<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 000-25285
------------------------
SERENA SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2669809
(State of incorporation) (IRS Employer Identification No.)
500 AIRPORT BOULEVARD, 2ND FLOOR, BURLINGAME, CALIFORNIA 94010-1904
(Address of principal executive offices, including zip code)
650-696-1800
(Registrant's telephone number, including area code)
------------------------
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 / /
The number of shares of the registrant's Common Stock, par value $0.001,
outstanding as of July 31, 1999 was 25,368,501.
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<PAGE>
FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. Actual results could differ materially from those projected in the
forward-looking statements as a result of certain factors described herein and
in other documents. Readers should pay particular attention to the section of
this report entitled "Factors that May Affect Future Results" and should also
carefully review the risk factors described in the other documents we file from
time to time with the SEC.
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets as of July 31, 1999 and January 31, 1999........................... 3
Consolidated Statements of Income for the Three Months and Six Months Ended July 31, 1999 and
1998......................................................................................... 4
Consolidated Statements of Cash Flows for The Six Months Ended July 31, 1999 and 1998.......... 5
Notes to Consolidated Financial Statements..................................................... 6
Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition.......... 9
Item 3 Quantitative and Qualitative Disclosures About Market Risk..................................... 28
PART II OTHER INFORMATION
Item 1 Legal Proceedings.............................................................................. 29
Item 2 Change in Securities and Use of Proceeds....................................................... 29
Item 3 Defaults Upon Senior Securities................................................................ 29
Item 4 Submission of Matters to a Vote of Security Holders............................................ 29
Item 5 Other Information.............................................................................. 30
Item 6 Exhibits and Reports on Form 8-K............................................................... 30
Signatures..................................................................................... 31
</TABLE>
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SERENA SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1999 1999
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 70,706,206 $ 21,468,740
Short-term investments.......................................................... 17,729,760 --
Accounts receivable, net of allowance of $590,000 and $311,000 at July 31 and
January 31, 1999, respectively................................................ 12,112,404 13,036,551
Due from principal stockholder.................................................. -- 196,188
Deferred taxes.................................................................. 1,119,531 1,119,531
Prepaid expenses and other current assets....................................... 606,015 565,679
-------------- -------------
Total current assets.......................................................... 102,273,916 36,386,689
Property and equipment, net....................................................... 1,956,242 1,864,535
Due from principal stockholder.................................................... -- 420,581
Intangible assets, net............................................................ 23,016,938 20,932,685
Other assets...................................................................... 134,531 73,431
-------------- -------------
TOTAL ASSETS.................................................................. $ 127,381,627 $ 59,677,921
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 96,487 $ 401,026
Income taxes payable............................................................ 647,905 1,498,725
Accrued expenses................................................................ 8,377,331 7,142,979
Deferred revenue................................................................ 12,514,770 10,839,084
-------------- -------------
Total current liabilities..................................................... 21,636,493 19,881,814
Deferred revenue, net of current portion.......................................... 2,405,339 1,532,905
Deferred taxes.................................................................... 158,152 158,152
-------------- -------------
Total liabilities............................................................. 24,199,984 21,572,871
-------------- -------------
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; 25,368,501 and
20,401,126 shares issued and outstanding at July 31 and January 31, 1999,
respectively.................................................................. 25,368 20,401
Additional paid-in capital...................................................... 88,315,378 28,517,972
Deferred stock-based compensation............................................... (685,262) (1,339,030)
Notes receivable from stockholders.............................................. (3,204,389) (3,233,374)
Accumulated other comprehensive losses.......................................... (8,481) (25,578)
Retained earnings............................................................... 18,739,029 14,164,659
-------------- -------------
Total stockholders' equity.................................................... 103,181,643 38,105,050
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................... $ 127,381,627 $ 59,677,921
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SERENA SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Software licenses................................. $ 9,549,330 $ 5,647,575 $ 16,457,937 $ 9,988,727
Maintenance....................................... 6,185,737 4,082,902 11,479,816 7,734,534
Professional services............................. 2,026,538 545,513 4,044,608 1,192,577
------------- ------------- ------------- -------------
Total revenue................................... 17,761,605 10,275,990 31,982,361 18,915,838
------------- ------------- ------------- -------------
Cost of revenue:
Software licenses................................. 736,665 442,832 1,425,524 693,504
Maintenance....................................... 1,398,056 1,138,274 2,733,139 2,030,056
Professional services............................. 1,642,950 495,370 3,199,991 1,092,573
------------- ------------- ------------- -------------
Total cost of revenue........................... 3,777,671 2,076,476 7,358,654 3,816,133
------------- ------------- ------------- -------------
Gross profit.................................... 13,983,934 8,199,514 24,623,707 15,099,705
------------- ------------- ------------- -------------
Operating expenses:
Sales and marketing............................... 5,344,766 3,326,167 9,607,581 5,706,700
Research and development.......................... 1,770,237 1,072,844 3,136,594 2,073,228
General and administrative........................ 1,534,068 887,432 2,634,869 1,692,181
Stock-based compensation.......................... 112,351 652,565 427,165 1,558,093
Amortization of intangible assets................. 475,895 -- 978,336 --
Acquired in-process research and development...... 992,341 -- 992,341 --
------------- ------------- ------------- -------------
Total operating expenses........................ 10,229,658 5,939,048 17,776,886 11,030,202
------------- ------------- ------------- -------------
Operating income.................................... 3,754,276 2,260,466 6,846,821 4,069,503
Interest and other income, net...................... 1,059,792 192,710 1,895,020 343,514
------------- ------------- ------------- -------------
Income before income taxes........................ 4,814,068 2,453,176 8,741,841 4,413,017
Income taxes........................................ 2,433,918 1,079,397 4,167,469 1,941,730
------------- ------------- ------------- -------------
Net income........................................ $ 2,380,150 $ 1,373,779 $ 4,574,372 $ 2,471,287
Translation adjustment.............................. 5,646 183 (17,097) (2,194)
------------- ------------- ------------- -------------
Comprehensive income.............................. $ 2,385,796 $ 1,373,962 $ 4,557,275 $ 2,469,093
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income per share:
Basic............................................. $ 0.10 $ 0.09 $ 0.19 $ 0.16
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted........................................... $ 0.09 $ 0.08 $ 0.18 $ 0.15
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares used in per share
calculations:
Basic............................................. 24,598,915 15,713,109 24,034,007 15,638,930
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted........................................... 25,927,768 16,469,709 25,409,258 16,360,793
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SERENA SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JULY 31,
-----------------------------
1999 1998
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 4,574,372 $ 2,471,287
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation................................................................... 638,176 266,620
Increase in allowance for bad debts............................................ 278,568 54,188
Accrued interest on notes receivable........................................... (78,640) --
Amortization of deferred stock-based compensation.............................. 427,165 1,558,093
Amortization of intangible assets.............................................. 978,336 --
Acquired in-process research and development................................... 992,341 --
Changes in operating assets and liabilities:
Accounts receivable.......................................................... 665,300 2,709,011
Prepaid expenses and other assets............................................ (91,027) (219,995)
Accounts payable............................................................. (328,599) 72,126
Income taxes payable......................................................... (850,736) (707,934)
Accrued expenses............................................................. 794,950 (562,596)
Deferred revenue............................................................. 2,559,523 1,695,157
-------------- -------------
Net cash provided by operating activities.................................. 10,559,729 7,335,957
-------------- -------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment.............................................. (638,393) (184,093)
Purchases of short-term investments.............................................. (17,729,760) --
Issuance of notes due from stockholder........................................... -- (600,000)
Payment of notes due from stockholder............................................ 599,659 86,805
Issuance of notes due from other parties......................................... 150,000 --
Payment of notes due from other parties.......................................... (150,000) --
Cash paid in acquisition of Diamond Optimum Systems, Inc.,
net of cash acquired........................................................... (1,462,031) --
-------------- -------------
Net cash used in investing activities...................................... (19,230,525) (697,288)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES--ISSUANCE OF COMMON STOCK..................... 57,902,226 --
-------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................................ 6,036 2,194
-------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS.......................................... 48,949,497 6,640,863
Cash and cash equivalents at beginning of period................................... 21,468,740 9,024,015
-------------- -------------
Cash and cash equivalents at end of period......................................... $ 70,706,206 $ 15,664,878
-------------- -------------
-------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid.................................................................. $ 4,915,592 $ 2,676,500
-------------- -------------
-------------- -------------
NONCASH INVESTING AND FINANCING ACTIVITY:
Common Stock issued in acquisition of
Diamond Optimum Systems, Inc..................................................... $ 2,234,375 $ --
-------------- -------------
-------------- -------------
Restricted stock issued in exchange for notes receivable........................... $ -- $ 81,000
-------------- -------------
-------------- -------------
Restricted stock cancelled with removal of notes receivable........................ $ (107,625) $ --
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SERENA SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SERENA Software, Inc. (the "Company") is a leading provider of software
change management, or SCM, products and services for managing and controlling
change throughout the software application lifecycle. Its principal markets are
North America and Europe.
The accompanying unaudited consolidated financial statements have been
prepared on substantially the same basis as the audited consolidated financial
statements, and in the opinion of management include all adjustments, consisting
only of normal recurring adjustments, necessary for their fair presentation.
These unaudited consolidated financial statements and the notes thereto have
been prepared in accordance with the Instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all disclosure required by
generally accepted accounting principles and Regulation S-X for annual financial
statements. For these additional disclosures, readers should refer to the
Company's annual report on Form 10-K for the fiscal year ended January 31, 1999.
The interim results presented are not necessarily indicative of results for any
subsequent quarter or for the fiscal year ended January 31, 2000.
(1) 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, common equivalent shares from restricted stock and options to
purchase common stock using the treasury stock method.
The following is a reconciliation of the shares used in the computation of
basic and diluted net income per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic net income per share-weighted average number of
common shares outstanding.............................. 24,598,915 15,713,109 24,034,007 15,638,930
Effect of potentially dilutive securities outstanding-
restricted stock and options........................... 1,328,853 756,600 1,375,251 721,863
------------ ------------ ------------ ------------
Shares used in diluted net income per share
computation............................................ 25,927,768 16,469,709 25,409,258 16,360,793
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
(2) SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board (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
6
<PAGE>
SERENA SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(2) SEGMENT REPORTING (CONTINUED)
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.
