SERENA SOFTWARE INC, 424B4, 1999-02-12

SERENA SOFTWARE INC
424B4, 1999-02-12
PREPACKAGED SOFTWARE

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<PAGE>
PROSPECTUS

6,000,000 SHARES

[LOGO]

COMMON STOCK

This is an initial public offering of common stock by SERENA Software,
Inc. Of the 6,000,000 shares of common stock being sold in this offering,
4,000,000 shares are being sold by SERENA Software and 2,000,000 shares are
being sold by the selling stockholders. SERENA Software will not receive any of
the proceeds from the sale of shares by the selling stockholders.

--------------

Prior to this offering, there has been no public market for SERENA
Software common stock. The shares of common stock have been approved for
quotation on the Nasdaq National Market under the symbol SRNA.

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<TABLE>
<CAPTION>
PER SHARE TOTAL
----------------- ----------
<S> <C> <C>
Initial public offering price............................... $13.00 $78,000,000
Underwriting discounts and commissions...................... $ 0.91 $5,460,000
Proceeds to SERENA Software, before expenses................ $12.09 $48,360,000
Proceeds to the selling stockholders, before expenses....... $12.09 $24,180,000
</TABLE>

SERENA Software has granted the underwriters an option for a period of
30 days to purchase up to 900,000 additional shares of common stock.

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INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

HAMBRECHT & QUIST
SG COWEN
SOUNDVIEW TECHNOLOGY GROUP

February 11, 1999
<PAGE>
[Description of Inside Front Cover Graphic]

The caption "SERENA" is centered at the top of the inside front cover
page. Below "SERENA" the caption "FULL.CYCLE SOFTWARE" appears. Below these two
captions there is a large circle with a smaller circle comprised of arrows
appearing within the larger circle. The caption "Software Application" is
super-imposed on the top-half of the outer circle. The caption "Life Cycle" is
super-imposed on the bottom-half of the outer circle. At the twelve o'clock
position, the word "request" is super-imposed on an arrow comprising the
top-most portion of the smaller inner circle. Moving clockwise, the words
"analysis development testing production" are super-imposed on an arrow
comprising most of the right-half of the inner circle. Continuing to move
clockwise, the word "deployment" is super-imposed on an arrow at the six o'clock
position of the inner circle. Still moving clockwise, the words "tracking
problem detection reporting" are super-imposed on an arrow comprising most of
the left-half of the inner circle. Centered at the bottom of the page, the
caption "Solutions for Managing Software Change" appears. The entire above-
described graphic is superimposed against a background consisting of scaled-back
photographs of groups of people.
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary........................................... 4

Risk Factors................................................. 7

Forward Looking Statements................................... 20

Use of Proceeds.............................................. 21

Dividend Policy.............................................. 21

Capitalization............................................... 22

Dilution..................................................... 23

Selected Consolidated Financial Data......................... 24

Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 25

Business..................................................... 38

Management................................................... 53

Certain Transactions......................................... 62

Principal and Selling Stockholders........................... 64

Description of Capital Stock................................. 66

Shares Eligible for Future Sale.............................. 68

Underwriting................................................. 70

Legal Matters................................................ 72

Experts...................................................... 72

Change in Auditors........................................... 72

Additional SERENA Information................................ 72

Index to Financial Statements................................ F-1
</TABLE>

Information contained on SERENA's Web site does not constitute part of
this prospectus.

COMPAREX, CHANGE MAN, STARTOOL and SYNCTRAC are registered United States
trademarks of SERENA. SERNET, FULL.CYCLE, CDF, CONCURRENT DEVELOPMENT FACILITY,
STARWARP and SER(POWER) and the SERENA logo are also trademarks of SERENA. This
prospectus also contains trademarks and tradenames of other companies.

3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS,
BEFORE MAKING AN INVESTMENT DECISION.
SERENA
SERENA is a leading provider of software change management, or SCM,
products and services used to manage and control software change for
organizations whose business operations are dependent on managing information
technology, or IT. In our 18 year history, we have developed highly effective
solutions for managing software change that enable our customers to improve
their return on IT investments by increasing programmer productivity and
reducing application development and IT infrastructure maintenance costs. A key
challenge for IT managers is managing software change throughout the business
organization, including new version releases, "bug fixes," upgrades and
application introductions. Our products help IT managers manage software changes
to applications by automating the software application life cycle. IT managers
use our products to track software changes during the software application
design and development process, manage separate programming teams that are
concurrently developing and enhancing applications, and oversee the deployment
of software applications. Any software change, if not managed effectively, has
the potential to cause system outages or corrupt data which can result in
disruption and lost business.
Successful management of IT infrastructure requires managing rapid and
unpredictable technological change within increasingly complex and diverse
computing environments. Business issues such as competitive pressures, short
time-to-market windows, regulatory changes and Year 2000 and European Monetary
Union conversions introduce additional requirements for managing software
change. Our products are designed to assist businesses in addressing these types
of complexities by automating the management of changes to software
applications.
Our FULL.CYCLE MAINFRAME product suite creates an IT environment that
improves product consistency, enhances software integrity, protects valuable
software assets and facilitates concurrent application development efforts by
separate programming teams. The FULL.CYCLE MAINFRAME product suite is designed
to support the mainframe platform and, to date, all of our software license
revenue has been attributable to the sale of these mainframe products. As of
October 31, 1998, our FULL.CYCLE MAINFRAME products have been installed in over
2,000 data centers worldwide, and our customers include 36 of the Fortune 50
companies such as Chase Manhattan, Citigroup, General Electric, IBM, MetLife,
Merrill Lynch and Prudential. Our SER(POWER) professional services enable
customers to customize our products to fully address their specific SCM
requirements.
We intend to maintain our technology leadership in providing SCM
solutions for the mainframe and to use the proprietary technology and expertise
incorporated in our FULL.CYCLE MAINFRAME products to develop our SCM product
suite for the desktop, FULL.CYCLE DESKTOP. This will enable us to provide
customers with a complete SCM solution across the IT organization. We released
an initial version of our first desktop product, DETECT+RESOLVE, in December
1998. Managing software change on the mainframe and desktop platforms have many
similarities. These similarities include the need to develop and enforce
consistent software change policies and procedures and a process to control all
types of software changes. Software changes occur in all phases of the
application life cycle, from the initial business request through development,
testing and production and into maintenance and support phases.
In 1998, we initiated a strategic expansion of our sales, marketing and
professional services capabilities. This strategic expansion has included hiring
additional direct sales personnel, initiating a telesales effort, recruiting
additional third party distributors and increasing our professional services
staff. In addition, we are also expanding our target market internationally to
include companies within the Global 2000.
In September 1998, we acquired Optima Software, or Optima, which had
served as the primary distributor of our flagship product, CHANGE MAN, for over
ten years. This acquisition significantly increased our sales, marketing and
professional services capabilities and enabled us to sell and market CHANGE MAN
as part of our FULL.CYCLE MAINFRAME product suite.
Our headquarters are located at 500 Airport Boulevard, 2(nd) Floor,
Burlingame, California 94010-1904, and our telephone number is (650) 696-1800.

4
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common stock offered by SERENA............... 4,000,000 shares
Common stock offered by the selling
stockholders................................. 2,000,000 shares
Common stock to be outstanding after this
offering..................................... 24,204,250 shares
Use of proceeds.............................. For working capital, general corporate
purposes and potential strategic investments
or acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol................ SRNA
</TABLE>

------------------
UNLESS OTHERWISE NOTED, THE INFORMATION IN THIS PROSPECTUS TAKES INTO
ACCOUNT A 3-FOR-2 STOCK SPLIT EFFECTED IN JULY 1998 AND A 3-FOR-2 STOCK SPLIT
EFFECTED IN NOVEMBER 1998. ALL INFORMATION IN THE PROSPECTUS RELATING TO
OUTSTANDING SHARES OF SERENA COMMON STOCK OR OPTIONS TO PURCHASE SERENA COMMON
STOCK IS BASED UPON INFORMATION AS OF OCTOBER 31, 1998. PRO FORMA INFORMATION
GIVES EFFECT TO SERENA'S SEPTEMBER 1998 ACQUISITION OF OPTIMA AS IF SUCH
ACQUISITION OCCURRED AT THE BEGINNING OF THE PERIOD PRESENTED. UNLESS OTHERWISE
INDICATED, THE INFORMATION THROUGHOUT THIS PROSPECTUS DOES NOT TAKE INTO ACCOUNT
THE POSSIBLE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK TO THE UNDERWRITERS
PURSUANT TO THEIR OVER-ALLOTMENT OPTION.
PLEASE SEE "CAPITALIZATION" FOR A MORE COMPLETE DISCUSSION REGARDING THE
OUTSTANDING SHARES OF SERENA COMMON STOCK AND OPTIONS TO PURCHASE SERENA COMMON
STOCK AND OTHER RELATED MATTERS.

5
<PAGE>
THE SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA PRESENTED BELOW IS
DERIVED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF SERENA AND ITS
SUBSIDIARIES. THE FINANCIAL STATEMENTS FOR EACH OF THE THREE YEARS ENDED JANUARY
31, 1998 AND THE NINE MONTHS ENDED OCTOBER 31, 1998 HAVE BEEN AUDITED BY KPMG
LLP, INDEPENDENT AUDITORS.
THE PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA FOR THE FISCAL YEAR
ENDED JANUARY 31, 1998 AND FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 SUMMARIZED
BELOW HAS BEEN DERIVED FROM THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS. THE PRO FORMA COMBINED
QUARTERLY STATEMENT OF INCOME DATA SUMMARIZED BELOW IS DERIVED FROM UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME NOT INCLUDED IN THIS
PROSPECTUS. THE PRO FORMA STATEMENT OF INCOME DATA GIVES EFFECT TO SERENA'S
ACQUISITION OF OPTIMA AS IF IT HAD OCCURRED ON FEBRUARY 1, 1997.
THE AS ADJUSTED CONSOLIDATED BALANCE SHEET DATA SUMMARIZED BELOW
REFLECTS THE APPLICATION OF THE NET PROCEEDS FROM THE SALE OF THE 4,000,000
SHARES OF COMMON STOCK OFFERED BY THE COMPANY AT THE INITIAL PUBLIC OFFERING
PRICE OF $13.00 AND AFTER DEDUCTING THE UNDERWRITING DISCOUNTS AND COMMISSIONS
AND ESTIMATED OFFERING EXPENSES.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------------- ---------------------------------
1998 1998
---------------------- ----------------------
1996 1997 ACTUAL PRO FORMA 1997 ACTUAL PRO FORMA
--------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenue.................................. $ 10,744 $ 17,454 $ 32,147 $ 41,315 $ 20,489 $ 31,146 $ 36,899
Operating income......................... 184 1,025 7,693 6,846 4,891 7,419 8,333
Net income............................... $ 277 $ 862 $ 4,761 $ 3,454 $ 3,281 $ 4,394 $ 4,687
Net income per share:
Basic.................................. $ 0.02 $ 0.05 $ 0.31 $ 0.19 $ 0.21 $ 0.27 $ 0.25
Diluted................................ $ 0.02 $ 0.05 $ 0.31 $ 0.19 $ 0.21 $ 0.26 $ 0.24
Shares used to compute net income per
share:
Basic.................................. 15,750 15,750 15,248 18,436 15,290 16,145 18,735
Diluted................................ 15,750 15,750 15,272 18,460 15,290 17,122 19,712
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31,
1997 1997 1997 1998 1998 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA COMBINED QUARTERLY STATEMENT OF
INCOME DATA:
Revenue...................................... $ 7,181 $ 8,988 $ 9,844 $ 15,302 $ 10,835 $ 12,449
Operating income............................. 508 1,169 2,121 3,048 2,054 2,588
Net income................................... $ 144 $ 554 $ 1,233 $ 1,523 $ 988 $ 1,451
Net income per share:
Basic...................................... $ 0.01 $ 0.03 $ 0.07 $ 0.08 $ 0.05 $ 0.08
Diluted.................................... $ 0.01 $ 0.03 $ 0.07 $ 0.08 $ 0.05 $ 0.07

OCT. 31,
1998
-----------
<S> <C>
PRO FORMA COMBINED QUARTERLY STATEMENT OF
INCOME DATA:
Revenue...................................... $ 13,615
Operating income............................. 3,691
Net income................................... $ 2,248
Net income per share:
Basic...................................... $ 0.12
Diluted.................................... $ 0.11
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 31, 1998
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ 16,878 $ 64,388
Working capital........................................................................... 12,884 60,394
Total assets.............................................................................. 52,438 99,948
Total liabilities and deferred revenue.................................................... 17,557 17,557
Total stockholders' equity................................................................ 34,881 82,391
</TABLE>

6
<PAGE>
RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. ANY OF THE
FOLLOWING RISKS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS, OPERATING
RESULTS AND FINANCIAL CONDITION AND COULD RESULT IN A COMPLETE LOSS OF YOUR
INVESTMENT.

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 "Risk Factor" section of the prospectus, including many
that are beyond our control. As a result, we believe that quarter-to-quarter
comparisons of our financial results are not necessarily meaningful, and you
should not rely on them as an indication of our future performance.

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

Historically, a majority of our revenue has been attributable to the
licenses of our 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

7
<PAGE>
- Develop our technology, including our FULL.CYCLE DESKTOP suite of SCM
products for the desktop platform

- Broaden our professional services offerings and delivery capabilities

- Expand our distribution channels

- Pursue strategic relationships and acquisitions

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

OUR FUTURE REVENUE IS SUBSTANTIALLY DEPENDENT UPON OUR INSTALLED CUSTOMERS
RENEWING MAINTENANCE AGREEMENTS FOR OUR PRODUCTS AND LICENSING ADDITIONAL
SERENA SCM PRODUCTS; OUR FUTURE PROFESSIONAL SERVICE AND MAINTENANCE REVENUE
IS DEPENDENT ON FUTURE SALES OF OUR SOFTWARE PRODUCTS

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

WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON SALES OF OUR 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. In fiscal 1997,
1998 and the nine months ended October 31, 1998, sales of CHANGE MAN and
COMPAREX together accounted for approximately 72%, 82% and 71% of our software
license revenue, respectively. 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

8
<PAGE>
be materially adversely affected. The SCM market is in an early stage of
development. IT organizations have traditionally addressed SCM needs internally
and have only recently become aware of the benefits of third-party SCM solutions
as their SCM requirements have become more complex. Since the market for our
products is still evolving, it is difficult to assess the competitive
environment or the size of the market that may develop. Our future financial
performance will depend in large part on the continued growth in the number of
businesses adopting third-party SCM products and the expansion of their use on a
company-wide basis. The SCM market for third-party products may grow more slowly
than we anticipate. In addition, technologies, customer requirements and
industry standards may change rapidly. If we cannot improve or augment our
products as rapidly as existing technologies, customer requirements and industry
standards evolve, our products or services could become obsolete. The
introduction of new or technologically superior products by competitors could
also make our products less competitive or obsolete. As a result of any of these
factors, our position in existing markets or potential markets could be eroded.

OUR BUSINESS IS DEPENDENT ON THE CONTINUED MARKET FOR IBM AND IBM-COMPATIBLE
MAINFRAMES

We are substantially dependent upon the continued use and acceptance of
IBM and IBM-compatible mainframes and the growth of this market. If the role of
the mainframe does not increase as we anticipate, or if it in any way decreases,
this would materially adversely affect our business, future quarterly and annual
operating results and financial condition. Additionally, if there is a wide
acceptance of other platforms or if new platforms emerge that provide enhanced
enterprise server capabilities, our business and future operating results may be
materially adversely affected. 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 THE DESKTOP MAY NOT BE SUCCESSFUL

We are currently developing our FULL.CYCLE DESKTOP product suite which
is designed to support the desktop platform. If we do not successfully develop,
market, sell and support our FULL.CYCLE DESKTOP 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 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 desktop products. Developing, marketing and selling our
desktop 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 desktop products. Additionally, we do not have any experience in
providing support services for desktop 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 DESKTOP products. Many of our competitors have substantially greater
experience providing desktop 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. To date,

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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 DESKTOP product suite. While we anticipate releasing
initial versions of our FULL.CYCLE DESKTOP products, other than DETECT+RESOLVE
which we released in December 1998, before the end of calendar 1999, any delay
in releasing our new desktop products, for whatever reason, would impair our
revenue growth.

WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS IN RECENT PERIODS AND OUR
ABILITY TO MANAGE THIS GROWTH AND ANY FUTURE GROWTH WILL AFFECT OUR BUSINESS

Our ability to compete effectively and to manage our recent growth, any
future growth and our future quarterly and annual operating results will depend
in part on our ability to implement and expand operational, customer support and
financial control systems and to train and manage our employees. We may not be
able to augment or improve existing systems and controls or implement new
systems and controls in response to future growth, if any. Any failure to manage
growth could materially adversely affect our business. Our business has grown
substantially in recent periods, with total revenue increasing from $17.5
million in fiscal 1997 to $32.1 million in fiscal 1998 and from $20.5 million in
the nine months ended October 31, 1997 to $31.1 million for the nine months
ended October 31, 1998. In connection with this revenue growth, beginning in
fiscal 1998 and continuing in fiscal 1999, we began a strategic expansion of 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 MAY BE UNABLE TO SUCCESSFULLY INTEGRATE OPTIMA INTO OUR BUSINESS

Our acquisition of Optima, which was completed in September 1998, will
require integrating the businesses and operations of the two companies. Prior to
the acquisition, Optima had been the primary distributor of the CHANGE MAN
product for over ten years. As a result, Optima was responsible for a
substantial portion of our software license revenues. If we do not successfully
integrate Optima into our business, this may materially adversely affect our
business, in particular our ability to sell CHANGE MAN to prospective customers,
and future operating results. Additionally, we may never achieve the anticipated
synergies from the acquisition of Optima, including marketing, distribution or
other operational benefits. Integrating Optima into our existing business may
prove difficult given that the two companies are geographically separated, have
different corporate cultures and have personnel with different business
backgrounds. Potential problems with this integration could include:

- The inability to retain a sufficient number of Optima's key employees,
including its existing sales force and professional service personnel

- Difficulties in standardizing sales quotas, territories and incentive
compensation plans for sales personnel

- The lack of focus on achieving our core business objectives if
management pays excessive attention to the integration process

- Impairment of relationships with clients and employees

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

10
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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 ability to integrate Optima's direct sales
force with our business and on our success in recruiting and training sufficient
direct sales personnel. Historically, we have had a relatively small direct
sales staff and Optima served as our primary distribution channel for CHANGE
MAN. 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 desktop and mainframe
applications and systems, we may not be able to do so. Competition for
additional qualified technical personnel to perform these services is intense.

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

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. International sales represented
approximately 15% of our total revenue in both fiscal 1997 and 1998 and
approximately 19% of total revenue for the nine months ended October 31, 1998.
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

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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.

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
DESKTOP 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, PLATINUM technology, 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,

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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 DESKTOP SCM MARKET. We anticipate that we will also
face significant competition as we develop, market and sell our FULL.CYCLE
DESKTOP products. If we are unable to successfully penetrate the desktop SCM
market, our business and future quarterly and annual operating results will be
materially adversely affected. We do not have experience in developing, selling,
marketing or supporting desktop products since all of our products to date have
been designed to support the mainframe. Penetrating the existing desktop SCM
market will be difficult. Competitors in the desktop market include PLATINUM
technology, Micro Focus/INTERSOLV, Microsoft, Novadigm, Novell, Rational
Software 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, which is our primary Year 2000 and EMU
readiness product, accounted for 7% of our software license revenue for the nine
months ended October 31, 1998, although it did not account for any software
license revenue in fiscal 1998. Certain customers have also licensed COMPAREX to
assist them in testing Year 2000 remediations and EMU conversions. In addition,
while sales of 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 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.

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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. Licenses of STARTOOL accounted
for 12% of our software license revenue for both fiscal 1998 and the nine months
ended October 31, 1998. Licenses of STARWARP accounted for 7% of our software
license revenue for the nine months ended October 31, 1998, but did not account
for any software license revenue in fiscal 1998. For a description of our
license agreements for the STARTOOL and STARWARP products, see
"Business--Intellectual Property."

SYNCTRAC. We share ownership rights in our SYNCTRAC technology for
mainframe platforms with High Power Software. Although we have historically had
primary responsibility for marketing, licensing and supporting SYNCTRAC, 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. Sales of SYNCTRAC accounted for
3% of our software license revenue in fiscal 1998 and 5% of our software license
revenue in the nine months ended October 31, 1998. For a description of rights
associated with our joint ownership of the SYNCTRAC technology for the mainframe
see "Business--Intellectual Property."

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

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year-to-year basis. In addition, we do not maintain key man life insurance on
our employees and have no plans to do so.

OUR NEW EXECUTIVE TEAM MAY NOT BE ABLE TO SUCCESSFULLY WORK TOGETHER TO MEET OUR
BUSINESS OBJECTIVES, WHICH WOULD ADVERSELY AFFECT OUR BUSINESS

Almost all of our executive officers, including our President and Chief
Executive Officer, our Vice President, Finance and Chief Financial Officer, and
certain other operating vice presidents have been employed by SERENA for a
relatively short period of time. In addition, both of our non-employee directors
have been appointed to the board of directors since the beginning of February
1998. Since joining SERENA, the new management team has devoted substantial
efforts to significantly expanding our sales, marketing and professional
services activities. This management team has not worked together previously and
may not be able to successfully implement this strategy. The failure of the
management team to address SERENA's business objectives would materially
adversely affect our business and our future quarterly and annual operating
results.

WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED TO SUCCEED

Our future success will likely depend in large part on our ability to
attract and retain additional experienced sales, technical, marketing and
management personnel. In addition, we will need to attract and retain sufficient
numbers of qualified software engineers, as well as sales and marketing and
support personnel, and successfully develop, market and support our FULL.CYCLE
DESKTOP 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.

SERENA'S CURRENT OFFICERS AND DIRECTORS OWN A MAJORITY OF OUR STOCK; NO
CORPORATE ACTIONS REQUIRING STOCKHOLDER APPROVAL, INCLUDING ANY POTENTIAL
CHANGE OF CONTROL EVENTS, WILL BE ABLE TO BE CONSUMMATED WITHOUT THE APPROVAL
OF THIS GROUP

The ability of SERENA's officers and directors to prevent a potential
change of control event may discourage potential bids to acquire SERENA unless
the terms of acquisition are approved by these officers and directors. Upon
completion of this offering, SERENA's officers, directors and persons or
entities directly related to these individuals will together beneficially own
approximately 65.2% of the outstanding shares of SERENA. In particular, Douglas
D. Troxel, SERENA's founder, the Chairman of SERENA's board of directors and
SERENA's Chief Technology Officer, will own approximately 57.4% of the
outstanding shares. As a result, Mr. Troxel, in particular, and SERENA's
officers and directors, in general, will be able to control most matters
requiring stockholder approval. These matters would include the election of
SERENA directors and any approval of potential mergers, consolidations or sales
of all or substantially all of the assets of SERENA.

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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
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.

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.

WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY RIGHTS WHICH OFFER ONLY LIMITED
PROTECTION AGAINST POTENTIAL INFRINGERS; IF WE CANNOT PROTECT OUR INTELLECTUAL
PROPERTY RIGHTS, THIS COULD ADVERSELY AFFECT OUR BUSINESS

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we may provide our licensees with access to our data model and other proprietary
information underlying our licensed applications. Additionally, our competitors
may independently develop similar or superior technology. Policing unauthorized
use of software is difficult and some foreign laws do not protect our
proprietary rights to the same extent as United States laws. Litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of the proprietary
rights of others. Litigation could result in substantial costs and diversion of
resources and could materially adversely affect our business, future 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, 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 on November 18,
1998. Due to the nature of litigation generally and because the lawsuit brought
by Compuware is at an early stage, 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

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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 DESKTOP 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 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.

OUR UNDESIGNATED PREFERRED STOCK MAY INHIBIT POTENTIAL ACQUISITION BIDS FOR
SERENA; THIS MAY ADVERSELY AFFECT THE MARKET PRICE FOR SERENA COMMON STOCK AND
THE VOTING RIGHTS OF THE HOLDERS OF COMMON STOCK

Upon completion of the offering, SERENA's board of directors will have
the authority to issue up to 5,000,000 shares of preferred stock in one or more
series. The board of directors can fix the price, rights, preferences,
privileges and restrictions of such preferred stock without any further vote or
action by SERENA's stockholders. However, the issuance of shares of preferred
stock may delay or prevent a change in control transaction without further
action by the SERENA stockholders. As a result, the market price of the SERENA
common stock and the voting and other rights of the holders of SERENA common
stock may be adversely affected. The issuance of preferred stock may result in
the loss of voting control to others. SERENA has no current plans to issue any
shares of preferred stock.

CERTAIN PROVISIONS IN OUR CHARTER DOCUMENTS MAY INHIBIT POTENTIAL ACQUISITION
BIDS FOR SERENA; THIS MAY ADVERSELY AFFECT THE MARKET PRICE FOR SERENA COMMON
STOCK AND PREVENT CHANGES IN THE MANAGEMENT OF SERENA

Certain provisions of SERENA's charter documents specify certain
procedures for nominating directors and submitting proposals for consideration
at stockholder meetings. These provisions could discourage potential acquisition
proposals and could delay or prevent a change in control transaction and they
could have the effect of discouraging others from making tender offers for
SERENA's shares. As a result, these provisions may prevent the market price of
SERENA common stock from reflecting the effects of actual or rumored takeover
attempts. These provisions may also prevent changes in the management of SERENA.

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DELAWARE LAW MAY INHIBIT POTENTIAL ACQUISITION BIDS FOR SERENA; THIS MAY
ADVERSELY AFFECT THE MARKET PRICE FOR SERENA COMMON STOCK AND PREVENT CHANGES
IN THE MANAGEMENT OF SERENA

Certain provisions of Delaware law may inhibit potential acquisition
bids for SERENA. SERENA is subject to the antitakeover provisions of the
Delaware General Corporation Law, which regulates corporate acquisitions.
Delaware law prevents certain Delaware corporations, which includes SERENA, from
engaging, under certain circumstances, in a "business combination" with any
"interested stockholder" for three years following the date that such
stockholder became an interested stockholder. For purposes of Delaware law, a
"business combination" includes, among other things, a merger or consolidation
involving SERENA and the interested stockholder and the sale of more than 10% of
SERENA's assets. In general, Delaware law defines an "interested stockholder" as
any entity or person beneficially owning 15% or more of the outstanding voting
stock of a corporation and any entity or person affiliated with or controlling
or controlled by such entity or person. Under Delaware law, a Delaware
corporation may "opt out" of the antitakeover provisions. SERENA does not intend
to "opt out" of these antitakeover provisions of Delaware Law.

THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY ADVERSELY AFFECT THE MARKET PRICE FOR SERENA COMMON STOCK

Sales of a substantial number of shares of SERENA's common stock in the
public market following this offering could materially adversely affect the
market price for SERENA common stock. The number of shares of common stock
available for sale in the public market is limited by restrictions under federal
securities law and under certain agreements that SERENA's stockholders have
entered into with the underwriters. Those agreements restrict SERENA's
stockholders from selling, pledging or otherwise disposing of their shares for a
period of 180 days after the date of this prospectus without the prior written
consent of Hambrecht & Quist LLC. Hambrecht & Quist LLC may, however, in its
sole discretion, release all or any portion of the common stock from the
restrictions of the lockup agreements. However, Hambrecht & Quist LLC has no
current plans to do so. Based on the 20,204,250 shares of SERENA common stock
outstanding as of October 31, 1998, and the 4,000,000 shares being sold by
SERENA in this offering, as a result of the restrictions of federal securities
law and the agreements SERENA's stockholders have entered into with the
underwriters, no shares other than the 6,000,000 shares offered hereby will be
eligible for sale immediately after completion of this offering.

The following table indicates approximately when the 18,204,250 shares
of SERENA common stock that are not being sold in the offering but which will be
outstanding at the time the offering is complete will be eligible for sale into
the public market:

<TABLE>
<S> <C>
ELIGIBILITY OF RESTRICTED SHARES
FOR SALE IN PUBLIC MARKET
At effective date 0
180 days after effective date 16,516,750
After 180 days post-effective date 1,687,500
</TABLE>

Most of the restricted shares that will become eligible for sale at the
180th date after the date of this prospectus or afterward will be subject to
certain volume limitations because they are held by affiliates of SERENA.

Additionally, of the shares issuable upon exercise of options to
purchase SERENA common stock outstanding as of October 31, 1998, approximately
253,267 shares will be vested and eligible for sale on the 180th date following
the completion of this offering.

For a further description of the eligiblity of shares for sale into the
public market following the offering see "Management--Shares Eligible for Future
Sale."

19
<PAGE>
NEW INVESTORS IN SERENA COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION

The initial public offering price is substantially higher than the book
value per share of SERENA common stock. Investors purchasing common stock in
this offering will, therefore, incur immediate dilution of $10.48 in net
tangible book value per share of common stock. This dilution figure deducts the
estimated underwriting discounts and commissions and estimated offering expenses
payable by SERENA from the initial public offering price. Investors will incur
additional dilution upon the exercise of outstanding stock options.

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 software companies fluctuate
widely for a number of reasons, including some reasons which may be unrelated to
their businesses or results of operations. This market volatility, as well as
general domestic or international economic, market and political conditions,
could materially adversely affect the market price of SERENA's common stock
without regard to SERENA's operating performance. In addition, SERENA's
operating results may be below the expectations of public market analysts and
investors. If this were to occur, the market price of SERENA's common stock
would likely significantly decrease.

WE WILL HAVE BROAD DISCRETION AS TO THE USE OF THE PROCEEDS FROM THIS OFFERING
AND WE MAY NOT BE ABLE TO INVEST THESE PROCEEDS TO YIELD A SIGNIFICANT RETURN

SERENA will have broad discretion as to the use of the proceeds from
this offering and we may not be able to invest these proceeds to yield a
significant return. Our primary purpose is to create a public market for our
common stock. As of the date of this prospectus, we do not plan to use the
proceeds from this offering other than for working capital and general corporate
purposes. We may also use the proceeds in future strategic acquisitions of, or
investments in, businesses that offer products, services and technologies that
further our ability to provide SCM products and services to businesses or
increase our ability to sell our products and services to new markets. Until the
need arises to use the proceeds, we plan to invest the net proceeds in
investment grade, interest-bearing securities.

FORWARD LOOKING STATEMENTS

Certain statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," and elsewhere in this
prospectus are "forward-looking statements." These forward-looking statements
include, but are not limited to, statements about our plans, objectives,
expectations and intentions and other statements contained in the prospectus
that are not historical facts. When used in this prospectus, the words
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions are generally intended to identify forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements, including our plans, objectives, expectations and intentions and
other factors discussed under "Risk Factors."

20
<PAGE>
USE OF PROCEEDS

SERENA will receive net proceeds of $47,510,000 from the sale of
4,000,000 shares of common stock (and an additional $10,881,000 from the sale of
900,000 shares if the underwriters' over-allotment option is exercised in full)
at the initial public offering price of $13.00 per share after deducting
underwriting commissions and discounts of $3,640,000 (and an additional $819,000
if the underwriters' over-allotment option is exercised in full) and estimated
expenses of $850,000. SERENA will not receive any proceeds from the sale of
common stock by the selling stockholders.

The principal purpose of this offering is to create a public market for
the common stock of SERENA. We intend to use the proceeds of the offering for
working capital, general corporate purposes and potential strategic investments
or acquisitions that complement our products, services, technologies or
distribution channels. Pending such uses, we intend to invest the net proceeds
of the initial public offering in investment grade interest-bearing securities.

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 an
acquisition transaction is paid in common stock, this would further dilute
existing stockholders. Any amortization of goodwill or other assets resulting
from an acquisition transaction could materially impair our operating results
and financial condition.

DIVIDEND POLICY

SERENA has never declared or paid any cash dividends on shares of its
common stock. We intend to retain any future earnings for future growth and do
not anticipate paying any cash dividends in the foreseeable future.

21
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of SERENA at (a)
October 31, 1998, after giving effect to a three-for-two stock split effected in
July 1998 and a three-for-two stock split effected in November 1998 and (b) as
adjusted to give effect to SERENA's receipt of the estimated net proceeds from
the sale of 4,000,000 shares of common stock offered by SERENA at the initial
public offering price of $13.00 per share and the application of the net
proceeds therefrom.

The outstanding share information includes 1,896,750 shares issued under
restricted stock agreements under the 1997 Plan. The outstanding share
information excludes 2,153,250 shares of common stock that were reserved for
issuance upon exercise of stock options under the 1997 Plan as of October 31,
1998, of which 800,610 options were outstanding at such date at a per share
weighted average exercise price of $3.60. In addition, in connection with this
offering, our board of directors has approved:

- an increase of 500,000 shares in the number of shares reserved under the
1997 Stock Plan
- a reserve of 150,000 shares for options under the 1999 Director Option
Plan

- a reserve of 225,000 shares for options under the 1999 Employee Stock
Purchase Plan

In this prospectus we refer to these equity incentive plans as the 1997
Plan, the Director Plan and the Purchase Plan as appropriate.

The capitalization information set forth in the table below is qualified
by, and should be read in conjunction with, the more detailed Consolidated
Financial Statements of SERENA and notes thereto and the Pro Forma Condensed
Consolidated Financial Statements and notes thereto appearing elsewhere in this
prospectus.

