382,071		(382,071	)		5.27
Exercised	—		(127,200	)		3.27
Balance as of January 31, 2000	1,105,518		1,847,640			4.84
Authorized	1,912,500		—
Restricted stock issued	(822,000	)	—
Restricted stock repurchased	337,500		—
Granted with an exercise price equal to the fair value of common stock	(2,004,100	)	2,004,100			24.05		24.05
Cancelled	226,519		(226,519	)		15.97
Exercised	—		(338,628	)		3.10
Balance as of January 31, 2001	755,937		3,286,593			15.98

    In connection with options granted in fiscal 1999, the Company has recorded deferred stock-based compensation of $506,372 representing the difference between the exercise price and the fair value of the Company's common stock at the date of grant. The amounts are being amortized over the vesting period of the individual options, generally 4 years. Stock-based compensation expense related to options to purchase common stock of $419,704 was recognized in fiscal 1999. The grant date fair value per share was determined by management after considering a number of factors, including a prior cash transaction for the Company's common stock, an appraisal performed by an outside consultant, the methodologies used by the Company's underwriters to establish the anticipated IPO price, the effect of the Optima acquisition and the Company's operating results and future prospects.

F-17

SERENA SOFTWARE, INC.

Notes to Consolidated Financial Statements (Continued)

Fiscal Years Ended January 31, 1999, 2000, 2001

(7) Employee Benefit Plans (Continued)

    In both fiscal 2000 and 2001, there was no deferred stock-based compensation recorded with respect to options issued by the Company. However, in fiscal 2000, the repurchase of restricted common stock in May 1999 and the return to the plan of unexercised common stock options resulted in the removal of unamortized deferred stock-based compensation of $215,250 and $11,353, respectively. Stock-based compensation expense related to options to purchase common stock of $304,143 and $143,446 was recognized in fiscal 2000 and 2001, respectively. The following table summarizes information about stock options outstanding at January 31, 2001:

		Options Outstanding
						Options Exercisable
			Weighted Average Remaining Contractual Life
Range of Exercise Prices		Number of Shares		Weighted Average Exercise Price		Number of Shares	Weighted Average Exercise Price
$	0.667 - $ 0.667	143,750	6.93	$	0.667	88,062	$	0.667
$	0.963 - $ 4.667	826,463	7.56	$	3.573	276,525	$	3.373
$	6.000 - $17.312	393,758	8.30	$	8.873	146,466	$	7.967
$	17.500 - $17.500	806,000	9.27	$	17.500	0	$	0.000
$	17.917 - $29.687	535,372	9.18	$	21.548	11,956	$	18.286
$	30.875 - $36.437	441,250	9.82	$	32.022	0	$	0.000
$	40.187 - $40.187	36,500	9.63	$	40.187	0	$	0.000
$	43.437 - $43.437	19,000	9.71	$	43.437	0	$	0.000
$	44.953 - $44.953	37,500	9.64	$	44.953	0	$	0.000
$	47.500 - $47.500	47,000	9.79	$	47.500	0	$	0.000
$	0.667 - $47.500	3,286,593	8.70	$	15.981	523,009	$	4.545

    For purposes of computing pro forma net income, we estimated the fair value of each option grant and Employee Stock Purchase Plan grant on the date of grant using the minimum value option-pricing model in fiscal 1999 and the Black-Scholes single option pricing model in fiscal 2000 and 2001. The assumptions used to value the option grants are stated as follows:

	Fiscal Years Ended
	January 31, 1999		January 31, 2000		January 31, 2001
Expected life of options	4.5 years		4.5 years		4.5 years
Expected life of ESPP	not applicable		0.5 years		0.5 years
Volatility	not applicable		97	%	134	%
Risk-free interest rate	5.9	%	6.56	%	6.2	%
Dividend yield	none		none		none

    Option grants vest over several years, and new options are generally made each year. Because of this, the pro forma amounts shown below may not be representative of the pro forma effect on reported net income in future years. Had compensation expense for the Company's stock-based compensation plans, including the restricted stock discussed in Note 5(c), been determined consistent with SFAS No. 123 using the minimum value option-pricing model in fiscal 1999 and the Black-Scholes single-option model in fiscal

F-18

2000 and 2001, the Company's net income and net income per share (in thousands, except per share data) would have been as follows:

			Fiscal Years Ended
			January 31, 1999		January 31, 2000		January 31, 2001
Net income:
	As reported		$	7,330	$	14,644	$	24,254
	Pro forma giving effect to SFAS No. 123		$	7,155	$	13,918	$	19,048
Basic and Diluted net income per share:
	Basic—
		As reported	$	0.29	$	0.40	$	0.63
		Pro forma giving effect to SFAS No. 123	$	0.28	$	0.38	$	0.49
	Diluted—
		As reported	$	0.27	$	0.38	$	0.60
		Pro forma giving effect to SFAS No. 123	$	0.26	$	0.36	$	0.47

(c) Employee Stock Purchase Plan

    Our Employee Stock Purchase Plan allows eligible employee participants to purchase shares of our common stock at a discount through payroll deductions. Commencing with the Company's IPO in February 1999, the plan consisted initially of a twenty-four-month offering period with an initial six-month purchase period followed by an abbreviated purchase period to get purchase periods on a six-month May/November purchase period cycle thereafter. Currently, the plan consists of twelve-month offerings with two six-month purchase periods in each offering period. As of January 31, 2001, all employees participating in the plan have twelve-month offering periods. Employees purchase shares at 85% of market value at either the beginning of the offering period or the end of the purchase period, whichever price is lower. As of January 31, 2001, we had reserved 562,500 shares of our common stock for issuance under this plan, and approximately 255,281 shares remain available for future issuance.

(8) Commitments and Contingencies

(a) Leases

    The Company has noncancelable operating lease agreements for office space that expire between calendar 2001 and 2006. Minimum lease payments for the five succeeding years as of January 31, 2001, are as follows:

Fiscal Year Ending January 31,
2002	$	1,175,245
2003		847,397
2004		644,434
2005		563,305
2006		408,372
Thereafter		85,633
	$	3,724,386

F-19

    Rent expense was $616,238, $993,900 and $1,164,494 for the fiscal years ended January 31, 1999, 2000, and 2001, respectively.

(b) Licensing and Other Agreements

    The Company has commitments under licensing agreements that provide for payments based on revenues of certain products. For the fiscal years ended January 31, 1999, 2000, and 2001, the Company's fees paid or accrued under these license agreements were $3,790,887, $5,352,457 and $2,422,323, respectively.

    The Company's acquisition of High Power Software, Inc. in May 2000 (see Note 9[c]) and the StarTool Asset Purchase in August 2000 (see Note 11) resulted in the elimination of certain royalty commitments under licensing arrangements.

(c) Litigation

    On August 7, 2000, the Company and Compuware Corporation settled a lawsuit outstanding which was pending in the United States District Court for the Eastern District of Michigan. The lawsuit was dismissed with prejudice and the settlement had no material adverse effect on the Company's results of operations or financial condition.

(9) Acquisitions

(a) Optima Software, Inc.

    On September 25, 1998, the Company acquired Optima, the primary distributor of the Company's Change Man software product. The acquisition was accounted for using the purchase method of accounting, and accordingly, the results of operations of Optima have been included in the Company's consolidated financial statements from September 25, 1998. The Company acquired all of the outstanding shares of Optima in exchange for the issuance of 4,781,250 shares of the Company's common stock valued at $4.48 per share. The fair value of the shares issued in the Optima acquisition was determined in accordance with Accounting Principles Board Option No. 16 and its interpretations and was computed based upon the midpoint of management's estimate of the pre- and post-agreement fair value of the Company's common stock. The transaction was valued at approximately $21.4 million and the allocation of the purchase price was as follows:

Net tangible liabilities	$	(251,355	)
Work-force-in-place		300,000
Non-compete agreement		200,000
Goodwill		21,171,355
Total consideration	$	21,420,000

    Work-force-in-place, consisting principally of Optima's sales force, was valued on a replacement cost basis and was amortized over a six-month period, the period of time the Company estimated would be required to hire, train, and achieve full productivity for a replacement work force. The non-compete agreement was entered into with an Optima officer and founder who did not continue with the combined

F-20

company. The non-compete agreement was valued based on his anticipated salary and benefits for the period of the agreement and was amortized over the one-year term of the agreement. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired and is being amortized over 15 years. Management determined to use this period after considering that Optima had sold Change Man profitably since 1988, Change Man is an integral part of many large company IT infrastructures for managing change to mainframe applications, and customers who purchase and implement Change Man make a considerable investment, not only in the software, but in the creation of an automated and consistent software change management process. Moreover, management believes this investment has a long lasting effect on IT environments, and annual maintenance releases of Change Man have consisted principally of bug fixes and updates, including updates to remain compatible with the stable IBM MVS operating system, which was introduced over 20 years ago.

(b) Diamond Optimum Systems, Inc.

    On June 14, 1999, the Company acquired Diamond Optimum Systems, Inc. ("Diamond"), a provider of enterprise software change management solutions (SCM) for NT and UNIX environments. The acquisition was accounted for using the purchase method of accounting, and accordingly, the results of operations of Diamond have been included in the Company's consolidated financial statements from June 14, 1999. The Company acquired all the assets and assumed all the liabilities of Diamond in exchange for cash totaling $1.75 million and the issuance of 262,500 shares of the Company's common stock valued at $8.51 per share. The transaction was valued at approximately $4.5 million with the allocation of the total consideration as follows:

Net tangible assets	$	358,060
Deferred tax liability		(843,601	)
Acquired technology		1,917,276
Acquired in-process research and development		992,341
Work-force-in-place		179,100
Non-compete agreement		227,451
Goodwill		1,630,295
Total consideration	$	4,460,922

    Acquired technology, consisting of current completed technologies at the date of acquisition valued on the premise of fair market value in continued use under the discounted cash flow approach, is being amortized over a 5 year period, the period of time the Company estimates as its economic useful life. Acquired in-process research and development, consisting of current technologies under development at the date of acquisition and valued on the premise of fair market value in continued use under the discounted cash flow approach, was expensed immediately in the second fiscal quarter ended July 31, 1999 in accordance with generally accepted accounting principles. See Note 10 for further discussion of acquired in-process research and development. Work-force-in-place, consisting principally of the Diamond development team, was valued on a replacement cost basis and is being amortized over a six-month period, the period of time the Company estimates would be required to hire, train, and achieve full productivity for a replacement work force. The non-compete agreement was entered into with a Diamond officer and founder who will continue with the combined company. The non-compete agreement was valued based on

F-21

SERENA SOFTWARE, INC.

Notes to Consolidated Financial Statements (Continued)

Fiscal Years Ended January 31, 1999, 2000, 2001

(9) Acquisitions (Continued)

his anticipated salary and benefits for the period of the agreement and is being amortized over the two-year term of the agreement. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired and deferred tax liabilities assumed and is being amortized over 7 years.

(c) High Power Software, Inc.

    On May 1, 2000, the Company acquired High Power Software, Inc. ("HPS"). HPS shared ownership rights in the Company's Detect+Resolve Mainframe technology. The acquisition was accounted for using the purchase method of accounting, and accordingly, the results of operations of HPS are included in the Company's consolidated financial statements from May 1, 2000. The Company acquired all the assets and assumed all the liabilities of HPS in exchange for cash of approximately $1.4 million and the issuance of 91,954 shares of the Company's common stock valued at $19.97 per share. The transaction was valued at approximately $3.3 million with the allocation of the total consideration as follows:

Tangible assets	$	6,156
Assumed liabilities		(173,300	)
Acquired technology		1,894,695
Acquired in-process research and development		490,576
Work-force-in-place		48,900
Deferred tax liability		(855,182	)
Goodwill		1,907,429
Total consideration	$	3,319,274

    Acquired technology, consisting of current completed technologies at the date of acquisition and valued on the premise of fair market value in continued use under the discounted cash flow approach, will be amortized over a five-year period, the period of time the Company estimates as its economic useful life. Acquired in-process research and development, consisting of current technologies under development at the date of acquisition and valued on the premise of fair market value in continued use under the discounted cash flow approach, was expensed immediately in the second fiscal quarter ended July 31, 2000 in accordance with generally accepted accounting principles. See Note 10 for further discussion of acquired in-process research and development. Work-force-in-place, consisting principally of the HPS development team, was valued on a replacement cost basis and will be amortized over a six-month period, the period of time the Company estimates would be required to hire, train, and achieve full productivity for a replacement work force. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired and will be amortized over 7 years.

(d) UltiMIS Corporation

    On September 18, 2000, the Company acquired UltiMIS Corporation ("UltiMIS"), a provider of data center performance and programmer productivity software products which allowed the Company to accelerate the time to market for StarSuite, an integrated suite of products for file and data management, fault diagnostics, application performance monitoring, testing and debugging. The acquisition was accounted for using the purchase method of accounting, and accordingly, the results of operations of UltiMIS are included in the Company's consolidated financial statements from September 18, 2000. The

F-22

Company acquired all the assets and assumed all the liabilities of UltiMIS in exchange for cash of approximately $7.7 million and the issuance of 173,758 shares of the Company's common stock valued at $43.35 per share. The transaction was valued at approximately $15.3 million with the allocation of the total consideration as follows:

Tangible assets	$	572,788
Assumed liabilities		(1,310,028	)
Acquired technology		2,799,635
Acquired in-process research and development		2,481,111
Work-force-in-place		210,900
Non-compete agreements		516,433
Deferred tax liability		(1,551,866	)
Goodwill		11,613,514
Total consideration	$	15,332,487

    Acquired technology, consisting of current completed technologies at the date of acquisition and valued on the premise of fair market value in continued use under the discounted cash flow approach, will be amortized over a five-year period, the period of time the Company estimates as its economic useful life. Acquired in-process research and development, consisting of current technologies under development at the date of acquisition and valued on the premise of fair market value in continued use under the discounted cash flow approach, was expensed immediately in the third fiscal quarter ended October 31, 2000 in accordance with generally accepted accounting principles. See Note 10 for further discussion of acquired in-process research and development. Work-force-in-place, consisting principally of the UltiMIS development team, was valued on a replacement cost basis and will be amortized over a six-month period, the period of time the Company estimates would be required to hire, train, and achieve full productivity for a replacement work force. The non-compete agreements were entered into with the two UltiMIS officers and founders. The non-compete agreements were valued based on the estimated amount of business that might be lost if these two principals were competing against the Company over the period of the agreements, and they are being amortized over the two-year term of the agreements. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired and will be amortized over 7 years.

    With respect to the Diamond, HPS and UltiMIS acquisitions noted above, pro forma financial information giving effect to each acquisition as if it had occurred at the beginning of the periods presented would not have been materially different than the Company's historical operating results.

(10) Acquired In-process Research and Development

    As a result of the Company's acquisitions of Diamond on June 14, 1999, HPS on May 1, 2000 and UltiMIS on September 18, 2000, the Company recorded acquired in-process research and development totaling $992,341, $490,576 and $2,481,111, respectively. For all transactions, the premise of value was fair market value in continued use.

    Among the assets that were valued by the Company were the Change Management Version 2.0, Project Management and Enterprise Management products from the Diamond acquisition, the Change Transfer and

F-23

Softwatch products from the HPS acquisition, and the StarProbe and StarTest products from the UltiMIS acquisition, all of which were currently under development at their respective dates of acquisition. These technologies currently under development were valued on the premise of fair market value in continued use employing a version of the income approach referred to as the discounted cash flow approach. This methodology is based on discounting to present value, at an appropriate risk-adjusted discount rate, both the expenditures to be made to complete the development efforts (excluding the efforts to be completed on the development efforts underway) and the operating cash flows which the applications are projected to generate, less a return on the assets necessary to generate the operating cash flows.

    From these projected revenues, the Company deducted costs of sales, operating costs (excluding costs associated with the efforts to be completed on the development efforts underway), royalties and taxes to determine net cash flows. The Company estimated the percentage of completion of the development efforts for each application by comparing the estimated costs incurred and portions of the development accomplished through their respective acquisition dates by the total estimated cost and total development effort of developing these same applications. This percentage was calculated for each application and was then applied to the net cash flows for which each application was projected to generate. These net cash flows were then discounted to present values using appropriate risk-adjusted discount rates in order to arrive at discounted fair values for each application.

    The percentage complete and the appropriate risk-adjusted discount rate for each application were as follows:

Application Under Development		Percentage Complete		Discount Rate
Diamond acquisition—
	Change Management Version 2.0	60.00	%	25.00	%
	Project Management	75.00	%	25.00	%
	Enterprise Management	25.38	%	27.50	%
HPS acquisition—
	Change Transfer	80.00	%	24.00	%
	Softwatch	60.00	%	26.50	%
UltiMIS acquisition—
	StarProbe	90.00	%	30.00	%
	StarTest	70.00	%	32.50	%

    The rates used to discount the net cash flows to present value were initially based on the weighted average cost of capital ("WACC"). With respect to the Diamond acquisition, the Company used discount rates of 25.0% and 27.5% for valuing the acquired in-process research and development and 25.0% for the core technologies. With respect to the HPS acquisition, the Company used discount rates of 24.0% and 26.5% for valuing the acquired in-process research and development and 21.5% for the core technologies. With respect to the UltiMIS acquisition, the Company used discount rates of 30.0% and 32.5% for valuing the acquired in-process research and development and 25.0% for the core technologies. In all cases, these discount rates are higher than the implied WACC due to the inherent uncertainties surrounding the successful development of the acquired in-process research and development, the useful life of such

F-24

in-process research and development, the profitability levels of such in-process research and development, and the uncertainty of technological advances that were unknown at the time.