(3) RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued Statement of Financial Accounting Standards
("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
SFAS No. 133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts. Under SFAS No. 133,
entities are required to carry all derivative instruments in the balance sheet
at fair value. The accounting for changes in the fair value of a derivative
instrument depends on whether it has been designated and qualifies as part of a
hedging relationship and, if so, the reason for holding it. The Company must
adopt SFAS No. 133 in fiscal 2000. The Company does not anticipate that SFAS No.
133 will have an effect on its financial statements.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-9, SOFTWARE REVENUE RECOGNITION, WITH
RESPECT TO CERTAIN ARRANGEMENTS. SOP 98-9 requires recognition of revenue using
the "residual method" in a multiple-element arrangement when vendor specific
objective evidence of fair value does not exist for one or more of the delivered
elements in the arrangement. Under the residual method, the total fair value of
the undelivered elements is deferred and subsequently recognized in accordance
with SOP 97-2. The Company does not expect a material change to its accounting
for revenues as a result of the provisions of SOP 98-9.
(4) ACQUISITION OF DIAMOND OPTIMUM SYSTEMS, INC.
On June 14, 1999, the Company acquired Diamond Optimum Systems, Inc.
("Diamond"), a provider of enterprise software change management solutions for
NT and UNIX environments. The operations of Diamond will be fully integrated
into the operations of the Company. 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 175,000 shares of the Company's common stock valued at $12.77 per
share. The transaction was valued at approximately $4.5 million with the
allocation of the total consideration as follows:
<TABLE>
<S> <C>
Tangible assets................................................. $ 358,060
Acquired technology............................................. 1,917,276
Acquired in-process research and development.................... 992,341
Work-force-in-place............................................. 179,100
Noncompete agreement............................................ 227,451
Goodwill........................................................ 786,694
---------
Total consideration........................................... $4,460,922
---------
---------
</TABLE>
7
<PAGE>
SERENA SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(4) ACQUISITION OF DIAMOND OPTIMUM SYSTEMS, INC. (CONTINUED)
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, will be 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, will be expensed
immediately in accordance with generally accepted accounting principles. See
Note 5 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 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
noncompete agreement was entered into with a Diamond officer and founder who
will continue with the combined company. The noncompete agreement was valued
based on his anticipated salary and benefits for the period of the agreement and
will be 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 will be amortized over 7 years.
Pro forma financial information giving effect to the acquisition as if it
had occurred at the beginning of the periods presented would not have been
materially different than the Company's operating results.
(5) ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
As a result of the Company's acquisition of Diamond on June 14, 1999, the
Company recorded acquired in-process research and development totaling $992,341.
The premise of value was fair market value in continued use.
Among the assets that were valued by the Company were the Change Management
2.0, the Problem Management and the Enterprise Management products which were
currently under development at the date 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 the acquisition date 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.
8
<PAGE>
SERENA SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(5) ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT (CONTINUED)
In short, the percentage complete and the appropriate risk-adjusted discount
rate for each application were as follows:
<TABLE>
<CAPTION>
APPLICATION UNDER DEVELOPMENT PERCENTAGE COMPLETE DISCOUNT RATE
- ---------------------------------------------------------- ------------------- -------------
<S> <C> <C>
Change Management version 2.0............................. 60.00% 25.00%
Project Management........................................ 75.00% 25.00%
Enterprise Management..................................... 25.38% 27.50%
</TABLE>
The rates used to discount the net cash flows to present value was initially
based on the weighted average cost of capital ("WACC"). 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. 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 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This section of the Form 10-Q contains forward-looking statements based upon
current expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Our actual results and the timing of
certain events could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in this section under "Factors That May Affect Future Results" and
elsewhere in, or incorporated by reference into, this report. It is important
that the discussion below be read together with the attached consolidated
financial statements and notes thereto, with the discussion of such risks and
uncertainties and with the audited financial statements and notes thereto, and
the Management's Discussion and Analysis of Results of Operations and Financial
Condition, contained in the Company's Form 10-K for fiscal 1999.
RESULTS OF OPERATIONS
References to the dollar and percentage increases or decreases set forth
below in this discussion and analysis of SERENA'S results of operations are
derived from comparisons of SERENA'S consolidated statements of income for the
three and six month periods ended July 31, 1999 to the consolidated statements
of income for the three and six month periods ended July 31, 1998. Historical
results include the results of Optima Software ("OPTIMA") from September 25,
1998, the date our acquisition of OPTIMA was completed, and of Diamond Optimum
Systems, Inc. ("DIAMOND") from June 14, 1999, the date our acquisition of
DIAMOND was completed.
9
<PAGE>
The following table sets forth our historical results of operations
expressed as a percentage of total revenue. These historical operating results
for the periods presented are not necessarily indicative of the results for the
full fiscal year or any other period.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
REVENUE REVENUE
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Software licenses.......................................... 53.8% 55.0% 51.5% 52.8%
Maintenance................................................ 34.8% 39.7% 35.9% 40.9%
Professional services...................................... 11.4% 5.3% 12.6% 6.3%
--------- --------- --------- ---------
TOTAL REVENUE............................................ 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ---------
Cost of revenue:
Software licenses.......................................... 4.1% 4.3% 4.5% 3.7%
Maintenance................................................ 7.9% 11.1% 8.5% 10.7%
Professional services...................................... 9.3% 4.8% 10.0% 5.8%
--------- --------- --------- ---------
TOTAL COST OF REVENUE.................................... 21.3% 20.2% 23.0% 20.2%
--------- --------- --------- ---------
GROSS PROFIT............................................. 78.7% 79.8% 77.0% 79.8%
--------- --------- --------- ---------
Operating expenses:
Sales and marketing........................................ 30.1% 32.4% 30.0% 30.2%
Research and development................................... 10.0% 10.4% 9.8% 11.0%
General and administrative................................. 8.6% 8.6% 8.3% 8.9%
Stock-based compensation................................... 0.6% 6.4% 1.3% 8.2%
Amortization of intangible assets.......................... 2.7% -- 3.1% --
Acquired in-process research
And development.......................................... 5.6% -- 3.1% --
--------- --------- --------- ---------
Total operating expenses................................. 57.6% 57.8% 55.6% 58.3%
--------- --------- --------- ---------
OPERATING INCOME............................................. 21.1% 22.0% 21.4% 21.5%
Interest and other income, net............................... 6.0% 1.9% 5.9% 1.8%
--------- --------- --------- ---------
Income before income taxes................................. 27.1% 23.9% 27.3% 23.3%
Income taxes................................................. 13.7% 10.5% 13.0% 10.2%
--------- --------- --------- ---------
NET INCOME............................................... 13.4% 13.4% 14.3% 13.1%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
REVENUE
We derive revenue from software licenses, maintenance and professional
services. Our total revenue increased $7.5 million or 73% to $17.8 million in
the current fiscal quarter ended July 31, 1999 from $10.3 million in the same
quarter a year ago. For the six month period ended July 31, 1999, total revenue
increased $13.1 million or 69% to $32.0 million from $18.9 million in the same
six month period a year ago.
SOFTWARE LICENSES. Software licenses revenue as a percentage of total
revenue was 54% and 52% in the current fiscal quarter and current fiscal six
months ended July 31, 1999, respectively, as compared to 55% and 53% in the same
quarter and six months, respectively, a year ago. Software licenses revenue
increased $3.9 million or 69% to $9.5 million in the current fiscal quarter from
$5.6 million in the same quarter a year ago. For the six month period ended July
31, 1999, software licenses revenue increased $6.5 million or 65% to $16.5
million from $10.0 million in the same six months a
10
<PAGE>
year ago. For both the quarter and six months, the dollar increase is generally
attributed to increased demand for new licenses of FULL.CYCLE MAINFRAME products
as a result of greater customer awareness of and need for third party SCM
solutions and, to a lesser extent, the acquisition of Optima, an increase in
sales force productivity and personnel, and software license price increases. In
particular, sales of our COMPAREX, CHANGE MAN and STARTOOL products grew
significantly. Those products accounted for $8.9 million or 93% and $15.3
million or 93% of total software licenses revenue in the current fiscal quarter
and current fiscal six months, respectively, as compared to $4.4 million or 77%
and $8.1 million or 81% in the same quarter and six months, respectively, a year
ago.
MAINTENANCE. Maintenance revenue as a percentage of total revenue was 35%
and 36% in the current fiscal quarter and current fiscal six months,
respectively, ended July 31, 1999 as compared to 40% and 41% in the same quarter
and six months, respectively, a year ago. Maintenance revenue increased $2.1
million or 52% to $6.2 million in the current fiscal quarter from $4.1 million
in the same quarter a year ago. For the six month period ended July 31, 1999,
maintenance revenue increased $3.8 million or 48% to $11.5 million from $7.7
million in the same six months a year ago. For both the quarter and six months,
the dollar increase reflects both growth in software license revenue, as new
licenses generally include one year of maintenance, renewals of maintenance
agreements by existing customers and, to a lesser extent, maintenance price
increases. Maintenance revenue decreased as a percentage of total revenue for
both the current quarter and six months due to the growth in software license
revenue, which is generally recognized upon contract signing and delivery of the
software, whereas maintenance revenue is deferred and amortized over the
contractual term of the arrangement, usually one year.
PROFESSIONAL SERVICES. Professional services revenue was 11% and 13% of
total revenue in the current fiscal quarter and current fiscal six months,
respectively, ended July 31, 1999 as compared to 5% and 6% in the same quarter
and six months, respectively, a year ago. Professional services revenue
increased $1.5 million or 271% to $2.0 million in the current fiscal quarter
from $0.5 million in the same quarter a year ago. For the six month period ended
July 31, 1999, professional services revenue increased $2.8 million or 239% to
$4.0 million from $1.2 million in the same six months a year ago. For both the
quarter and six months, the dollar increase is attributable to greater
consulting opportunities resulting from our larger installed customer base and
our expanded consulting service capabilities resulting from the acquisition of
Optima.