<TABLE>
<CAPTION>
OCTOBER 31, 1998
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred Stock: $0.001 par value, 5,000,000 shares authorized; no
shares issued and outstanding, actual and as adjusted........... $ -- $ --
Common Stock: $0.001 par value, 60,000,000 shares authorized;
20,204,250 issued and outstanding, actual; 24,204,250 shares
issued and outstanding, as adjusted............................. 20 24
Additional paid-in capital........................................ 27,018 74,524
Deferred stock-based compensation................................. (1,445) (1,445)
Notes receivable from stockholders................................ (1,922) (1,922)
Accumulated other comprehensive losses............................ (19) (19)
Retained earnings................................................. 11,229 11,229
--------- -----------
Total stockholders' equity and capitalization................. $ 34,881 $ 82,391
--------- -----------
--------- -----------
</TABLE>

22
<PAGE>
DILUTION

The tangible book value of SERENA as of October 31, 1998 was $13.4
million, or approximately $0.66 per share. Net tangible book value per share
represents the amount of SERENA's total assets less total liabilities, divided
by the number of shares of common stock outstanding. Dilution in net tangible
book value per share represents the difference between the amount per share paid
by purchasers of shares of common stock in the offering made hereby and the net
tangible book value per share of common stock immediately after the completion
of this offering. After giving effect to the sale of the 4,000,000 shares of
common stock offered by SERENA hereby at the initial public offering price of
$13.00 per share and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by SERENA, the net tangible
book value of SERENA at October 31, 1998 would have been $60.9 million, or
approximately $2.52 per share. This represents an immediate increase in net
tangible book value of $1.86 per share to existing stockholders and an immediate
dilution in net tangible book value of $10.48 per share to new investors of
common stock in this offering. The following table illustrates this dilution on
a per share basis:

<TABLE>
<S> <C> <C>
Initial public offering price per share.............................. $ 13.00
Net tangible book value per share as of October 31, 1998......... $ 0.66
Increase in net tangible book value per share attributable to new
investors...................................................... 1.86
---------
Net tangible book value per share after offering..................... 2.52
---------
Dilution in net tangible book value per share to new investors....... $ 10.48
---------
---------
</TABLE>

The following table sets forth, on a pro forma basis as of October 31,
1998, the differences between the number of shares of common stock purchased
from SERENA, the total effective cash consideration paid and the average price
per share paid by existing holders of common stock and by the new investors,
before deducting underwriting discounts and commissions and estimated offering
expenses payable by SERENA, at the initial public offering price of $13.00 per
share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 20,204,250 83.5% $ 1,003 0.0% $ 0.00
New investors.................. 4,000,000 16.5 52,000,000 100.0% 13.00
--------- --------- ---------- -----------
Total.................. 24,204,250 100.0% $52,001,003 100.0%
--------- --------- ---------- -----------
--------- --------- ---------- -----------
</TABLE>

To the extent that any shares are issued upon exercise of options that were
outstanding at October 31, 1998 or granted after that date, or reserved for
future issuance under SERENA's stock plans, there will be further dilution to
new investors. "Management--Incentive Stock Plans," "Description of Capital
Stock" and Notes 6 and 9 of Notes to Consolidated Financial Statements of
SERENA.

Sales by the selling stockholders in this offering will reduce the
number of shares of common stock held by existing stockholders to 18,204,250 or
approximately 75.2% (approximately 72.5%, if the Underwriters' over-allotment
option is exercised in full) of the total number of shares of common stock
outstanding upon the closing of this offering and will increase the number of
shares held by new public investors to 6,000,000 or approximately 24.8%
(6,900,000 shares, or approximately 27.5%, if the underwriters' over-allotment
option is exercised in full) of the total number of shares of common stock
outstanding after this offering. See "Principal and Selling Stockholders."

23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected historical consolidated financial data presented below are
derived from the consolidated financial statements of SERENA Software, Inc. and
its subsidiaries. The financial statements for each of the three years ended
January 31, 1998 and the nine months ended October 31, 1998 have been audited by
KPMG LLP, independent auditors. The selected historical consolidated financial
data for the nine months ended October 31, 1997 have been derived from unaudited
consolidated financial statements that include, in the opinion of management,
all adjustments, consisting only of normal recurring adjustments, that SERENA
considers necessary for a fair presentation of SERENA's results of operations
for that period. The statement of income unaudited pro forma financial
information below has been derived from the unaudited Pro Forma Condensed
Combined Financial Statements included elsewhere in this prospectus. The pro
forma statement of income data give effect to SERENA's September 1998
acquisition of Optima as if the acquisition had occurred at the beginning of the
earliest period presented, February 1, 1997. The selected unaudited pro forma
financial information below does not represent what SERENA's results of
operations would have been if the Optima acquisition had occurred on the date
indicated, or the results of operations of SERENA and Optima as a combined
company for any future period. The selected consolidated financial data set
forth below is qualified in its entirety by, and should be read in conjunction
with, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," the Consolidated Financial Statements of SERENA and Optima and
notes thereto and the Unaudited Pro Forma Condensed Combined Financial
Statements and notes thereto included elsewhere in this prospectus. The
operating results for the periods presented are not necessarily indicative of
the results to be expected for the full fiscal year or any other period.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, NINE MONTHS ENDED OCTOBER 31,
-------------------------------------------------------------------- -----------------------------------
1998 1998
------------------------ ------------------------
1994 1995 1996 1997 ACTUAL PRO FORMA 1997 ACTUAL PRO FORMA
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
DATA:
Revenue:
Software licenses.... $ 3,055 $ 3,627 $ 4,606 $ 8,229 $ 17,839 $ 22,962 $ 10,237 $ 16,685 $ 18,672
Maintenance.......... 3,171 4,141 5,679 8,730 12,258 12,691 8,831 12,098 13,201
Professional
services........... 160 370 459 495 2,050 5,662 1,421 2,363 5,026
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
Total revenue...... 6,386 8,138 10,744 17,454 32,147 41,315 20,489 31,146 36,899
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
Cost of revenue:
Software licenses.... 379 479 552 1,298 1,087 1,024 701 1,266 1,534
Maintenance.......... 1,461 2,190 2,434 3,503 4,009 4,009 2,777 3,185 3,185
Professional
services........... 166 282 344 406 1,717 4,156 1,189 2,057 3,914
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
Total cost of
revenue.......... 2,006 2,951 3,330 5,207 6,813 9,189 4,667 6,508 8,633
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
Gross profit....... 4,380 5,187 7,414 12,247 25,334 32,126 15,822 24,638 28,266
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
Operating expenses:
Sales and
marketing.......... 1,354 1,866 2,505 4,605 7,947 11,394 5,244 8,956 10,280
Research and
development........ 1,539 1,837 2,998 4,321 5,518 5,518 3,774 3,220 3,220
General and
administrative..... 935 1,312 1,727 2,296 3,296 5,577 1,913 2,786 3,303
Stock-based
compensation....... -- -- -- -- 880 880 -- 2,071 2,071
Amortization of
intangible
assets............. -- -- -- -- -- 1,911 -- 186 1,059
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
Total operating
expenses......... 3,828 5,015 7,230 11,222 17,641 25,280 10,931 17,219 19,933
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
Operating income....... 552 172 184 1,025 7,693 6,846 4,891 7,419 8,333
Interest and other
income, net.......... -- 93 160 115 321 210 223 571 581
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
Income before income
taxes................ 552 265 344 1,140 8,014 7,056 5,114 7,990 8,914
Income taxes........... 36 10 66 278 3,253 3,602 1,833 3,596 4,227
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
Net income............. $ 516 $ 255 $ 278 $ 862 $ 4,761 $ 3,454 $ 3,281 $ 4,394 $ 4,687
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
Net income per share:
Basic................ $ 0.03 $ 0.02 $ 0.02 $ 0.05 $ 0.31 $ 0.19 $ 0.21 $ 0.27 $ 0.25
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
Diluted.............. $ 0.03 $ 0.02 $ 0.02 $ 0.05 $ 0.31 $ 0.19 $ 0.21 $ 0.26 $ 0.24
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
--------- --------- --------- --------- --------- ------------- --------- --------- -------------
Shares used to compute
net income
per share:
Basic................ 15,750 15,750 15,750 15,750 15,248 18,436 15,290 16,145 18,735
Diluted.............. 15,750 15,750 15,750 15,750 15,272 18,460 15,290 17,122 19,712
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................................... $ 708 $ 1,953 $ 2,840 $ 4,031 $ 9,024
Working capital................................................... 472 434 429 618 6,942
Total assets...................................................... 2,734 4,327 6,717 9,233 20,567
Total liabilities and deferred revenue............................ 2,054 3,400 5,508 7,187 13,582
Total shareholders' equity........................................ 680 927 1,209 2,046 6,985

<CAPTION>
OCTOBER 31,
-----------
1998
-----------

<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................................... $ 16,878
Working capital................................................... 12,884
Total assets...................................................... 52,438
Total liabilities and deferred revenue............................ 17,557
Total shareholders' equity........................................ 34,881
</TABLE>

24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS OF SERENA AND THE NOTES THERETO AND THE PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS. OUR DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON
CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS OUR PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. SERENA'S 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 UNDER "RISK FACTORS," "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

SERENA is a leading provider of products and services for managing and
controlling software change throughout the software application life cycle.
SERENA was founded in 1980 and we introduced our first SCM product, COMPAREX, in
1981. Since then, SERENA has developed a full suite of FULL.CYCLE MAINFRAME
products, including our flagship product CHANGE MAN, which was introduced in
1988. IT managers use our products to track software changes during the software
application design and development process, manage separate programming teams
that are concurrently developing and enhancing applications, and oversee the
deployment of the software applications.

Prior to fiscal 1998, SERENA focused primarily on product development while
relying on third party distributors for the majority of our sales, marketing and
professional services activities. In fiscal 1998, SERENA hired a President and
Chief Executive Officer who initiated a strategic expansion of our sales,
marketing and professional service capabilities. This strategic expansion
includes hiring additional direct sales personnel, initiating a telesales
effort, recruiting additional third party distributors and increasing our
professional services staff. We also broadened our professional management team
to implement and manage the strategic expansion initiatives. New management
hires since the beginning of fiscal 1998 include our Vice Presidents for
Worldwide Marketing, Research and Development, Finance and Administration,
International Operations, Services, Sales and North American Consulting
Services. Moreover, both of our non-employee directors were appointed to the
board of directors during fiscal 1999. See "Risk Factors-- Our New Executive
Team May Not Be Able to Successfully Work Together to Meet Our Business
Objectives, Which Would Adversely Affect Our Business."

In September 1998, we acquired Optima, the primary distributor of our
flagship CHANGE MAN product for over ten years. In certain markets, Optima had
been the exclusive distributor of CHANGE MAN. This acquisition significantly
expanded our professional services and sales and marketing capabilities and
enabled us to market CHANGE MAN as part of the FULL.CYCLE MAINFRAME product
suite. As a result of the acquisition, we are able to market CHANGE MAN and our
other FULL.CYCLE MAINFRAME products through our distribution channels as well as
the historical distribution channels of Optima. We have taken over the sales and
marketing and professional service organizations of Optima and continue to be
responsible for the maintenance costs related to CHANGE MAN from Optima's
licensing transactions. The Optima acquisition was accounted for under the
purchase method of accounting and the results of operations of Optima are
included in SERENA's historical results after the acquisition date. The pro
forma results of operations include the historical financial statements of
SERENA and those of Optima and give effect to the acquisition as if it had
occurred on February 1, 1997, the beginning of the earliest pro forma period
presented. Any failure to successfully integrate Optima into our business could
have a material adverse effect on our business, operating results and financial
results. See "Risk Factors--We May Be Unable to Successfully Integrate Optima
into Our Business."

SERENA has grown rapidly in recent years as total revenue has increased from
$6.4 million in fiscal 1994 to $32.1 million in fiscal 1998. The growth in total
revenue has been primarily attributable to increased demand for our FULL.CYCLE
MAINFRAME products as a result of greater awareness of and need

25
<PAGE>
for third party SCM solutions. We derive our revenue from software licenses,
maintenance and professional services.

Currently, all of our software license revenue is derived from our
FULL.CYCLE MAINFRAME products. Customers typically purchase the FULL.CYCLE
MAINFRAME products under Million Instructions Per Second, or MIPS-based,
perpetual licenses. Mainframe software products and applications are usually
priced based on hardware computing capacity. MIPS is a capacity measurement used
by hardware manufacturers to rate computer size to determine the amount of
capacity for running applications and supporting users. The higher a hardware's
MIPS capacity, the more expensive a software license will be. Software products
are also typically priced based on a perpetual license agreement, which entitles
a customer to use the product on an ongoing basis. Initial license transactions
generally include one year of software maintenance and support. Revenue from
license agreements, excluding maintenance revenue included with the license, is
recognized upon receipt and acceptance of a signed contract and delivery of the
software, provided the related fee is fixed and determinable, collectibility of
the revenue is probable and the arrangement does not involve significant
customization of the software. Software license revenue is particularly
dependent on new licenses of our CHANGE MAN and COMPAREX products. In fiscal
1997, 1998 and in the nine months ended October 31, 1998, sales of CHANGE MAN
and COMPAREX together accounted for approximately 72%, 82% and 71% of SERENA's
software license revenue, respectively. 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, operating results and financial condition. Of
particular importance is the continued role of mainframe computers in a
decentralized computing environment. We believe that the mainframe will continue
to be an integral part of the distributed computing environment and its role in
such environment will increase. See "Risk Factors--We Have Relied and Expect to
Continue to Rely on Sales of Our FULL.CYCLE MAINFRAME Products for Our Revenue"
and "Our Business is Dependent on the Continued Market for IBM and
IBM-Compatible Mainframes."

In recognition of the established benefits of desktop computing in the
distributed enterprise environment, we are also using the proprietary technology
and expertise in SCM solutions for the mainframe to the design and development
of desktop-oriented products. See "Business--Strategy" and "--Products Under
Development."

We also provide ongoing maintenance, which includes technical support,
version upgrades and enhancements, for an annual fee of approximately 17% of the
current list price of the licensed product. We recognize maintenance revenue
over the term of the contracts, typically one year, on a straight-line basis.
Over 95% of our customers who were eligible to renew their maintenance
agreements in calendar year 1997 did so. There can be no assurance that SERENA
will maintain this rate of renewal. See "Risk Factors--Our Future Revenue is
Substantially Dependent Upon Our Installed Customer Base 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."
Professional services revenue is derived from our SER(POWER) consulting and
educational services, including implementation and integration of licensed
software, specialized consulting services such as "best practices" design,
development and deployment of SCM solutions, and education courses for SERENA's
products. Our professional services are typically billed on a time and materials
basis and revenue is recognized as the related services are performed.

Historically, SERENA's revenue has primarily been attributable to sales in
North America. In fiscal 1997, 1998 and the nine months ended October 31, 1998,
revenue attributable to sales in North America accounted for approximately 85%,
85% and 81% of SERENA's total revenue, respectively. Our plan is to expand our
international operations significantly, particularly in Europe, as we believe
international markets represent a significant growth opportunity. Consequently,
we anticipate that international revenue will increase as a percentage of total
revenue in the future. Our expansion of our international operations will be
subject to a variety of risks that could materially adversely affect our
business, operating results and

26
<PAGE>
financial condition. See "Risk Factors--We Intend to Significantly Expand Our
International Operations And May Encounter a Number of Problems Doing So; There
Are Also a Number of Factors Associated with International Operations that Could
Potentially Adversely Affect Our Business." In North America, SERENA's revenue
is generally denominated in United States dollars while international sales are
generally denominated in local currencies, principally the British pound. As
SERENA's international sales and operations expand, we anticipate that our
exposure to foreign currency fluctuations will increase. See "Risk
Factors--Fluctuations in the Value of Foreign Currencies Could Result in
Currency Transaction Losses for SERENA."

Maintenance revenue and professional services revenue have lower operating
margins than software license revenue. In addition, we license the technology
for our STARTOOL and STARWARP products and jointly own the technology for our
SYNCTRAC product and consequently we have sublicense fee obligations on the
revenue we recognizes in connection with license and maintenance transactions
involving these products. As a result, our license revenue for our STARTOOL,
STARWARP and SYNCTRAC products has a lower operating margin than license revenue
from other products. We expect operating expenses to increase substantially in
the future as we continue to develop new and enhanced versions of our products,
including our FULL.CYCLE DESKTOP product suite, increase our sales and marketing
activities, expand our distribution channels, increase our professional services
capabilities and pursue strategic relationships and acquisitions. Any failure by
SERENA to significantly increase revenue as we implement these initiatives would
materially adversely affect our business, operating results and financial
condition. See "Risk Factors--We Expect that Our Operating Expenses Will
Increase Substantially in the Future and These Increased Expenses May Hurt Our
Future Operating Results and Financial Condition."

27
<PAGE>
HISTORICAL RESULTS OF OPERATIONS

The following table sets forth the historical results of operations for
SERENA expressed as a percentage of total revenue. SERENA's historical operating
results are not necessarily indicative of the results for any future period and
include the results of Optima from September 25, 1998, the acquisition date.

<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
-----------------------------------------------------
NINE MONTHS ENDED
FISCAL YEAR
ENDED JANUARY 31, OCTOBER 31,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Software licenses............................... 42.8% 47.2% 55.5% 50.0% 53.6%
Maintenance..................................... 52.9 50.0 38.1 43.1 38.8
Professional services........................... 4.3 2.8 6.4 6.9 7.6
--------- --------- --------- --------- ---------
Total revenue................................. 100.0 100.0 100.0 100.0 100.0
--------- --------- --------- --------- ---------
Cost of revenue:
Software licenses............................... 5.1 7.4 3.4 3.4 4.1
Maintenance..................................... 22.7 20.1 12.5 13.6 10.2
Professional services........................... 3.2 2.3 5.3 5.8 6.6
--------- --------- --------- --------- ---------
Total cost of revenue......................... 31.0 29.8 21.2 22.8 20.9
--------- --------- --------- --------- ---------
Gross profit.................................... 69.0 70.2 78.8 77.2 79.1
--------- --------- --------- --------- ---------
Operating expenses:
Sales and marketing............................. 23.3 26.4 24.7 25.6 28.8
Research and development........................ 27.9 24.8 17.2 18.4 10.3
General and administrative...................... 16.1 13.1 10.3 9.3 8.9
Stock-based compensation........................ -- -- 2.7 -- 6.7
Amortization of intangible assets............... -- -- -- -- 0.6
--------- --------- --------- --------- ---------
Total operating expenses...................... 67.3 64.3 54.9 53.3 55.3
--------- --------- --------- --------- ---------
Operating income.................................. 1.7 5.9 23.9 23.9 23.8
Interest and other income, net.................... 1.5 0.6 1.0 1.1 1.8
--------- --------- --------- --------- ---------
Income before income taxes........................ 3.2 6.5 24.9 25.0 25.6
Income taxes...................................... 0.6 1.6 10.1 9.0 11.5
--------- --------- --------- --------- ---------
Net income........................................ 2.6% 4.9% 14.8% 16.0% 14.1%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

COMPARISON OF NINE MONTHS ENDED OCTOBER 31, 1997 AND 1998

REVENUE

SERENA derives revenue from software licenses, maintenance and professional
services. SERENA's total revenue increased 52% from $20.5 million for the nine
months ended October 31, 1997 to $31.1 million for the nine months ended October
31, 1998.