(11) StarTool Asset Purchase

    On August 18, 2000, the Company acquired the StarTool technology from its principal developer, an employee, pursuant to the STARTOOL© ASSET PURCHASE AGREEMENT dated August 18, 2000. Prior to the acquisition, the developer had granted the Company an exclusive, worldwide and non-transferable license to copy, market and distribute the StarTool Program technology and all options thereto. The Company paid an aggregate amount of $20.9 million in a combination of $16 million in cash and 130,612 shares of common stock valued at $37.625 per share to the developer in exchange for all rights, title and interests in and to the StarTool technology. The per share value of the common stock was determined based on the closing market price of the common stock on August 18, 2000. The common stock received by the developer was placed in a hold-back escrow account at the closing of the transaction to cover any losses that the developer has agreed to indemnify the Company for in connection with the acquisition. Technology acquired has been capitalized and is being amortized over its estimated useful life of seven years.

    Also pursuant to the Agreement, the developer entered into an Employment Agreement, on August 18, 2000, with the Company for a term of five years, to serve as a software architect.

F-25

Schedule I

Independent Auditors' Report on Financial Statement Schedule

The Board of Directors and Stockholders
SERENA Software, Inc.

    Under date of February 13, 2001, we reported on the consolidated balance sheets of SERENA Software, Inc. and subsidiaries as of January 31, 2000 and 2001, and the related consolidated statements of income and comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended January 31, 2001, which are included in the January 31, 2001 annual report on Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule in the January 31, 2001 annual report on Form 10-K. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audits.

    In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ KPMG LLP

San Francisco, California
February 13, 2001

S-1

SCHEDULE II

SERENA SOFTWARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in Thousands)

		Balance of Beginning of Period		Additions- Charges to Costs and Expenses		(a) Deductions Write-offs			Balance at End of Period
Year Ended January 31, 1999:
	Allowance for doubtful accounts	$	197	$	130	$	(16	)	$	311
Year Ended January 31, 2000:
	Allowance for doubtful accounts	$	311	$	685	$	(13	)	$	983
Year Ended January 31, 2001:
	Allowance for doubtful accounts	$	983	$	975	$	(886	)	$	1,072

(a)

Deductions related to the allowance for doubtful accounts represent amounts written off against the allowance.

S-2

QuickLinks

PART I

Item 1. Business

Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure

PART III

Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Management and Certain Beneficial Owners
Item 13. Certain Relationships and Related Transactions

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

EX-10.13

QuickLinks -- Click here to rapidly navigate through this document

LEASE AGREEMENT
between
WATERFRONT TOWER PARTNERS, L.P.
as "Landlord"
and
SERENA SOFTWARE, INC.
as "Tenant"
(Suite 240)

TABLE OF CONTENTS

SECTION			PAGE
1.	PREMISES; PROJECT; COMMON AREAS		4
	1.1	Premises	4
	1.2	Project	4
	1.3	Common Areas	4
2.	TERM; POSSESSION		4
	2.1	Term	4
	2.2	Delivery of Possession	4
	2.3	Early Entry	5
3.	RENT		5
	3.1	Base Rent	5
	3.2	Additional Rent: Increases in Operating Costs and Taxes	5
		(a)  Definitions	5
		(b)  Additional Rent	6
	3.3	Parking Rent	7
	3.4	Payment of Rent	8
4.	SECURITY DEPOSIT		8
5.	USE AND COMPLIANCE WITH LAWS		8
	5.1	Use	8
	5.2	Hazardous Materials	8
		(a)  Definitions	8
		(b)  Tenant's Covenants	9
		(c)  Compliance	9
		(d)  Landlord's Rights	10
		(e)  Tenant's Indemnification	10
6.	ALTERATIONS		10
	6.1	Restrictions on Tenant's Alterations	10
	6.2	Plans and Permits	11
	6.3	Liens	11
	6.4	Trade Fixtures	11
	6.5	Signs	11
7.	MAINTENANCE AND REPAIRS		11
	7.1	Tenant's Obligations	11
	7.2	Landlord's Obligations	12
	7.3	Alteration Rights Reserved to Landlord	12
8.	TENANTS TAXES		12
9.	UTILITIES AND SERVICES		13
	9.1	Description of Services	13
	9.2	Payment for Additional Utilities and Services	13
	9.3	Interruption of Services	13
10.	EXCULPATION AND INDEMNIFICATION		14
	10.1	Exculpation of Landlord	14
	10.2	Indemnification of Landlord	14
	10.3	Survival of Obligations	14
11.	INSURANCE		15

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	11.1	Tenant's Insurance	15
		(a)  Liability Insurance	15
		(b)  Personal Property Insurance	15
		(c)  Workmen's Compensation Insurance	15
		(d)  Business Interruption/Extra Expense Insurance	15
		(e)  Other Coverage	15
		(f)  Insurance Criteria	15
		(g)  Increase in Amount of Insurance	16
		(h)  Insurance Provisions	16
		(i)  Evidence of Coverage	16
	11.2	Landlord's Insurance	16
	11.3	Waiver of Subrogation	16
12.	DAMAGE OR DESTRUCTION		17
	12.1	Landlord's Duty to Repair	17
	12.2	Landlord's Right to Terminate	17
	12.3	Tenant's Right to Terminate	17
	12.4	Waiver	17
13.	CONDEMNATION		18
	13.1	Definitions	18
	13.2	Effect on Lease	18
	13.3	Restoration	18
	13.4	Abatement and Reduction of Rent	18
	13.5	Awards	19
	13.6	Waiver	19
14.	ASSIGNMENT AND SUBLETTING		19
	14.1	Landlord's Consent Required	19
	14.2	Procedure for Obtaining Consent	19
	14.3	Excess Consideration	20
	14.4	No Release Of Tenant	20
	14.5	Expenses and Attorney's Fees	20
	14.6	Effectiveness of Transfer	20
	14.7	Landlord's Right to Space	20
	14.8	Assignment of Sublease Rents	21
	14.9	Assignment and Subletting of Parking Spaces	21
15.	DEFAULT AND REMEDIES		21
	15.1	Events of Default	21
	15.2	Remedies	22
16.	LATE CHARGE AND INTEREST		23
	16.1	Late Charge	23
	16.2	Interest	23
17.	WAIVER		23
18.	ENTRY, INSPECTION AND CLOSURE		23
19.	SURRENDER AND HOLDING OVER		24
	19.1	Surrender	24
	19.2	Holding Over	24
20.	ENCUMBRANCES		24
	20.1	Subordination	24
	20.2	Mortgagee Protection	25

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	20.3	Lease Modifications	25
21.	ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS		25
	21.1	Estoppel Certificates	25
	21.2	Financial Statements	26
22.	NOTICES		26
23.	ATTORNEYS' FEES		26
	23.1	Disputes between Landlord and Tenant	26
	23.2	Other Litigation	26
24.	QUIET POSSESSION		26
25.	SECURITY MEASURES		26
26.	FORCE MAJEURE		27
27.	RULES AND REGULATIONS		27
28.	LANDLORD'S LIABILITY		27
29.	CONSENTS AND APPROVALS		27
	29.1	Determination in Good Faith	27
	29.2	No Liability Imposed on Landlord	28
30.	BROKERS		28
31.	RELOCATION OF PREMISES		28
32.	ENTIRE AGREEMENT		29
33.	PARKING RULES		29
34.	GENERAL		29
	34.1	Captions	29
	34.2	Executed Copy	29
	34.3	Time	29
	34.4	Severability	29
	34.5	Choice of Law	29
	34.6	Gender; Singular; Plural	29
	34.7	Binding Effect	29
	34.8	Waiver	29
	34.9	Exhibits	30
35.	AUTHORITY		30
36.	MODIFICATIONS		40

iii

INDEX OF DEFINED TERMS

	PAGE
Additional Rent	5-8, 16, 20, 22, 24-26, 30, 34
Alterations	9, 12-15, 18, 20, 22, 28, 46
Award	21, 22, 26
Base Operating Costs	6, 7
Base Taxes	6-8
Broker	2, 19, 33
Building	1, 2, 4, 6-15, 18-22, 24, 28, 29, 32-35, 38, 41, 43-48
Building Rules	2, 9, 32, 43, 44, 47
Building Systems	9, 12, 14
Business Days	15, 16, 23, 40
Business Hours	2, 15
Changes	4, 7, 12, 28, 38-40
Claims	12, 17, 28, 29, 33
Commencement Date	1, 4, 5, 30, 39-42
Commencement Date Memorandum	5, 42
Common Areas	4, 6, 14, 43-46
Condemnation	21, 22, 28
Condemnor	21, 22
Construction Rider	2, 5, 32, 38, 40
Controls	14
Date of Condemnation	21, 22
Encumbrance	29, 30
Environmental Losses	10, 12
Environmental Requirements	10-12
Estoppel Certificate	25, 30, 31
Event of Default	9, 23, 25-27, 30, 31, 40, 47
Expiration Date	1, 4, 5
Ground Lessor	30, 31
Handled by Tenant	10, 11
Handling by Tenant	10-12
Hazardous Materials	10-12
HVAC	9, 15
Interest Rate	13, 15, 27
Land	4, 19, 21
Landlord	1-36, 38-49
Laws	6, 9-12, 20, 22, 27, 35, 43
Lease Year	5
Medical Waste	10, 11
Mortgagee	19, 22, 29-31
New Premises	34
Operating Costs	6-8

iv

INDEX OF DEFINED TERMS

Parking Facility	4, 14, 35, 46, 48, 49
Parking Rent	8, 9
Parking Rules	2, 35, 46, 48, 49
Premises	1, 2, 4, 5, 7, 9-32, 34, 37-46
Project	1, 4, 6, 7, 12, 14, 24, 34, 44, 45
Property	2, 4, 6-15, 17-22, 24, 26-34, 41, 44, 46, 48
Property Manager	2, 19
Prospective Purchaser	30, 31
Relocation Notice	34
Rent	1, 2, 5-9, 14-16, 20, 22, 24-30, 34, 35
Rent Commencement Date	30
Rentable Area	1, 4, 7, 15
Rental Tax	14, 15
Representatives	10, 11, 14, 16-19, 23, 28, 32-34, 40, 41, 43-46
Scheduled Commencement Date	1, 5, 39, 40
Security Deposit	1, 9, 25
Service Failure	16
Space Plan	38-40
Space Planner	38-40
Sublease Profits	24
Substantially Completed	4, 39, 40
Taxes	6-8, 14, 15
Tenant	1-5, 7-36, 38-48
Tenant Delay	4, 5
Tenant Improvements	4, 12, 13, 15, 19, 28, 34, 38-41
Tenant's Share	1, 7, 8, 25
Tenant's Taxes	7, 14, 15
Term	1, 4, 5, 7-9, 12, 13, 17-23, 26, 28, 30, 32-35, 48
Trade Fixtures	13-15, 18, 20, 22, 26, 28, 34
Transfer	21, 23-25
Transfer Date	23-25
Transferee	23-25, 29, 31
Visitors	10, 11, 14, 16-18, 23, 32, 33, 44-46, 48

v

BASIC LEASE INFORMATION

Lease Date:		For identification purposes only, the date of this Lease is June 21, 1999
Landlord:		Waterfront Tower Partners, L.P., a California limited partnership
Tenant:		SERENA Software International, Inc. a California corporation
Project:		Waterfront Plaza
Building:		500 Airport Blvd., Burlingame, California 94010
Rentable Area of Building:		101,035 square feet
	Premises:	Floor: Second Suite Number: 240 Rentable area: 3,457 square feet ("rsf")
Term:		60 Months
Scheduled Commencement Date:		July 1, 1999
Expiration Date:		June 30, 2004
Base Rent:		Year 1: $3.00 per rsf/month, Ten Thousand Three Hundred Seventy-One and 00/100 Dollars ($10,371.00)/month, or One Hundred Twenty-Four Thousand Four Hundred Fifty-Two and 00/100 Dollars ($124,452.00) for Year 1; Year 2: $3.10 per rsf/month, Ten Thousand Seven Hundred Sixteen and 80/100 Dollars ($10,716.70.)/month, or One Hundred Twenty-Eight Thousand Six Hundred and 40/100 Dollars ($128,600.40) for Year 2; Year 3: $3.20 per rsf/month, Eleven Thousand Sixty-Two and 40/100 Dollars ($11,062.40)/month, or One Hundred Thirty-Two Thousand Seven Hundred Forty-Eight and 80/100 Dollars ($132,748.80) for Year 3; Year 4: $3.30 per rsf/month, Eleven Thousand Four Hundred Eight and 10/100 Dollars ($11,408.10)/month, or One Hundred Thirty-Six Thousand Eight Hundred Ninety-Seven and 20/100 Dollars ($136,897.20) for Year 4; Year 5: $3.40 per rsf/month, Eleven Thousand Seven Hundred Fifty-Three and 80/100 Dollars ($11,753.80)/month, or One Hundred Forty-One Thousand Forty-Five and 60/100 Dollars ($141,045.60).
Base Year:		The calendar year 1999
Tenant's Share:		3.42% (rsf/Rentable Area of Building, adjusted and increased proportionately to include any Expansion Space leased to Tenant)
Security Deposit:		Eleven Thousand Seven Hundred Fifty-Three and 80/100 Dollars ($11,753.80)
Parking Spaces:		No Charge for Non-Assigned Spaces in the Open Area.

1

	Subterranean:		None at $30.00 per month on a month to month basis.
Landlord's Address for Payment of Rent:			Waterfront Tower Partners, L. P. c/o Rear Gear 891-108 Laurelwood Rd. Santa Clara, CA 95054
Business Hours:			8:00 a.m. to 6:00 p.m. Monday through Friday excluding Holidays on which California banks are closed for business
Standard Electrical Usage:			1.20 kilowatt-hours per rentable square foot per month
Landlord's Address for Notices:			Waterfront Tower Partners, L.P. c/o Rear Gear 891-108 Laurelwood Rd. Santa Clara, CA 95054
Tenant's Address for Notices:			SERENA Software International, Inc. Attn: Legal Department 500 Airport Blvd. Suite 200 Burlingame, CA 94010
Broker:			None
Guarantor(s):			None
Property Manager:			Angelo Orphan, Peninsula Office Management, Inc.
Additional Provisions:
	Exhibits:
		Exhibit A:*	The Premises
		Exhibit B:	Construction Rider (Intentionally Omitted, Pages 38-41, Not Applicable)
		Exhibit C:	Commencement Date Memorandum
		Exhibit D:	Building Rules
		Exhibit E:	Parking Rules and Regulations
		Exhibit F:	Additional Provisions
* Page 37

The Basis Lease Information set forth above is incorporated into and made a part of the Lease and capitalized terms shall be defined terms in the Lease. In the event of any conflict between any Basic Lease Information and the Lease, the Lease shall control.

2

IN WITNESS WHEREOF, the Landlord and Tenant described above have executed this set of Basic Lease Information as of the Lease Date set forth above.

LANDLORD:		TENANT:
Waterfront Tower Partners, L.P., a California limited partnership,		SERENA Software International, Inc., a California corporation,
By:	Peninsula Office Management, Inc., a California Corporation, General Partner	By:	/s/ ROBERT I. PENDER, JR.
		Its:	CFO & VP FINANCE
By:	/s/ ANGELO ORPHAN Angelo Orphan, President	By:
		Its:

3

LEASE AGREEMENT

    THIS LEASE is made as of the Lease Date set forth in the Basic Lease Information, by and between the Landlord identified in the Basic Lease Information ("Landlord"), and the Tenant identified in the Basic Lease Information ("Tenant"). Landlord and Tenant hereby agree as follows:

1.  PREMISES; PROJECT; COMMON AREAS.

    1.1  Premises.  Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, upon the terms and subject to the conditions of this Lease, the office space identified in the Basic Lease Information (the "Premises") in the Building identified in the Basic Lease Information (the "Building"). The approximate configuration and location of the Premises is shown on Exhibit A. Landlord and Tenant agree that the rentable area of the Premises (the "Rentable Area") for all purposes under this Lease shall be the Rentable Area specified in the Basic Lease Information.

    1.2  Project.  The Project identified in the Basic Lease Information (the "Project") includes the Building, the parking facilities serving the Building (the "Parking Facility"), and the parcel(s) of Land on which the Building and the Parking Facility are situated (the "Land"). The Building, the Parking Facility and the Land are sometimes collectively referred to in this Lease as the "Property."