COST OF REVENUE
Cost of revenue, which consists of cost of software licenses, cost of
maintenance and cost of professional services, was $3.8 million or 21% and $7.4
million or 23% of total revenue in the current fiscal quarter and current fiscal
six months, respectively, as compared to $2.1 million or 20% and $3.8 million or
20% in the same quarter and six months, respectively, a year ago. For both the
quarter and six months, the increase, both in dollar terms and in percentage of
total revenue terms, is due primarily to increased expenses associated with
professional services revenue and maintenance revenue, including personnel
additions and the acquisition of Optima to support professional services and
maintenance revenue growth, and the increase in software sublicense fees.
SOFTWARE LICENSES. Cost of software licenses consists principally of
sublicense fees associated with our STARTOOL, STARWARP and DETECT+RESOLVE
MAINFRAME products. Cost of software licenses as a percentage of total software
licenses revenue was unchanged at 8% for both the current fiscal quarter and the
same quarter a year ago. For the current six months ended July 31, 1999 as
compared to the same period a year ago, cost of software licenses as a
percentage of total software licenses revenue increased to 9% from 7%. Cost of
software licenses increased $0.3 million to $0.7 million and $0.7 million to
$1.4 million in the current fiscal quarter and current fiscal six months,
respectively, from $0.4 and $0.7 million in the same quarter and six months,
respectively, a year ago.
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These increases, both in dollar terms and as a percentage of total software
licenses revenue in the six month periods, are attributable to increases in
royalty bearing software licenses--predominantly STARTOOL AND DETECT+RESOLVE
MAINFRAME--as a percentage of total software licenses revenue.
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, STARWARP AND
DETECT+RESOLVE MAINFRAME PRODUCTS. Cost of maintenance as a percentage of total
maintenance revenue was 23% and 24% in the current fiscal quarter and current
fiscal six months, respectively, as compared to 28% and 26% in the same quarter
and six months, respectively, a year ago. Cost of maintenance increased $0.3
million or 23% to $1.4 million and $0.7 million or 35% to $2.7 million in the
current fiscal quarter and current fiscal six months, respectively, from $1.1
million and $2.0 million in the same quarter and six months, respectively, a
year ago. For both the quarter and six months, the dollar increase is
predominately due to increased expenses associated with our customer support
organization including personnel additions needed to support the maintenance
revenue growth and more recently, increases in sublicense fees. Sublicense fees
are paid to owners of third party products for providing maintenance
enhancements and code fixes.
PROFESSIONAL SERVICES. Cost of professional services consists of salaries,
bonuses and other costs associated with supporting our professional services
organization. Cost of professional services as a percentage of total
professional services revenue was 81% and 79% in the current fiscal quarter and
current fiscal six months, respectively, as compared to 91% and 92% in the same
quarter and six months, respectively, a year ago. Cost of professional services
increased $1.1 million or 232% to $1.6 million and $2.1 million or 193% to $3.2
million in the current fiscal quarter and current fiscal six months,
respectively, from $0.5 million and $1.1 million in the same quarter and six
months, respectively, a year ago. For both the quarter and six months, the
dollar increase is predominately due to increased expenses associated with the
acquisition of Optima which significantly increased our professional services
organization, and personnel additions and other infrastructure costs needed to
support the professional services revenue growth.
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 as
a percentage of total revenue was 30% in both the current fiscal quarter and
current fiscal six months as compared to 32% and 30% in the same quarter and six
months, respectively, a year ago. Sales and marketing expenses increased $2.0
million or 61% to $5.3 million and $3.9 million or 68% to $9.6 million in the
current fiscal quarter and current fiscal six months, respectively, from $3.3
million and $5.7 million in the same quarter and six months, respectively, a
year ago. For both the quarter and six months, the dollar increase is due
primarily to our expansion of our direct sales and marketing organization, and
to a lesser extent, the development of our telesales efforts. As a percentage of
total revenue, there was a slight decrease in the current quarter as compared to
the same period a year ago and it remained relatively unchanged when comparing
the current six month period to the same period a year ago. In absolute dollar
terms, we expect sales and marketing expenses to increase as we continue to hire
additional sales and marketing personnel 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 as a percentage of total revenue was 10% in both the current fiscal
quarter and the same period a year ago and was also 10% in the current fiscal
six months
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period as compared to 11% in the same six months of a year ago. Research and
development expenses increased $0.7 million or 65% to $1.8 million and $1.0
million or 51% to $3.1 million in the current fiscal quarter and current fiscal
six months, respectively, from $1.1 million and $2.1 million in the same quarter
and six months, respectively, a year ago. For both the quarter and six months,
the dollar increase is primarily due to salary, bonus, payroll tax, and employee
benefit costs associated with the expansion of our research and development
efforts to enhance existing products and develop our new FULL.CYCLE distributed
systems and SERNET products. We expect research and development expenses to
increase as we continue to hire additional research and development personnel to
develop our FULL.CYCLE distributed systems product suite and our SERNET
products.
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 as a percentage of total revenue
remained relatively unchanged at 9% for all periods presented, the current
fiscal quarter and current fiscal six months as well as the same periods from a
year ago. General and administrative expenses increased $0.6 million or 73% to
$1.5 million and $0.9 million or 56% to $2.6 million in the current fiscal
quarter and current fiscal six months, respectively, from $0.9 million and $1.7
million in the same quarter and six months, respectively, a year ago. For both
the quarter and six months, the dollar increase is 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. We expect general
and administrative expenses to continue to increase in dollar terms as we expand
our infrastructure and incur additional costs as a result of being a public
company.
STOCK-BASED COMPENSATION. In total, SERENA recorded aggregate deferred
stock-based compensation of $4.6 million in connection with the issuance of
restricted stock and grants of options to purchase common stock. 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 FASB Interpretation No. 28. Of the total deferred
stock-based compensation, $0.1 million and $0.4 million was amortized in the
current fiscal quarter and current fiscal six months, respectively, as compared
to $0.7 million and $1.6 million in the same quarter and six months,
respectively, from a year ago. We expect the stock-based compensation charge
will continue to trend downward quarter over quarter as the related awards vest
or are forfeited. As of July 31, 1999, SERENA had $0.6 million in unamortized
stock-based compensation, all of which is expected to be fully amortized before
the end of fiscal 2003.
AMORTIZATION OF INTANGIBLE ASSETS. In the third quarter of fiscal 1999,
SERENA recorded intangible assets of $21.7 million in connection with the
acquisition of Optima in September, 1998. In the current fiscal quarter, we also
recorded additional intangible assets of $3.1 million in connection with the
acquisition of Diamond in June, 1999. Combined, intangible assets are being
amortized over periods of one year or less on $0.7 million, two to seven years
on $2.9 million and fifteen years on the remaining $21.2 million. Of the total
intangible assets, $0.5 million and $1.0 million was amortized in the current
fiscal quarter and current fiscal six months, respectively, ended July 31, 1999.
We expect to amortize an additional $1.2 million in the remaining two quarters
of fiscal 2000, $2.0 million in fiscal 2001 and $1.9 million in fiscal 2002. The
intangible assets will be fully amortized by the end of fiscal 2014.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with SERENA's
acquisition of Diamond in the current fiscal quarter, we took a one-time charge
of $1.0 million in recording acquired in-process research and development. See
notes 4 and 5 in the Notes to Consolidated Financial Statements.
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INTEREST AND OTHER INCOME, NET
Interest and other income, net increased $0.9 million to $1.1 million and
$1.6 million to $1.9 million in the current fiscal quarter and current fiscal
six months, respectively, from $0.2 million and $0.3 million in the same quarter
and six months, respectively, a year ago. For both the quarter and six months,
the dollar increase in interest and other income, net is predominantly due to
the increase in cash and cash equivalent balances and short-term investments
resulting from the Company's initial public offering in the first quarter of
fiscal 2000 which generated $57.9 million in net proceeds to the Company, and to
a lesser extent, from increases in cash and cash equivalent balances period over
period resulting from cash generated by operations.
INCOME TAXES
Income taxes were $2.4 million and $4.2 million in the current fiscal
quarter and current fiscal six months, respectively, ended July 31, 1999 as
compared to $1.1 million and $1.9 million in the same quarter and six months,
respectively, of a year ago. As a percentage of pretax income, income taxes were
51% and 48% in the current fiscal quarter and fiscal six months, respectively,
as compared to 44% in both the same quarter and six month periods a year ago.
SERENA's effective income tax rate has increased when compared to the same
quarter and six months a year ago predominantly due to the fact that total
nondeductible charges in the current fiscal year, including the $1.0 million one
time charge for acquired in-process research and development, are greater when
compared to the same periods from a year ago. 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. To a lesser extent, SERENA has also experienced higher marginal tax
rates resulting from substantially higher pretax profits year over year.
LIQUIDITY AND CAPITAL RESOURCES
From our inception in 1980 until the closing of our initial public offering
of our common stock in February 1999, we financed our operations and met our
capital expenditure requirements through cash flows from operations. In the
first quarter of fiscal 2000, we completed our initial public offering of common
stock resulting in net proceeds to SERENA of $57.9 million. Net cash provided by
operating activities rose to $10.6 million in the current fiscal six months
ended July 31, 1999 from $7.3 million in the same period a year ago. Our
principal investing activities during the current fiscal six months ended July
31, 1999 were the purchase of $17.7 million of short-term investments and the
acquisition of Diamond where the Company exchanged $1.75 million in cash and
issued 175,000 shares of its common stock valued at $12.77 per share for all the
assets and assumed liabilities of Diamond. At July 31, 1999, SERENA had $70.7
million in cash and cash equivalents and another $17.7 million in short-term
investments.
At July 31, 1999, we had working capital of $80.6 million and trade accounts
receivable, net of allowances, of $12.1 million. Our total current and long term
deferred revenues were $14.9 million. In addition, we did not have any material
commitments for capital expenditures and did not have any revolving credit
agreement or other term loan agreements with any bank or other financial
institution.
We believe that the net proceeds from our initial public offering and cash
flows from operations (including prepaid maintenance fees) will satisfy our
working capital and capital expenditure requirements for at least the next
twelve months.