SOFTWARE LICENSES. Software license revenue increased 63% from $10.2
million for the nine months ended October 31, 1997 to $16.7 million for the nine
months ended October 31, 1998, representing 50% and 54% of total revenue,
respectively. The increase in software license revenue is generally attributable
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, an increase in sales force productivity and personnel.
In particular, sales of the COMPAREX product grew significantly, with software
license revenue attributable to COMPAREX increasing from $4.3 million in the
nine months ended October 31, 1997 to $7.6 million in the nine months ended
October 31, 1998.

28
<PAGE>
MAINTENANCE. Maintenance revenue increased 37% from $8.8 million for the
nine months ended October 31, 1997 to $12.1 million for the nine months ended
October 31, 1998, representing 43% and 39% of total revenue, respectively. The
dollar increase reflects the growth in software license revenue, as new software
licenses generally include one year of maintenance, renewals of maintenance
agreements by existing customers and, to a lesser extent, maintenance price
increases on renewals of maintenance agreements by existing customers.
Maintenance revenue increased at a slower rate than license revenue because
license revenue 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.

PROFESSIONAL SERVICES. Professional services revenue increased 66% from
$1.4 million for the nine months ended October 31, 1997 to $2.4 million for the
nine months ended October 31, 1998, representing 7% and 7% of total revenue,
respectively. The dollar increase is attributable to greater consulting
opportunities resulting from our expanded customer base and, to a lesser extent,
increases in our consulting service capabilities. The acquisition of Optima on
September 25, 1998 resulted in the recording of additional professional services
revenue in the final month of the nine month period ended October 31, 1998,
accounting for approximately 40% of the total $1.0 million increase in
professional service revenue.

COST OF REVENUE

Cost of revenue consists of cost of software licenses, cost of maintenance
and cost of professional services. Cost of revenue was $4.7 million and $6.5
million for the nine months ended October 31, 1997 and 1998, representing 23%
and 21% of total revenue, respectively. The decline in cost of revenue as a
percentage of total revenue is attributable to the increase in higher margin
software license revenue as a percentage of total revenue.

SOFTWARE LICENSES. Cost of software licenses consists principally of
sublicense fees associated with our STARTOOL, STARWARP and SYNCTRAC products.
Cost of software licenses was $0.7 million and $1.3 million for the nine months
ended October 31, 1997 and 1998, representing 7% and 8% of total software
licenses revenue, respectively. The increase in cost of software licenses as a
percentage of license revenue is due to the increase in the sublicense fee
bearing license revenue as a percentage of total license revenue.

MAINTENANCE. Cost of maintenance consists primarily of salaries, bonuses
and other costs associated with our customer support organizations, and to a
lessor extent, sublicense fees associated with our STARTOOL, STARWRAP and
SYNCTRAC maintenance sales and renewals. Cost of maintenance was $2.8 million
and $3.2 million for the nine months ended October 31, 1997 and 1998,
representing 31% and 26% of total maintenance revenue, respectively. The dollar
increase in cost of maintenance is due to increases in sublicense fees and costs
associated with supporting our customer support organization. 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 was $1.2 million and $2.1 million
for the nine months ended October 31, 1997 and 1998, representing 84% and 87% of
professional services revenue, respectively. The dollar increase in cost of
professional services revenue is attributable to increased expenses associated
with supporting the professional services organization including additions of
personnel and other infrastructure costs.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses, payroll taxes, profit sharing expenses and
employee benefits as well as travel, entertainment and marketing expenses. Sales
and marketing expenses were $5.2 million and $9.0 million for the nine months
ended October 31, 1997 and 1998, representing 26% and 29% of total revenue,
respectively. These increases are due primarily to our expansion of our direct
sales and marketing organization in these periods and, to a lesser extent, the
development of our telesales efforts. We expect sales and marketing expenses to
increase as we continue to hire additional sales and marketing personnel as we
transition away from relying primarily on third parties to sell and market our
products.

29
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries, bonuses, payroll taxes, profit sharing expenses and
employee benefits and costs attributable to research and development activities.
Research and development expenses were $3.8 million and $3.2 million for the
nine months ended October 31, 1997 and 1998, representing 18% and 10% of total
revenue, respectively. These reductions in research and development expenses are
attributable principally to the restructuring of compensation arrangements with
SERENA's founder and Chief Technology Officer. We expect research and
development expenses to increase as we continue to hire additional research and
development personnel to develop our FULL.CYCLE DESKTOP product suite and our
SERNET ENTERPRISE products.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries, bonuses, payroll taxes, profit sharing expenses and
benefits and certain non-allocable administrative costs, including legal and
accounting fees and bad debts. General and administrative expenses were $1.9
million and $2.8 million for the nine months ended October 31, 1997 and 1998,
representing 9% of total revenue in both periods. The dollar increase is
primarily related to costs associated with the expansion of our administrative
infrastructure in order to support our increased sales, marketing, consulting
and maintenance activities. We expect general and administrative expenses to
increase as we expand our infrastructure and incur additional costs as a result
of being a public company.

STOCK-BASED COMPENSATION. In the quarter ended January 31, 1998, SERENA
recorded deferred stock-based compensation of $4.0 million in connection with
the issuance of restricted stock and grant of options to purchase common stock
in January 1998. An additional $0.4 million of deferred stock-based compensation
was recorded in the nine months ended October 31, 1998 for stock-based awards
granted during this period. Deferred stock-based compensation is generally being
amortized over the 36 to 48 month vesting periods of the related award. This
amortization is being recorded in a manner consistent with Financial Accounting
Standard Board, or FASB, Interpretation No. 28. Of the total deferred stock-
based compensation, approximately $2.1 million was amortized in the nine month
period ended October 31, 1998. We expect to amortize an additional $0.4 million
in the remainder of fiscal 1999, $0.8 million in fiscal 2000, $0.2 million in
fiscal 2001 and $0.1 million in fiscal 2002. See Note 6 of Notes to Consolidated
Financial Statements of SERENA.

AMORTIZATION OF INTANGIBLE ASSETS. In the quarter ended October 31, 1998,
we recorded intangible assets of $21.7 million in connection with the
acquisition of Optima in September 1998. The intangible assets are being
amortized over periods of one year or less on $0.5 million and fifteen years on
the remaining $21.2 million. Of the total intangible assets, approximately $0.2
million was amortized in the nine month period ended October 31, 1998. We expect
to amortize an additional $0.6 million in the remainder of fiscal 1999, $1.6
million in fiscal 2000, and $1.4 million in each fiscal year thereafter until
fully amortized in fiscal 2014. See Note 9 of Notes to Consolidated Financial
Statements of SERENA.

INTEREST AND OTHER INCOME, NET

Interest and other income, net is generated primarily from the interest
earned on cash and cash equivalents. Interest and other income, net increased
from $0.2 million in the nine month period ended October 31, 1997 to $0.6
million in the nine month period ended October 31, 1998, principally as the
result of increased cash and cash equivalent balances in the latter period.

INCOME TAXES

Income taxes were $1.8 million and $3.6 million for the nine months ended
October 31, 1997 and 1998, respectively. The effective tax rates for the nine
months ending October 31, 1997 and 1998 were 36% and 45%, respectively. The
increase in the effective tax rate is primarily due to the $2.1 million in
nondeductible stock-based compensation and, to a lesser extent, the $0.2 million
nondeductible amortization of intangible assets arising from the acquisition of
Optima. The nondeductible expense associated with stock-based compensation will
decline ratably over the next three years.

30
<PAGE>
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1996, 1997 AND 1998

REVENUE

SERENA's total revenue was $10.7 million, $17.5 million and $32.1 million in
fiscal 1996, 1997 and 1998, respectively, representing year-to-year increases of
62% between 1996 and 1997 and 84% between 1997 and 1998.

SOFTWARE LICENSES. Software license revenue was $4.6 million, $8.2 million
and $17.8 million in fiscal 1996, 1997 and 1998, representing 43%, 47% and 56%
of total revenue, respectively. The increases are 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, software license price increases. In particular, sales of our
COMPAREX and CHANGE MAN products grew significantly.

MAINTENANCE. Maintenance revenue was $5.7 million, $8.7 million and $12.3
million in fiscal 1996, 1997 and 1998, representing 53%, 50% and 38% of total
revenue, respectively. The dollar increases reflect 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 revenues 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 $0.5 million, $0.5
million and $2.0 million in fiscal 1996, 1997 and 1998, representing 4%, 3% and
6% of total revenue, respectively. The dollar increases are attributable to
greater consulting opportunities resulting from our larger installed customer
base and our expanded consulting service capabilities.

COST OF REVENUE

Cost of revenue, which consists of cost of software licenses, cost of
maintenance and cost of professional services, was $3.3 million, $5.2 million
and $6.8 million in fiscal 1996, 1997 and 1998, representing 31%, 30% and 21% of
total revenue, respectively. The dollar increases are due primarily to increased
expenses associated with professional services revenue and maintenance revenue,
including personnel additions to support professional services and maintenance
revenue growth, and software sublicense fees. The decrease in cost of revenue as
a percentage of total revenue in fiscal 1998 from prior years is due in part to
the $0.3 million and $1.3 million in fees paid by SERENA in fiscal 1996 and
1997, respectively, to complete the termination of a third party distributor
agreement for our COMPAREX product.

SOFTWARE LICENSES. Cost of software licenses was $0.6 million, $1.3 million
and $1.1 million in fiscal 1996, 1997 and 1998, representing 12%, 16% and 6% of
total software licenses revenue, respectively. The dollar increase in fiscal
1997 over 1996 and the dollar decrease in fiscal 1998 over 1997 are
predominately due to fees paid in fiscal 1996 totaling $0.1 million and in
fiscal 1997 totaling $0.6 million in connection with the termination of a third
party distributor agreement for our COMPAREX product. The decrease in cost of
revenue as a percentage of total revenue is also attributable to the increase in
higher margin software license revenue as a percentage of total revenue.

MAINTENANCE. Cost of maintenance was $2.4 million, $3.5 million and $4.0
million in fiscal 1996, 1997 and 1998, representing 43%, 40% and 33% of total
maintenance revenue. The dollar increases are predominately due to increased
expenses associated with our customer support organization including personnel
additions needed to support the maintenance revenue growth. As a percentage of
total maintenance revenue, cost of maintenance decreased as the rate of increase
in costs associated with supporting our customer support organizations was less
than the rate of increase in maintenance revenue.

PROFESSIONAL SERVICES. Cost of professional services was $0.3 million, $0.4
million and $1.7 million in fiscal 1996, 1997 and 1998, representing 75%, 82%
and 84% of total professional services revenue. The

31
<PAGE>
dollar increases year over year are predominately due to increased expenses
associated with our professional services organization and infrastructure
including personnel additions needed to support the professional services
revenue growth. As a percentage of total professional services revenue, cost of
professional services has increased each year as we focus on expanding our
consulting business organization.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses were $2.5 million, $4.6
million and $7.9 million in fiscal 1996, 1997 and 1998, representing 23%, 26%
and 25% of total revenue, respectively. The dollar increases in each fiscal year
are due primarily to our expansion of our sales organization which began in
fiscal 1998. The dollar increase from fiscal 1996 to fiscal 1997 is attributable
to increased salaries, commissions and profit sharing expenses and additional
marketing expenses.

RESEARCH AND DEVELOPMENT. Research and development expenses were $3.0
million, $4.3 million and $5.5 million in fiscal 1996, 1997 and 1998,
representing 28%, 25% and 17% of total revenue, respectively. The dollar
increases in each fiscal year are due primarily to increased payroll costs,
including profit sharing expenses and increased bonus compensation to SERENA's
founder and Chief Technology Officer and, to a lesser extent, costs associated
with the evaluation of third party software products. Research and development
expenses have decreased as a percentage of total revenue as SERENA's revenue has
continued to increase at a faster rate than research and development expenses
have increased.

GENERAL AND ADMINISTRATIVE. General and administrative expenses were $1.7
million, $2.3 million and $3.3 million in fiscal 1996, 1997 and 1998,
representing 16%, 13% and 10% of total revenue, respectively. The dollar
increases in each fiscal year are primarily due to salary, bonus, commission,
payroll tax, profit sharing 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. The decrease
in general and administrative expenses as a percentage of total revenue is
principally attributable to SERENA's revenue growth during this period.

STOCK-BASED COMPENSATION. In the quarter ended January 31, 1998, SERENA
recorded aggregate deferred stock-based compensation of $4.0 million in
connection with the issuance of restricted stock and grant of options to
purchase common stock in January 1998. 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,
approximately $0.9 million was amortized in fiscal 1998.

INTEREST AND OTHER INCOME, NET

Interest and other income, net was $0.2 million, $0.1 million and $0.3
million in fiscal 1996, 1997 and 1998, respectively. Interest and other income,
net has fluctuated from period to period based on SERENA's cash balances.

INCOME TAXES

Income taxes were $0.1 million, $0.3 million and $3.3 million for fiscal
1996, 1997 and 1998, respectively. The effective tax rate was 19%, 24% and 41%
in fiscal 1996, 1997 and 1998, respectively. 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. SERENA's effective income tax rate has increased year over year
predominantly due to higher marginal tax rates resulting from substantially
higher pretax profits and the recording of $0.9 million in nondeductible
stock-based compensation recorded in the fourth quarter of fiscal 1998.

32
<PAGE>
SELECTED UNAUDITED HISTORICAL QUARTERLY RESULTS OF OPERATIONS FOR SERENA

The following table sets forth selected unaudited condensed combined
statement of income data for SERENA for the seven quarters ended October 31,
1998. This data should be read in conjunction with SERENA's Consolidated
Financial Statements for the fiscal year ended January 31, 1998 and nine months
ended October 31, 1998 and the notes thereto included elsewhere in this
prospectus. Because of the acquisition of Optima, the information set forth
below is not indicative of the results of operations that would have been
reported if the Optima acquisition had been consummated at the beginning of the
earliest period indicated or that SERENA may report in the future.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31,
1997 1997 1997 1998 1998 1998
----------- ----------- ----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses............................ $ 2,645 $ 3,860 $ 3,733 $ 7,601 $ 4,341 $ 5,648
Maintenance.................................. 2,751 2,938 3,143 3,426 3,652 4,083
Professional services........................ 224 562 634 630 647 545
----------- ----------- ----------- ----------- ----------- ---------
Total revenue.............................. 5,620 7,360 7,510 11,657 8,640 10,276
----------- ----------- ----------- ----------- ----------- ---------
Cost of revenue:
Software licenses............................ 109 351 241 386 251 443
Maintenance.................................. 826 1,005 945 1,233 892 1,138
Professional services........................ 191 390 609 527 597 496
----------- ----------- ----------- ----------- ----------- ---------
Total cost of revenue...................... 1,126 1,746 1,795 2,146 1,740 2,077
----------- ----------- ----------- ----------- ----------- ---------
Gross profit................................. 4,494 5,614 5,715 9,511 6,900 8,199
----------- ----------- ----------- ----------- ----------- ---------
Operating expenses:
Sales and marketing.......................... 1,705 1,834 1,705 2,703 2,380 3,327
Research and development..................... 1,053 1,316 1,406 1,743 1,000 1,073
General and administrative................... 727 601 585 1,383 805 887
Stock-based compensation..................... -- -- -- 880 906 652
Amortization of intangible assets............ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ---------
Total operating expenses................... 3,485 3,751 3,696 6,709 5,091 5,939
----------- ----------- ----------- ----------- ----------- ---------
Operating income............................... 1,009 1,863 2,019 2,802 1,809 2,260
Interest and other income, net................. 70 60 93 98 151 193
----------- ----------- ----------- ----------- ----------- ---------
Income before income taxes..................... 1,079 1,923 2,112 2,900 1,960 2,453
Income taxes................................... 383 698 752 1,420 862 1,080
----------- ----------- ----------- ----------- ----------- ---------
Net income..................................... $ 696 $ 1,225 $ 1,360 $ 1,480 $ 1,098 $ 1,373
----------- ----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ----------- ---------

OCT. 31,
1998
-----------

<S> <C>
Revenue:
Software licenses............................ $ 6,696
Maintenance.................................. 4,363
Professional services........................ 1,171
-----------
Total revenue.............................. 12,230
-----------
Cost of revenue:
Software licenses............................ 572
Maintenance.................................. 1,155
Professional services........................ 964
-----------
Total cost of revenue...................... 2,691
-----------
Gross profit................................. 9,539
-----------
Operating expenses:
Sales and marketing.......................... 3,249
Research and development..................... 1,147
General and administrative................... 1,094
Stock-based compensation..................... 513
Amortization of intangible assets............ 186
-----------
Total operating expenses................... 6,189
-----------
Operating income............................... 3,350
Interest and other income, net................. 227
-----------
Income before income taxes..................... 3,577
Income taxes................................... 1,654
-----------
Net income..................................... $ 1,923
-----------
-----------
</TABLE>