    1.3  Common Areas.  For the purposes of this Lease the "Common Areas" shall be all areas and facilities appurtenant to the Building provided and designated by Landlord for the general use and convenience of Tenant and other tenants and occupants of the Building, including, without limitation, lobbies, interior hallways, entrances, stairways, elevators, designated parking areas, sidewalks, driveways, landscaped areas, service areas, trash disposal facilities, and similar areas and facilities, subject to the reasonable rules and regulations and changes therein from time to time promulgated by landlord governing the use of the Common Areas. Landlord shall at all times have exclusive control of the Common Areas and may at any time temporarily close any part thereof, exclude and restrain anyone from any part thereof, except the bona fide customers, employees and invitees of tenants who use the Common Areas in accordance with the rules and regulations as Landlord may from time to time promulgate, and may change the configuration or location of the Common Areas. In exercising any such rights, Landlord shall make a reasonable effort to minimize any disruption of Tenant's business.

2.  TERM; POSSESSION.

    2.1  Term.  The term of this Lease (the "Term") shall commence on the Commencement Date described below and, unless sooner terminated, shall expire on the Expiration Date set forth in the Basic Lease Information (the "Expiration Date"). The "Commencement Date" shall be the Scheduled Commencement Date set forth in the Basic Lease Information (the "Scheduled Commencement Date"). When the Commencement Date has been established, Landlord and Tenant shall confirm the Commencement Date and Expiration Date in writing in the "Commencement Date Memorandum" attached as Exhibit C. As used in this Lease, the first "Lease Year" shall be the period from (and including) the Commencement Date through (and including) the last day of the calendar month in which the first anniversary of the Commencement Date falls, and each period of twelve full consecutive calendar months thereafter shall be a subsequent Lease Year.

    2.2  Delivery of Possession.  If Landlord is unable to deliver possession of the Premises to Tenant on the Scheduled Commencement Date, Landlord shall not be subject to liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Tenant. In such case, Tenant shall not be obligated to pay rent or perform any other obligations of Tenant under this Lease, except as may otherwise be provided for herein, until possession of the Premises is tendered to Tenant; provided, however, if Landlord has not delivered possession of the Premises within ninety (90) days from the Scheduled Commencement Date, subject to force majeure and any Tenant Delays, Tenant may, at Tenant's option with notice in writing to Landlord within ten (10) days thereafter, cancel this Lease. If

4

such notice is not received by Landlord within such ten (10) day period, Tenant's right to cancel this Lease shall terminate and be of no further force and effect.

    2.3  Early Entry.  If Tenant is permitted to occupy the Premises prior to the Commencement Date for the purpose of fixturing or any other purpose permitted by Landlord, such early entry shall be at Tenant's sole risk and subject to all the terms and provisions hereof, except for the payment of any Base Rent or Additional Rent which shall commence on the Commencement Date. Landlord shall have the right to impose such additional conditions on Tenant's early entry as Landlord shall deem appropriate, and shall further have the right to require that Tenant execute an early entry license agreement containing such conditions prior to Tenant's early entry.

3.  RENT.

    3.1  Base Rent.  Tenant agrees to pay to Landlord the Base Rent set forth in the Basic Lease Information, without prior notice or demand, on the first day of each and every calendar month during the Term, except that Base Rent for the first full calendar month in which Base Rent is payable shall be paid upon execution of this Lease and Base Rent for any partial month at the beginning of the Term shall be paid on the Commencement Date. Base Rent for any partial month at the beginning or end of the Term shall be prorated based on the actual number of days in the month.

    3.2  Additional Rent: Increases in Operating Costs and Taxes.

    (a)  Definitions.

    (1)  "Base Operating Costs" means Operating Costs for the calendar year specified as the "Base Year" in the Basic Lease Information (excluding therefrom, however, any Operating Costs of a nature that would not ordinarily be incurred on an annual, recurring basis).

    (2)  "Base Taxes" means Taxes for the calendar year specified as the Base Year in the Basic Lease Information.

    (3)  "Operating Costs" means all costs of managing, operating, maintaining and repairing the Property, computed on an accrual basis, including all costs, expenditures, fees and charges for: (A) operation, maintenance and repair of the Property (including but not limited to maintenance, repair and replacement of glass, the roof covering or membrane, and landscaping); (B) utilities and services which are not separately metered to Premises (including telecommunications facilities and equipment, recycling programs and trash removal), and associated supplies and materials; (C) compensation (including employment taxes and fringe benefits) for all persons who perform duties in connection with the operation, maintenance and repair of the Property; (D) all supplies and materials used in the operation, repair, replacement and maintenance of the Building and Common Areas; (E) property (including coverage for earthquake and flood if required to be carried by Landlord), liability, rental income and other insurance relating to the Property, and expenditures for deductible amounts paid under such insurance; (F) licenses, permits and inspections; (G) complying with the requirements of any law, statute, ordinance or governmental rule or regulation or any orders pursuant thereto (collectively "Laws"); (H) amortization of capital improvements required to comply with Laws, or which are intended to reduce Operating Costs or improve the utility, efficiency or capacity of any Building System, with interest on the unamortized balance at the rate paid by Landlord on funds borrowed to finance such capital improvements (or, if Landlord finances such improvements out of Landlord's funds without borrowing, the rate that Landlord would have paid to borrow such funds, as reasonably determined by Landlord), over such useful life as Landlord shall reasonably determine; (I) an office in the Building for the management of the Project, including expenses of furnishing and equipping such office only once every five years and the rental value of any space not to exceed 684 RSF occupied for such purposes; (J) property management fees for the Property (if such fees are charged by

5

the Landlord or any of its affiliated or associated entity, then such fees shall not exceed property management fees which would be charged by a professional property management entity for managing projects in the Project's vicinity that are comparable to the Project; (K) accounting, legal and other professional services incurred in connection with the operation of the Project and the calculation of Operating Costs and Taxes; (L) a reasonable allowance for depreciation on machinery and equipment used to maintain the Property and on other personal property owned by Landlord in the Property (including window coverings and carpeting in common areas); (M) contesting the validity or applicability of any Laws that may affect the Property; (N) the Building's share of any shared or common area maintenance fees and expenses; and (O) any other expense or charge, whether or not hereinbefore described, which in accordance with generally accepted property management practices would be considered an expense of managing, operating, maintaining and repairing the Property.

    Operating Costs shall not include (i) capital improvements (except as otherwise provided above); (ii) costs of special services rendered to individual tenants (including Tenant) for which a special charge is made; (iii) interest and principal payments on loans or indebtedness secured by the Project; (iv) costs of improvements for Tenant or other tenants of the Building; (v) costs of services or other benefits of a type which are not available to Tenant but which are available to other tenants or occupants, and costs for which Landlord is reimbursed by other tenants of the Building other than through payment of tenants' shares of increases in Operating Costs and Taxes; (vi) leasing commissions, attorneys' fees and other expenses incurred in connection with leasing space in the Building or enforcing such leases; (vii) depreciation or amortization, other than as specifically enumerated in the definition of Operating Costs above; and (viii) fines or penalties incurred due to Landlord's violation of any Law.

    (4)  "Taxes" means: all real property taxes and general, special or district assessments or other governmental impositions, of whatever kind, nature or origin, imposed on or by reason of the ownership or use of the Property; governmental charges, fees or assessments for transit or traffic mitigation (including area-wide traffic improvement assessments and transportation system management fees), housing, police, fire or other governmental service or purported benefits to the Property; personal property taxes assessed on the personal property of Landlord used in the operation of the Project; service payments in lieu of taxes and taxes and assessments of every kind and nature whatsoever levied or assessed in addition to, in lieu of or in substitution for existing or additional real or personal property taxes on the Property or the personal property described above; any increases in the foregoing caused by changes in assessed valuation, tax rate or other factors or circumstances; and the reasonable cost of contesting by appropriate proceedings the amount or validity of any taxes, assessments or charges described above. To the extent paid by Tenant or other tenants as "Tenant's Taxes" (as defined in Section 8), shall be excluded from Taxes.

    (5)  "Tenant's Share" means the Rentable Area of the Premises divided by the total Rentable Area of the Building, as set forth in the Basic Lease Information. If the Rentable Area of the Building is changed or the Rentable Area of the Premises is changed by Tenant's leasing of additional space hereunder or for any other reason, Tenant's Share shall be adjusted accordingly.

    (b)  Additional Rent.

    (1) Tenant shall pay Landlord as "Additional Rent" for each calendar year or portion thereof during the Term, Tenant's Share of the sum of (x) the amount (if any) by which Operating Costs for the period exceed Base Operating Costs, and (y) the amount (if any) by which Taxes for such period exceed Base Taxes.

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    (2) Prior to the end of the Base Year and each calendar year thereafter, Landlord shall notify Tenant of Landlord's estimate of Operating Costs, Taxes and Tenant's Additional Rent for the following calendar year. Commencing on the first day of January of each calendar year and continuing on the first day of every month thereafter in such year, Tenant shall pay to Landlord one-twelfth (1/12th) of the estimated Additional Rent. If Landlord thereafter estimates that Operating Costs or Taxes for such year, will vary From Landlord's prior estimate, Landlord may, by notice, revise the estimate for such year (and Additional Rent shall thereafter be payable based on the revised estimate).

    (3) As soon as reasonably practicable after the end of the Base Year and each calendar year thereafter, Landlord shall furnish Tenant a statement with respect to such year, showing Operating Costs, Taxes and Additional Rent for the year, and the total payments made by Tenant with respect thereto. Unless Tenant raises any objections to Landlord's statement within thirty (30) days after receipt of the same, such statement shall conclusively be deemed correct and Tenant shall have no right thereafter to dispute such statement or any item therein or the computation of Additional Rent based thereon. If Tenant does object to such statement, Landlord shall provide Tenant with reasonable verification of the figures shown on the statement and the parties shall negotiate in good faith to resolve any disputes. If the parties are unable to resolve such dispute in good faith within thirty (30) days, then either party may submit the matter to binding arbitration pursuant to Sections 1280 el seq. of the California Code of Civil Procedure. Any objection of Tenant to Landlord's statement and resolution of any dispute shall not postpone the time for payment of any amounts due Tenant or Landlord based on Landlord's statement, nor shall any failure of Landlord to deliver Landlord's statement in a timely manner relieve Tenant of Tenant's obligation to pay any amounts due Landlord based on Landlord's statement.

    (4) If Tenant's Additional Rent as finally determined for the year exceeds the total payments made by Tenant on account thereof, Tenant shall pay Landlord the deficiency within thirty (30) days of Tenant's receipt of Landlord's statement. If the total payments made by Tenant on account thereof exceed Tenant's Additional Rent as finally determined for the year, Tenant's excess payment shall be credited toward the rent next due from Tenant under this Lease. For any partial calendar year at the beginning or end of the Term, Additional Rent shall be prorated on the basis of a 365-day year by computing Tenant's Share of the increases in Operating Costs and Taxes for the entire year and then prorating such amount for the number of days during such year included in the Term. Notwithstanding the termination of this Lease; Landlord shall pay to Tenant or Tenant shall pay to Landlord, as the case may be, within thirty (30) days after Tenant's receipt of Landlord's final statement for the calendar year in which this Lease terminates, the difference between Tenant's Additional Rent for that year, as finally determined by Landlord, and the total amount previously paid by Tenant on account thereof. If for any reason Base Taxes or Taxes for any year during the Term are reduced, refunded or otherwise changed, Tenant's Additional Rent shall be adjusted accordingly. The obligations of Landlord to refund any overpayment of Additional Rent and of Tenant to pay any Additional Rent not previously paid shall survive the expiration of the Term. Notwithstanding anything to the contrary in this Lease, if there is at any time a decrease in Taxes below the amount of the Taxes for the Base Year, then for purposes of calculating Additional Rent for the year in which such decrease occurs and all subsequent periods, Base Taxes shall be reduced to equal the Taxes for the year in which the decrease occurs.

    3.3  Parking Rent.  In addition to Base Rent and Additional Rent, Tenant shall pay to Landlord the monthly parking rent (the "Parking Rent"), if any, identified in the Basic Lease Information. Such Parking Rent shall be payable, without prior notice or demand, on the first day of each and every calendar month during the Term. Parking Rent for any partial month at the beginning or end of the Term shall be prorated based on the actual number of days in the month.

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    3.4  Payment of Rent.  All amounts payable or reimbursable by Tenant under this Lease, including late charges and interest shall constitute rent (collectively, "Rent") and shall be payable and recoverable as Rent in the manner provided in this Lease. All sums payable to Landlord on demand under the terms of the Lease shall be payable within five (5) days after notice from Landlord of the amount due. All Rent shall be paid without offset, recoupment or deduction in lawful money of the United States of America to Landlord at Landlord's Address for Payment of Rent, as set forth in the Basic Lease Information or to such other person or at such other place as Landlord may from time to time designate.

4.  SECURITY DEPOSIT.

    On execution of this Lease, Tenant shall deposit with Landlord the sum (the "Security Deposit") set forth in the Basic Lease Information, in cash, as security for the performance of Tenants obligations under this Lease. Upon the Tenant leasing additional office space in the Building, the Security Deposit shall be increased by an amount equal to one month of the Tenant's Base Rent for the last month of the last year of Tenant's lease term for the additional space. Landlord may (but shall have no obligation to) use the Security Deposit or any portion thereof to cure any Event of Default under this Lease or to compensate Landlord for any damage Landlord incurs as a result of Tenant's failure to perform any of Tenant's obligations hereunder. In such event, Tenant shall immediately pay to Landlord an amount sufficient to replenish the Security Deposit to the sum initially deposited with Landlord. If Tenant is not in default at the expiration or termination of this Lease, Landlord within thirty (30) days shall return to Tenant the Security Deposit or the balance thereof then held by Landlord and not applied as provided above. Landlord may commingle the Security Deposit with Landlord's general and other funds, and Landlord shall not be required to pay interest on the Security Deposit to Tenant.

5.  USE AND COMPLIANCE WITH LAWS.

    5.1  Use.  The Premises shall be used for general business office purposes and for no other use or purpose. Tenant shall comply with all present and future Laws relating to Tenant's use or occupancy of the Premises (and make any repairs, alterations or improvements as required to comply with all such Laws), and shall observe the Building Rules (as defined in Section 27). Tenant shall not do, bring, keep or sell anything in or about the Premises that is prohibited by or that will cause a cancellation of or an increase in the existing premium for, any insurance policy covering the Property or any part thereof. Tenant shall not permit the Premises to be occupied or used in any manner that will constitute waste or a nuisance, or disturb the quiet enjoyment of or otherwise annoy other tenants in the Building. Without limiting the foregoing, the Premises shall not be used for educational activities, practice of medicine or any of the healing arts, providing social services, or for any governmental use (including embassy or consulate use). Tenant shall not, without the prior consent of Landlord, (i) bring into the Building or the Premises anything that may cause substantial noise, odor or vibration, overload the floors in the Premises or the Building or any of the heating , ventilating and air conditioning ("HVAC"), mechanical, elevator, plumbing, electrical, fire protection, life safety, security or other systems in the Building ("Building Systems"), or jeopardize the structural integrity of the Building, the Property or any part thereof; (ii) connect to the utility systems of the Building any apparatus, machinery or other equipment other than typical office equipment; or (iii) connect (directly, or indirectly through use of intermediate devices, electrified strip molding, or otherwise) to any electrical circuit in the Premises any equipment or other load with aggregate electrical power requirements in excess of 80% of the rated capacity of the circuit.

    5.2  Hazardous Materials.

    (a)  Definitions.

    (1)  "Hazardous Materials" shall mean any substance: (A) that now or in the future is regulated or governed by, requires investigation or remediation under, or is defined as a hazardous waste, hazardous substance, pollutant or contaminant under any governmental

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statute, code, ordinance, regulation, rule or order, and any amendment thereto, including, for example only, the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.; (B) that is toxic, explosive, corrosive, flammable, radioactive, carcinogenic, dangerous or otherwise hazardous, including gasoline, diesel fuel, petroleum hydrocarbons, polychlorinated biphenyls (PCBs), asbestos, radon and urea formaldehyde foam insulation; or (C) that is governed or regulated by, or requires investigation, remediation or special handling under, the California Medical Waste Management Act at California Health and Safety Code Section 117600 et seq.

    (2)  "Environmental Requirements" shall mean all present and future Laws, orders, permits, licenses, approvals, authorizations and other requirements of any kind applicable to Hazardous Materials.

    (3)  "Handled by Tenant" and "Handling by Tenant" shall mean and refer to any installation, handling, generation, storage, use, disposal, discharge, release, abatement, removal, transportation, or any other activity of any type by Tenant or its agents, employees, contractors, licensees, assignees, sublessees, transferees or representatives (collectively, "Representatives") or its guests, customers, invitees, or visitors (collectively, "Visitors"), at or about the Premises in connection with or involving Hazardous Materials.

    (4)  "Environmental Losses" shall mean all costs and expenses of any kind, damages, including foreseeable and unforeseeable consequential damages, fines and penalties incurred in connection with any violation of and compliance with Environmental Requirements and all losses of any kind attributable to the diminution of value, loss of use or adverse effects on marketability or use of any portion of the Premises or Property.