YEAR 2000 COMPLIANCE
Many computer systems and software products are coded to accept only two
digit entries in the date code field. These date code fields will need to accept
four digit entries to distinguish 21st century
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dates from 20th century dates. As a result, many companies' software and
computer systems may need to be upgraded or replaced in order to comply with
such Year 2000 requirements.
In the ordinary course of our business, we test and evaluate our software
products. We believe that our software products are generally Year 2000
compliant, meaning that the use or occurrence of dates on or after January 1,
2000 will not materially affect the performance of such software products or the
ability of such products to correctly create, store, process and output
information of data involving dates. However, we may learn that certain of our
software products do not contain all necessary software routines and codes
necessary for the accurate calculation, display, storage and manipulation of
data involving dates. In addition, in certain cases, we have warranted that the
use or occurrence of dates on or after January 1, 2000 will not adversely affect
the performance of our products with respect to four digit date dependent data
or the ability to create, store, process and output information related to such
data. If any of our licensees experience Year 2000 problems as a result of their
use of our software products, those licensees could assert claims for damages.
Our standard licensing agreement provides that if our products do not perform to
their specifications, we will correct such problems or issue replacement
software. If these corrective measures fail, we may refund the license fee
associated with the non-performing product. Our standard software license
agreement limits our liability to the amount of the license fee paid, if the
license has been in effect for less than one year, or for the amount of the
license's annual maintenance renewal fee, if the license is more than one year
old. To date we have not received any Year 2000 related claims on our software
products.
Although SERENA does not have a formal plan to address Year 2000 issues,
management is currently addressing Year 2000 problems as they relate to our
internal operating systems. We anticipate that our review of Year 2000 issues
and any remediation efforts will continue throughout calendar 1999. Our Year
2000 review of our internal operating systems is concentrated on our internal
accounting and customer service systems, the systems we believe are most
important to our business. We have found our internal accounting software to be
Year 2000 compliant. We are still reviewing our customer service internal
operating systems. If any Year 2000 issues are uncovered with respect to the
customer service systems or our other internal systems, we believe these
problems will be able to be resolved without material difficulty or cost as
replacement systems are available on commercially reasonable terms.
In view of our Year 2000 review and remediation efforts to date, and the
limited activities that remain to be completed, we do not consider contingency
planning to be necessary at this time. To date costs related to Year 2000 issues
have not been material, and we do not believe such costs will be material in the
future.
We have sought assurances from the suppliers of all third party equipment
and software that we believe are critical to our business that their products
are Year 2000 compliant. While SERENA has received several assurances as to the
Year 2000 compliance of these third party products, we generally do not have any
contractual rights with the third party providers should these equipment or
software fail due to Year 2000 issues. If this third party equipment or software
does not operate properly with regard to the Year 2000, we may incur unexpected
expenses to remedy any problems. These expenses could potentially include
purchasing replacement hardware and software.
In addition, the purchasing patterns of our customers and potential
customers may be affected by Year 2000 issues. Many companies are spending
significant resources to correct their current software systems for Year 2000
compliance. While sales of certain of our products, in particular STARTOOL,
STARWARP and COMPAREX, have benefited from increased customer spending on Year
2000 readiness, we believe sales of our CHANGE MAN product have been and will
continue to be adversely affected by customer focus on Year 2000 issues.
Customers with limited IT budgets who face material Year 2000 issues are
spending their limited resources remediating these Year 2000 problems instead of
investing in more general IT products such as CHANGE MAN. Market acceptance of
SERENA's
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products to address general IT business needs as well as resolution of specific
business issues such as Year 2000 readiness is critical to our business and
future success.
For risks concerning SERENA related to Year 2000 see "Factors That May
Affect Future Results"--"Potential Year 2000 Problems with Our Software or Our
Internal Operating Systems Could Adversely Affect Our Business" and "Reduced
Customer Focus and Spending on Year 2000 Remediation and EMU Conversion Could
Adversely Affect the Sales of Certain of Our Products; Customer Use of Our
Products for Year 2000 and EMU Issues May Not Lead to Increased Sales of Our
Other Products."
FACTORS THAT MAY AFFECT FUTURE RESULTS
THIS REPORT ON FORM 10-Q, INCLUDING THIS MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTAINS
FORWARD-LOOKING STATEMENTS 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 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
quarterly 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. Factors that may materially affect our quarterly operating
results include the following, as well as others discussed in this Form 10-Q:
- The size, timing and contractual terms of large orders for our software
products
- The budgeting cycles of our customers and potential customers and their
willingness to invest in new SCM solutions or upgrade their existing
solutions
- Market demand for our software products and services, including our
distributed systems products that are currently under development
- Our ability to develop and introduce on a timely basis and to market new
and enhanced versions of our software, including our distributed systems
products that are currently under development
- Seasonal trends in customer purchasing patterns
- Activities by our competitors, including releases of new software
products, changes in pricing policies and acquisitions or strategic
partnership activities
- Any downturn in our customers' businesses, in the domestic economy or in
international economies where our customers do substantial business
- 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 and the percentage of software products sold
which require us to pay a sublicense fee to a third party
- Our ability to hire, integrate and retain technical, sales, marketing and
professional services personnel
- Risks associated with our planned international expansion, including
longer sale cycles and currency fluctuations
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- Changes in our pricing policies resulting from competitive pressures or
other factors
- Cancellation of maintenance agreements by customers or any significant
decrease in the percentage of customers who renew their maintenance
agreements with us
- Software defects and other product quality problems
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 FULL.CYCLE 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 as could the
percentage of software products sold which require us to pay a sublicense fee to
a third party.
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, particularly in Europe. To the extent that
our revenue in Europe or other parts of the world increase in future periods, we
expect our period-to-period revenues to reflect any seasonal buying patterns in
these markets.
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 FULL.CYCLE suite of SCM products for
distributed systems
- Broaden our professional services offerings and delivery capabilities
- Expand our distribution channels
- Pursue strategic relationships and acquisitions
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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 FULL.CYCLE
MAINFRAME PRODUCTS FOR OUR REVENUE
Historically, all of our software license revenue has resulted from the sale
of our FULL.CYCLE MAINFRAME products. Any factors adversely affecting the
pricing of, demand for or market acceptance of our FULL.CYCLE 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 FULL.CYCLE MAINFRAME products,
have been responsible for a substantial majority of our revenue. We expect that
these products will continue to account for a large portion of our software
license revenue for the foreseeable future. Our future operating results depend
on the continued market acceptance of our FULL.CYCLE MAINFRAME products,
including future enhancements.
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
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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. Substantially all of our software license revenue
to date has been attributable to sales of our FULL.CYCLE MAINFRAME products. We
expect that, for the foreseeable future, substantially all of our software
license revenue will continue to come from sales of our 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.
Recently there has been a trend away from the use of centralized mainframes in
enterprise computing environments to more decentralized client/server networks.
Although some IT organizations are using mainframes as large enterprise servers,
this practice is relatively new and still emerging and may not continue.
OUR INTRODUCTION OF SERENA SCM PRODUCTS FOR DISTRIBUTED SYSTEMS MAY NOT BE
SUCCESSFUL
We are currently developing our FULL.CYCLE distributed systems product suite
which is designed to operate on distributed systems. If we do not successfully
develop, market, sell and support our FULL.CYCLE distributed systems products,
this would materially adversely affect our business and our future quarterly and
annual operating results. Historically, all of our products have been designed
for the mainframe platform, and substantially all of our software license
revenue, maintenance revenue and professional services revenue to date have been
attributable to licenses for these mainframe products. We do not have 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 do not have any 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
FULL.CYCLE 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.
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, 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.
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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 FULL.CYCLE product suite for distributed systems. While we
anticipate releasing initial versions of our FULL.CYCLE distributed systems
products, other than DETECT+RESOLVE which we released in December 1998, and
eCHANGE MAN which we released in June 1999, before the end of calendar 1999, any
delay in releasing our new distributed systems products or enhancements, 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 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. Since the beginning of
fiscal 1998 we have significantly expanded our sales, marketing and professional
service activities. This expansion included our September 1998 acquisition of
Optima which significantly increased the size of our sales, marketing and
professional service organizations. This growth has resulted, and any future
growth will result, in new and increased responsibilities for management
personnel.
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, 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 any future growth in our business. The failure to
expand our professional services and customer support organizations or to
integrate Optima's professional services personnel into our professional
services organization 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.
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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.
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 subsidiaries in the United Kingdom
and in Germany. 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. In addition, in calendar 1999, we intend to open
additional international offices, including at least one additional European
office. 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. 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:
- 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. Fluctuations in the value of foreign currencies
relative to the U.S. dollar have caused and 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.
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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 FOR
DISTRIBUTED SYSTEMS MARKET
We may not be able to compete successfully against current and/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.
EXISTING 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, 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 SCM FOR DISTRIBUTED SYSTEMS MARKET. We anticipate that
we will also face significant competition as we develop, market and sell our
FULL.CYCLE distributed systems products. If we are unable to successfully
penetrate the SCM for distributed systems market, our business and future
quarterly and annual operating results will be materially adversely affected. We
have little experience in developing, selling, marketing or supporting
distributed systems products since predominantly all of our products to date
have been designed to support the mainframe. Penetrating
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the existing distributed systems SCM market will be difficult. Competitors in
the distributed systems market include Computer Associates, Rational, Continuus,
Mercury Interactive, Merant, Microsoft, Novadigm, Novell and other smaller
private companies.
REDUCED CUSTOMER FOCUS AND SPENDING ON YEAR 2000 REMEDIATION AND EMU CONVERSION
COULD ADVERSELY AFFECT THE SALES OF CERTAIN OF OUR PRODUCTS; CUSTOMER USE OF OUR
PRODUCTS FOR YEAR 2000 AND EMU ISSUES MAY NOT LEAD TO INCREASED SALES OF OUR
OTHER PRODUCTS
Our business may be adversely affected if customers focus less on Year 2000
remediation and European Monetary Unit, or EMU, conversion issues and sales of
our STARWARP and COMPAREX products decline as a result. We have derived a
portion of our recent software license revenue and professional services revenue
from products designed to help customers resolve SCM problems for specific
business issues such as those related to Year 2000 remediation and EMU
conversion. Our STARWARP product is our primary Year 2000 and EMU readiness
product. Certain customers have also licensed COMPAREX to assist them in testing
Year 2000 remediations and EMU conversions. Market acceptance of our products
and services will depend, in large part, on whether customers use our products
as part of their overall IT management strategy in addition to using them to
resolve SCM problems related to specific business issues. Market acceptance of
our products to address general IT business needs as well as to resolve specific
business issues, such as Year 2000 remediation or EMU conversion, is critical to
our business and future success. If customers do not expand their use of our
products, implement new software products introduced by us or do not use our
related maintenance and support services to address their general IT business
requirements as well as specific issues, this will materially adversely affect
our business and our ability to sell our products.