33
<PAGE>
SELECTED UNAUDITED PRO FORMA QUARTERLY RESULTS OF OPERATIONS

The following table sets forth selected unaudited pro forma condensed
combined statement of income data for the seven quarters ended October 31, 1998,
both in dollar amounts and as a percentage of revenue. This information gives
effect to the Optima acquisition as a purchase as if such acquisition had
occurred as of February 1, 1997. This data has been prepared on the same basis
and includes the same adjustments as the unaudited Pro Forma Combined Condensed
Statements of Income for the fiscal year ended January 31, 1998 and nine months
ended October 31, 1998 and the notes thereto included elsewhere in this
prospectus. For pro forma purposes, SERENA's consolidated statement of
operations for each of the seven quarters ended October 31, 1998 give effect to
the Optima acquisition as if it had occurred on February 1, 1997. Because of the
significance of the Optima acquisition, the related party transactions between
SERENA and Optima and the application of purchase accounting, we believe
SERENA's historical operating results are not indicative of its future operating
results. We believe the information below presents in the most concise and
efficient manner possible operating results of the combined entity. The pro
forma information is presented for illustrative purposes only and is not
necessarily indicative of the results of operations that would have been
reported if the Optima acquisition had been consummated at the beginning of the
earliest period indicated or that SERENA may report in the future.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31,
1997 1997 1997 1998 1998 1998
----------- ----------- ----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses............................ $ 3,514 $ 4,591 $ 5,009 $ 9,848 $ 5,097 $ 6,625
Maintenance.................................. 2,774 3,013 3,275 3,629 3,953 4,477
Professional services........................ 893 1,384 1,560 1,825 1,785 1,347
----------- ----------- ----------- ----------- ----------- ---------
Total revenue.............................. 7,181 8,988 9,844 15,302 10,835 12,449
----------- ----------- ----------- ----------- ----------- ---------
Cost of revenue:
Software licenses............................ 50 383 326 265 421 490
Maintenance.................................. 827 1,005 945 1,232 892 1,138
Professional services........................ 650 940 1,185 1,381 1,299 1,219
----------- ----------- ----------- ----------- ----------- ---------
Total cost of revenue...................... 1,527 2,328 2,456 2,878 2,612 2,847
----------- ----------- ----------- ----------- ----------- ---------
Gross profit................................. 5,654 6,660 7,388 12,424 8,223 9,602
Operating expenses:
Sales and marketing.......................... 2,424 2,523 2,440 4,007 2,897 3,869
Research and development..................... 1,053 1,316 1,406 1,743 1,000 1,073
General and administrative................... 1,116 1,099 1,018 2,344 1,013 1,067
Stock-based compensation..................... -- -- -- 880 906 652
Amortization of intangible assets............ 553 553 403 402 353 353
----------- ----------- ----------- ----------- ----------- ---------
Total operating expenses................... 5,146 5,491 5,267 9,376 6,169 7,014
----------- ----------- ----------- ----------- ----------- ---------
Operating income............................... 508 1,169 2,121 3,048 2,054 2,588
Interest and other income, net................. 39 24 55 92 149 192
----------- ----------- ----------- ----------- ----------- ---------
Income before income taxes..................... 547 1,193 2,176 3,140 2,203 2,780
Income taxes................................... 403 639 943 1,617 1,215 1,329
----------- ----------- ----------- ----------- ----------- ---------
Net income..................................... $ 144 $ 554 $ 1,233 $ 1,523 $ 988 $ 1,451
----------- ----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ----------- ---------

<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses............................ 48.9% 51.1% 50.9% 64.4% 47.0% 53.2%
Maintenance.................................. 38.7 33.5 33.3 23.7 36.5 36.0
Professional services........................ 12.4 15.4 15.8 11.9 16.5 10.8
----------- ----------- ----------- ----------- ----------- ---------
Total revenue.............................. 100.0 100.0 100.0 100.0 100.0 100.0
----------- ----------- ----------- ----------- ----------- ---------
Cost of revenue:
Software licenses............................ 0.7 4.3 3.3 1.7 3.9 3.9
Maintenance.................................. 11.5 11.2 9.6 8.1 8.2 9.2
Professional services........................ 9.1 10.4 12.0 9.0 12.0 9.8
----------- ----------- ----------- ----------- ----------- ---------
Total cost of revenue...................... 21.3 25.9 24.9 18.8 24.1 22.9
----------- ----------- ----------- ----------- ----------- ---------
Gross profit................................. 78.7 74.1 75.1 81.2 75.9 77.1
Operating expenses:
Sales and marketing.......................... 33.8 28.1 24.8 26.2 26.7 31.1
Research and development..................... 14.6 14.6 14.3 11.4 9.2 8.6
General and administrative................... 15.5 12.2 10.3 15.3 9.4 8.6
Stock-based compensation..................... -- -- -- 5.7 8.4 5.2
Amortization of intangible assets............ 7.7 6.2 4.1 2.6 3.3 2.8
----------- ----------- ----------- ----------- ----------- ---------
Total operating expenses................... 71.6 61.1 53.5 61.2 57.0 56.3
----------- ----------- ----------- ----------- ----------- ---------
Operating income............................... 7.1 13.0 21.6 20.0 18.9 20.8
Interest and other income, net................. 0.5 0.3 0.5 0.6 1.4 1.6
----------- ----------- ----------- ----------- ----------- ---------
Income before income taxes..................... 7.6 13.3 22.1 20.6 20.3 22.4
Income taxes................................... 5.6 7.1 9.6 10.6 11.2 10.7
----------- ----------- ----------- ----------- ----------- ---------
Net income..................................... 2.0% 6.2% 12.5% 10.0% 9.1% 11.7%
----------- ----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ----------- ---------

OCT. 31,
1998
-----------

<S> <C>
Revenue:
Software licenses............................ $ 6,950
Maintenance.................................. 4,771
Professional services........................ 1,894
-----------
Total revenue.............................. 13,615
-----------
Cost of revenue:
Software licenses............................ 623
Maintenance.................................. 1,155
Professional services........................ 1,396
-----------
Total cost of revenue...................... 3,174
-----------
Gross profit................................. 10,441
Operating expenses:
Sales and marketing.......................... 3,514
Research and development..................... 1,147
General and administrative................... 1,223
Stock-based compensation..................... 513
Amortization of intangible assets............ 353
-----------
Total operating expenses................... 6,750
-----------
Operating income............................... 3,691
Interest and other income, net................. 240
-----------
Income before income taxes..................... 3,931
Income taxes................................... 1,683
-----------
Net income..................................... $ 2,248
-----------
-----------

<S> <C>
Revenue:
Software licenses............................ 51.1%
Maintenance.................................. 35.0
Professional services........................ 13.9
-----------
Total revenue.............................. 100.0
-----------
Cost of revenue:
Software licenses............................ 4.6
Maintenance.................................. 8.5
Professional services........................ 10.2
-----------
Total cost of revenue...................... 23.3
-----------
Gross profit................................. 76.7
Operating expenses:
Sales and marketing.......................... 25.8
Research and development..................... 8.4
General and administrative................... 9.0
Stock-based compensation..................... 3.8
Amortization of intangible assets............ 2.6
-----------
Total operating expenses................... 49.6
-----------
Operating income............................... 27.1
Interest and other income, net................. 1.8
-----------
Income before income taxes..................... 28.9
Income taxes................................... 12.4
-----------
Net income..................................... 16.5%
-----------
-----------
</TABLE>

34
<PAGE>
HISTORICAL AND PRO FORMA QUARTERLY RESULTS

SERENA's historical and pro forma software license revenue for the quarter
ended January 31, 1998 reflects $2.5 million in revenue from a large licensing
transaction with one customer. Pro forma professional services revenue for the
quarters ended January 31, 1998 and April 30, 1998 reflect increased consulting
services resulting from a single consulting arrangement. Historical and pro
forma operating expenses for the quarter ended January 31, 1998 increased in
relation to prior quarters due to the recording of $0.9 million in stock-based
compensation expense and increases in payroll costs such as commissions, bonuses
and profit sharing expenses which increased significantly in proportion to
revenue during the same period. Research and development expenses in the pro
forma quarterly results do not differ substantially on a dollar basis from
SERENA's historical results because Optima operated as a third party reseller,
marketing and consulting organization which did not undertake any research and
development efforts. Pro forma operating expenses also include the amortization
of intangibles associated with the purchase accounting treatment of the Optima
acquisition totaling $21.7 million, of which $0.8 million and $1.6 million will
be amortized in fiscal 1999 and 2000, respectively. The remaining $19.4 million
will be amortized on a straight-line basis until fiscal 2014. We determined to
use this period after considering that Optima has sold CHANGE MAN profitably
since 1988, CHANGE MAN is an integral part of many large company IT
infrastructures for managing change to mainframe applications, and customers who
purchase and implement CHANGE MAN make a considerable investment, not only in
the software, but in the creation of an automated and consistent software change
management process. Moreover, we believe this investment has a long lasting
effect on IT environments, and annual maintenance releases of CHANGE MAN have
consisted principally of bug fixes and updates, including updates to remain
compatible with the stable IBM MVS operating system, which was introduced over
20 years ago. SERENA's actual financial statements reflect the amortization of
these intangibles beginning with the effective date of the Optima acquisition.
Historical and pro forma quarterly results beginning with the quarter ended
January 31, 1998 also include stock-based compensation incurred in connection
with the issuance of restricted stock and the grant of certain stock options.
The pro forma and historical effective tax rate reflects the nondeductibility of
the amortization of goodwill associated with the Optima acquisition and the
stock-based compensation.

Our quarterly operating results have varied significantly in the past and
may vary significantly in the future depending on a number of factors, many of
which are beyond our control. These factors are described in the Risk Factors
section of this prospectus.

We have experienced and expect to continue to experience seasonality in
sales of our software products. We have described these seasonal trends under
the risk factor captioned "Seasonal Trends in Sales of Our Software Products May
Affect Our Quarterly Operating Results."

LIQUIDITY AND CAPITAL RESOURCES

Since SERENA's inception, we have financed our operations and met our
capital expenditure requirements through cash flows from operations. At October
31, 1998, SERENA had $16.9 million in cash and cash equivalents. Cash flows
provided by operating activities were $1.5 million, $2.6 million, $5.7 million
and $9.9 million in fiscal 1996, 1997 and 1998, and the nine months ended
October 31, 1998, respectively. SERENA's cash flows provided by operating
activities exceeded net income during each of these periods principally due to
cash collections in advance of revenue recognition for maintenance contracts and
the inclusion of noncash expenses, such as depreciation and stock-based
compensation in net income, partially offset by growth in accounts receivable
during most periods. Cash used in investing activities were predominantly
related to the purchase of computer equipment and office furniture and equipment
and totaled $0.6 million, $1.4 million, $0.0 million and $0.7 million in fiscal
1996, 1997 and 1998, and the nine months ended October 31, 1998, respectively.
Cash used in financing activities related to the repurchase of $0.7 million in
common stock in fiscal 1997 from a resigning executive officer of SERENA and the
repayment of $1.4 million of notes payable assumed in the acquisition of Optima.
See "Certain Transactions." There were no financing activities in fiscal 1996 or
1997 or, as of the date of this prospectus, in fiscal 1999.

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At October 31, 1998, SERENA did not have any material commitments for
capital expenditures and has no revolving credit agreement or other term loan
agreements with any bank or other financial institution.

At October 31, 1998, SERENA had working capital of $12.9 million and
accounts receivable, net of allowances, of $10.6 million. Total deferred revenue
increased to $11.5 million at October 31, 1998 from $7.9 million at January 31,
1998 primarily as a result of increased billings of maintenance fees.

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

EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

The FASB recently issued Statement of Financial Accounting Standards No.
133, or SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS No. 133 addresses the accounting for derivative instruments,
including 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 (i.e. gains or
losses) 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. We must adopt SFAS No. 133 by October 1, 1999. We do not anticipate that
SFAS No. 133 will have an impact on our financial statements.

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 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

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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 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 "Risk
Factors--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."

37
<PAGE>
BUSINESS

THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS RELATING
TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF SERENA, WHICH INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

SERENA is a leading provider of SCM products and services for managing and
controlling software change throughout the software application life cycle. In
our 18 year history, we have developed substantial technological expertise in
the design and implementation of robust, flexible and reliable SCM solutions. IT
managers use our products to track software changes during the software
application design and development process, manage separate programming teams
that are concurrently developing and enhancing applications, and oversee the
deployment of the software applications. Our SCM solutions are designed to
improve customers' return on IT investment by increasing programmer productivity
and reducing application development and IT infrastructure maintenance costs. As
of October 31, 1998, our products have been installed in over 2,000 data centers
worldwide and our customers include 36 of the Fortune 50 companies such as Chase
Manhattan, Citigroup, General Electric, IBM, MetLife, Merrill Lynch and
Prudential.

INDUSTRY BACKGROUND

The evolution of enterprise computing from centralized, mainframe-based
computing to distributed, client/server computing has added substantial
complexity in recent years to the management of IT infrastructures. Today's IT
environment is characterized by distributed information systems, applications
and networks, comprising a wide range of hardware platforms, operating systems,
databases, development tools, networking protocols and packaged and internally
developed software. This distributed computing environment has fueled a
proliferation of applications disseminated throughout the enterprise as
departments and individual users have been empowered to independently sponsor
applications. These often disparate applications must be continually maintained
and often reprogrammed to be compatible with emerging technologies. The advent
of the Internet, intranets and extranets has added further complexity by
stimulating the development of new applications, extending the reach of
applications throughout and beyond the enterprise while introducing additional
networking requirements.

In connection with the developments associated with the distributed
computing environment, the mainframe has continued to be a critical component of
IT infrastructures. Many IT organizations maintain applications that are vital
to their business on the mainframe because of its unmatched performance,
reliability and security. International Data Corporation, or IDC, a leading IT
research firm, reports in a recent survey that a majority of IT system managers
surveyed will continue to deploy new applications on mainframes when
appropriate. In addition, the exponential growth of Internet-based applications
has fueled a dramatic increase in the volume of traffic and transactions
processed, requiring extensive processing capacity and high levels of
availability. IT managers are realizing the benefits of reinvesting in
mainframes to address the need for high performance servers as Internet usage
increases.

Successful management of IT infrastructures requires the ability to manage
rapid and unpredictable technological change within increasingly complex and
heterogeneous computing environments. Business issues such as competitive
pressures, short time-to-market windows, regulatory changes and Year 2000 and
EMU conversions introduce additional requirements for change within IT
infrastructures.

A key challenge for IT organizations is managing software change throughout
the enterprise, including new version releases, bug fixes, upgrades and
application introductions. Any software change, if not managed effectively, has
the potential to cause system outages or corrupt data which could result in
disruption throughout the enterprise and lost business. For example, a single,
undetected error in a software update

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could have catastrophic results in such critical systems as airline flight
planning and securities trading. Change in software applications can occur at
all phases of the software application life cycle, from design and analysis to
development, through testing and production and into post-deployment support and
maintenance.

Policies and practices for managing and controlling change throughout the
software application life cycle include:

- tracking and auditing application modifications

- integrating application components throughout the development, testing
and production processes

- managing multiple application versions to ensure the integrity of
changes

- managing the software application development efforts of separate
programming teams working concurrently on the same application

- identifying and implementing common changes across applications and
systems

- establishing automated processes for approving changes to software
applications and for ensuring that an approved change is made before
programmers attempt to execute additional changes to an application

- controlling the deployment of applications into the existing IT
environment

- linking the pre- and post-deployment phases through processes that
ensure that problems with applications are tracked so that bugs can be
fixed or new applications developed

- controlling application restoration and de-installation

Historically, organizations have attempted to address their SCM requirements
internally either with paper based, manually implemented policies and procedures
or by developing their own software solutions. These internal solutions
generally require substantial IT resources, have lengthy implementation cycles,
frequently fail and are not cost effective. To overcome the costs and risks
associated with internally developed software change management solutions, many
organizations are now seeking commercially developed SCM solutions that enable
them to cost effectively manage and control change throughout the software
application life cycle and across the enterprise. We believe sophisticated SCM
solutions are required as organizations face increasingly complex and
distributed IT infrastructures, limited IT resources, remote IT project teams
and tight budget constraints. Ovum, a provider of independent IT computing
research, estimates that the global market for SCM products and services in 1998
will exceed $1 billion and will grow at a compound annual rate of approximately
34% to reach $3.4 billion by 2002. We believe that a successful SCM solution
must incorporate broad functionality and flexibility, be easy to use and
implement, promote best practices development and implementation and improve
return on IT investment.

THE SERENA SOLUTION

SERENA provides a full suite of software change management products and
services for managing and controlling change throughout the software application
life cycle. Throughout our 18 year history, we have developed substantial
technological expertise in the design and implementation of robust, flexible and
reliable SCM solutions. Our product suite automates the management of the
software application life cycle and creates an IT environment that facilitates
concurrent development efforts by separate programming teams, improves process
consistency, enhances software integrity and protects valuable software assets.
In addition, the adaptability of our FULL.CYCLE MAINFRAME product suite combined
with our comprehensive SER(POWER) consulting services enable customers to
customize our products to fully address their specific

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SCM requirements. Our products and services are designed to improve customers'
return on IT investments by increasing programmer productivity and reducing
application development and IT infrastructure maintenance costs.