    (b)  Tenant's Covenants.  No Hazardous Materials shall be Handled by Tenant at or about the Premises or Property without Landlord's prior written consent, which consent may be granted, denied, or conditioned upon compliance with Landlord's requirements, all in Landlord's absolute discretion. Notwithstanding the foregoing, normal quantities and use of those Hazardous Materials customarily used in the conduct of general office activities, such as copier fluids and cleaning supplies, or required by Laws for pharmacy activities, such as handling and disposal of used needles, syringes, catheters, tape, gauze, IV bags, bottles, tubing and similar customer-used medical administration devices ("Medical Waste") but not disposal of surgical, pathological or radiological Medical Waste ("Permitted Hazardous Materials"), may be used and stored at the Premises without Landlord's prior written consent, provided that Tenant's activities at or about the Premises and Property and the Handling by Tenant of all Hazardous Materials shall comply at all times with all Environmental Requirements. At the expiration or termination of the Lease, Tenant shall promptly remove from the Premises and Property all Hazardous Materials Handled by Tenant at the Premises or the Property. Tenant shall keep Landlord fully and promptly informed of all Handling by Tenant of Hazardous Materials other than Permitted Hazardous Materials. Tenant shall be responsible and liable for the compliance with all of the provisions of this Section by all of Tenant's Representatives and Visitors, and all of Tenant's obligations under this Section (including its indemnification obligations under subsection (e) below) shall survive the expiration or termination of this Lease.

    (c)  Compliance.  Tenant shall at Tenant's expense promptly take all actions required by any governmental agency or entity in connection with or as a result of the Handling by Tenant of Hazardous Materials at or about the Premises or Property, including inspection and testing, performing all cleanup, removal and remediation work required, with respect to those Hazardous Materials, complying with all closure requirements and postclosure monitoring, and filing all required reports or plans. All Medical Waste regulated by any Laws that is brought to the Premises shall be stored in leak-proof, closeable containers, which containers shall be stored in a specified

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"dirty storage area" of the Premises that shall be protected from leaks or any other type of contamination of the Premises. Tenant shall never use any of the Building's or Landlord's trash receptacles for disposing of any Medical Waste. All of the foregoing work and all Handling by Tenant of all Hazardous Materials shall be performed in a good, safe and workmanlike manner by consultants qualified and licensed to undertake such work and in a manner that will not interfere with any other tenant's quiet enjoyment of the Property or Landlord's use, operation, leasing and sale of the Property. Tenant shall deliver to Landlord prior to delivery to any governmental agency, or promptly after receipt from any such agency, copies of all permits, manifests, closure or remedial action plans, notices, and all other documents relating to the Handling by Tenant of Hazardous Materials at or about the Premises or Property. If any lien attaches to the Premises or the Property in connection with or as a result of the Handling by Tenant of Hazardous Materials, and Tenant does not cause the same to be released, by payment, bonding or otherwise, within ten (10) days after the attachment thereof, Landlord shall have the right but not the obligation to cause the same to be released and any sums expended by Landlord in connection therewith shall be payable by Tenant on demand.

    (d)  Landlord's Rights.  Landlord shall have the right, but not the obligation, to enter the Premises at any reasonable time (i) to confirm Tenant's compliance with the provisions of this Section, and (ii) to perform Tenant's obligations under this section if Tenant has failed to do so after reasonable notice to Tenant. Landlord shall also have the right to engage qualified Hazardous Materials consultants to inspect the Premises and review the Handling by Tenant of Hazardous Materials, including review of all permits, reports, plans, and other documents regarding same. Tenant shall pay to Landlord on demand the costs of Landlord's consultants' fees and all costs incurred by Landlord in performing Tenant's obligations under this section. Landlord shall use reasonable efforts to minimize any interference with Tenant's business caused by Landlord's entry into the Premises, but Landlord shall not be responsible for any interference caused thereby.

    (e)  Tenant's Indemnification.  Tenant agrees to indemnify, defend and hold harmless Landlord and its partners, shareholders, directors, officers, agents, employees or members and its or their partners, members, directors, officers, shareholders, employees and agents from all Environmental Losses and all other claims, actions, losses, damages, liabilities, costs and expenses of every kind, including reasonable attorneys', experts' and consultants' fees and costs, incurred at any time and arising from or connection with the Handling by Tenant of Hazardous Materials at or about the Property or Tenant's failure to comply in full with all Environmental Requirements with respect to the Premises.

6.  ALTERATIONS.

    6.1  Restrictions on Tenant's Alterations.  Tenant shall not make any alterations, improvements or changes to the Premises (including installation of any security system or telephone or data communication wiring), other than the Tenant Improvements ("Alterations"), without Landlord's prior written consent which consent shall not be unreasonably withheld. Notwithstanding the foregoing, Landlord shall have the right to withhold consent to any structural Alterations in its sole and absolute discretion. Any such Alterations shall be completed by Tenant at Tenant's sole cost and expense: (a) with due diligence, in a good and workmanlike manner, using new materials; (b) in compliance with plans and specifications approved by Landlord; (c) in compliance with the construction rules and regulations promulgated by Landlord from time to time; (d) in accordance with all applicable Laws (including all work, whether structural or nonstructural, inside or outside the Premises, required to comply fully with all applicable Laws and necessitated by Tenant's work); and (e) subject to all conditions which Landlord may in Landlord's discretion impose. Such conditions may include requirements for Tenant to: (i) provide payment or performance bonds or additional insurance (from Tenant or Tenant's contractors, subcontractors or design professionals); (ii) use contractors or subcontractors designated by Landlord; and (iii) remove all or part of the Alterations prior to or upon

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expiration or termination of the Term, as designated by Landlord. If any work outside the Premises, or any work on or adjustment to any of the Building Systems, or the Project, is required in connection with or as a result of Tenant's work, such work shall be performed at Tenant's expense by contractors designated by Landlord. Landlord's right to review and approve (or withhold approval of) Tenant's plans, drawings, specifications, contractor(s) and other aspects of construction work proposed by Tenant is intended solely to protect Landlord, the Property and Landlord's interests. No approval or consent by Landlord shall be deemed or construed to be a representation or warranty by Landlord as to the adequacy, sufficiency, fitness or suitability thereof or compliance thereof with applicable Laws or other requirements. Except as otherwise provided in Landlord's consent, all Alterations shall upon installation become part of the realty and be the property of Landlord.

    6.2  Plans and Permits.  Before making any Alterations, Tenant shall submit to Landlord, for Landlord's prior written approval, reasonably detailed final plans and specifications prepared by a licensed architect or engineer, a copy of the construction contract, including the name of the contractor and all subcontractors proposed by Tenant to make the Alterations and a copy of the contractor's license. Tenant shall reimburse Landlord upon demand for any expenses incurred by Landlord in connection with any Alterations made by Tenant, including reasonable fees charged by Landlord's contractors or consultants to review plans and specifications prepared by Tenant and to update the existing as-built plans and specifications of the Building to reflect the Alterations. Tenant shall obtain all applicable permits, authorizations and governmental approvals and deliver copies of the same to Landlord before commencement of any Alterations.

    6.3  Liens.  Tenant shall keep the Premises and the Property free and clear of all liens arising out of any work performed, materials furnished or obligations incurred by Tenant. If any such lien attaches to the Premises or the Property, and Tenant does not cause the same to be released by payment, bonding or otherwise within ten (10) business days after the attachment thereof, Landlord shall have the right but not the obligation to cause the same to be released, and any sums expended by Landlord in connection therewith shall be payable by Tenant on demand with interest thereon from the date of expenditure by Landlord at the Interest Rate (as defined in Section 16.2). Tenant shall give Landlord at least ten (10) Business days' notice prior to the commencement of any Alterations and cooperate with Landlord in posting and maintaining notices of non-responsibility in connection therewith.

    6.4  Trade Fixtures.  Subject to the provisions of Section 5 and the foregoing provisions of this Section, Tenant may install and maintain furnishings, equipment, movable partitions, business equipment and other trade fixtures (collectively "Trade Fixtures") in the Premises provided that the Trade Fixtures do not become an integral part of the Premises or the Building. Tenant shall promptly repair any damage to the Premises or the Building caused by any installation or removal of such Trade Fixtures.

    6.5  Signs.  The location, size, design, color and other physical aspects of any Tenant identification sign on the Premises shall be subject to the Landlord's written approval prior to installation, which shall not be unreasonably withheld, and any appropriate municipal or other governmental approvals. No Tenant identification sign is allowed on the exterior walls of the Building or in the Common Areas without the prior approvals or authorizations from municipal authorities, and without the prior written approval from the Landlord before installation; such Landlord approval may be withheld by the Landlord at its sole discretion. The cost of the sign, any approvals or authorizations from municipal authorities, its installation, maintenance and removal costs shall be at Tenant's sole expense. If Tenant fails to maintain its sign, or, if Tenant fails to remove its sign upon termination of this Lease, Landlord may do so at Tenant's expense and Tenant's reimbursement to Landlord shall be payable in accordance with Section 3.4 hereof.

7.  MAINTENANCE AND REPAIRS

    7.1  Tenant's Obligations.  By taking possession of the Premises, Tenant agrees that the Premises are then in a good and tenantable condition. During the Term, Tenant, at Tenant's expense but under

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the direction of Landlord, shall repair and maintain the Premises, including the interior walls, floor coverings, ceiling (ceiling tiles and grid), Tenant Improvements, Alterations, fire extinguishers, outlets and fixtures, and any appliances (including dishwashers, hot water heaters and garbage disposers) in the Premises in reasonably good condition, and keep the Premises in a clean, safe and orderly condition.

    7.2  Landlord's Obligations.  Landlord shall maintain or cause to be maintained in reasonably good order, condition and repair, the structural portions of the roof, foundations, floors and exterior walls of the Building, the Building Systems, and the Common Areas of the Property, such as elevators, stairs, corridors and restrooms; provided, however, that Tenant shall pay the cost of repairs for damage occasioned by Tenant's use of the Premises or the Property or any act or omission of Tenant or Tenant's Representatives or Visitors. Landlord shall be under no obligation to inspect the Premises. Tenant shall promptly report in writing to Landlord any defective condition known to Tenant which Landlord is required to repair. As a material part of the consideration for this Lease, Tenant hereby waives any benefits of any applicable existing or future Law, including the provisions of California Civil Code Sections 1932(l), 1941 and 1942, that allow a tenant to make repairs at its landlord's expense.

    7.3  Alteration Rights Reserved to Landlord.  Landlord hereby reserves the right, at any time and from time to time, without liability to Tenant, and without constituting an eviction, constructive or otherwise, or entitling Tenant to any abatement of rent or to terminate this Lease or otherwise releasing Tenant from any of Tenant's obligations under this Lease:

    (a) To make alterations, additions, repairs, improvements to or in, or to decrease the size of area of, all or any part of the Building, the fixtures and equipment therein, and the Building Systems, the Parking Facility or any part of the Project;

    (b) To change the Building's name or street address;

    (c) To install and maintain any and all signs on the exterior and interior of the Building;

    (d) To reduce, increase, enclose or otherwise change at any time and from time to time the size, number, location, lay-out and nature of the Common Areas and other tenancies and premises in the Property and to create additional rentable areas through use or enclosure of the Common Areas; and

    (e) If any governmental authority promulgates or revises any Law or imposes mandatory or voluntary controls or guidelines on Landlord or the Property relating to the use or conservation of energy or utilities or the reduction of automobile or other emissions or reduction or management of traffic or parking on the Property (collectively "Controls"), to comply with such Controls, whether mandatory or voluntary, or make any alterations to the Property related thereto.

8.  TENANTS TAXES.

    "Tenant's Taxes" shall mean (a) all taxes, assessments, license fees and other governmental charges or impositions levied or assessed against or with respect to Tenant's personal property or Trade Fixtures in the Premises, whether any such imposition is levied directly against Tenant or levied against Landlord or the Property, (b) all rental, excise sales or transaction privilege taxes arising out of this Lease (excluding, however, state and federal personal or corporate income taxes measured by the income of Landlord from all sources) imposed by any taxing authority upon Landlord or upon Landlord's receipt of any rent payable by Tenant pursuant to the terms of this Lease ("Rental Tax"), and (c) any increase in Taxes attributable to inclusion of a value placed on Tenant's personal property, Trade Fixtures or Alterations. Tenant shall pay any Rental Tax to Landlord in addition to and at the same time as Base Rent is payable under this Lease, and shall pay all other Tenant's Taxes before delinquency (and, at Landlord's request, shall furnish Landlord satisfactory evidence thereof). If Landlord pays Tenant's Taxes or any portion thereof, Tenant shall reimburse Landlord upon demand for the amount of such payment, together with interest at the Interest Rate from the date of Landlord's payment to the date of Tenant's reimbursement.

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9.  UTILITIES AND SERVICES.

    9.1  Description of Services.  Landlord shall furnish to the Premises reasonable amounts of electricity, water, heat and air conditioning, and janitorial service. Landlord shall also furnish normal fluorescent tube replacement, window washing, elevator service, and common area toilet room supplies. Landlord shall furnish electricity, heat, ventilation and air conditioning during the Business Hours specified in the Basic Lease Information ("Business Hours") on weekdays except public holidays ("Business Days"). Any additional utilities or services that Landlord may agree to provide (including lamp or tube replacement for other than Building Standard lighting Fixtures) provide in shall be at Tenant's sole expense.

    9.2  Payment for Additional Utilities and Services.

    (a) Upon request by Tenant in accordance with the procedures established by Landlord from time to time for furnishing HVAC service at times other than Business Hours on Business Days, Landlord shall furnish such service to Tenant and Tenant shall pay for such services on an hourly basis at the then prevailing rate established for the Building by Landlord.

    (b) If the temperature otherwise maintained in any portion of the Premises by the HVAC systems of the Building is affected as a result of (i) any lights, machines or equipment used by Tenant in the Premises, or (ii) the occupancy of the Premises by more than one person per two hundred (200) square feet of rentable area, then Landlord shall have the right to install any machinery or equipment reasonably necessary to restore the temperature, including modifications to the standard air conditioning equipment. The cost of any such equipment and modifications, including the cost of installation and any additional cost of operation and maintenance of the same, shall be paid by Tenant to Landlord upon demand.

    (c) If Tenant's usage of electricity exceeds the Building's Standard Electrical Usage as set forth in the Basic Lease Information, Landlord may determine the amount of such excess use by any reasonable means (including the installation at Landlord's request but at Tenant's expense of a separate meter or other measuring device) and charge Tenant for the cost of such excess usage. In addition, Landlord may impose a reasonable charge for the use of any additional or unusual janitorial services required by Tenant because of any unusual Tenant Improvements or Alterations, the carelessness of Tenant or the nature of Tenant's business (including hours of operation).

    9.3  Interruption of Services.  In the event of an interruption in or failure or inability to provide any services or utilities to the Premises or Building for any reason (a "Service Failure"), such Service Failure shall not, regardless of its duration, impose upon Landlord any liability whatsoever, constitute an eviction of Tenant, constructive or otherwise, entitle Tenant to an abatement of rent or to terminate this Lease or otherwise release Tenant from any of Tenant's obligations under this Lease.

    (a) Notwithstanding the foregoing, if any Service Failure not caused by Tenant or its Representatives or Visitors directly prevents Tenant from reasonably using a material portion of the Premises, and Tenant in fact ceases to use such portion of the Premises, Tenant shall be entitled to an abatement of Base Rent and Additional Rent with respect to the portion of the Premises that Tenant is prevented from using by reason of such Service Failure in the following circumstances: (i) if Landlord fails to commence reasonable efforts to remedy the Service Failure within ten (10) Business Days following the occurrence of the Service Failure or fails thereafter to pursue diligently reasonable action to remedy the Service Failure, the abatement of Rent shall commence on the eleventh (11th) Business Day following the Service Failure and continue for the balance of the period during which Tenant is so prevented from using such portion of the Premises; and (ii) if the Service Failure in all events is not remedied within thirty (30) days following the occurrence of the Service Failure and Tenant in fact does not use such portion of the Premises for an uninterrupted period of thirty (30) days or more by reason of such Service Failure,

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the abatement of Rent shall commence no later than the thirty-first (31st) day following the occurrence of the Service Failure and continue for the balance of the period during which Tenant is so prevented from using such portion of the Premises.

    (b) If a Service Failure is caused by Tenant or its Representatives or Visitors, Landlord shall nonetheless remedy the Service Failure at the expense of Tenant pursuant to Landlord's maintenance and repair obligations under Section 7 or Section 12.1, as the case may be, but Tenant shall not be entitled to an abatement of Rent or to terminate this Lease as a result of any such Service Failure.

    (c) Notwithstanding Tenant's entitlement to Rent abatement under the preceding provisions, Tenant shall continue to pay Tenant's then current Rent until such time as Landlord and Tenant agree on the amount of the Rent abatement. If Landlord and Tenant are unable to agree on the amount of such abatement within ten (10) Business Days of the date they commence negotiations regarding the abatement, then either party may submit the matter to binding arbitration pursuant to Sections 1280 et seq. of the California Code of Civil Procedure.