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 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.
CERTAIN OF OUR PRODUCTS ARE LICENSED FROM THIRD PARTIES OR ARE JOINTLY-OWNED
WITH THIRD PARTIES; OUR FAILURE TO MAINTAIN THESE ARRANGEMENTS WITH THIRD
PARTIES COULD ADVERSELY AFFECT OUR BUSINESS
STARTOOL AND STARWARP. We license our STARTOOL and STARWARP products on an
exclusive worldwide basis from A. Bruce Leland, one of our employees. The
termination of our licenses for the STARTOOL or STARWARP products would
materially adversely affect our business and quarterly and annual operating
results. Mr. Leland holds all proprietary rights with respect to the STARTOOL
and STARWARP technology, including any derivative works or enhancements of the
existing STARTOOL and STARWARP products. Our licenses for these products are
terminable by Mr. Leland upon 30 days notice in the event certain conditions
occur, including our failure to pay sublicense fees to Mr. Leland on a timely
basis or any other material breach by us of the license agreement. Should the
licenses for the STARTOOL and STARWARP products terminate, we may not be able to
replace these products which could materially adversely affect our business and
future quarterly and annual operating results.
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DETECT+RESOLVE MAINFRAME. We share ownership rights in our DETECT+RESOLVE
MAINFRAME technology for mainframe platforms with High Power Software. Although
we have historically had primary responsibility for marketing, licensing and
supporting DETECT+RESOLVE MAINFRAME, High Power Software has the ability to
jointly direct these efforts. If in the future we are unable to reach agreement
with High Power Software on the direction or evolution of the product, our
ability to market or promote the product may be compromised. This could have a
material adverse effect on our business and future quarterly and annual
operating results.
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.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED
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 FULL.CYCLE
distributed systems product suite which is currently in development. 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 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.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR SOFTWARE OR OUR INTERNAL OPERATING SYSTEMS
COULD ADVERSELY AFFECT OUR BUSINESS
SERENA SOFTWARE. If any of our licensees experience Year 2000 problems as a
result of their use of our software products, those licensees could assert
claims for damages which, if successful, could materially adversely affect our
business, future operating results and financial condition. In the ordinary
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course of our business, we test and evaluate our software products. We believe
that our software products are generally Year 2000 compliant, meaning that the
use or occurrence of dates on or after January 1, 2000 will not materially
affect the performance of our software products or the ability of our products
to correctly create, store, process and output information of data involving
dates. However, we may learn that certain of our software products do not
contain all necessary software routines and codes necessary for the accurate
calculation, display, storage and manipulation of data involving dates. In
addition, in certain cases, we have warranted that the use or occurrence of
dates on or after January 1, 2000 will not adversely affect the performance of
our products with respect to four digit date dependent data or the ability to
create, store, process and output information related to such data.
THIRD PARTY EQUIPMENT AND SOFTWARE. We use third party equipment and
software that may not be Year 2000 compliant. If this third party equipment or
software does not operate properly with regard to the Year 2000, we may incur
unexpected expenses to remedy any problems. These costs may materially adversely
affect our business. In addition, if our key systems, or a significant number of
our systems, failed as a result of Year 2000 problems we could incur substantial
costs and disruption of our business.
CUSTOMER BUYING PATTERNS. In addition, the purchasing patterns of our
customers and potential customers may be affected by Year 2000 issues. Many
companies are spending significant resources to correct their current software
systems for Year 2000 compliance. While sales of certain of our products, in
particular STARWARP and COMPAREX, have benefited from increased customer
spending on Year 2000 readiness, we believe sales of our CHANGE MAN product have
been and will continue to be adversely affected by customer focus on Year 2000
issues. Customers with limited IT budgets who face material Year 2000 issues are
spending their limited resources remediating these Year 2000 problems instead of
investing in more general IT products, such as CHANGE MAN.
For a more detailed description of our Year 2000 preparedness assessment,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
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. 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 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.
THIRD PARTIES IN THE FUTURE COULD ASSERT THAT OUR PRODUCTS INFRINGE THEIR
INTELLECTUAL PROPERTY RIGHTS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS; THERE
COULD BE POTENTIAL ADVERSE EFFECTS OF THE PENDING COMPUWARE CLAIM
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,
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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.
In September 1998, Compuware Corporation, or Compuware, filed suit against
SERENA in the United States District Court for the Eastern District of Michigan
seeking unspecified compensatory damages, costs and attorneys fees, and
injunctive relief based on allegations of copyright infringement, trade secret
misappropriation and various tort claims related to the sale of our STARTOOL and
STARWARP products. Compuware served the complaint on SERENA in November 1998.
Due to the nature of litigation generally, and due to the fact that discovery is
ongoing, management cannot ascertain the availability of injunctive relief or
other equitable remedies or estimate the total expenses, possible damages or
settlement value, if any, that may ultimately be incurred in connection with
Compuware's suit. However, management believes, based on the advice of counsel,
that SERENA has meritorious defenses to the allegations contained in Compuware's
complaint. We believe that this matter will not have a material adverse effect
on our results of operations or financial condition. This litigation could be
time consuming and costly, and there can be no assurance that SERENA will
necessarily prevail given the inherent uncertainties of litigation. In the event
that we do not prevail in litigation, we could be prevented from selling our
STARTOOL and STARWARP products or be required to enter into royalty or licensing
agreements or pay monetary damages. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to SERENA or at all. In the
event of a successful claim against us, our business, future operating results
or financial condition could be materially adversely affected.
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 FULL.CYCLE 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. While we carry insurance policies covering this type of liability, these
policies may not provide sufficient protection
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should a claim be asserted. 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. In particular, issues relating to Year 2000 compliance have
increased awareness of the potential adverse effects of software defects and
malfunctions.
ANY ACQUISITIONS OR INVESTMENTS THAT WE MAY MAKE WILL BE SUBJECT TO A NUMBER OF
FACTORS WHICH COULD ADVERSELY AFFECT OUR BUSINESS; SUCH INVESTMENTS OR
ACQUISITIONS MAY DILUTE EXISTING STOCKHOLDERS
In the future we may make acquisitions of, or large investments in,
businesses that offer products, services and technologies that we believe would
help us better provide SCM products and services or help us expand our
distribution channels. We may not be able to complete any such additional
acquisitions in the future. Any future acquisitions or investments would present
risks commonly encountered in acquisitions of businesses. The following are
examples of such risks:
- Difficulty in combining the technology, operations or work force of the
acquired business
- Disruption of SERENA's on-going businesses
- Difficulty in realizing the potential financial or strategic benefits of
the transaction
- Difficulty in maintaining uniform standards, controls, procedures and
policies
- Possible impairment of relationships with employees and clients as a
result of any integration of new businesses and management personnel
We expect that future acquisitions, if any, could provide for consideration
to be paid in cash, shares of SERENA common stock, or a combination of cash and
SERENA common stock. If the consideration for such transaction is paid in common
stock, this would further dilute existing stockholders. Any amortization of
goodwill or other assets resulting from such acquisition transaction could
materially impair our operating results and financial condition. If an
acquisition or large investment were to take place, the risks described above
could materially adversely affect our business and future operating results.
OUR STOCK WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS
DUE TO A NUMBER OF FACTORS, CERTAIN OF WHICH ARE BEYOND OUR CONTROL
Stock prices and trading volumes for many technology companies fluctuate
widely for reasons which may be unrelated to their businesses or results of
operations. These fluctuations, as well as general economic, market and
political conditions, could materially adversely affect the market price of
SERENA's common stock.
Future announcements concerning SERENA or our competitors could cause the
market price of the common stock to fluctuate greatly. These type of
announcements may include information concerning:
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- Any shortfall in SERENA's revenues or net income from revenues or net
income expected by securities analysts
- Announcements of new products by SERENA or our competitors, including
announcements regarding our FULL.CYCLE distributed systems products
- Quarterly fluctuations in our financial results or the results of other
software companies, including those of our direct competitors
- Changes in analysts' estimates of our financial performance, the financial
performance of our competitors, or the financial performance of software
companies in general
- Changes in prices of our products or the products of our competitors
- Changes in our revenue growth rates or the growth rates of our competitors
- Sales of large blocks of SERENA common stock
- Conditions in the financial markets in general and the software industry
in particular
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not use derivative financial instruments in our investment portfolio
and have no foreign exchange contracts. Our financial instruments consist of
cash, cash equivalents, short-term investments, trade accounts receivable,
accounts payable. Our exposure to market risk for changes in interest rates
relates primarily to our short-term investments and obligations; thus,
fluctuations in interest rates would not have a material effect on the fair
value of these securities.
Sales to customers in foreign countries accounted for approximately 15% and
17% of total revenue during the quarter and six months ended July 31, 1999,
respectively. Because we invoice certain of these sales in currencies other than
the U.S. dollar, predominately British pound sterling, and do not hedge these
transactions, fluctuations in exchange rates could adversely affect the
translated results of operations of our foreign subsidiaries.
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PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS.
USE OF PROCEEDS
In February 1999, SERENA completed the sale of 6 million shares of its
Common Stock, including 2 million shares on behalf of selling stockholders, at a
per share price of $13.00 in a firm commitment underwritten public offering
pursuant to a Registration Statement on Form S-1 (File No. 333-67761) which the
Securities and Exchange Commission declared effective on February 11, 1999. The
offering was underwritten by Hambrecht & Quist LLC, SG Cowen Securities
Corporation and Soundview Technology Group Inc. In March 1999, an over-allotment
option granted by SERENA to the underwriters for the purchase of up to 900,000
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
$1.4 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.