BROAD FUNCTIONALITY. SERENA's FULL.CYCLE MAINFRAME product suite provides
customers with a wide range of SCM functionality for large scale, complex
computing environments. This product suite supports a comprehensive set of
software application development and life cycle management functions, including:

- change detection and tracking through application development,
testing and production

- concurrent development by separate programming teams

- merging capabilities for multiple application versions

- - impact analysis

- - online approvals

- - test data generation

- - test results comparison

- - file and data management and synchronization

HIGH LEVEL OF ADAPTABILITY, EASE OF USE AND IMPLEMENTATION. The FULL.CYCLE
MAINFRAME product suite provides configuration flexibility to enable easy and
quick implementation within customers' IT environments. This product suite
integrates with existing IT applications, systems, development tools, operating
systems, databases, programming languages, security systems, libraries and
inventory lists. The FULL.CYCLE MAINFRAME products are highly adaptable to
customers' SCM processes and procedures and can be customized for specific
customer requirements. In contrast, SERENA believes that most other commercially
available SCM products are inflexible and require IT organizations to modify
their current IT environments, requiring substantial IT resources and lengthy
implementation cycles.

COMPREHENSIVE CONSULTING SERVICES. We complement our product offerings with
our comprehensive SER(POWER) professional services, which leverage SERENA's
expertise in the design and implementation of SCM solutions. Through the
identification of products, methods and procedures that address specific
customer SCM requirements, our consultants help clients design and implement
best practice change and configuration management.

IMPROVED RETURN ON IT INVESTMENT. The FULL.CYCLE MAINFRAME product suite
automates the software application life cycle, streamlining the process of
administering change and moving changes through an IT organization and allowing
incremental changes to be efficiently processed. By managing and controlling
change more effectively and efficiently, the FULL.CYCLE MAINFRAME product suite
enables customers to reduce application development costs and improve the
quality of new releases by quickly implementing applications, reducing
programmer downtime, shortening approval time, eliminating manual errors and
improving application testing and debugging.

STRATEGY

SERENA's objective is to be the leader in providing SCM products and
services for managing and controlling change throughout the software application
life cycle and across the enterprise. Key components of our strategy include:

MAINTAIN TECHNOLOGY LEADERSHIP. SERENA is a technology leader in providing
robust, flexible and reliable SCM solutions for the mainframe. To strengthen and
extend our SCM solutions, we plan to continue to invest in research and
development to expand the features and functionality of our mainframe product
suite.

EXTEND SCM SOLUTIONS ACROSS THE ENTERPRISE. We are developing FULL.CYCLE
DESKTOP, an integrated SCM product suite for the desktop, which will incorporate
the proprietary technology and expertise found in our FULL.CYCLE MAINFRAME
products. Managing software change on the mainframe and desktop

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<PAGE>
platforms has many similarities. These similarities include the need to develop
and enforce consistent software change policies and procedures and a process to
control all types of software changes. Software change occurs throughout all
phases of the application life cycle from the initial business request for a new
software application through development, testing and production and into the
maintenance and support phases. We introduced the first of our FULL.CYCLE
DESKTOP products, DETECT+RESOLVE, in December 1998 and plan to release initial
versions of other FULL.CYCLE DESKTOP products by the end of calendar 1999.
Additionally, we intend to use our SERNET technology to link SERENA's SCM
solutions across customers' mainframe and desktop environments. We plan to
enhance our mainframe and desktop product suites by adding new features and
integrating our solutions with leading help desk, software distribution and
management frameworks in order to link SERENA's SCM solutions to the
post-deployment phase of the software application life cycle.

LEVERAGE CUSTOMER BASE. Most of our customers are large, sophisticated
organizations with complex information systems in distributed computing
environments. We intend to make additional sales of our products, options and
services to our existing customers to help them meet their changing SCM
requirements and expanding computer capacity needs. In particular, we plan to
broaden our telesales efforts to reduce sales cycles and provide a more rapid
response to customer product requests.

CONTINUE TO EXPAND PROFESSIONAL SERVICES OFFERINGS. The complex and
strategic nature of software change management provides SERENA with a
significant opportunity to consult with customers to help them successfully
develop, implement and execute SERENA's SCM solutions. We intend to expand our
SER(POWER) professional services offerings for the mainframe to include services
for applications and systems on the desktop platform.

EXPAND GLOBAL SALES. SERENA believes that international markets and
companies within the Global 2000 represent a significant growth opportunity as
businesses increasingly recognize the need for effective SCM solutions. We
intend to expand the scope of our international operations, particularly in
Europe, and have established subsidiaries in the United Kingdom and in Germany.

PURSUE STRATEGIC RELATIONSHIPS AND ACQUISITIONS. We continue to pursue
strategic relationships that will augment or expand our SCM product offerings
and distribution channels. In particular, we intend to extend our product
offerings and distribution channels by partnering with leading help desk
management, software distribution and system framework providers. In addition,
we intend to evaluate strategic acquisitions or investment opportunities for
products and technologies that complement or extend our existing product suites
or that offer access to additional distribution channels. The acquisition of
Optima, for example, significantly broadens our professional services and sales
and marketing organizations and enables us to market CHANGE MAN as part of our
FULL.CYCLE MAINFRAME product suite.

PRODUCTS

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

In addition, we are developing a SCM product suite for the desktop
environment that will support Microsoft Windows 95/98/NT desktop platforms.
These products will be marketed under the brand name FULL.CYCLE DESKTOP.
Together the FULL.CYCLE MAINFRAME and FULL.CYCLE DESKTOP products will be
marketed under the brand name FULL.CYCLE ENTERPRISE.

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Customers typically purchase our FULL.CYCLE MAINFRAME products under
MIPS-based, perpetual licenses. A description of MIPS-based licenses is included
in the "Overview" section of Management's Discussion and Analysis of Financial
Condition and Results of Operations. List prices for our FULL.CYCLE MAINFRAME
products, which include one year of software maintenance and support, range from
$20,000 to $800,000.

The following products comprise the FULL.CYCLE Mainframe product suite:
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
YEAR PRODUCT

<CAPTION>
FIRST LAST
PRODUCT NAME INTRODUCED RELEASED BRIEF DESCRIPTION
<S> <C> <C> <C>
CHANGE MAN 1988 1997 Provides automated infrastructure to control and manage
software change
COMPAREX 1981 1998 Performs data comparison for application testing and
software quality
CDF 1994 1997 Merges versions of programs to enable concurrent
development
STARTOOL 1989 1998 Facilitates complex file and data management tasks
STARWARP 1997 1998 Addresses data aging problems by converting data to new
formats
SYNCTRAC 1993 1998 Detects, tracks and synchronizes changes in MVS data
sets
</TABLE>

CHANGE MAN, our flagship product, is a comprehensive SCM solution that
provides an automated infrastructure to help customers manage and control change
throughout the software application life cycle. CHANGE MAN manages change by
coupling application development and production control and provides developers
and their managers with the assurance of technological control and integrity
throughout the development process enabling them to focus on software quality
and production reliability. CHANGE MAN automates the entire software application
life cycle, by providing:

- impact analysis

- version control

- promotion of fixed code into production

- online management of approvals and authorizations

- - management of concurrent development efforts by separate programming teams

- - code freezing to prevent further development while testing

- - auditing and automating the backout of changes

By using CHANGE MAN, customers can realize many benefits, including:

- improving programmer productivity

- reducing production downtime

- ensuring approval integrity

- improving application availability

- - accommodating multiple testing levels

- - eliminating manual errors

- - shortening approval time

CHANGE MAN is a flexible, compatible SCM solution that supports multiple
operating systems and database platforms and integrates easily with customers'
existing IT environments by using standard IBM programming languages and working
with existing customer security systems, libraries and inventory lists.

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<PAGE>
COMPAREX is a comparison SCM product used for efficient application testing
and software quality assurance. COMPAREX performs fast, accurate, single-step
comparisons of the contents of libraries, directories, files or databases by
performing line-by-line byte-level comparisons. COMPAREX performs several
functions, including:

- supporting a variety of data types

- providing sophisticated comparison algorithms for both data and text

- minimizing the scope of comparisons by utilizing keywords to compare
specific portions of a file

- - providing direct interfaces to most major databases

- - producing detailed reports on the comparison differences

COMPAREX provides increased flexibility, accuracy and control of change testing
by:

- enabling the comparison of data in dissimilar positions

- providing single-step direct database comparisons

- - eliminating time-consuming manual change verifications and providing detailed
audit trails

Its flexibility to handle any type of comparison problem enables COMPAREX to be
used in the testing and validation phase of a wide range of application
development projects, including Year 2000 and EMU conversions.

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

STARTOOL is used for complex file and data management tasks and has
extensive editing tools. STARTOOL provides a comprehensive workbench of
utilities that may be used for application and system testing or conversion and
recovery support. STARTOOL enables users to perform many data management tasks,
including:

- locating and replacing data and data sets

- automatically tracking changes to applications or systems

- - recreating lost source code

- - diagnosing and mapping recovery strategies for file-related problems

STARTOOL expedites the testing of modified programs by creating test data
without requiring the rewrite or debugging of one-time programs or the use of
utility programs that do not interface with end-users.

STARWARP addresses data aging by providing a method for converting or
"warping" data stored in a particular format, including dates, currency and
other business fields into new formats. For example, STARWARP enables over 400
date fields to be converted into new formats to resolve Year 2000 issues.
STARWARP minimizes the need to write batch programs for each file-aging
situation and enables programmers to create test data by automating the process
of specifying default values for data fields.

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

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PRODUCTS UNDER DEVELOPMENT

We are leveraging the proprietary technology and expertise incorporated in
our mainframe SCM product suite to develop an integrated SCM product suite for
the desktop. Our FULL.CYCLE DESKTOP product suite will support the Windows
95/98/NT desktop platforms and is designed to be integrated with leading third
party software distribution, desktop management and help desk software products.
With our FULL.CYCLE MAINFRAME and FULL.CYCLE DESKTOP product suites, we will be
able to provides customers a complete SCM solution across an IT enterprise.
DETECT+RESOLVE, the first of our FULL.CYCLE DESKTOP products, remotely detects
software configuration problems on the desktop and resolve the problems
automatically over the network with functionality similar to SYNCTRAC. The
FULL.CYCLE DESKTOP product suite will also include a comprehensive desktop SCM
product with functionality similar to CHANGE MAN; a comparison product used for
efficient application testing and software quality assurance with functionality
similar to COMPAREX; and a product that can reconcile multiple versions of
applications which capability is needed in collaborative development efforts
with functionality similar to CDF. We released DETECT+RESOLVE in December 1998
and plan to introduce initial versions of other FULL.CYCLE DESKTOP products by
the end of calendar 1999. We may be unable, for technological or other reasons,
to develop and introduce these products in a timely manner. Any failure by us to
successfully develop, market, sell and support the FULL.CYCLE DESKTOP product
suite would have a material adverse effect on our business, operating results
and financial condition. See "Risk Factors--Our Introduction of SERENA SCM
Products for the Desktop May Not Be Successful" and "--We May Experience Delays
in Developing Our Products Which Could Adversely Affect Our Business."

TECHNOLOGY

SERNET provides a common platform for the continued enhancement of our
existing products and the rapid development of future products. SERNET serves as
a repository for our key technologies and provides our product suites with:

- a common, stable infrastructure

- a set of common services for product suite integration

- an interface that promotes third party integration

- - a communications module for cross platform interconnectivity

- - a common set of modules including licensing management, file access and
security

Although SERNET has existed for some time as an embedded technology in many
of the FULL.CYCLE MAINFRAME products, we are currently developing three stand
alone products that will be marketed under the brand name SERNET ENTERPRISE.
SERNET CONNECT, SERNET MAINFRAME and SERNET DESKTOP will use the SERNET
technology to facilitate interaction among our FULL.CYCLE MAINFRAME and
FULL.CYCLE DESKTOP product suites. The SERNET ENTERPRISE products will be
designed to integrate with customer and third party technology where
interconnectivity is required. We currently expect an initial version of each
SERNET ENTERPRISE product to be released in the first half of calendar 1999.

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The following diagram illustrates SERENA's FULL.CYCLE ENTERPRISE SCM
environment which will be comprised of the FULL.CYCLE MAINFRAME product suite,
the planned FULL.CYCLE DESKTOP product suite and the SERNET CONNECT
communications module.

Graphic depicting SERENA's FULL.CYCLE Enterprise SCM environment which is
comprised of the FULL.CYCLE Mainframe product suite, the FULL.CYCLE Desktop
product suite (which product suite is currently under development) and the
SERNET Communication module. The graphic appears in a box. The title of the
graphic, which appears centered inside the box under the top line of the box, is
'FULL.CYCLE Enterprise.' Two rectangles with white space between them appear
beneath the FULL.CYCLE Enterprise title. The title of the left rectangle,
'FULL.CYCLE Mainframe,' appears approximately in the middle of the left
rectangle. Beneath the 'FULL.CYCLE Mainframe' title the following product names
appear: Change Man, COMPAREX, CDF, SyncTrac, StarTool and StarWarp. The title of
the right triangle, 'FULL.CYCLE Desktop,' appears approximately in the middle of
the rectangle. Beneath the 'FULL.CYCLE Desktop' title the following product
names appear: Change*, Compare*, Merger+Reconcile* and Detect+Resolve. Beneath
this list of product names, at the bottom of the rectangle, appears the caption
'*Under Development.' The two FULL.CYCLE Mainframe and FULL.CYCLE Desktop
rectangles are connected at the bottom by the words 'SERNET Connect' surrounded
by a rectangle with an arrow on either end of the rectangle intruding into the
FULL.CYCLE Mainframe and FULL.CYCLE Desktop rectangles. At the top of the
FULL.CYCLE Mainframe rectangle, in the upper-left corner, a short cylinder with
'Application and Data' appearing beneath the cylinder is connected on its right
side by three lines to a figure labeled 'Mainframe' appearing in the upper-right
corner of the FULL.CYCLE Mainframe. The figure labeled 'Mainframe' is connected
on its right by a single line to a figure--sitting in the white space between
the FULL.CYCLE Mainframe and FULL.CYCLE Desktop rectangles, directly above the
SERNET Connect figure below--that looks like a computer monitor and attached
keyboard with the caption 'Application Development/ System Administration'
appearing above the figure and the caption 'Centralized Management' appearing
below the figure. This figure is connected on its right by a line to two figures
sitting side by side in the upper left corner of the FULL.CYCLE Desktop
rectangle. Each of these two figures looks like a computer monitor and attached
keyboard and is connected to the other by a single line. The caption 'Desktop'
appears above these two figures and the caption 'Client or Server' appears below
these two figures. The right-most of these two figures is connected on its right
by three lines to a short cylinder labeled 'Application and Data' appearing in
the upper-right corner of the FULL.CYLCE Desktop rectangle.

45
<PAGE>
[GRAPHIC]

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

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

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

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

- An object factory technology consolidating desktop components into single
objects and collecting them in class libraries, allowing for code re-use
and enabling customers to develop inventories containing proven, tested
and reliable codes, thereby facilitating the rapid development and
deployment of products to the desktop. The object factory technology has
an open interface structure of class libraries that can be incorporated
with original equipment manufacturer tool kits. SERENA uses this
technology to develop new SCM products or to upgrade existing products.

46
<PAGE>
PROFESSIONAL SERVICES AND CUSTOMER SUPPORT

Our services group provides technical consulting, education, customer
support and product maintenance to help customers maximize the utilization of
SERENA's FULL.CYCLE MAINFRAME products. We offer our consulting and education
services under the SER(POWER) brand name.

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

We also offer customers more specialized consulting services. These
specialized consulting services expand SERENA's SER(POWER) professional services
to include our BEST PRACTICES CONSULTING SERVICES, which provide customers with
expertise and assistance in defining and developing a best practice change and
configuration management architecture and in identifying corresponding products,
methods and procedures. In addition, our YEAR 2000 SERVICES and EUROPEAN
MONETARY UNION SERVICES assist customers in achieving Year 2000 and EMU
conversion readiness. Our consultants work with customers' IT organizations to
identify and prioritize the critical success factors that are required for
effective Year 2000 and EMU conversion solutions, to manage corresponding system
and application changes and to automate the necessary testing processes.
SERENA's consulting services are typically billed on a time and materials basis.

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

CUSTOMER SUPPORT AND PRODUCT MAINTENANCE. We have a staff of customer
service personnel who provide technical support to customers. We offer technical
support services 24 hours a day, seven days a week via our Internet site, toll
free telephone lines, electronic mail, bulletin board service and facsimile
lines. Customers are notified about the availability of regular maintenance and
enhancement releases via Internet-based electronic mail. Initial product license
fees include one year of product software maintenance and support. Thereafter,
customers are entitled to receive software updates, maintenance releases and
technical support for an annual maintenance fee equivalent to approximately 17%
of the current list price of the licensed product. Over 95% of our customers who
were eligible to renew their maintenance agreements during calendar year 1997
did so. There can be no assurance that we will maintain this rate of renewal.
See "Risk Factors--Our Future Revenue is Substantially Dependent Upon Our
Installed Customer Base 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."

RESEARCH AND DEVELOPMENT

SERENA believes that the ability to introduce new and enhanced products to
customers will be a key factor for future success. As part of our efforts to
generate ideas for enhancing our existing products and for developing new ones,
we maintain an ongoing dialogue with our customers who are continually facing
new SCM challenges in their evolving IT environments. SERENA has devoted and
expects to continue to devote significant resources to developing new and
enhanced products, including the FULL.CYCLE DESKTOP and SERNET ENTERPRISE
product suites.