    (d) Where the cause of a Service Failure is within the control of a public utility or other public or quasi-public entity outside Landlord's control, notification to such utility or entity of the Service Failure and request to remedy the failure shall constitute "reasonable efforts" by Landlord to remedy the Service Failure.

    (e) Tenant hereby waives the provisions of California Civil Code Section 1932(1) or any other applicable existing or future law, ordinance or governmental regulation permitting the termination of this Lease due to such interruption, failure or inability.

10. EXCULPATION AND INDEMNIFICATION.

    10.1  Exculpation of Landlord.  Landlord shall not be liable to Tenant for any loss, injury or other damage to any person or property (including Tenant or Tenant's property) in or about the Premises or the Property from any cause, including defects in the Property or in any equipment in the Property; fire, explosion or other casualty; bursting, rupture, leakage or overflow of any plumbing or other pipes or lines, sprinklers, tanks, drains, drinking fountains or wash stands in, above, or about the Premises or the Property; or acts of other tenants in the Property. Tenant hereby waives all claims against Landlord for such damage and the cost and expense of defending against claims relating to such damage, except that Landlord shall indemnify, defend and hold Tenant harmless from and against any claims, actions, liabilities, damages, costs or expenses, including reasonable attorneys' fees and costs incurred in defending against the same ("Claims") for such damages, to the extent the same are caused by the willful or grossly negligent acts or omissions of Landlord or its authorized representatives. In no event, however, shall Landlord be liable to Tenant for any punitive or consequential damages or damages for loss of business by Tenant.

    10.2  Indemnification of Landlord.  Tenant shall indemnify, defend and hold Landlord harmless from and against Claims arising from (a) the acts or omissions of Tenant or Tenant's Representatives or Visitors in or about the Property, or (b) any construction or other work undertaken by Tenant on the Premises or the Property (including any design defects), or (c) any breach or default under this Lease by Tenant, or (d) any accident, injury or damage, howsoever and by whomsoever caused, to any person or property, occurring in or about the Premises or the Property during the Term; excepting only such Claims for any accident, injury or damage to the extent they are caused by the grossly negligent or willful acts or omissions of Landlord or its authorized representatives.

    10.3  Survival of Obligations.  The obligations of the parties under this Section 10 shall survive the expiration or termination of this Lease.

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11. INSURANCE.

    11.1  Tenant's Insurance.

    (a)  Liability Insurance.  Tenant shall maintain in full force throughout the Term commercial general liability and property damage insurance providing coverage on an occurrence form basis with limits of not less than Two Million Dollars ($2,000,000.00) each occurrence for bodily injury and property damage combined, Two Million Dollars ($2,000,000.00) annual general aggregate, and Two Million Dollars ($2,000,000.00) products and completed operations annual aggregate. Tenant's liability insurance policy or policies shall: (i) include premises and operations liability coverage, automobile, products and completed operations liability coverage, broad form property damage coverage including completed operations, blanket contractual liability coverage with, to the maximum extent possible, coverage for the indemnification obligations of Tenant under this Lease, and personal and advertising injury coverage; (ii) provide that the insurance company has the duty to defend all insureds under the policy; (iii) provide that defense costs are paid in addition to and do not deplete any of the policy limits; (iv) cover liabilities arising out of or incurred in connection with Tenant's use or occupancy of the Premises or the Property; and (v) extend coverage to cover liability for the actions of Tenant's Representatives and Visitors.

    (b)  Personal Property Insurance.  Tenant shall at all times maintain in effect with respect to any Alternations and Tenant's Trade Fixtures and personal property, commercial property insurance providing coverage, at a minimum, for "broad form" perils, to the extent of 100% of the full replacement cost of covered property. Tenant may carry such insurance under a blanket policy, provided that such policy provides equivalent coverage to a separate policy. During the Term, the proceeds from any such policies of insurance shall be used for the repair or replacement of the Alterations, Trade Fixtures and personal property so insured. Landlord shall be provided coverage under such insurance to the extent of its insurable interest and, if requested by Landlord, both Landlord and Tenant shall sign all documents reasonably necessary or proper in connection with the settlement of any claim or loss under such insurance. Landlord shall have no obligation to carry insurance on any Alterations or on Tenant's Trade Fixtures or personal property.

    (c)  Workmen's Compensation Insurance.  Tenant shall maintain worker's compensation insurance as required by law and employer's liability insurance in an amount not less than Five Hundred Thousand Dollars ($500,000).

    (d)  Business Interruption/Extra Expense Insurance.  Tenant shall maintain loss of income, business interruption and extra expense insurance, in such amounts as will reimburse Tenant for direct or indirect loss of earnings and incurred costs attributable to the perils commonly covered by Tenant's property insurance described above but in no event less than One Million Dollars ($1,000,000). Such insurance shall be carried with the same insurer that issues the insurance for the personal property.

    (e)  Other Coverage.  Tenant, at its cost, shall maintain such other insurance as Landlord may reasonably require from time to time, but in no event may Landlord require any other insurance which is (i) not then being required of comparable tenants leasing comparable amounts of space in comparable buildings in the vicinity of the Building or (ii) not then available at commercially reasonable rates.

    (f)  Insurance Criteria.  Each policy of insurance required under this Section shall: (i) be in a form, and written by an insurer, reasonably acceptable to Landlord, (ii) be maintained at Tenant's sole cost and expense, and (iii) require at least thirty (30) days' written notice to Landlord prior to any cancellation, nonrenewal or modification of insurance coverage. Insurance companies issuing such policies shall have rating classifications of "A" or better and financial size category ratings of "XIII" or better according to the latest edition of the A.M. Best Key Rating Guide. All insurance

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companies issuing such policies shall be licensed to do business in the State of California. Any deductible amount under such insurance shall not exceed $5,000. Tenant shall provide to Landlord, upon request, evidence that the insurance required to be carried by Tenant pursuant to this Section, including any endorsement affecting the additional insured status, is in full force and effect and that premiums therefore have been paid.

    (g)  Increase in Amount of Insurance.  Tenant shall increase the amounts of insurance as required by any Mortgagee, and, not more frequently than once every three (3) years, as recommended by Landlord's insurance broker, if, in the opinion of either of them, the amount of insurance then required under this Lease is not adequate. Any limits set forth in this Lease on the amount or type of coverage required by Tenant's insurance shall not limit the liability of Tenant under this Lease.

    (h)  Insurance Provisions.  Each policy of liability insurance required by this Section shall: (i) contain a cross liability endorsement or separation of insureds clause; (ii) provide that any waiver of subrogation rights or release prior to a loss does not void coverage; (iii) provide that it is primary to and not contributing with, any policy of insurance carried by Landlord covering the same loss; (iv) provide that any failure to comply with the reporting provisions shall not affect coverage provided to Landlord, its partners, property managers and Mortgagees; and (v) name Landlord, its partners, members, the Property Manager identified in the Basic Lease Information (the "Property Manager"), and such other parties in interest as Landlord may from time to time reasonably designate to Tenant in writing, as additional insureds. Such additional insureds shall be provided the same extent of coverage as provided to Tenant under such policies. All endorsements affecting such additional insured status shall be acceptable to Landlord and shall be at least as broad as additional insured endorsement form number CG 20 11 11 85 promulgated by the Insurance Services Office.

    (i)  Evidence of Coverage.  Prior to occupancy of the Premises by Tenant, and not less than thirty (30) days prior to the expiration of any policy thereafter, Tenant shall furnish to Landlord a certificate of insurance reflecting that the insurance required by this Section is in force accompanied by an endorsement showing the required additional insureds satisfactory to Landlord in substance and form. Notwithstanding the requirements of this paragraph, Tenant shall, at Landlord's request, provide to Landlord a certified copy of each insurance policy required to be in force at any time pursuant to the requirements of this Lease or its Exhibits. Tenant's failure to furnish Landlord with such certificates of insurance shall be deemed a material default under this Lease.

    11.2  Landlord's Insurance.  During the Term, Landlord shall maintain in effect insurance on the Building against "broad form" perils (to the extent such coverages are available), with responsible insurers, insuring the Building and the Tenant Improvements in an amount equal to at least eighty percent (80%) of the replacement cost thereof, excluding land, foundations, footings and underground installations. Landlord may, but shall not be obligated to, carry insurance against additional perils and/or in greater amounts.

    11.3  Waiver of Subrogation.  Landlord and Tenant each hereby waive any right of recovery against the other and the partners, members, shareholders, officers, directors and authorized representatives of the other for any loss or damage that is covered by any policy of property insurance maintained by either party (or required by this Lease to be maintained) with respect to the Premises or the Property or any operation therein. If any such policy of insurance relating to this Lease or to the Premises or the Property does not permit the foregoing waiver or if the coverage under any such policy would be invalidated as a result of such waiver, the party maintaining such policy shall obtain from the insurer under such policy a waiver of all right of recovery by way of subrogation against either party in connection with any claim, loss or damage covered by such policy.

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12. DAMAGE OR DESTRUCTION.

    12.1  Landlord's Duty to Repair.

    (a) If all or a substantial part of the Premises are rendered untenantable or inaccessible by damage to all or a part of the Property from fire or other casualty then, unless either party is entitled to and elects to terminate this Lease pursuant to Sections 12.2, and 12.3, Landlord shall, at its expense, use reasonable efforts to repair and restore the Premises and/or the Property, as the case may be, to substantially their former condition to the extent permitted by then applicable Laws; provided, however, that in no event shall Landlord have any obligation for repair or restoration beyond the extent of insurance proceeds received by Landlord for such repair or restoration, or for any of Tenant's personal property, Trade Fixtures or Alterations.

    (b) If Landlord is required or elects to repair damage to the Premises and/or the Property, this Lease shall continue in effect, but Tenant's Base Rent and Additional Rent from the date of the casualty through the date of substantial completion of the repair shall be abated with regard to any portion of the Premises that Tenant is directly prevented from using by reason of such damage or its repair. In no event shall Landlord be liable to Tenant by reason of any injury to or interference with Tenant's business or property arising from fire or other casualty or by reason of any repairs to any part of the property necessitated by such casualty.

    12.2  Landlord's Right to Terminate.  Landlord may elect to terminate this Lease following damage by fire or other casualty under the following circumstances:

    (a) If, in the reasonable judgment of Landlord, the Premises and the Property cannot be substantially repaired and restored under applicable Laws within one (1) year from the date of the casualty;

    (b) If, in the reasonable judgment of Landlord, adequate proceeds are not, for any reason, made available to Landlord from Landlord's insurance policies (and/or from Landlords funds made available for such purpose, at Landlord's sole option) to make the required repairs;

    (c) If the Building is damaged or destroyed to the extent that, in the reasonable judgment of Landlord, the cost to repair and restore the Building would exceed twenty-five percent (25%) of the full replacement cost of the Building, whether or not the Premises are at all damaged or destroyed; or

    (d) If the fire or other casualty occurs during the last year of the Term. If any of the circumstances described in subparagraphs (a), (b), (c) or (d) of this Section 12.2 occur or arise, Landlord shall notify Tenant in writing of that fact within one hundred and twenty (120) days after the date of the casualty and in such notice Landlord shall also advise Tenant whether Landlord has elected to terminate this Lease as provided above.

    12.3  Tenant's Right to Terminate.  If all or substantially all of the Premises are rendered untenantable or inaccessible by damage to all or any part of the Property from fire or other casualty, then Tenant may elect to terminate this Lease under the following circumstances: (i) where Landlord fails to commence the required repairs within one hundred eighty (180) days after the date of the casualty or (ii) where Landlord fails to complete the required repairs within one (1) year after the end of such one hundred and eighty (180) day period, subject to delay pursuant to Section 26, in which event Tenant may elect to terminate this Lease upon notice to Landlord given within ten (10) days after such one hundred and eighty (180)-day period or such one (1) year period, as the case may be.

    12.4  Waiver.  Landlord and Tenant each hereby waive the provisions of California Civil Code Sections 1932(2), 1933(4) and any other applicable existing or future Law permitting the termination of a lease agreement in the event of damage or destruction under any circumstances other than as provided in Sections 12.2 and 12.3.

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13. CONDEMNATION.

    13.1  Definitions.

    (a)  "Award" shall mean all compensation, sums, or anything of value awarded, paid or received on a total or partial Condemnation.

    (b)  "Condemnation" shall mean (i) a permanent taking (or a temporary taking for a period extending beyond the end of the Term) pursuant to the exercise of the power of condemnation or eminent domain by any public or quasi-public authority, private corporation or individual having such power ("Condemnor"), whether by legal proceedings or otherwise, or (ii) a voluntary sale or transfer by Landlord to any such authority, either under threat of condemnation or while legal proceedings for condemnation are pending.

    (c)  "Date of Condemnation" shall mean the earlier of the date that title to the property taken is vested in the Condemnor or the date the Condemnor has the right to possession of the property being condemned.

    13.2  Effect on Lease.

    (a) If the Premises are totally taken by Condemnation, this Lease shall terminate as of the Date of Condemnation. If a portion but not all of the Premises is taken by Condemnation, this Lease shall remain in effect; provided, however, that if the portion of the Premises remaining after the condemnation will be reasonably unsuitable for Tenant's continued use, then upon notice to Landlord within thirty (30) days after Landlord notifies Tenant of the Condemnation, Tenant may terminate this Lease effective as of the Date of Condemnation.

    (b) If twenty-five percent (25%) or more of the Land or of the Parking Facility or of the floor area in the Building is taken by condemnation, or if as a result of any Condemnation the Building is no longer reasonably suitable for use as an office building, whether or not any portion of the Premises is taken, Landlord may elect to terminate this Lease, effective as of the Date of Condemnation, by notice to Tenant within thirty (30) days after the Date of Condemnation.

    (c) If all or a portion of the Premises is temporarily taken by Condemnor for a period not extending beyond the end of the Term, this Lease shall remain in full force and effect, but Tenant's Base Rent and Additional Rent shall be abated with respect to any portion of the Premises that Tenant is prevented from using as a result of such Condemnation as of the Date of Condemnation.

    13.3  Restoration.  If this lease is not terminated as provided in Section 13.2, Landlord, at its expense, shall diligently proceed to repair and restore the Premises to substantially its former condition (to the extent permitted by then applicable Laws) and/or repair and restore the Building to an architecturally complete office building; provided, however, that Landlord's obligations to so repair and restore shall be limited to the amount of any Award received by Landlord and not required to be paid to any Mortgagee (as defined in Section 20.2). In no event shall Landlord have any obligation to repair or replace any improvements in the Premises beyond the amount of any Award received by Landlord for such repair or to repair or replace any of Tenant's personal property, Trade Fixtures or Alterations.

    13.4  Abatement and Reduction of Rent.  If any portion of the Premises is taken in a Condemnation or is rendered permanently untenantable by repair necessitated by the Condemnation and this Lease is not terminated, the Base Rent and Additional Rent payable under this Lease shall be proportionally reduced as of the Date of Condemnation based upon the percentage of rentable square feet in the Premises so taken or rendered permanently untenantable. In addition, if this Lease remains in effect following a Condemnation and Landlord proceeds to repair and restore the Premises, the Base Rent and Additional Rent payable under this Lease shall be abated during the period of such repair or restoration to the extent such repairs prevent Tenant's use of the Premises.

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    13.5  Awards.  Any Award made shall be paid to Landlord, and Tenant hereby assigns to Landlord, and waives all interest in or claim to, any Award, including any claim for the value of the unexpired Term; provided, however, that Tenant shall be entitled to receive, or to prosecute a separate claim for, an Award for a temporary taking of the Premises or a portion thereof by a Condemnor where this Lease is not terminated (to the extent such Award relates to the unexpired Term), or an Award or portion thereof separately designated for relocation expenses or the interruption of or damage to Tenant's business or as compensation for Tenant's personal property, Trade Fixtures or Alterations.

    13.6  Waiver.  Landlord and Tenant each hereby waive the provisions of California Code of Civil Procedure Section 1265.130 and any other applicable existing or future Law allowing either party to petition for a termination of this Lease upon a partial taking of the Premises and/or the Property.

14. ASSIGNMENT AND SUBLETTING.

    14.1  Landlord's Consent Required.  Tenant shall not do any of the following (in each case, a "Transfer") without complying with the provisions of this Section 14: (a) assign, mortgage, pledge, encumber or otherwise transfer in whole or in part this Lease, the term or estate hereby granted, or any interest hereunder; (b) permit the Premises or any part thereof to be occupied or utilized by anyone other than Tenant, Tenant's Visitors, or Tenant's Representatives, (whether as concessionaire, franchisee, licensee, permitee or otherwise); or (c) sublet or offer or advertise for subletting the Premises or any part thereof. Any purported or attempted Transfer without full compliance with the provisions of this Section 14 shall be voidable by Landlord and, at Landlord's election, shall constitute an Event of Default under this Lease. If Tenant is a corporation, each of the following shall be deemed a Transfer of this Lease by Tenant: any dissolution, merger, consolidation or other reorganization of Tenant; the sale or other transfer (in one transaction, or cumulatively) of a controlling percentage of the capital stock of Tenant; and/or the sale of fifty percent (50%) or more (measured by value) of the assets of Tenant. The phrase "controlling percentage" shall mean the ownership of and the right to vote stock possessing fifty percent (50%) or more of the total combined voting power of all classes of Tenant's capital stock issued, outstanding, and entitled to vote for the election of directors. The preceding two sentences of this Section shall not, however, apply to corporation, the stock of which is traded through a recognized national stock exchange or "over the counter." If Tenant is a partnership, each of the following shall be deemed a voluntary assignment of this Lease by Tenant: a transfer (in one transaction, or cumulatively) whether voluntary, involuntary, or by operation of law, of fifty percent (50%) or more of the partnership interests; or the dissolution of the partnership. If Tenant consists of more than one person, a purported or attempted assignment (whether voluntary, involuntary, or by operation of law) by one or more of the persons constituting Tenant shall be deemed a Transfer of this Lease by Tenant.