On June 14, 1999, SERENA acquired Diamond Optimum Systems, Inc. ("Diamond"),
a provider of enterprise software change management solutions for NT and UNIX
environments, in a transaction valued at approximately $4.5 million. 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 175,000 shares of the
Company's common stock valued at $12.77 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The fiscal 1999 Annual Meeting of the Stockholders of SERENA Software, Inc.
was held at the Company's offices at 500 Airport Boulevard, Burlingame,
California 94010 on June 30, 1999 at 2:00 p.m.
(b) At the Annual Meeting, the following four persons were elected to the
Company's Board of Directors, constituting all members of the Board of
Directors.
<TABLE>
<CAPTION>
BOARD NOMINEES COMMON FOR COMMON WITHHELD
- ------------------------------------------------------------- ------------ -----------------
<S> <C> <C>
Douglas D. Troxel............................................ 23,453,324 18,800
Richard A. Doerr............................................. 23,453,324 18,800
Alan H. Hunt................................................. 23,453,524 18,600
Jerry T. Ungerman............................................ 23,453,324 18,800
</TABLE>
29
<PAGE>
(c) The following additional proposal was considered at the Annual Meeting with
its results according to the respective vote of the stockholders:
PROPOSAL 2--Ratification and approval of the appointment of KPMG LLP as
independent accountants of the Company for the fiscal year ending January
31, 2000.
<TABLE>
<CAPTION>
COMMON FOR COMMON AGAINST ABSTAINED BROKER NON-VOTES
- ------------ ----------------- ----------- -----------------------
<S> <C> <C> <C>
23,463,024 5,900 3,200 0
</TABLE>
ITEM 5. OTHER INFORMATION.
In August 1999, SERENA's Board of Directors authorized the institution of a
stock repurchase program whereby up to 400,000 shares of the Company's Common
Stock may be repurchased in the open market or in privately negotiated block
transactions from time to time. The Company will utilize the reacquired shares
for reissuance in connection with employee stock programs and general corporate
purposes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
- ------------- ---------------------------------------------------------------------------------------------------
<S> <C>
(a) Exhibits.
10.2A Amended and Restated 1997 Stock Option and Incentive Plan
10.3A 1999 Employee Stock Purchase Plan
10.4A 1999 Director Option Plan
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
Not applicable.
</TABLE>
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
SERENA SOFTWARE, INC.
By: /s/ ROBERT I. PENDER, JR.
-----------------------------------------
Robert I. Pender, Jr.
VICE PRESIDENT, FINANCE AND
ADMINISTRATION, CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER) AND SECRETARY
</TABLE>
Date: September 14, 1999
31
<PAGE>
SERENA SOFTWARE, INC.
AMENDED AND RESTATED
1997 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSES OF THE PLAN. The purposes of this Amended and Restated 1997
Stock Option and Incentive Plan are:
- to attract and retain the best available personnel for positions of
substantial responsibility,
- to provide additional incentive to Employees, Directors and Consultants,
and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the administration
of stock option plans under U. S. state corporate laws, U.S. federal and state
securities laws, the Code, any stock exchange or quotation system on which the
Common Stock is listed or quoted and the applicable laws of any foreign country
or jurisdiction where Options or Stock Purchase Rights are, or will be, granted
under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the Board in
accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means SERENA Software , Inc., a California corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services to such entity.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means total and permanent disability as defined in Section
22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors, employed
by the Company or any Parent or Subsidiary of the Company. A Service Provider
shall not cease to be an Employee in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company or
between the Company, its Parent, any Subsidiary, or any successor. For purposes
of Incentive Stock Options, no such leave may exceed ninety days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market
<PAGE>
of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or system for the last market trading day prior to
the time of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market Value of a Share
of Common Stock shall be the mean between the high bid and low asked prices
for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source
as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(p) "NOTICE OF GRANT" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding Options
are surrendered in exchange for Options with a lower exercise price.
(u) "OPTIONED STOCK" means the Common Stock subject to an Option or Stock
Purchase Right.
(v) "OPTIONEE" means the holder of an outstanding Option or Stock Purchase
Right granted under the Plan.
(w) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "PLAN" means this Amended and Restated 1997 Stock Option and Incentive
Plan.
(y) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant to a
grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement between
the Company and the Optionee evidencing the terms and restrictions applying to
stock purchased under a Stock Purchase Right. The Restricted Stock Purchase
Agreement is subject to the terms and conditions of the Plan and the Notice of
Grant.
(aa) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(bb) "SECTION 16(B)" means Section 16(b) of the Exchange Act.
(cc) "SERVICE PROVIDER" means an Employee, Director or Consultant.
2
<PAGE>
(dd) "SHARE" means a share of the Common Stock, as adjusted in accordance
with Section 13 of the Plan.
(ee) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "SUBSIDIARY" means a "subsidiary corporation", whether now or hereafter
existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 4,550,000 Shares (the Shares may be authorized, but unissued,
or reacquired Common Stock), plus (i) any unused Shares, (ii) any forfeited
Shares, and (iii) annual increases on the first day of each fiscal year,
beginning with the fiscal year ending January 31, 2001, equal to the lesser of
(a) 4,000,000 Shares, (b) 2 1/2% percent of the Shares of Common Stock
outstanding on the last day of each preceding fiscal year or (c) such amount as
determined by the Board. For purposes of this Section 3, (i) "unused Shares"
means Shares reserved for issuance but not subject to grants under this Amended
and Restated 1997 Stock Option and Incentive Plan (the "1997 Plan") and (ii)
"forfeited Shares" means any Shares covered by grants under the 1997 Plan that
are not issued to participants or that are returned to the Company upon
forfeiture of such Shares.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); PROVIDED, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be administered by
different Committees with respect to different groups of Service Providers.
(ii) SECTION 162(M). To the extent that the Administrator determines it
to be desirable to qualify Options granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the Plan
shall be administered by a Committee of two or more "outside directors"
within the meaning of Section 162(m) of the Code.
(iii) RULE 16B-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption
under Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above, the Plan shall
be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan, and
in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discre-tion:
(i) to determine the Fair Market Value;
3
<PAGE>
(ii) to select the Service Providers to whom Options and Stock Purchase
Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be covered by
each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Option or Stock Purchase Right granted hereunder.
Such terms and conditions include, but are not limited to, the exercise
price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock Purchase Right
to the then current Fair Market Value if the Fair Market Value of the Common
Stock covered by such Option or Stock Purchase Right shall have declined
since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards granted
pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans established
for the purpose of qualifying for preferred tax treatment under foreign tax
laws;
(x) to modify or amend each Option or Stock Purchase Right (subject to
Section 15(c) of the Plan), including the discretionary authority to extend
the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined. All elections by
an Optionee to have Shares withheld for this purpose shall be made in such
form and under such conditions as the Administrator may deem necessary or
advisable;
(xii) to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or advisable for
administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding
such designation, to the extent that the
4
<PAGE>
aggregate Fair Market Value of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by the Optionee during any calendar
year (under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 6(a), Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of the
Shares shall be determined as of the time the Option with respect to such Shares
is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall confer
upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of the
Company, Options to purchase more than 250,000 Shares.
(ii) In connection with his or her initial service, a Service Provider
may be granted Options to purchase up to an additional 750,000 Shares which
shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is canceled in the same fiscal year of the Company in
which it was granted (other than in connection with a transaction described
in Section 13), the canceled Option will be counted against the limits set
forth in subsections (i) and (ii) above. For this purpose, if the exercise
price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be determined by the Administrator,
subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described in
paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
5
<PAGE>
(ii) In the case of a Nonstatutory Stock Option, the per Share exercise
price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a per
Share exercise price of less than 100% of the Fair Market Value per Share on
the date of grant pursuant to a merger or other corporate transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is granted, the
Administrator shall fix the period within which the Option may be exercised and
shall determine any conditions which must be satisfied before the Option may be
exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine the acceptable
form of consideration for exercising an Option, including the method of payment.
In the case of an Incentive Stock Option, the Administrator shall determine the
acceptable form of consideration at the time of grant. Such consideration may
consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon exercise
of an option, have been owned by the Optionee for more than six months on
the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised;
(v) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the Optionee,
including any liability attributable to the Optionee's participation in any
Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the issuance of
Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Unless the Administrator provides otherwise, vesting of
Options granted hereunder shall be tolled during any unpaid leave of absence. An
Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i) written
or electronic notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the Shares
are issued (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends
6
<PAGE>
or any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company shall issue (or
cause to be issued) such Shares promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Shares are issued, except as provided in Section 13 of
the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an Optionee ceases
to be a Service Provider, other than upon the Optionee's death or Disability,
the Optionee may exercise his or her Option within such period of time as is
specified in the Option Agreement to the extent that the Option is vested on the
date of termination (but in no event later than the expiration of the term of
such Option as set forth in the Option Agreement). In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for three (3)
months following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service Provider
as a result of the Optionee's Disability, the Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement to the
extent the Option is vested on the date of termination (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider, the
Option may be exercised within such period of time as is specified in the Option
Agreement (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquires the right to exercise the Option by bequest or inheritance, but
only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out
for a payment in cash or Shares an Option previously granted based on such terms
and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either alone, in
addition to, or in tandem with other awards granted under the Plan and/or cash
awards made outside of the Plan. After the Administrator determines that it will
offer Stock Purchase Rights under the Plan, it shall advise the offeree in
writing or electronically, by means of a Notice of Grant, of the terms,
conditions and
7
<PAGE>
restrictions related to the offer, including the number of Shares that the
offeree shall be entitled to purchase, the price to be paid, and the time within
which the offeree must accept such offer. The offer shall be accepted by
execution of a Restricted Stock Purchase Agreement in the form determined by the
Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines otherwise, the
Restricted Stock Purchase Agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
service with the Company for any reason (including death or Disability). The
purchase price for Shares repurchased pursuant to the Restricted Stock Purchase
Agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at a rate determined by the Administrator.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall contain
such other terms, provisions and conditions not inconsistent with the Plan as
may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is exercised, the
purchaser shall have the rights equivalent to those of a shareholder, and shall
be a shareholder when his or her purchase is entered upon the records of the
duly authorized transfer agent of the Company. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the Stock
Purchase Right is exercised, except as provided in Section 13 of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify each Optionee as soon
as practicable prior to the effective date of such proposed transaction. The
Administrator in its discretion may provide for an Optionee to have the right to
exercise his or her Option until ten (10) days prior to such transaction as to
all of the Optioned Stock covered thereby, including Shares as to which the
Option would not otherwise be
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exercisable. In addition, the Administrator may provide that any Company
repurchase option applicable to any Shares purchased upon exercise of an Option
or Stock Purchase Right shall lapse as to all such Shares, provided the proposed
dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exer-cised, an Option or
Stock Purchase Right will terminate immediately prior to the consummation of
such proposed action.