Most of our technical personnel have been employed by SERENA for a
substantial length of time and their significant knowledge base contributes to
SERENA's ability to understand and address customers' SCM requirements. We
believe that attracting and retaining talented software developers who
understand the customers' problems is an important component of product
development activities. We encourage our developers to assume responsibility for
the design and delivery of our products through our product authorship incentive
program that rewards our developers with commissions based on the market success

47
<PAGE>
of the applications they design, write, market and support. Competition for
developers is intense and any failure by us to continue to attract and retain
qualified personnel could have a material adverse effect on our business,
operating results and financial condition. See "Risk Factors--We May Not Be Able
to Recruit and Retain the Personnel We Need to Succeed."

SERENA's research and development expenses were $3.0 million, $4.3 million,
$5.5 million and $3.2 million in fiscal 1996, 1997 and 1998 and the nine months
ended October 31, 1998, representing 28%, 25%, 17% and 10% of total revenues,
respectively. The reduction in research and development expenses for the nine
months ended October 31, 1998, is attributable principally to the restructuring
of compensation arrangements with SERENA's founder and Chief Technology Officer.
We expect the research and development expenses will increase as we hire
additional research and development personnel to develop its FULL.CYCLE DESKTOP
and SERNET ENTERPRISE products. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

We believe that our ability to develop and introduce enhancements to our
products and new products on a timely basis is a key success factor. We expect
that we will have to respond quickly to rapid technological change, changing
customer needs, frequent new product introductions and evolving industry
standards that may render existing products and services obsolete. SERENA has in
the past devoted and expects in the future to continue to devote a significant
amount of resources to developing new and enhanced products. We currently have a
number of product development initiatives underway. There can be no assurance
that any enhanced products, new products or product suites will be embraced by
existing or new customers. The failure of these products to achieve market
acceptance would have a material adverse effect on our business, operating
results and financial condition. See "Risk Factors--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."

CUSTOMERS

The following is a representative list of our customers that have purchased
at least $100,000 in software licenses, maintenance and professional services
since the beginning of fiscal 1998:

<TABLE>
<S> <C>
ABN AMRO Service Company, Inc. State of California, Health & Welfare
Aegon USA, Inc. Agency Data Center
Aetna Life Insurance Company International Business Machines
Affiliated Computer Services, Inc. Corporation
American Express Financial Corp. Integrated Systems Solution
Ameritech Services, Inc. Corporation
Ames Department Stores, Inc. Manulife Financial
Automatic Data Processing, Inc. MCI WorldCom Communications
Bank of Nova Scotia Merrill Lynch & Co. Inc.
Bear Stearns & Co. Inc. Metropolitan Life Insurance Company
BellSouth Information Services National City Corp.
CGI Telecom Information and Services, Inc. NationsBanc Services, Inc.
The Chase Manhattan Corporation Policy Management Systems Corporation
Citigroup, Inc. The Prudential Insurance Company of
Computer Sciences Corporation America
Credit Communal de Belgique Rensselaer County Industries
Credit Suisse First Boston Corporation Salomon Smith Barney Inc.
First Union National Bank Sears Canada Inc.
Fortis Inc. U.S. Sprint Communications Company,
The Franklin Mint L.P.
General Electric Company Toyota Motor Sales, USA, Inc.
Hartford Fire Insurance Company Washington Mutual, Inc.
Wells Fargo Bank, N.A.
Zurich Insurance Company
</TABLE>

The following are examples of customers who use our products and
professional services for managing enterprise level applications for large
organizations.

CREDIT COMMUNAL DE BELGIQUE is the Belgian banking institution of the Dexia
Group, a leader in the financing of public service facilities in Europe,
composed of Credit Local de France, Credit Communal,

48
<PAGE>
Banque International a Luxembourg and Dexia Public & Project Finance
International Bond. Credit Communal sought an SCM solution that could
standardize its software application development procedures, provide versioning
capability and enable concurrent development efforts by multiple programming
teams. Credit Communal chose CHANGE MAN because of its broad functionality, ease
of use and implementation, adaptability and customization capabilities to
address specific SCM requirements. CHANGE MAN provides Credit Communal with an
automated software change infrastructure enabling Credit Communal to better
manage and control its software application development environments.
Additionally, Credit Communal has integrated CDF with CHANGE MAN to provide
enhanced concurrent development capabilities and has integrated SYNCTRAC to
manage and synchronize software in their production and test systems. Credit
Communal also uses these products for Year 2000 and EMU readiness.

FIRST UNION NATIONAL BANK, headquartered in Charlotte, North Carolina, is a
commercial bank serving more than 16 million customers. Before purchasing CHANGE
MAN, First Union used an internally developed SCM solution which did not have
versioning or concurrent development capabilities. First Union chose CHANGE MAN
because of its broad functionality, ease of use and implementation and
versioning and concurrent capabilities. CHANGE MAN has improved First Union's
control of its software application development process including synchronizing
source to load modules and protecting source code. First Union also uses
COMPAREX and CDF to increase programmer productivity by identifying differences
between versions of code.

SALES AND MARKETING

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

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

In addition to our direct sales and telesales efforts, we have established
relationships with distributors and resellers located in North America, Europe,
Israel and South Africa. In addition to marketing and selling our software,
these distributors and resellers provide technical support as well as
educational and consulting services.

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

COMPETITION

The market for our products is highly competitive and diverse. The
technology for SCM products may change rapidly. New products are frequently
introduced and existing products are continually enhanced. Competitors vary in
size and in the scope and breadth of the products and services that they offer.
Many of our current and potential competitors have greater financial, technical,
marketing and other resources than we have. As a result, they may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements. They may also be able to devote greater resources to the
development, promotion and sale of their products than we can. We may not be
able to compete successfully against current and future competitors.

EXISTING COMPETITION. We face competition from a number of sources,
including:

- Customers' internal IT departments

- Providers of SCM products that compete directly with SERENA's CHANGE
MAN and COMPAREX products such as Computer Associates, PLATINUM
technology, IBM and smaller private companies

49
<PAGE>
- Providers of SCM application development programmer productivity and
system management products such as Compuware, Microsoft, IBM and
smaller private companies

FUTURE COMPETITION. Barriers to entry in the software market are relatively
low. As a result, we may face competition in the future from established
companies who have not previously entered the mainframe SCM market or from
emerging software companies. These 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. This could materially
adversely affect our business and future operating results as we may be priced
out of the market or no longer able to offer commercially viable products.

COMPETITION IN THE DESKTOP SCM MARKET. We anticipate that we will also face
significant competition as we develop, market and sell our FULL.CYCLE DESKTOP
products. We do not have experience in developing, selling, marketing or
supporting desktop products since all of our products to date have been designed
to support the mainframe. Penetrating the existing desktop SCM market will be
difficult. Competitors in the desktop market include PLATINUM technology, Micro
Focus/INTERSOLV, Microsoft, Novadigm, Novell, Rational Software and smaller
private companies.

INTELLECTUAL PROPERTY

Our success will be heavily dependent upon proprietary technology. We rely
primarily on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. Such laws, procedures and contracts provide only limited
protection. We submitted four patent applications for our technology in 1998 and
each of these applications is still pending. These patents may never be issued.
Even if these patents are issued, they may not provide sufficiently broad
protection or they may not prove enforceable in actions against alleged
infringors. Despite the precautions that we take, it may be possible for
unauthorized third parties to copy aspects of our current or future products or
to obtain and use information that we regard as proprietary. In particular, we
may provide our licensees with access to our data model and other proprietary
information underlying our licensed applications. Such means of protecting our
proprietary rights may not be adequate. Additionally, our competitors may
independently develop similar or superior technology. Policing unauthorized use
of software is difficult and some foreign laws do not protect SERENA's
proprietary rights to the same extent as United States laws. Litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of the proprietary
rights of others. Litigation could result in substantial costs and diversion of
SERENA's resources and could materially adversely affect our business, operating
results, and financial condition.

Third parties may claim that our current or future products infringe their
proprietary rights. In September 1998, Compuware filed a lawsuit against SERENA
alleging copyright infringement, trade secret misappropriation and various tort
claims related to the sale of our STARTOOL and STARWARP products. See
"Litigation" and "Risk Factors--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 Affects of the Pending
Compuware Claim." We may receive additional claims in the future and any such
claims could affect our relationships with existing customers and may prevent
future customers from licensing its products. Because we are dependent upon a
limited number of products, any such claims, including the Compuware claim, 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

50
<PAGE>
product developers will increasingly be subject to infringement claims as the
number of products and competitors in the software industry segment grows and
the functionality of products in different industry segments overlaps. As a
result of these factors, infringement claims could materially adversely affect
our business, operating results and financial condition.

We license our STARTOOL and STARWARP products on an exclusive, world-wide
basis from A. Bruce Leland, one of our employees. 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. Sales of STARTOOL accounted for 12% of SERENA's software
licensing revenue for fiscal 1998 and for the nine months ended October 31,
1998, respectively. Licenses of STARWARP accounted for 7% of SERENA's software
licensing revenue for nine months ended October 31, 1998 and did not account for
any software license revenues in fiscal 1998. Our licenses to copy, market and
distribute STARTOOL and STARWARP are exclusive, worldwide and nontransferable.
We pay sublicense fees of approximately 36% on net revenue recognized from
license and maintenance agreements related to STARTOOL and STARWARP. SERENA's
licenses for these products are terminable by Mr. Leland upon 30 days notice in
the event certain conditions occur, including if we fail to pay sublicense fees
on a timely basis or otherwise materially breach the license agreement. SERENA
owns the trademarks for both STARTOOL and STARWARP.

We share ownership rights in our SYNCTRAC technology for mainframe platforms
with High Power Software, a developer of data protection software for the
mainframe. Sales of the SYNCTRAC product accounted for 3% and 5% of SERENA's
software license revenue in fiscal 1998 and in the nine months ended October 31,
1998, respectively. High Power Software receives 50% of all software license
revenue and maintenance revenue derived from licenses of the SYNCTRAC product
for mainframe platforms. Although we have primary responsibility for marketing,
licensing and supporting SYNCTRAC, High Power Software has the ability to
jointly direct marketing, sales and support efforts regarding the product. We
own the SYNCTRAC technology for deployment on non-mainframe platforms and do not
share this ownership with High Power Software or any other third party.

If our licenses for our STARTOOL and STARWARP technologies terminated or our
relationship with High Power Software worsened with regard to the joint
direction of marketing, sales and support efforts for SYNCTRAC, this could
materially adversely affect our business and operating results. See "Risk
Factors-- 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."

LITIGATION

In September 1998, 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 on November 18, 1998. Due to the nature of
litigation generally and because the lawsuit brought by Compuware is at an early
stage, 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 in 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, operating results or
financial condition could be materially adversely affected.

EMPLOYEES

As of October 31, 1998, SERENA had 186 full-time employees, 30 of whom were
engaged in research and development, 62 in sales and marketing, 64 in
consulting, education and customer and document support, and 30 in finance,
administration and operations. Our future performance depends in significant

51
<PAGE>
part upon the continued service of its key technical, sales and senior
management personnel. The loss of the services of one or more of our key
employees could materially adversely affect our business, operating results and
financial condition. Our future success also depends on our continuing ability
to attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense, and we may not be able to
retain our key personnel in the future. None of our employees are represented by
a labor union. We have not experienced any work stoppages and consider our
relations with our employees to be good.

FACILITIES

Our principal administrative, sales, marketing, consulting, education,
customer support and research and development facilities are located at our
headquarters in Burlingame, California. SERENA currently occupies an aggregate
of approximately 26,000 square feet of office space in the Burlingame facility
under the terms of various leases, the first of which terminates, unless
renewed, in December 2001. Management believes its current facilities will be
adequate to meet SERENA's needs for at least the next twelve months. We believe
that suitable additional facilities will be available in the future as needed on
commercially reasonable terms.

SERENA also leases office space for sales and marketing in Sacramento,
California and Atlanta, Georgia, has subsidiaries in Canada, the United Kingdom
and Germany.

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<PAGE>
MANAGEMENT

The following table sets forth certain information with respect to the
executive officers and directors of SERENA as of the date of this prospectus.

EXECUTIVE OFFICERS AND DIRECTORS

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Douglas D. Troxel................... 54 Chairman of the Board and Chief Technology
Officer
Richard A. Doerr.................... 56 President, Chief Executive Officer and Director
Marianne M. Elkholy................. 48 Vice President, Worldwide Marketing
Kevin C. Parker..................... 42 Vice President, Research and Development
Robert I. Pender, Jr................ 41 Vice President, Finance and Administration,
Chief
Financial Officer and Secretary
Sydney S. Phelan.................... 48 Vice President, North American Consulting
Services
Roger A. Richardson................. 38 Vice President, International Operations
Anthony G. Stayner.................. 43 Vice President, Services
Vita A. Strimaitis.................. 38 Vice President, General Counsel and Assistant
Secretary
Mark E. Woodward.................... 40 Vice President, Sales
Alan H. Hunt (a)(b)................. 56 Director
Jerry T. Ungerman (a)(b)............ 54 Director
</TABLE>

- ------------------------

(a) Member of Audit Committee

(b) Member of Compensation Committee

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

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

MARIANNE M. ELKHOLY has served as SERENA's Vice President, Worldwide
Marketing since October 1997. From April 1997 until August 1997, Ms. Elkholy was
Vice President, Marketing for Virtual Integration Technology, Inc., a developer
of data warehousing and information delivery solutions. From March 1994 until
February 1997, Ms. Elkholy was Executive Director of Marketing for Informix
Corporation, a developer of relational database management software. From March
1990 until March 1994, Ms. Elkholy was a Director of Marketing for Oracle
Corporation, a developer of relational database management software. Ms. Elkholy
holds a B.S. and a M.S. in mathematics from Marywood College.

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

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

SYDNEY S. PHELAN has served as SERENA's Vice President, North American
Consulting Services since September 1998. From August 1992 until September 1998,
Ms. Phelan was a Vice President with Optima Software, Inc., a distributor of
change management software that was acquired by SERENA in September 1998. Ms.
Phelan holds a B.A. in English and psychology from the University of
Connecticut.

ROGER A. RICHARDSON has served as SERENA's Vice President, International
Operations since May 1998. From January 1998 to May 1998, Mr. Richardson served
as SERENA's Vice President, European Operations. From February 1997 until
October 1997, Mr. Richardson was Director of European Operations for True
Software Inc., a developer of SCM products. From February 1996 until January
1997, Mr. Richardson was a director with Sequalogic Plc, a contract agency. From
April 1993 until January 1996, Mr. Richardson held various business management
positions, most recently as Vice President, Northern Europe, at Legent, Inc., a
developer of SCM products.

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

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

MARK E. WOODWARD has served as SERENA's Vice President, Sales since November
1998. From August 1997 until November 1998, Mr. Woodward was Senior Vice
President, Sales for Live Picture, Inc., a developer of Internet imaging
technology. From August 1995 until August 1997, Mr. Woodward was Vice President,
Sales for McAfee Associates, a network management firm. From March 1989 until
August 1995, Mr. Woodward was Vice President, Sales for Legent, Inc., a
developer of SCM products.

ALAN H. HUNT has served as a member of SERENA's board of directors since
February 1998. From October 1995 to January 1998, Mr. Hunt was the President and
Chief Executive Officer and a member of the board of directors of Peregrine
Systems, Inc., a provider of infrastructure management software solutions. From
July 1994 until November 1995, Mr. Hunt was President and Chief Executive
Officer and a member of the board of directors of XVT Software Inc., a
development tools software company. From March 1991 until May 1994, Mr. Hunt was
Senior Vice President of Sales and Marketing (North America)

54
<PAGE>
for BMC Software, Inc., a vendor of software system utilities for IBM mainframe
computing environments. Mr. Hunt holds a B.S. in business administration and
industrial management from San Jose State College.

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

BOARD COMMITTEES

We have established an Audit Committee and a Compensation Committee. The
Audit Committee reviews the internal accounting procedures of SERENA and
consults with and reviews the services provided by our independent auditors. The
Compensation Committee reviews and recommends to the board of directors the
compensation and benefits of all officers of SERENA and establishes and reviews
general policies relating to compensation and benefits of employees of SERENA.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of SERENA and administering various incentive compensation and benefit
plans. The Compensation Committee consists of Alan H. Hunt and Jerry T.
Ungerman. Richard A. Doerr, President, Chief Executive Officer and a director of
SERENA, participates in all discussions and decisions regarding salaries and
incentive compensation for all employees and consultants of SERENA, except that
he is excluded from discussions regarding his own salary and incentive
compensation. No interlocking relationship exists between any member of SERENA's
Compensation Committee and any member of any other company's board of directors
or compensation committee.

DIRECTOR COMPENSATION

We reimburse each member of our board of directors for out-of-pocket
expenses incurred in connection with attending board meetings. No member of our
board of directors currently receives any additional cash compensation. At the
time Mr. Hunt became a member of the board of directors, SERENA granted Mr. Hunt
56,250 shares of common stock pursuant to a restricted stock purchase agreement
at a purchase price per share of $1.44. Under the terms of that agreement,
SERENA has a right to repurchase any unvested shares in the event Mr. Hunt's
membership in the board of directors should terminate. One quarter of Mr. Hunt's
shares will vest upon the first anniversary of his membership on the board of
directors, and 1/36 of the remaining shares will vest monthly thereafter. At the
time Mr. Ungerman became a member of our board of directors, SERENA granted Mr.
Ungerman an option to purchase up to 25,000 shares of common stock at a purchase
price of $9.00 per share under the 1997 Plan. One quarter of Mr. Ungerman's
options will vest upon the first anniversary of his membership on the board of
directors, and 1/36 of his remaining options vest monthly thereafter. See
"Certain Transactions."