    14.2  Procedure for Obtaining Consent.

    (a) If Tenant complies with the following conditions, Landlord shall not unreasonably withhold its consent to the subletting of the Premises or any portion thereof or to the assignment of this Lease. At least thirty (30) days, but not more than one hundred twenty (120) days prior to that date (the "Transfer Date") on which Tenant desires the Transfer to be effective, Tenant shall submit in writing to Landlord (i) the name, address and legal composition of the proposed assignee, subtenant, user or other transferee (each a "Transferee"); (ii) the nature of the business proposed to be carried on in the Premises; (iii) a current balance sheet, income statements for the last two years and such other financial and other information concerning the proposed Transferee as Landlord may request; and (iv) a copy of the proposed assignment, sublease or other agreement governing the proposed Transfer. Within twenty-five (25) Business Days after Landlord receives all such information it shall notify Tenant whether it approves or disapproves such Transfer or if it elects to proceed under Section 14.7.

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    (b) The parties hereto agree and acknowledge that, among other circumstances for which Landlord could reasonably withhold consent to a proposed Transfer, it shall be reasonable for Landlord to withhold consent where (i) the proposed Transferee does not intend itself to occupy the entire portion of the Premises assigned or sublet, (ii) Landlord reasonably disapproves of the Transferee's business operating ability or history, reputation or creditworthiness or the character of the business to be conducted by the Transferee at the Premises, (iii) the Transferee is a governmental agency or unit or an existing tenant in the Building (iv) the proposed Transfer would violate any "exclusive" rights of any tenants in the Project, (v) the rental and other consideration payable by the Transferee is less than that currently being paid by tenants under new leases of comparable space in the Building, or (vi) Landlord otherwise determines that the proposed Transfer would have the effect of decreasing the value of the Building or the Project or increasing the expenses associated with operating, maintaining and repairing the Project. In no event may Tenant publicly offer or advertise all or any portion of the Premises for assignment or sublease at a rental less than that then sought by Landlord for a direct lease (non-sublease) of comparable space in the Building.

    14.3  Excess Consideration.  If Landlord consents to the proposed assignment or sublease, Landlord shall be entitled to receive as Additional Rent hereunder, one hundred percent (100%) of all Sublease Profits. "Sublease Profits" shall mean any consideration paid by the Transferee for the assignment or sublease and, in the case of a sublease, the excess of the rent and other consideration payable by the subtenant over the amount of Base Rent and Additional Rent payable hereunder applicable to the subleased space.

    14.4  No Release Of Tenant.  No consent by Landlord to any Transfer shall relieve Tenant of any obligation to be performed by Tenant under this Lease, whether occurring before or after such consent, assignment, subletting or other Transfer. Each Transferee shall be jointly and severally liable with Tenant (and Tenant shall be jointly and severally liable with each Transferee) for the payment of rent (or, in the case of a sublease, rent in the amount set forth in the sublease) and for the performance of all other terms and provisions of this Lease. The consent by Landlord to any Transfer shall not relieve Tenant or any such Transferee from the obligation to obtain Landlord's express prior written consent to any subsequent Transfer by Tenant or any Transferee. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any Transfer.

    14.5  Expenses and Attorney's Fees.  Tenant shall pay to Landlord on demand all costs and expenses (including reasonable attorneys' fees) incurred by Landlord which exceeds $500 in connection with reviewing or consenting to any proposed Transfer (including any request for consent to, or any waiver of Landlord's rights in connection with, any security interest in any of Tenant's property at the Premises).

    14.6  Effectiveness of Transfer.  Prior to the Transfer Date on which any permitted Transfer (whether or not requiring Landlord's consent) becomes effective, Tenant shall deliver to Landlord a counterpart of the full, executed Transfer document and Landlord's standard form of Consent to Assignment or Consent to Sublease executed by Tenant and the Transferee in which each of Tenant and the Transferee confirms its obligations pursuant to this Lease. Failure or refusal of a Transferee to execute any such instrument shall not release or discharge the Transferee from liability as provided herein. The voluntary, involuntary or other surrender of this Lease by Tenant, or a mutual cancellation by Landlord and Tenant, shall not work a merger, and any such surrender or cancellation shall, at the option of Landlord, either terminate all or any existing subleases or operate as an assignment to Landlord of any or all of such subleases.

    14.7  Landlord's Right to Space.  Notwithstanding any of the above provisions of this Section to the contrary, if Tenant notifies Landlord that it desires to enter into a Transfer, Landlord, in lieu of

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consenting to such Transfer, may elect (x) in the case of an assignment or a sublease of the entire Premises to terminate this Lease, or (y) in the case of a sublease of less than the entire Premises, to terminate this Lease as it relates to the space proposed to be subleased by Tenant. In such event, this Lease will terminate (or the space proposed to be subleased will be removed from the Premises subject to this Lease and the Base Rent, Additional Rent and Tenant's Share under this Lease shall be proportionately reduced) on the Transfer Date, and Landlord may lease such space to any party, including the prospective Transferee identified by Tenant on any terms and conditions desired by Landlord.

    14.8  Assignment of Sublease Rents.  Tenant hereby absolutely and irrevocably assigns to Landlord any and all rights to receive rent and other consideration from any sublease and agrees that Landlord, as assignee or as attorney-in-fact for Tenant for purposes hereof, or a receiver for Tenant appointed on Landlord's application may (but shall not be obligated to) collect such rents and other consideration and apply the same toward Tenant's obligations to Landlord under this Lease; provided, however, that Landlord grants to Tenant at all times prior to occurrence of any breach or default by Tenant a revocable license to collect such rents (which license shall automatically and without notice be and be deemed to have been revoked and terminated immediately upon any Event of Default).

    14.9  Assignment and Subletting of Parking Spaces.  Notwithstanding the provisions of Section 14 of the Lease, Tenant shall not separately assign its rights to the parking spaces or any interest therein, or sublease the parking spaces to any other person, except with Landlord's prior written consent which may be granted or withheld by Landlord at its sole discretion. In the event of any separate assignment or sublease of parking space rights that is approved by Landlord, Landlord shall be entitled to receive, as Additional Rent hereunder, one hundred percent (100%) of any profit received by Tenant in connection with such assignment or sublease.

15. DEFAULT AND REMEDIES.

    15.1  Events of Default.  The occurrence of any of the following shall constitute an "Event of Default" by Tenant:

    (a) Tenant fails to make any payment of Rent when due, or any amount required to replenish the Security Deposit as provided in Section 4 if payment in full is not received by Landlord within three (3) days after written notice that it is due.

    (b) Tenant abandons the Premises and fails timely to pay Rent.

    (c) Tenant fails timely to deliver any subordination agreement provided for in Section 20.1, Lease modification provided for in Section 20.3 or any estoppel certificate provided for in Section 21.1.

    (d) Tenant fails timely to deliver any certificate of insurance as required in Section 11.1(i).

    (e) Tenant violates any of the restrictions on Transfer and any other provision set forth in Section 14.

    (f)  Tenant ceases doing business as a going concern; makes an assignment for the benefit of creditors, is adjudicated an insolvent, files a petition (or files an answer admitting the material allegations of a petition) seeking relief under any under any state or federal bankruptcy or other statute, law or regulation affecting creditors' rights; all or substantially all of Tenant's assets are subject to judicial seizure or attachment and are not released within thirty (30) days, or Tenant consents to or acquiesces in the appointment of a trustee, receiver or liquidator for Tenant or for all or any substantial part of Tenant's assets.

    (g) Tenant fails, within ninety (90) days after the commencement of any proceedings against Tenant seeking relief under any state or federal bankruptcy or other statute, law or regulation

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affecting creditors' rights, to have such proceedings dismissed, or Tenant fails, within ninety (90) days after an appointment, without Tenant's consent or acquiescence, of any trustee, receiver or liquidator for Tenant or for all or any substantial part of Tenant's assets, to have such appointment vacated.

    (h) Tenant fails to perform or comply with any provision of this Lease other than those described in (a) through (g) above, and does not fully cure such failure within ten (10) days after notice to Tenant or, if such failure cannot be cured within such ten (10)-day period, Tenant fails within such ten (10)-day period to commence, and thereafter diligently proceed with, all actions necessary to cure such failure as soon as reasonably possible but in all events within thirty (30) days of such notice; provided, however, that if Landlord, in Landlord's reasonable judgment, determines that such failure cannot or will not be cured by Tenant within such thirty (30) days, then such failure shall constitute an Event of Default immediately upon such notice to Tenant.

    15.2  Remedies.  Upon the occurrence of an Event of Default, Landlord shall have the following remedies, which shall not be exclusive but shall be cumulative and shall be in addition to any other remedies now or hereafter allowed by law:

    (f)  Landlord may terminate Tenant's right to possession of the Premises at any time by written notice to Tenant. Tenant expressly acknowledges that in the absence of such written notice from Landlord, no other act of Landlord, including re-entry into the Premises, efforts to relet the Premises, reletting of the Premises for Tenant's account, storage of Tenant's personal property and Trade Fixtures, acceptance of keys to the Premises from Tenant or exercise of any other rights and remedies under this Section, shall constitute an acceptance of Tenant's surrender of the Premises or constitute a termination of this Lease or of Tenant's right to possession of the Premises. Upon such termination in writing of Tenant's right to possession of the Premises, as herein provided, this Lease shall terminate and Landlord shall be entitled to recover damages from Tenant as provided in California Civil Code Section 1951.2 and any other applicable existing or future Law providing for recovery of damages for such breach, including the worth at the time of award of the amount by which the rent which would be payable by Tenant hereunder for the remainder of the Term after the date of the award of damages, including Additional Rent as reasonably estimated by Landlord, exceeds the amount of such rental loss as Tenant proves could have been reasonably avoided, discounted at the discount rate published by the Federal Reserve Bank of San Francisco for member banks at the time of the award plus one percent (1%).

    (g) Landlord shall have the remedy described in California Civil Code Section 1951.4 (Landlord may continue this Lease in effect after Tenant's breach and abandonment and recover rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations).

    (h) Landlord may cure the Event of Default at Tenant's expense. If Landlord pays any sum or incurs any expense in curing the Event of Default, Tenant shall reimburse Landlord upon demand for the amount of such payment or expense with interest at the Interest Rate from the date the sum is paid or the expense is incurred until Landlord is reimbursed by Tenant.

    (i)  Landlord may remove all of Tenant's property from the Premises, and such property may be stored by Landlord in a public warehouse or elsewhere at the sole cost and for the account of Tenant. If Landlord does not elect to store any or all of Tenant's property left in the Premises, Landlord may consider such property to be abandoned by Tenant, and Landlord may thereupon dispose of such property in the manner and as prescribed by California Civil Code Section 1980 et seq. Any proceeds realized by Landlord on the disposal of any such property shall be applied first to offset all expenses of storage and sale, then credited against Tenant's outstanding obligations to Landlord under this Lease, and any balance remaining after satisfaction of all obligations of Tenant under this Lease shall be delivered to Tenant.

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16. LATE CHARGE AND INTEREST.

    16.1  Late Charge.  If any payment of Rent is not received by Landlord within five (5) days of the date when due, Tenant shall pay to Landlord on demand an additional amount equal to ten percent (10%) of the overdue payment as a late charge for every month or portion thereof that the Rent remains unpaid. Imposition of a late charge on any payment not made when due does not eliminate or supersede late charges imposed on other (prior) payments not made when due or preclude imposition of a late charge on other installments or payments not made when due. Tenant acknowledges that late payment by Tenant to Landlord of Rent due and provided for under this Lease will cause Landlord to incur costs and expenses not contemplated by this Lease, the exact amount of such costs and expenses being extremely impractical or difficult to fix. The parties therefore agree that the late charge provided for herein represents a fair and reasonable estimate of the costs and expenses Landlord will incur by reason of any late payment by the Tenant. In addition, any returned checks will be subject to a $55.00 handling charge.

    16.2  Interest.  In addition to the late charges referred to above, which are intended to defray Landlord's costs resulting from late payments, any payment from Tenant to Landlord not paid when due shall, at Landlord's option, bear interest from the date due until paid to Landlord by Tenant at the rate of fifteen percent (15%) per annum or the maximum lawful rate that Landlord may charge to Tenant under applicable laws, whichever is less (the "Interest Rate"). Acceptance of any late charge and/or interest shall not constitute a waiver of Tenant's default with respect to the overdue sum or prevent Landlord from exercising any of its other mints and remedies under this Lease.

17. WAIVER.

    No provisions of this Lease shall be deemed waived by Landlord unless such waiver is in a writing signed by Landlord. The waiver by Landlord of any breach of any provision of this Lease shall not be deemed a waiver of such provision or of any subsequent breach of the same or any other provision of this Lease. No delay or omission in the exercise of any right or remedy of Landlord upon any default by Tenant shall impair such right or remedy or be construed as a waiver. Landlord's acceptance of any payments of Rent due under this Lease shall not be deemed a waiver of any default by Tenant under this Lease (including Tenant's recurrent failure to timely pay rent) other than Tenant's nonpayment of the accepted sums, and no endorsement or statement on any check or accompanying any check or payment shall be deemed an accord and satisfaction. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant.

18. ENTRY, INSPECTION AND CLOSURE.

    Upon reasonable oral or written notice to Tenant (and without notice in emergencies), Landlord and its authorized representatives may enter the Premises at all reasonable times to determine whether the Premises are in good condition, to determine whether Tenant is complying with its obligations under this Lease, to perform any maintenance or repair of the Premises or the Building that Landlord has the right or obligation to perform, to install or repair improvements for other tenants where access to the Premises is required for such installation or repair, to serve, post or keep posted any notices required or allowed under the provisions of this Lease, to show the Premises to prospective brokers, agents, buyers, transferees, Mortgagees or tenants, or to do any other act or thing necessary for the safety or preservation of the Premises or the Building. When reasonably necessary, Landlord may temporarily close entrances, doors, corridors, elevators or other facilities in the Building without liability to Tenant by reason of such closure. Landlord shall conduct its activities under this Section in a manner that will minimize inconvenience to Tenant without incurring additional expense to Landlord. In no event shall Tenant be entitled to an abatement of rent on account of any entry by Landlord, and Landlord shall not be liable in any manner for any inconvenience, loss of business or other damage to

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Tenant or other persons arising out of Landlord's entry on the Premises in accordance with this Section. No action by Landlord pursuant to this paragraph shall constitute an eviction of Tenant, constructive or otherwise, entitle Tenant to an abatement of rent or to terminate this Lease or otherwise release Tenant from any of Tenant's obligations under this Lease.

19. SURRENDER AND HOLDING OVER.

    19.1  Surrender.  Upon the expiration or termination of this Lease, Tenant shall surrender the Premises and all Tenant Improvements and Alterations to Landlord broom-clean and in their original condition, except for reasonable wear and tear, damage from casualty or condemnation and any changes resulting from approved Alterations; provided, however, that prior to the expiration or termination of this Lease, Tenant shall remove all telephone and other cabling installed in the Building by Tenant and remove from the Premises all of Tenant's personal property, Trade Fixtures and Alterations that Tenant has the right or is required by Landlord to remove under the provisions of this Lease, and repair any damage caused by such removal. If such removal is not completed before the expiration or termination of the Term, Landlord shall have all rights and remedies provided under California Civil Code Section 1980 et seq. or any successor statute. Tenant waives all Claims against Landlord for any damage or loss to Tenant resulting from Landlord's removal, storage, retention, or disposition of any such property. Upon expiration or termination of this Lease or of Tenant's possession, whichever is earliest, Tenant shall surrender all keys to the Premises or any other part of the Building, and shall deliver to Landlord all keys for or make known to Landlord the combination of locks on all safes, cabinets and vaults that may be located in the Premises. Tenant's obligations under this Section shall survive the expiration or termination of this Lease.