(c) MERGER OR ASSET SALE. In the event of (i) a merger or consolidation of
the Company with or into another corporation resulting in the outstanding voting
securities of the Company immediately prior thereto representing (either by
remaining or by being converted into voting securities of the surviving entity)
less than 50% of the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation or (ii) the sale of all or substantially all of the assets of
the Company, the Optionee shall fully vest in and have the right to exercise the
Option as to all of the Optioned Stock, including Shares as to which it would
not otherwise be vested or exercisable. If an Option becomes fully vested and
exercisable in the event of a merger or consolidation or sale of assets as
provided above, the Administrator shall notify the Optionee in writing or
electronically that the Option shall be fully vested and exercisable.
14. DATE OF GRANT. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder approval of
any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration, suspension
or termination of the Plan shall impair the rights of any Optionee, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the exercise of
an Option or Stock Purchase Right unless the exercise of such Option or Stock
Purchase Right and the issuance and delivery of such Shares shall comply with
Applicable Laws and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an Option
or Stock Purchase Right, the Company may require the person exercising such
Option or Stock Purchase Right to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required.
17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
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18. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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SERENA SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of SERENA Software, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the common stock of the Company.
(d) "COMPANY" shall mean SERENA Software, Inc., and any Designated
Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross earnings,
commissions and bonuses, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments and other compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an employee of the Company
for tax purposes whose customary employment with the Company is at least twenty
(20) hours per week and more than five (5) months in any calendar year; provided
that the term "Employee" shall not include consultants to, or independent
contractors of, the Company. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual is on
sick leave or other leave of absence approved by the Company. Where the period
of leave exceeds 90 days and the individual's right to reemployment is not
guaranteed either by statute or by contract, the employment relationship shall
be deemed to have terminated on the 91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first Trading Day of each Offering
Period.
(i) "EXERCISE DATE" shall mean the last Trading Day of each Purchase Period.
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of Common
Stock determined as follows:
(1) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or system for the
last market trading day on the date of such determination, as reported in
THE WALL STREET JOURNAL or such other source as the Board deems reliable;
(2) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be
the mean of the closing bid and asked prices for the Common Stock on the
date of such determination, as reported in THE WALL STREET JOURNAL or such
other source as the Board deems reliable;
(3) In the absence of an established market for the Common Stock, the
Fair Market Value thereof shall be determined in good faith by the Board; or
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(4) For purposes of the Enrollment Date of the first Offering Period
under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for
the initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "OFFERING PERIODS" shall mean the periods of approximately twenty-four
(24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after December 1 and June 1
of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective (the "SEC Effective Date") and ending on the last Trading
Day on or before November 30, 2000. The duration and timing of Offering Periods
may be changed pursuant to Section 4 of this Plan.
(l) "PLAN" shall mean this 1999 Employee Stock Purchase Plan.
(m) "PURCHASE PERIOD" shall mean the approximately six month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date, the first Purchase
Period shall commence on the SEC Effective Date and end on the last trading day
on or before August 25, 1999 and the second Purchase Period shall commence on
August 26 and end on the last trading day on or before November 30, 1999.
(n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value of a share of
Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower;
provided however, that the Purchase Price may be adjusted by the Board pursuant
to Section 20.
(o) "RESERVES" shall mean the number of shares of Common Stock covered by
each option under the Plan which have not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "SHARE" means a share of Common Stock, as adjusted in accordance with
Section 19 of the Plan.
(q) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of which not
less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
(r) "TRADING DAY" shall mean a day on which national stock exchanges and the
Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given Enrollment
Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee
shall be granted an option under the Plan (i) to the extent that, immediately
after the grant, such Employee (or any other person whose stock would be
attributed to such Employee pursuant to Section 424(d) of the Code) would own
capital stock of the Company and/or hold outstanding options to purchase such
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of the capital stock of the Company or of any Subsidiary,
or (ii) to the extent that his or her rights to purchase stock under all
employee stock purchase plans of the Company and its subsidiaries accrues at a
rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
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4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after December 1 and June 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
November 30, 2000. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee working primarily in the United States of America
may become a participant in the Plan by completing a subscription agreement
authorizing payroll deductions in the form of EXHIBIT A to this Plan and filing
it with the Company's payroll office prior to the applicable Enrollment Date.
(b) An eligible Employee working primarily outside of the United States of
America may become a participant in the Plan by completing a participation
agreement authorizing payroll deductions in the form of EXHIBIT B to this Plan
and filing it with the Company's payroll office prior to the applicable
Enrollment Date.
(c) Payroll deductions for a participant shall commence on the first payroll
following the Enrollment Date and shall end on the last payroll in the Offering
Period to which such authorization is applicable, unless sooner terminated by
the participant as provided in Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription agreement, he or
she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding 10% of the Compensation which he or
she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited to his
or her account under the Plan and shall be withheld in whole percentages only. A
participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan as
provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate; provided, however, that a participant may change his or her rate
of payroll deductions only two (2) times each Purchase Period; provided,
further, that the Board may, in its discretion, change the number of
participation rate changes permitted during any Purchase or Offering Period. The
change in rate shall be effective with the first full payroll period following
five (5) business days after the Company's receipt of the new subscription
agreement unless the Company elects to process a given change in participation
more quickly. A participant's most recent subscription agreement received by the
Company shall remain in effect for successive Offering Periods unless terminated
as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll
deductions may be decreased by the Company to zero percent (0%) at any time
during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
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(e) At the time the option is exercised, in whole or in part, or at the time
some or all of the Company's Common Stock issued under the Plan is disposed of,
the participant must make adequate provision for the Company's federal, state,
or other tax withholding obligations, if any, which arise upon the exercise of
the option or the disposition of the Common Stock. At any time, the Company may,
but shall not be obligated to, withhold from the participant's compensation the
amount necessary for the Company to meet applicable withholding obligations,
including any withholding required to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common Stock
by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
25,000 shares of the Company's Common Stock (subject to any adjustment pursuant
to Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of the Company's Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall occur
as provided in Section 8 hereof, unless the participant has withdrawn pursuant
to Section 10 hereof. The option shall expire on the last day of the Offering
Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided in Section 10
hereof, his or her option for the purchase of shares shall be exercised
automatically on the Exercise Date, and the maximum number of full shares
subject to option shall be purchased for such participant at the applicable
Purchase Price with the accumulated payroll deductions in his or her account. No
fractional shares shall be purchased; any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full share shall be
retained in the participant's account for the subsequent Purchase Period or
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number of
shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
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9. DELIVERY. As promptly as practicable after each Exercise Date on which
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of EXHIBIT C to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have any
effect upon his or her eligibility to participate in any similar plan which may
hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the Company as
provided in Section 19 hereof, the maximum number of shares of the Company's
Common Stock which shall be made available for sale under the Plan shall be
225,000 shares, plus an annual increase to be added on the first day of each
fiscal year, beginning with the fiscal year ending January 31, 2001, equal to
the lesser of (i) 225,000 Shares, (ii) 1% of the Shares of Common Stock
outstanding on the last day of the previous fiscal year or (iii) such amount as
determined by the Board.
(b) The participant shall have no interest or voting right in shares covered
by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
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(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to an Exercise Date on
which the option is exercised but prior to delivery to such participant of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death prior to exercise of the option.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant at any
time by written notice. In the event of the death of a participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such participant's death, the Company shall deliver such shares and/or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares and/or cash to
the spouse or to any one or more dependents or relatives of the participant, or
if no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION,
MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or
liquidation of the Company, the Offering Period then in progress shall be
shortened by setting a new Exercise Date (the "New Exercise Date"), and shall
terminate immediately prior to the consummation of such proposed dissolution or
liquidation, unless provided otherwise by the Board. The New Exercise Date shall
be
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before the date of the Company's proposed dissolution or liquidation. The Board
shall notify each participant in writing, at least ten (10) business days prior
to the New Exercise Date, that the Exercise Date for the participant's option
has been changed to the New Exercise Date and that the participant's option
shall be exercised automatically on the New Exercise Date, unless prior to such
date the participant has withdrawn from the Offering Period as provided in
Section 10 hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 19 hereof, no such
termination can affect options previously granted, provided that an Offering
Period may be terminated by the Board of Directors on any Exercise Date if the
Board determines that the termination of the Offering Period or the Plan is in
the best interests of the Company and its shareholders. Except as pro-vided in
Section 19 and this Section 20 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of the Plan
may result in unfavorable financial accounting consequences, the Board may, in
its discretion and, to the extent necessary or desirable, modify or amend the
Plan to reduce or eliminate such accounting consequence including, but not
limited to:
(1) altering the Purchase Price for any Offering Period including an
Offering Period underway at the time of the change in Purchase Price;
(2) shortening any Offering Period so that Offering Period ends on a new
Exercise Date, including an Offering Period underway at the time of the
Board action; and
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(3) allocating shares.
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
im-mediately following Offering Period as of the first day thereof.
[REMAINDER OF THE PAGE LEFT BLANK INTENTIONALLY]
8
<PAGE>
EXHIBIT A
SERENA SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
______ Original Application Enrollment Date: ____________
______ Change in Payroll Deduction Rate
______ Change of Beneficiary(ies)
1. _______________ hereby elects to participate in the SERENA Software, Inc.