    19.2  Holding Over.  If Tenant (directly or through any Transferee or other successor-in-interest of Tenant) remains in possession of the Premises after the expiration or termination of this Lease, Tenant's continued possession shall be on the basis of a tenancy at the sufferance of Landlord. In such event, Tenant shall continue to comply with or perform all the terms and obligations of Tenant under this Lease, except that the monthly Base Rent during Tenant's holding over shall be twice the Base Rent payable in the last full month prior to the termination hereof. Acceptance by Landlord of Rent after such termination shall not constitute a renewal of this Lease, and nothing contained in this provision shall be deemed to waive Landlord's right of re-entry or any other right hereunder or at law. Tenant shall indemnify, defend and hold Landlord harmless from and against all Claims arising or resulting directly or indirectly from Tenant's failure to timely surrender the Premises, including (i) any rent payable by or any loss, cost, or damages claimed by any prospective tenant of the Premises, and (ii) Landlords damages as a result of such prospective tenant rescinding or refusing to enter into the prospective lease of the Premises by reason of such failure to timely surrender the Premises.

20. ENCUMBRANCES.

    20.1  Subordination.  This Lease is expressly made subject and subordinate to any mortgage, deed of trust, ground lease, underlying lease or like encumbrance affecting any part of the Property or any interest of Landlord therein which is now existing or hereafter executed or recorded ("Encumbrance"); provided, however, that such subordination shall only be effective, as to future Encumbrances, if the holder of the Encumbrance agrees that this Lease shall survive the termination of the Encumbrance by lapse of time, foreclosure or otherwise so long as Tenant is not in default under this Lease. Provided the conditions of the preceding sentence are satisfied, Tenant shall execute and deliver to Landlord, within ten (10) days after written request therefor by Landlord and in a form reasonably requested by Landlord, any additional documents evidencing the subordination of this Lease with respect to any such Encumbrance and the non-disturbance agreement of the holder of any such Encumbrance. If the interest of Landlord in the Property is transferred pursuant to or in lieu of proceedings for enforcement of any Encumbrance, Tenant shall immediately and automatically attorn to the new owner,

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and this Lease shall continue in full force and effect as a direct lease between the Purchaser and Tenant on the terms and conditions set forth in this Lease.

    20.2  Mortgagee Protection.  Tenant agrees to give any holder of any Encumbrance covering any part of the Property ("Mortgagee"), by registered or certified mail, a copy of any notice of default served upon Landlord, provided that prior to such notice Tenant has been notified in writing (by way of notice of assignment of rents and leases, or otherwise) of the address of such Mortgagee. If Landlord shall have failed to cure such default within thirty (30) days from the effective date of such notice of default, then the Mortgagee shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary to cure such default (including the time necessary to foreclose or otherwise terminate its Encumbrance, if necessary to effect such cure), and this Lease shall not be terminated so long as such remedies are being diligently pursued.

    20.3  Lease Modifications.  If, in connection with the financing or refinancing of the Property or any portion thereof, any Mortgagee or proposed Mortgagee shall request reasonable modifications to this Lease as a condition to financing or refinancing, Tenant shall not withhold, delay or defer its consent thereto, provided such modifications do not have a material adverse effect on Tenant's rights hereunder.

21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.

    21.1  Estoppel Certificates.  From time to time during the Lease Term, in each case no later than ten (10) days after being given a written demand by Landlord, Tenant shall execute, acknowledge and deliver to the Landlord, promptly upon request, a certificate (the "Estoppel Certificate") certifying to Landlord and/or any then current or proposed Mortgagee, ground lessor ("Ground Lessor") or purchaser of all or any part of the Property ("Prospective Purchaser") the following:

    (a) that Tenant has accepted possession of the Premises (or, if Tenant has not done so, that Tenant has not accepted possession of the Premises, and specifying the reasons therefor);

    (b) the Commencement Date, the date payment of Base Rent and Additional Rent began or is scheduled to begin, including any periods of free or deferred Base Rent or Additional Rent ("Rent Commencement Date"), and Lease Term;

    (c) whether there are then existing any Events of Default by Landlord in the performance of its obligations under this Lease (and, if so, specifying the same);

    (d) that this Lease is unmodified and in full force an effect (or, if there have been modifications, that this Lease is in full force and effect as modified, stating the date and nature of each modification);

    (e) the capacity of the person executing such certificate, and that such person is duly authorized to execute the same on behalf of the Tenant;

    (f)  the date, if any, to which Base Rent and Additional Rent due under this Lease has been paid;

    (g) that no notice has been received by Tenant of any Event of Default which has not been cured, except as to any Event of Default specified in the certificate;

    (h) that Tenant's rights under this Lease are subordinated in the manner described in this Lease; and

    (i)  such other matters as Landlord, the Mortgagee, Ground Lessor or Prospective Purchaser may reasonably request.

Any such Estoppel Certificate may be relied upon by Landlord, as well as any Prospective Purchaser, Mortgagee or Ground Lessor. Failure by Tenant to deliver such certificate shall be an Event of Default

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under this Lease, and Tenant shall be liable to Landlord for, among other things, any damages suffered by Landlord, including any profits or other benefits from the sale, ground leasing or financing of the Property, or any interest therein, which are lost or made unavailable as a result, directly or indirectly, of Tenant's failure or refusal to timely execute or deliver such Estoppel Certificate.

    21.2  Financial Statements.  Upon request by Landlord, Tenant shall deliver to Landlord a copy of Tenant's financial statements (including at least a year end balance sheet and a statement of profit and loss) for each of the three (3) most recently completed years, prepared in accordance with generally accepted accounting principles (and, if such is Tenant's normal practice, audited by an independent certified public accountant), all then available subsequent interim statements that is already publically disclosed and such other financial information as may reasonably be requested by Landlord or required by any Mortgagee.

22. NOTICES.

    Any notice, demand, request, consent or approval that either party desires or is required to give to the other party under this Lease shall be in writing and shall be served personally, delivered by messenger or courier service, or sent by U.S. registered or certified mail, return receipt requested, postage prepaid, addressed to the other party at the party's address for notices set forth in the Basic Lease Information. Notices delivered personally shall be effective immediately upon receipt (or refusal of delivery or receipt); notices sent by independent messenger or courier service will be effective one (1) day after acceptance by the independent service for delivery; notices sent by mail in accordance with this Section shall be effective two (2) days after mailing. Either party may change its address for notices hereunder by a notice to the other party complying with this Section. If Tenant sublets the Premises, notices from Landlord shall be effective on the subtenant when given to Tenant pursuant to this Section.

23. ATTORNEYS' FEES.

    23.1  Disputes between Landlord and Tenant.  In the event of any litigation or arbitration regarding any rights and obligations under this Lease, the prevailing party shall be entitled to recover reasonable attorneys' fees and court costs in addition to any other relief which may be granted. The "prevailing party" shall mean the party receiving substantially the relief desired, whether by settlement, dismissal, summary or otherwise.

    23.2  Other Litigation.  If Landlord, without fault on Landlord's part, is made a party to any litigation instituted by Tenant or by any third party against Tenant, or by or against any Transferee or other occupant of the Premises or otherwise arising out of or resulting from any act or transaction of Tenant or of any such Transferee or occupant, Tenant shall hold Landlord harmless from any judgment rendered against Landlord or the Property or any part thereof, and reimburse Landlord upon demand for all costs and expenses, including reasonable attorneys' fees, incurred by Landlord in or in connection with such litigation.

24. QUIET POSSESSION.

    Subject to Tenant's full and timely performance of all of Tenant's obligations under this Lease and subject to all of the terms of this Lease, Tenant shall have the quiet possession of the Premises throughout the Term as against any persons or entities lawfully claiming by, through or under Landlord.

25. SECURITY MEASURES.

    Landlord may, but shall be under no obligation to implement security measures for the Property, such as the registration or search of all persons entering or leaving the Building, requiring identification for access to the Building, evacuation of the Building for cause, suspected cause, or for drill purposes,

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the issuance of magnetic pass cards or keys for Building or elevator access and other actions that Landlord deems necessary or appropriate to prevent any threat of property loss or damage, bodily injury or business interruption; provided, however, that such measures shall be implemented in a way as not to unreasonably inconvenience tenants of the Building. Landlord shall at all times have the right to change, alter or reduce any such security services or measures. Tenant shall cooperate and comply with, and cause Tenant's Representatives and Visitors to cooperate and comply with, such security measures. Landlord, its agents and employees shall have no liablitiy to Tenant or its Representatives or Visitors for the implementation or exercise of, or the failure to implement or exercise, any such security measures or for any resulting disturbance of Tenant's use or enjoyment of the Premises.

26. FORCE MAJEURE.

    If Landlord is delayed, interrupted or prevented from performing any of its obligations under this Lease, including its obligations under the Construction Rider (if any), and such delay, interruption or prevention is due to fire, war, insurrection, act of God, governmental act or failure to act, labor dispute, unavailability of materials or any cause outside the reasonable control of Landlord, then the time for performance of the affected obligations of Landlord shall be extended for a period equivalent to the period of such delay, interruption or prevention.

27. RULES AND REGULATIONS.

    Tenant shall be bound by and shall comply with the rules and regulations attached to and made a part of this Lease as Exhibit D to the extent those rules and regulations are not in conflict with the terms of this Lease, as well as any reasonable rules and regulations hereafter adopted by Landlord for all tenants of the Building, upon notice to Tenant thereof (collectively, the "Building Rules"). Landlord shall not be responsible to Tenant or to any other person for any violation of, or failure to observe, the Building Rules by any other tenant or other person.

28. LANDLORD'S LIABILITY.

    The term "Landlord" as used in this Lease, shall mean only the owner or owners of the Building at the time in question. In the event of any conveyance of title to the Building, then from and after the date of such conveyance, the transferor Landlord shall be relieved of all liability with resect to Landlord's obligations to be performed under this Lease after the date of such conveyance. Notwithstanding any other term of provision of this Lease, the liability of Landlord for its obligations under this Lease is limited solely to Landlord's interest in the Building as the same may from time to time be encumbered, and no personal liability shall at any time be asserted or enforceable against any other assets of Landlord or against Landlord's partners, members or agents or its or their respective partners, shareholders, members, directors, officers or managers on account of any of Landlord's obligations or actions under this Lease.

29. CONSENTS AND APPROVALS.

    29.1  Determination in Good Faith.  Wherever the consent, approval, judgment or determination of Landlord is required or permitted under this Lease, Landlord may exercise its good faith business judgment in granting or withholding such consent or approval or in making such judgment or determination without reference to any extrinsic standard of reasonableness, unless the provision providing for such consent, approval, judgment or determination specifies that Landlord's consent or approval is not to be unreasonably withheld, or that such judgment or determination is to be reasonable, or otherwise specifies the standards under which Landlord may withhold its consent. If it is determined that Landlord failed to give its consent where it was required to do so under this Lease, Tenant shall be entitled to injunctive relief but shall not be entitled to monetary damages or to terminate this Lease for such failure.

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    29.2  No Liability Imposed on Landlord.  The review and/or approval by Landlord of any item or matter to be reviewed or approved by Landlord under the terms of this Lease or any Exhibits or Addenda hereto shall not impose upon Landlord any liability for the accuracy or sufficiency of any such item or matter or the quality or suitability of such item for its intended use, any such review or approval is for the sole purpose of protecting Landlord's interest in the Property, and no third parties, including Tenant or the Representatives and Visitors of Tenant or any person or entity claiming by, through or under Tenant, shall have any rights as a consequence thereof.

30. BROKERS.

    Landlord shall pay the fee or commission of the broker or brokers identified in the Basic Lease Information (the "Broker") in accordance with Landlord's separate written agreement with the Broker, if any. Tenant warrants and represents to Landlord that in the negotiating or making of this Lease neither Tenant nor anyone acting on Tenant's behalf has dealt with any broker or finder who might be entitled to a fee or commission for this Lease other than the Broker. Tenant shall indemnify and hold Landlord harmless from any claim or claims, including costs, expenses and attorney's fees incurred by Landlord, asserted by any other broker or finder for a fee or commission based upon any dealings with or statements made by Tenant or Tenant's Representatives. In the event Tenant shall engage any broker, agent, consultant, finder or representative to represent its interests or to negotiate on its behalf with respect to any renewal, expansion or other modification of this Lease, or the leasehold created thereby, then Tenant shall be solely responsible for the payment of any fees, commissions or other consideration charged by such broker, agent, consultant, finder or representative with respect to such renewal, expansion or modification.

31. RELOCATION OF PREMISES.

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32. ENTIRE AGREEMENT.

    This Lease, including the Exhibits and any Addenda attached hereto, and the documents referred to herein, if any, constitute the entire agreement between Landlord and Tenant with respect to the leasing of space by Tenant in the Building, and supersede all prior or contemporaneous agreements, understandings, proposals and other representations by or between Landlord and Tenant, whether written or oral. Neither Landlord nor Landlord's Representatives have made any representations or warranties with respect to the Premises, the Building, the Project or this Lease except as expressly set forth herein, and no rights, easements or licenses shall be acquired by Tenant by implication or otherwise unless expressly set forth herein. The submission of this Lease for examination does not constitute an option for the Premises and this Lease shall become effective as a binding agreement only upon execution and delivery thereof by Landlord to Tenant.

33. PARKING RULES

    Tenant shall have the right to use the Parking Facility underneath, if Tenant is paying Parking Rent for underneath parking, and outside the Building in common with other tenants of the Building. Tenant's Parking Facility shall be on and subject to the terms and conditions set forth in the Parking Rules and Regulations attached as Exhibit E (the "Parking Rules"). Landlord shall have the right in its sole discretion, upon thirty (30) days prior written notice to Tenant, to reassign any parking stalls or spaces previously assigned to Tenant.

34. GENERAL

    34.1  Captions.  The captions and headings used in this Lease are for the purpose of convenience only and shall not be construed to limit or extend the meaning of any part of this Lease.

    34.2  Executed Copy.  Any fully executed copy of this Lease shall be deemed an original for all purposes.

    34.3  Time.  Time is of the essence for the performance of each term, condition and covenant of this Lease.

    34.4  Severability.  If one or more of the provisions contained herein, except for the payment of Rent, is for any reason held invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable provision had not been contained herein.

    34.5  Choice of Law.  This Lease shall be construed and enforced in accordance with the substantive laws of the State of California. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant.

    34.6  Gender; Singular; Plural.  When the context of this Lease requires, the neuter gender includes the masculine, the feminine, a partnership or corporation or joint venture, and the singular includes the plural.

    34.7  Binding Effect.  The covenants and agreements contained in this Lease shall be binding on the parties hereto and on their respective successors and assigns to the extent this Lease is assignable.

    34.8  Waiver.  The waiver by Landlord of any breach of any term, condition or covenant of this Lease shall not be deemed to be a waiver of such provision or any subsequent breach of the same or any other term, condition or covenant of this Lease. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach at the time of acceptance of such payment. No covenant, term or condition of this Lease shall be deemed to have been waived by Landlord unless such waiver is in writing and signed by Landlord.

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    34.9  Exhibits.  All exhibits, amendments, riders and addenda attached hereto are hereby incorporated herein and made a part hereof.

35. AUTHORITY.

    If Tenant is a corporation, partnership, limited liability company or other form of entity, each of the persons executing this Lease on behalf of Tenant warrants and represents that Tenant is a duly organized and validly existing entity, that Tenant has full right and authority to enter into this Lease and that the persons signing on behalf of Tenant are authorized to do so and have the power to bind Tenant to this Lease. Tenant shall provide Landlord upon request with evidence reasonably satisfactory to Landlord confirming the foregoing representations.

IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of the Lease Date set forth in the Basic Lease Information.

LANDLORD:		TENANT:
Waterfront Tower Partners, L. P., a California limited partnership,		SERENA Software International, Inc. a California corporation,
By:	Peninsula Office Management, Inc.,
	a California corporation, General	By:	/s/ ROBERT I. PENDER, JR.
	Partner	Its:	CFO & VP Finance
		By:
By:	/s/ ANGELO ORPHAN Angelo Orphan, President	Its:

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EXHIBIT A

PREMISES

[FLOOR PLAN OF
500 AIRPORT BLVD. SUITE 240]

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EXHIBIT B

CONSTRUCTION RIDER

    Intentionally Omitted, Pages 38-41 (Not Applicable)

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EXHIBIT C

COMMENCEMENT DATE MEMORANDUM

LANDLORD:	Waterfront Tower Partners, L.P.
TENANT:	SERENA Software International, Inc.
LEASE DATE:	June 21, 1999
PREMISES:	500 Airport Boulevard, Suite 240 Burlingame, CA 94010

    Pursuant to Section 2.1 of the above-referenced Lease, the Commencement Date is hereby established as July 1, 1999.

LANDLORD:		TENANT:
Waterfront Tower Partners, L. P. a California limited partnership,		SERENA Software International, Inc. a California corporation,
By:	Peninsula Office Management, Inc., a California corporation, General Partner
		By:	/s/ ROBERT I. PENDER, JR.
		Its:	CFO & VP Finance
		By:
By:	/s/ ANGELO ORPHAN Angelo Orphan, President	Its:

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EXHIBIT D

BUILDING RULES

    The following Building Rules are additional provisions of the foregoing Lease to which they are attached. The capitalized terms used herein have the same meanings as these terms are given in the Lease.

    1.  Use of Common Areas.  Tenant will not obstruct the sidewalks, halls, passages, exits, entrances, elevators or stairways of the Building ("Common Areas"), and Tenant will not use the Common Areas for any purpose other than ingress and egress to and from the Premises. The Common Areas, except for the sidewalks, are not open to the general public and Landlord reserves the right to control and prevent access to the Common Areas of any person whose presence, in Landlord's opinion, would be prejudicial to the safety, reputation and interests of the Building and its tenants.

    2.  No Access to Roof.  Tenant has no right of access to the roof of the Building and will not install, repair or replace any antenna, aerial, aerial wires, fan, air-conditioner or other device on the roof of the Building, without the prior written consent of Landlord. Any such device installed without such written consent is subject to removal at Tenant's expense without notice at any time. In any event Tenant will be liable for any damages or repairs incurred or required as a result of its installation, use, repair, maintenance or removal of such devices on the roof and agrees to indemnify and hold harmless Landlord from any liability, loss, damage, cost or expense, including reasonable attorneys' fees, arising from any activities of Tenant or of Tenant's Representatives on the roof of the Building.

    3.  Signage.  No sign, placard, picture, name, advertisement or notice visible from the exterior of the Premises will be inscribed, painted, affixed or otherwise displayed by Tenant on or in any part of the Building without the prior written consent of Landlord. Landlord reserves the right to adopt and furnish Tenant with general guidelines relating to signs in or on the Building. All approved signage will be inscribed, painted or affixed at Tenant's expense by a person approved by Landlord, which approval will not be unreasonably withheld.

    4.  Prohibited Uses.  The Premises will not be used for manufacturing, for the storage of merchandise held for sale to the general public, for lodging or for the sale of goods to the general public. Tenant will not permit any food preparation on the Premises except that Tenant may use Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages or use of microwave ovens for employee use so long as such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations.

    5.  Janitorial Services.  Tenant will not employ any person for the purpose of cleaning the Premises or permit any person to enter the Building for such purpose other than Landlord's janitorial service, except with Landlord's prior written consent. Tenant will not necessitate, and will be liable for the cost of, any undue amount of janitorial labor by reason of Tenant's carelessness in or indifference to the preservation of good order and cleanliness in the Premises. Janitorial service will not be furnished to areas in the Premises on nights when such areas are occupied after 9:30 p.m., unless such service is extended by written agreement to a later hour in specifically designated areas of the Premises.

    6.  Keys and Locks.  Landlord will furnish Tenant, free of charge, two (2) keys to each door or lock in the Premises and may provide an access code for each employee of Tenant for after hours access to the Building. Landlord may make a reasonable charge for any additional or replacement keys. Tenant will not duplicate any keys, alter any locks or install any new or additional lock or bolt on any door of its Premises or on any other part of the Building without the prior written consent of Landlord and, in any event, Tenant will provide Landlord with a key for any such lock. On the termination of the Lease, Tenant will deliver to Landlord all keys to any locks or doors in the Building which have been obtained by Tenant.

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    7.  Freight.  Upon not less than twenty-four (24) hours prior notice to Landlord, which notice may be oral, an elevator will be made available for Tenant's use for transportation of freight, subject to such scheduling as Landlord in its discretion deems appropriate. Tenant shall not transport freight in loads exceeding the weight limitations of such elevator. Landlord reserves the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building, and no property will be received in the Building or carried up or down the freight elevator or stairs except during such hours and along such routes and by such persons as may be designated by Landlord. In addition, Landlord may require Tenant to cover carpets and wall coverings to prevent damage, injuries or scuff marks. Landlord reserves the right to require that heavy objects will stand on wood strips of such length and thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such property from any cause, and Tenant will be liable for all damage or injuries caused by moving or maintaining such property.

    8.  Nuisances and Dangerous Substances.  Tenant will not conduct itself, or permit Tenant's Representatives or Visitors to conduct themselves, in the Premises or anywhere on or in the Property in a manner which is offensive or unduly annoying to any other Tenant or Landlord's Property Managers. Landlord reserves the right to exclude or expel from the Building or the Project any person who, in Landlord's sole judgment, is intoxicated or under the influence of drugs or other substances or who is in violation of any of the Building Rules. Tenant will not install or operate any phonograph, radio receiver, musical instrument or television or other similar device in any part of the Common Areas and shall not operate any such device installed in the Premises in such manner as to disturb or annoy other tenants of the Building. Tenant will not use or keep in the Premises or the Property any kerosene, gasoline or other combustible fluid or material other than limited quantities thereof reasonably necessary for the maintenance of office equipment, or without Landlord's prior written approval, use any method of heating or air conditioning other than that supplied by Landlord. Tenant will not use or keep any foul or noxious gas or substance in the Premises or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, or interfere in any way with other tenants or those having business therein. Tenant will not bring or keep any animals in or about the Premises or the Property.

    9.  Smoking Prohibition.  In accordance with applicable law and ordinances, no person, including Tenant, Tenant's Representatives or Visitors, shall be permitted to smoke anywhere in the Premises or in the Building. Landlord may designate an area in the Common Areas of the Project outside of the Building where smoking may be permitted, and all smoking shall only be done in such designated areas in accordance with directions issued from time to time by Landlord.

    10.  Building Name and Address.  Without Landlord's prior written consent, Tenant will not use the name of the Building in connection with or in promoting or advertising Tenant's business except as Tenant's address.

    11.  Building Directory.  A directory for the Building will be provided for the display of the name and location of tenants. Landlord reserves the right to approve any additional names Tenant desires to place in the directory and, if so approved, Landlord may assess a reasonable charge for adding such additional names.

    12.  Window Coverings.  No curtains, draperies, blinds, shutters, shades, awnings, screens or other coverings, window ventilators, hangings, decorations or similar equipment shall be attached to, hung or placed in, or used in or with any window of the Building without the prior written consent of Landlord. Landlord shall have the right to control all lighting within the Premises that may be visible from the exterior of the Building.

    13.  Floor Coverings.  Tenant will not lay or otherwise affix linoleum, tile, carpet or any other floor covering to the floor of the Premises in any manner except as approved in writing by Landlord.

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Tenant will be liable for the cost of repair of any damage resulting from the violation of this rule or the removal of any floor covering by Tenant, its Representatives, or contractors.

    14.  Wiring and Cabling Installations.  Landlord will direct Tenant's electricians and other vendors as to where and how data, telephone, and electrical wires and cables are to be installed. No boring or cutting for wires or cables will be allowed without the prior written consent of Landlord. The location of burglar alarms, smoke detectors, telephones, call boxes and other office equipment affixed to the Premises shall be subject to the written approval of Landlord.

    15.  Office Closing Procedures.  Tenant shall see that the doors of the Premises are closed and locked and that all water faucets, water apparatus and utilities are shut off before Tenant or its employees leave the Premises, so as to prevent waste or damage. Tenant will be liable for all damage or injuries sustained by other tenants or occupants of the Building or Landlord resulting from Tenant's carelessness in this regard or violation of this rule. Tenant will keep the doors to the Building corridors closed at all times except for ingress and egress.

    16.  Plumbing Facilities.  The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be disposed of therein. Tenant shall be liable for any breakage, stoppage or damage resulting from the violation of this rule by Tenant, its Representative or Visitors.

    17.  Use of Hand Trucks.  Tenant will not use or permit to be used in the Premises or in the Common Areas any hand trucks, carts or dollies except those equipped with rubber tires and side guards or such other equipment as Landlord may approve.

    18.  Refuse.  Tenant shall store all of Tenant's trash and garbage within the Premises or in other facilities designated by Landlord for such purpose. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the City of Burlingame without being in violation of any law or ordinance governing such disposal. All trash and garbage removal shall be made in accordance with directions issued from time to time by Landlord, only through such Common Areas provided for such purposes and at such times as Landlord may designate. Tenant shall comply with the requirements of any recycling program adopted by Landlord for the Building.

    19.  Soliciting.  Canvassing, peddling, soliciting and distribution of handbills or any other written materials in the Building are prohibited, and Tenant will cooperate to prevent the same.

    20.  Parking.  Tenant will use, and cause Tenant's Representatives and Visitors to use, the parking spaces to which Tenant is entitled under the Lease in a manner consistent with Landlord's directional signs and markings in the Parking Facility and in accordance with the Parking Rules and Regulations attached as Exhibit E to the Lease. Specifically, but without limitation, Tenant will not park, or permit Tenant's Representatives or Visitors to park, in a manner that impedes access to and from the Building or the Parking Facility or that violates space reservations for handicapped drivers registered as such with the California Department of Motor Vehicles. Landlord may use such reasonable means as may be necessary to enforce the directional signs and markings in the Parking Facility, including but not limited to towing services, and Landlord will not be liable for any damage to vehicles towed as a result of noncompliance with such Parking Rules.

    21.  Fire, Security and Safety Regulations.  Tenant shall comply with all safety, security, fire protection and evacuation measures and procedures established by Landlord or any governmental agency.

    22.  Responsibility for Theft.  Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed.

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    23.  Sales and Auctions.  Tenant shall not conduct or permit to be conducted any sale by auction in, upon or from the Premises or elsewhere on or in the Property, whether said auction be voluntary, involuntary, pursuant to any assignment for the payment of creditors or pursuant to any bankruptcy or other insolvency proceeding.

    24.  Defacing of Walls.  Tenant and Tenant's Representative shall not mark, drive nails, screw or drill into the partitions, plasterboard, woodwork or plaster of the interior walls or in any way deface the Premises or any part thereof except in accordance with the terms and conditions of the Lease regarding Alterations. Tenant shall repair any damage resulting from noncompliance with this Rule.

    25.  Waiver of Rules.  Landlord may waive any one or more of these Building Rules for the benefit of any particular tenant or tenants, but no such waiver by Landlord will be construed as a waiver of such Building Rules in favor of any other tenant or tenants or prevent Landlord from thereafter enforcing these Building Rules against any or all of the tenants of the Building.

    26.  Effect on Lease.  These Building Rules are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease. In the event of any conflict between the terms and conditions of the Lease and these Building Rules, the terms and conditions of the Lease shall control. Violation of these Building Rules shall constitute an Event of Default under the Lease.

    27.  Non-Discriminatory Enforcement.  Subject to the provisions of the Lease (and the provisions of other leases with respect to other tenants), Landlord shall use reasonable efforts to enforce these Building Rules in a non-discriminatory manner, but in no event shall Landlord have any liability for any failure or refusal to do so (and Tenant's sole and exclusive remedy for any such failure or refusal shall be injunctive relief preventing Landlord from enforcing any of the Building Rules against Tenant in a manner that discriminates against Tenant).

    28.  Additional and Amended Rules.  Landlord reserves the right to rescind or amend these Building Rules and/or adopt any other and reasonable rules and regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Building and for the preservation of good order therein.

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EXHIBIT E

PARKING RULES AND REGULATIONS

    The following rules and regulations (the "Parking Rules") shall govern use of the Parking Facility which is under, outside and appurtenant to the Building:

    1.  Parking Areas.  Tenant shall not park or permit the parking of any vehicle under its control in any parking space or spaces designated by Landlord as areas for parking by visitors to the Building. Tenant shall not leave vehicles in the parking areas overnight nor park any vehicles in the parking area other than automobiles, motorcycles, motor driven or non-motor driven bicycles or four-wheeled trucks.

Landlord shall take reasonable actions to ensure the availability of the parking spaces leased by or provided to Tenant, but Landlord does not guarantee the availability of those spaces at all times against the actions of other tenants of the Building and users of the Parking Facility. Access to monthly parking spaces requiring the payment of Parking Rent shall, at Landlord's option, be by card, pass, bumper sticker, decal or other appropriate identification issued by Landlord.

    2.  Parking Identification.  Parking stickers or any other device or form of identification supplied by Landlord as a condition of use of the Parking Facility shall remain the property of Landlord. Such parking identification device must be displayed as requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Devices are not transferable and any device in the possession of an unauthorized holder will be void.

    3.  Overnight Parking and Storage.  No overnight or extended term storage of vehicles shall be permitted.

    4.  Parking Stalls.  Vehicles must be parked entirely within the painted stall lines of a single parking stall.

    5.  Directional Signs.  All directional signs and arrows must be observed.

    6.  Speed Limit.  The speed limit within all parking areas shall be five (5) miles per hour.

    7.  Prohibited Parking.  Parking is prohibited:

    (a) in areas not striped for parking;

    (b) in aisles;

    (c) where "no parking" signs are posted;

    (d) on ramps;

    (e) in cross hatched areas; and

    (f)  in such other areas as may be designated by Landlord.

    8.  Landlord Not Responsible.  Every operator of vehicle is required to park and lock his own vehicle. All responsibility for damage to vehicles is assumed by the owner thereof.

    9.  Loss or Theft.  Loss or theft of parking identification devices from automobiles must be reported immediately, and a lost or stolen report must be filed by the holder at that time. Landlord has the right to exclude any car from the Parking Facility that does not have an identification device.

    10.  Cleaning of Vehicles Prohibited.  Washing, waxing, cleaning or servicing of any vehicle in any area not specifically reserved for such purpose is prohibited.

    11.  Landlord's Right to Change Rules.  Landlord reserves the right to modify or change these Parking Rules and/or adopt such other reasonable and non-disciplinary rules and regulations for the Parking Facility as it deems necessary for the operation of the Parking Facility. Landlord may refuse to

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permit any person who violates these Parking Rules to park in the Parking Facility, and any violation of the Parking Rules shall subject the vehicle to removal.

    12.  Parking Charges—Right Reserved.  Landlord reserves the right to charge for parking in the Parking Facility on a non-discriminatory basis.

    13.  Effect on Lease.  These Parking Rules are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease. In the event of any conflict between the terms and conditions of the Lease and these Parking Rules, the terms and conditions of the Lease shall control. Violation of these Parking Rules shall constitute an Event of Default under the Lease.

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EXHIBIT F

ADDITIONAL PROVISIONS RIDER

36. MODIFICATIONS.

    Landlord shall provide an allowance of $2.00/sq.ft ($6,914.00) to tenant for tenant improvements.

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Amendment One

    To that certain Lease dated June 21, 1999 between Waterfront Tower Partners, L.P., Landlord and SERENA Software, Inc., Tenant, whereby approximately 1,096 square feet of rentable space are being added to said Lease as Suite 229, upon the following terms.

1.

Commencement date: November 1, 1999

2.

Security deposit: $3,726.40

3.

Lease Term: 5 years

4.

Rent Schedule for the additional 1,096 sq. ft with a 60 month term will be as follow:

	Monthly rent
Year 1 (11/1/99-10/31/00):	$3.00/sq.ft	$3,288.00
Year 2 (11/1/00-10/31/01):	$3.10/sq.ft	$3,397.60
Year 3 (11/1/01-10/31/02):	$3.20/sq.ft	$3,507.20
Year 4 (11/1/02-10/31/03):	$3.30/sq.ft	$3,616.80
Year 5 (11/1/03-10/31/04):	$3.40/sq.ft	$3,726.40

5.

Landlord shall provide an allowance of $2.00/sq. ft ($2,192.00) for tenant improvements to tenant.

6.

Direct Expense Base year on Suite 229 (1,096/sq.ft) is 1999. Tenant's percentage of building space is 1.08%.

We the undersigned, hereby agree to the terms and conditions herein set forth of the Amendment.

Tenant:		Landlord:
	SERENA Software, Inc.		Waterfront Tower Partners, L.P.
By	/s/ ROBERT I. PENDER, JR. Robert I. Pender, Jr.	By	/s/ ANGELO ORPHAN
Title	CFO Chief Financial Officer	Title	General Partner

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TABLE OF CONTENTS
INDEX OF DEFINED TERMS
INDEX OF DEFINED TERMS
BASIC LEASE INFORMATION
LEASE AGREEMENT
EXHIBIT A PREMISES
[FLOOR PLAN OF 500 AIRPORT BLVD. SUITE 240]
EXHIBIT B CONSTRUCTION RIDER
EXHIBIT C COMMENCEMENT DATE MEMORANDUM
EXHIBIT D BUILDING RULES
EXHIBIT E PARKING RULES AND REGULATIONS
EXHIBIT F ADDITIONAL PROVISIONS RIDER
Amendment One

EX-21.1

Exhibit 21.1

List of Subsidiaries of SERENA Software, Inc.

Optima Software, Inc. (a California corporation)
Serena International (UK) Limited (an English corporation)
Serena Software Canada Limited (a Canadian corporation)
Serena Software GmbH Limited (a German corporation)
Serena Software International FSC, Inc. (a Barbados foreign sales corporation)

EX-23.1

Exhibit 23.1

Consent of KPMG LLP, Independent Auditors

The Board of Directors
SERENA Software, Inc.

    We consent to incorporation by reference in the registration statement (No. 333-84467) on Form S-8 of SERENA Software, Inc. of our reports dated February 13, 2001, with respect to the consolidated balance sheets of SERENA Software, Inc. and subsidiaries as of January 31, 2001 and 2000, and the related consolidated statements of income and comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended January 31, 2001, and related financial statement schedule which reports appear in the January 31, 2001, annual report on Form 10-K of SERENA Software, Inc.

/s/ KPMG LLP

San Francisco, California
April 30, 2001