1999 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
______% of my Compensation on each payday (from 1 to 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I understand
that if I do not withdraw from an Offering Period, any accumulated payroll
deductions will be used to automatically exercise my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my ability
to exercise the option under this Subscription Agreement is subject to
shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the Offering
Period during which I purchased such shares) or one year after the Exercise
Date, I will be treated for federal income tax purposes as having received
ordinary income at the time of such disposition in an amount equal to the
excess of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I HEREBY AGREE
TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY
DISPOSITION OF MY SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL,
STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE
DISPOSITION OF THE COMMON STOCK. The Company may, but will not be obligated
to, withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary to
make available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by me. If I dispose of such shares
at any time after the expiration of the 2-year and 1-year holding periods, I
understand that I will be treated for federal income tax purposes as having
received income only at the time of such disposition, and that such income
will be taxed as ordinary income only to the extent of an amount equal to
the lesser of (1) the excess of the fair market value of the shares at the
time of such disposition over the purchase price which I paid for the
shares, or (2) 15% of the fair market value of the shares on the first day
of the Offering Period. The remainder of the gain, if any, recognized on
such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan.
The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
<PAGE>
NAME: (Please print) ___________________________________________________________
(First) (Middle) (Last)
<TABLE>
<S> <C>
Relationship
(Address)
Employee's Social
Security Number:
Employee's Address:
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE
OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
Signature of Employee
Spouse's Signature (If beneficiary other than
spouse)
</TABLE>
<PAGE>
EXHIBIT B
SERENA SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
(FOR NON-U.S. EMPLOYEES)
______ Original Application Enrollment Date: ____________
______ Change in Payroll Deduction Rate
______ Change of Beneficiary(ies)
1. hereby elects to participate in the SERENA Software, Inc. 1999
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
___% of my Compensation on each payday (from 1 to 10%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I understand
that if I do not withdraw from an Offering Period, any accumulated payroll
deductions will be used to automatically exercise my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my ability
to exercise the option under this Subscription Agreement is subject to
shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
____________.
6. I understand and acknowledge that my participation in the Employee Stock
Purchase Plan and any benefits thereunder shall not form part of any
contract of employment with the Company or any subsidiary and said benefits
are not part of my remuneration and do not count as such for any purpose. I
acknowledge further that in the event of the termination of my employment
and my resulting ineligibility to participate in the Employee Stock Purchase
Plan I shall have no claim for compensation for any loss of any right or
benefit or prospective right or benefit under the Employee Stock Purchase
Plan which I might otherwise have enjoyed.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan.
The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
<PAGE>
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) ___________________________________________________________
(First) (Middle) (Last)
<TABLE>
<S> <C>
Relationship
(Address)
Employee's Social
Security Number:
Employee's Address:
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE
OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
Signature of Employee
Spouse's Signature (If beneficiary other than
spouse)
</TABLE>
<PAGE>
EXHIBIT C
SERENA SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the SERENA Software,
Inc. 1999 Employee Stock Purchase Plan which began on ____________, 19__ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
______________________________________
______________________________________
______________________________________
Signature:
______________________________________
Date: ________________________________
<PAGE>
SERENA SOFTWARE, INC.
1999 DIRECTOR OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1999 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the common stock of the Company.
(d) "COMPANY" means SERENA Software, Inc.
(e) "DIRECTOR" means a member of the Board.
(f) "DISABILITY" means total and permanent disability as defined in
section 22(e)(3) of the Code.
(g) "EMPLOYEE" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the time of determination
as reported in THE WALL STREET JOURNAL or such other source as the
Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market
Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock for the last market trading day
prior to the time of determination, as reported in THE WALL STREET
JOURNAL or such other source as the Board deems reliable; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "INSIDE DIRECTOR" means a Director who is an Employee.
(k) "OPTION" means a stock option granted pursuant to the Plan.
(l) "OPTIONED STOCK" means the Common Stock subject to an Option.
(m) "OPTIONEE" means a Director who holds an Option.
(n) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(o) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(p) "PLAN" means this 1999 Director Option Plan.
<PAGE>
(q) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(r) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue
Code of 1986.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 150,000 Shares (the "Pool") (the Shares may be authorized, but
unissued, or reacquired Common Stock), plus an annual increase to be added on
the first day of each fiscal year, beginning with the fiscal year ending Januay
31, 2001, equal to the lesser of (i) 125,000 Shares, (ii) 1/2% of the Shares of
Common Stock outstanding on the last day of each preceding fiscal year or (ii)
such amount as determined by the Board of Directors.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan
has terminated). Shares that have actually been issued under the Plan shall
not be returned to the Plan and shall not become available for future
distribution under the Plan.
4. ADMINISTRATION AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) PROCEDURE FOR GRANTS. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares
to be covered by Options.
(ii) Each Outside Director shall be automatically granted an Option
to purchase 25,000 Shares (the "First Option") on the date on which such
person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a
vacancy; provided, however, that an Inside Director who ceases to be an
Inside Director but who remains a Director shall not receive a First
Option.
(iii) Each Outside Director shall be automatically granted an Option
to purchase 5,000 Shares (a "Subsequent Option") on the first day of each
fiscal year (beginning with the fiscal year ending January 31, 2001)
provided he or she is then an Outside Director and if as of such date, he
or she shall have served on the Board for at least the preceding six (6)
months.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such shareholder approval of the Plan
in accordance with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair Market
Value per Share on the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall become
exercisable cumulatively with respect to 1/4th of the Shares subject
to the First Option on the anniversary of the date of grant, and as
to 1/48th of the First Option at the end of each
2
<PAGE>
month thereafter, provided that the Optionee continues to serve as a
Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder shall be as
follows:
(A) the term of the Subsequent Option shall be ten (10) years.
(B) the Subsequent Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair Market
Value per Share on the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option shall
become exercisable cumulatively with respect to 1/4th of the Shares
subject to the Subsequent Option on the anniversary of the date of
grant, and as to 1/48th of the Subsequent Option at the end of each
month thereafter, provided that the Optionee continues to serve as a
Director on such dates.
(vii) In the event that any Option granted under the Plan would cause
the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under
Options to the Outside Directors on a pro rata basis. No further grants
shall be made until such time, if any, as additional Shares become
available for grant under the Plan through action of the Board or the
shareholders to increase the number of Shares which may be issued under
the Plan or through cancellation or expiration of Options previously
granted hereunder.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate the Director's relationship with the Company
at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur
of its adoption by the Board or its approval by the shareholders of the Company
as described in Section 16 of the Plan. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. FORM OF CONSIDERATION. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof; provided, however, that no Options shall be exercisable
until shareholder approval of the Plan in accordance with Section 16 hereof
has been obtained.
3
<PAGE>
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received
by the Company. Full payment may consist of any consideration and method of
payment allowable under Section 7 of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A share certificate for the
number of Shares so acquired shall be issued to the Optionee as soon as
practicable after exercise of the Option. No adjustment shall be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. Subject to Section
10 hereof, in the event an Optionee's status as a Director terminates (other
than upon the Optionee's death or Disability), the Optionee may exercise his
or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to
exercise it on the date of such termination (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was
not entitled to exercise an Option on the date of such termination, and to
the extent that the Optionee does not exercise such Option (to the extent
otherwise so entitled) within the time specified herein, the Option shall
terminate.
(c) DISABILITY OF OPTIONEE. In the event Optionee's status as a
Director terminates as a result of Disability, the Optionee may exercise his
or her Option, but only within twelve (12) months following the date of such
termina-tion, and only to the extent that the Optionee was entitled to
exercise it on the date of such termination (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was
not entitled to exercise an Option on the date of termination, or if he or
she does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance may exercise the Option, but only within twelve
(12) months following the date of death, and only to the extent that the
Optionee was entitled to exercise it on the date of death (but in no event
later than the expiration of its ten (10) year term). To the extent that the
Optionee was not entitled to exercise an Option on the date of death, and to
the extent that the Optionee's estate or a person who acquired the right to
exercise such Option does not exercise such Option (to the extent otherwise
so entitled) within the time specified herein, the Option shall terminate.
9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as
4
<PAGE>
well as the price per Share covered by each such outstanding Option, and the
number of Shares issuable pursuant to the automatic grant provisions of
Section 4 hereof shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of issued
Shares effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall
not be deemed to have been "effected without receipt of consideration."
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has
not been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company with
or into another corporation or the sale of substantially all of the assets
of the Company, the Option or option shall become fully exercisable,
including as to Shares for which it would not otherwise be exercisable.
Thereafter, the Option or option shall remain exercisable in accordance with
Sections 8(b) through (d); PROVIDED, HOWEVER, that if the Successor
Corporation does not assume such outstanding Option or substitute for it an
equivalent option, and the Option would otherwise terminate pursuant to
Sections 8(b) through 8(d) after the consummation of the merger or asset
sale transaction, then the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall
terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the
right to purchase or receive, for each Share of Optioned Stock subject to
the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares). If such consideration
received in the merger or sale of assets is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent
of the successor corporation, provide for the consideration to be received
upon the exercise of the Option, for each Share of Optioned Stock subject to
the Option, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend, or discontinue the Plan, but no amendment, alteration, suspension,
or discontinuation shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any
applicable law, regulation or stock exchange rule, the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
5
<PAGE>
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
there-under, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
14. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10Q QUARTERLY REPORT UNDER THE SECURITIES ACT OF 1934 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 70,706,206
<SECURITIES> 17,729,760
<RECEIVABLES> 12,702,426
<ALLOWANCES> 590,022
<INVENTORY> 0
<CURRENT-ASSETS> 102,273,916
<PP&E> 4,009,466
<DEPRECIATION> 2,053,224
<TOTAL-ASSETS> 127,381,627
<CURRENT-LIABILITIES> 21,636,493
<BONDS> 0
0
0
<COMMON> 25,368
<OTHER-SE> 103,156,275
<TOTAL-LIABILITY-AND-EQUITY> 127,381,627
<SALES> 16,457,937
<TOTAL-REVENUES> 31,982,361
<CGS> 1,425,524
<TOTAL-COSTS> 25,135,540
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,741,841
<INCOME-TAX> 4,167,469
<INCOME-CONTINUING> 4,574,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,574,372
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.18
</TABLE>