SERENA's Director Plan provides that options will be granted to non-employee
directors pursuant to an automatic nondiscretionary grant mechanism. Each new
non-employee director is automatically granted an option to purchase 25,000
shares of common stock at the time he or she is first elected to the board of
directors. Each non-employee director will subsequently be granted an option to
purchase 5,000 shares of common stock at the beginning of each fiscal year. Each
such option will be granted at the fair market value of the common stock on the
date of grant. Options granted to non-employee directors under the Director Plan
will become exercisable over four years, with one quarter of the shares subject
to the option vesting after one year and the remaining shares vesting ratably in
monthly installments thereafter. See "Stock Plans--1999 Director Option Plan."

55
<PAGE>
EXECUTIVE COMPENSATION

The table below and footnotes thereto set forth in summary form information
concerning the compensation awarded to, earned by, or paid for services rendered
to SERENA in all capacities during the fiscal years ended January 31, 1998 and
1999 by our President and Chief Executive Officer and our next four most highly
compensated executive officers whose salary and bonus for fiscal 1999 exceeded
$100,000. These executives are referred to as the Named Executive Officers
elsewhere in this prospectus. Other than the salary and bonus described in the
table below, we did not pay any executive officer named in the Summary
Compensation Table any fringe benefits, perquisites or other compensation in
excess of 10% of such executive officer's salary and bonus during fiscal 1999.
Bonus and commission figures for fiscal 1999 represent bonus and commissions
earned and paid in fiscal 1999 only and do not include bonus and commissions
earned in fiscal 1999 to be paid in fiscal 2000 as these figures are not
currently available. Bonus and commission figures for fiscal 1998 include
bonuses and commissions earned and paid in fiscal 1998 as well as bonuses and
commissions earned in fiscal 1998 but paid in fiscal 1999.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
LONG-TERM COMPENSATION AWARDS COMPENSATION
-------------------- ------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESTRICTED RESTRICTED SECURITIES MATCHING GROUP LIFE
FISCAL STOCK STOCK UNDERLYING 401(K) INSURANCE
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS ($) AWARDS (#) OPTIONS (#) CONTRIBUTIONS PREMIUMS
- --------------------------- ----------- --------- --------- ----------- ----------- ----------- --------------- -----------
Richard A. Doerr........... 1999 $ 200,000 $ 274,500 -- -- -- $ 6,400 $ 2,400
President and Chief 1998 156,154 429,620 1,334,250 1,334,250(2) -- 1,333 1,013
Executive Officer

Douglas D. Troxel.......... 1999 324,000 126,750 -- -- -- 5,940 1,536
Chief Technology Officer 1998 324,000 1,063,500 -- -- -- 5,190 1,578

Marianne M. Elkholy........ 1999 150,000 34,065 -- -- -- 6,400 653
Vice President, Worldwide 1998 50,000(1) 42,500 184,500 184,500(2) -- 1,500 192
Marketing

Robert I. Pender, Jr....... 1999 150,000 115,500 -- -- -- 6,400 383
Vice President, Finance 1998 25,000(1) 15,000 184,500 184,500(2) -- 500 34
and Administration, Chief
Financial Officer and
Secretary

Roger A. Richardson........ 1999 120,030 100,563 -- -- 45,000 -- --
Vice President, 1998 3,495(1) -- -- -- -- -- --
International Operations

<CAPTION>
<S> <C>
NAME AND PRINCIPAL POSITION MISC.
- --------------------------- ---------
Richard A. Doerr........... $ --
President and Chief --
Executive Officer
Douglas D. Troxel.......... 24,175(3)
Chief Technology Officer 24,851
Marianne M. Elkholy........ --
Vice President, Worldwide --
Marketing
Robert I. Pender, Jr....... --
Vice President, Finance --
and Administration, Chief
Financial Officer and
Secretary
Roger A. Richardson........ --
Vice President, --
International Operations
</TABLE>

- ------------------------------

(1) Represents salary paid in fiscal 1998 when Ms. Elkholy, Mr. Pender and Mr.
Richardson were not employed by SERENA for the entire fiscal year.

(2) Mr. Doerr, Ms. Elkholy and Mr. Pender purchased these shares in January 1998
under the 1997 Plan at a purchase price of $1.00 per share. Mr. Doerr's
shares vest over three years with one-third of his shares vesting on the
first anniversary of his initial employment date and the remaining shares
vesting ratably monthly thereafter. The shares issued to the officers other
than Mr. Doerr vest over four years with one-quarter of the shares vesting
on the first anniversary of the executive officer's initial employment date
and the remaining shares vesting ratably monthly thereafter. See
"--Employment Agreements and Change in Control Arrangements" and "Certain
Transactions."

(3) Fiscal 1999 figure includes $18,950 in personal life insurance premiums,
$906 in legal fees related to estate planning and $4,319 in personal car
expenses paid by SERENA; fiscal 1998 figure includes $18,950 in personal
life insurance premiums and $5,901 in personal car expenses paid by SERENA.

56
<PAGE>
OPTION GRANTS DURING LAST FISCAL YEAR

The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers during fiscal 1999,
including the potential realizable value over the 10 year term of the options
based on assumed rates of stock appreciation of 5% and 10%, compounded annually.
These assumed rates of appreciation comply with the rules of the SEC and do not
represent SERENA's estimate of future stock price. Actual gains, if any, on
stock option exercises will be dependent on the future performance of SERENA
common stock. In fiscal 1999, SERENA granted options to acquire up to an
aggregate of 1,324,525 shares to employees and directors, all under the 1997
Plan and all at an exercise price equal to not less than the fair market value
of SERENA's common stock on the date of grant as determined in good faith by the
board of directors. Optionees may pay the exercise price by cash, check,
promissory note, delivery of already-owned shares of SERENA's common stock or
pursuant to a cashless exercise procedure. Options under the 1997 Plan vest over
four years with 25% of the shares subject to option vesting on the first
anniversary of the grant date, and the remaining option shares vesting ratably
monthly thereafter. The Named Executive Officers other than Roger A. Richardson
all purchased restricted shares of SERENA common stock under the 1997 Plan in
fiscal 1998 and were not issued options to purchase SERENA common stock in
fiscal 1999. See "Employment Agreement and Change in Control Arrangements."

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTIONS TERMS
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------
NAME GRANTED FISCAL 1999 SHARE DATE 5% 10%
- ------------------------------------------ ----------- --------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Doerr.......................... -- --% $ -- -- $ -- $ --
Douglas D. Troxel......................... -- -- -- -- -- --
Marianne M. Elkholy....................... -- -- -- -- -- --
Robert I. Pender, Jr...................... -- -- -- -- -- --
Roger A. Richardson....................... 45,000 3.4 1.44 2/1/2008 40,752 103,275
</TABLE>

AGGREGATE OPTION EXERCISES DURING THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

No named Named Executive Officer exercised any stock option during the
fiscal year ended January 31, 1999. The following table sets forth certain
information regarding stock options held as of January 31, 1999 by the Named
Executive Officers. The "Value of Unexercised In-the-Money Options at January
31, 1999" is based upon a value of $13.00 per share, the initial public offering
price, minus the per share exercise price, multiplied by the number of shares
underlying the option. The Named Executive Officers other than Roger A.
Richardson all purchased restricted shares of SERENA common stock under the 1997
Plan in fiscal 1998 and do not hold any options to purchase SERENA common stock.
See "Employment Agreement and Change in Control Arrangements."

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT JANUARY 31, IN-THE-MONEY OPTIONS
1999 AT JANUARY 31, 1999
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard A. Doerr......................................... -- -- $ -- $ --
Douglas D. Troxel........................................ -- -- -- --
Marianne M. Elkholy...................................... -- -- -- --
Robert I. Pender, Jr..................................... -- -- -- --
Roger A. Richardson...................................... 11,250 33,750 130,050 390,150
</TABLE>

57
<PAGE>
INCENTIVE STOCK PLANS

1997 STOCK PLAN. The 1997 Plan was initially adopted by the board of
directors and approved by the stockholders in October 1997. In connection with
this offering, the board of directors approved the amendment and restatement of
the 1997 Plan in November 1998 and the stockholders approved the amendment in
January 1999. The 1997 Plan provides for the grant to employees of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code, or
the Code, and for the grant to employees, directors and consultants of
nonstatutory stock options and stock purchase rights, or SPRs. Unless terminated
sooner, the 1997 Plan will terminate automatically in November 2007. As of
October 31, 1998, a total of 2,153,250 shares of common stock were reserved for
issuance pursuant to the 1997 Plan, of which options to acquire 800,610 shares
were issued and outstanding as of that date. Additionally, 1,896,750 shares had
been previously issued pursuant to SPR's as of such date. As part of the
November 1998 amendment to the 1998 plan, the board of directors approved an
increase of 500,000 shares reserved under the 1997 Plan. The 1997 Plan provides
for annual increases in the number of shares available for issuance thereunder,
on the first day of each fiscal year, effective beginning with fiscal 2001,
equal to the LESSER of:

- 2 1/2% of the outstanding shares of common stock on the last day of
the prior fiscal year OR
- such amount as may be determined by the board

The 1997 Plan may be administered by the board of directors or a committee
of the board, which committee shall, in the case of options intended to qualify
as "performance-based compensation" within the meaning of Section 162(m) of the
Code, consist of two or more "outside directors" within the meaning of Section
162(m) of the Code. The 1997 Plan is presently administered by the board of
directors. The plan administrator has the power to determine the terms of the
options or SPRs granted, including the exercise price, the number of shares
subject to each option or SPR, the exercisability thereof and the form of
consideration payable upon such exercise. In addition, the plan administrator
has the authority to amend, suspend or terminate the 1997 Plan, provided that no
such action may affect any share of common stock previously issued and sold or
any option previously granted under the 1997 Plan.

Options and SPRs granted under the 1997 Plan are not generally transferable
by the optionee, and each option and SPR is exercisable during the lifetime of
the optionee only by such optionee. Options granted under the 1997 Plan must
generally be exercised within three months of the end of optionee's status as an
employee or consultant of SERENA, or within 12 months after such optionee's
termination by death or disability, but in no event later than the expiration of
the option's ten year term. In the case of SPRs, unless the plan administrator
determines otherwise, the restricted stock purchase agreement entered into in
connection with the exercise of the SPR shall grant SERENA a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment with SERENA for any reason (including death or disability). The
purchase price for shares repurchased pursuant to restricted stock purchase
agreements shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to SERENA. The repurchase
option shall lapse at a rate determined by the plan administrator. The exercise
price of all incentive stock options granted under the 1997 Plan must be at
least equal to the fair market value of the common stock on the date of grant.
The exercise price of nonstatutory stock options and SPRs granted under the 1997
Plan is determined by the plan administrator, but with respect to nonstatutory
stock options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the exercise price must at least be equal
to the fair market value of the common stock on the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting power
of all classes of SERENA's outstanding capital stock, the exercise price of any
incentive stock option granted must equal at least 110% of the fair market value
on the grant date and the term of such incentive stock option must not exceed
five years. The term of all other options granted under the 1997 Plan may not
exceed ten years.

The 1997 Plan provides that in the event of a merger or consolidation of
SERENA with or into another corporation, a sale of substantially all of SERENA's
assets or certain other changes in control of SERENA, the optionee shall have
the right to exercise all of the optioned stock, including shares which would
not otherwise be exercisable.

58
<PAGE>
1999 EMPLOYEE STOCK PURCHASE PLAN. SERENA's Purchase Plan was adopted by
the board of directors in November 1998 and approved by the stockholders in
January 1999. The Purchase Plan will become effective simultaneously with the
effectiveness of this offering. A total of 225,000 shares of common stock has
been reserved for issuance under the Purchase Plan. In addition, the Purchase
Plan provides for annual increases in the number of shares available for
issuance under the Purchase Plan on the first day of each fiscal year, beginning
with fiscal 2001, equal to the LESSER of:

- 1% of the outstanding shares of common stock on the last day of the
prior fiscal year OR

- such amount as may be determined by the board

The Purchase Plan, which is intended to qualify under Section 423 of the
Code, contains consecutive, overlapping 24 month offering periods. The offering
periods generally start on the first trading day on or after December 1 and June
1 of each year, except for the first such offering period will commence on the
first trading day on or after the effective date of this offering and will end
on the last trading day on or before November 30, 2000.

Employees are eligible to participate if they are customarily employed by
SERENA or any participating subsidiary for at least 20 hours per week and more
than five months in any calendar year. However, an employee may not be granted
an option to purchase stock under the Purchase Plan if such an employee is an
individual:

- who immediately after grant owns stock possessing 5% or more of the
total

combined voting power or value of all classes of the capital stock of
SERENA OR

- whose rights to purchase stock under all employee stock purchase plans
of

SERENA accrues at a rate which exceeds $25,000 worth of stock for
each calendar year

The Purchase Plan permits participants to purchase common stock through
payroll deductions of up to 10% of the participant's "compensation."
Compensation is defined as the participant's base straight time gross earnings,
bonuses and commissions but excludes payments for overtime, profit sharing
payments, shift premium payments, incentive compensation and incentive payments.
The maximum number of shares a participant may purchase during a single offering
period is 25,000 shares.

Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the Purchase Plan is 85% of the lower of the fair market value
of the common stock at the beginning or end of the offering period. Participants
may end their participation at any time during an offering period, and they will
be paid their payroll deductions to date. Participation ends automatically upon
termination of employment with SERENA.

Rights granted under the Purchase Plan are not transferable by a participant
other than by will, the laws of descent and distribution or as otherwise
provided under the Purchase Plan. The Purchase Plan provides that, in the event
of a merger of SERENA with or into another corporation or a sale of
substantially all of SERENA's assets, each outstanding option may be assumed or
substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering period
then in progress will be shortened, and a new exercise date will be set. The
1999 Purchase Plan has a term of ten years. However, the board of directors has
the authority to amend or terminate the Purchase Plan, except that, subject to
certain exceptions described in the Purchase Plan, no such action may adversely
affect any outstanding rights to purchase stock under the Purchase Plan.

1999 DIRECTOR OPTION PLAN. Non-employee directors are entitled to
participate in the Director Plan. The Director Plan was adopted by the board of
directors in November 1998 and approved by the stockholders in January 1999, but
it will not become effective until the date of this offering. The Director Plan
has a term of ten years, unless terminated sooner by the board. A total of
150,000 shares of common stock have been reserved for issuance under the
Director Plan. In addition, the Director Plan provides for an annual increase,
on the first day of each fiscal year, beginning with fiscal 2001, equal to the
LESSER of:

- 1/2% of the outstanding shares of common stock on the last day of the
prior fiscal year OR

- such amount as may be determined by the board

59
<PAGE>
The Director Plan provides for the automatic grant of 25,000 shares of
common stock to each non-employee director at the time he or she is first
elected to the Board of Directors. He or she shall automatically be granted a
subsequent option to purchase 5,000 shares on the first day of each fiscal year,
if on such date he or she shall have served on the board for at least six
months. Each option grant under the Director Plan shall have a term of 10 years
and the shares subject to the option shall vest over four years, with one
quarter of the shares subject to option vesting after one year and the remaining
shares vesting ratably in monthly installments thereafter. The exercise price of
all options shall be 100% of the fair market value per share of the common
stock, generally determined with reference to the closing price of the common
stock as reported on the Nasdaq National Market on the date of grant.

In the event of a merger of SERENA or the sale of substantially all of the
assets of SERENA, each option shall become fully vested and exercisable for a
period of 30 days from the date the board notifies the optionee of the option's
full exercisability, after which period the option shall terminate. Options
granted under the Director Plan must be exercised within three months of the end
of the optionee's tenure as a director of SERENA, or within 12 months after such
director's termination by death or disability, but in no event later than the
expiration of the option's ten year term. No option granted under the Director
Plan is transferable by the optionee other than by will or the laws of descent
and distribution, and each option is exercisable, during the lifetime of the
optionee, only by such optionee.

401(k) PLAN. SERENA has adopted a tax-qualified employee savings and
retirement plan, the 401(k) Plan, for eligible U.S. employees. Eligible
employees may elect to defer a percentage of their eligible compensation in the
401(k) Plan, subject to the statutorily prescribed annual limit. We may make
matching contributions on behalf of all participants in the 401(k) Plan in an
amount determined by our board of directors. We may also make additional
discretionary profit sharing contributions in such amounts as determined by the
board of directors, subject to statutory limitations. Matching and
profit-sharing contributions, if any, are subject to a vesting schedule; all
other contributions are at all times fully vested. The 401(k) Plan, and the
accompanying trust, is intended to qualify under Sections 401(k) and 501 of the
Code so that contributions by employees or by SERENA to the 401(k) Plan, and
income earned (if any) on plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by SERENA, if any,
will be deductible by SERENA when made. The trustee under the 401(k) Plan, at
the direction of each participant, invests the assets of the 401(k) Plan in any
of a number of investment options.

EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS

On April 21, 1997, SERENA entered into an at-will employment agreement with
Richard A. Doerr, our President, Chief Executive Officer and a member of
SERENA's board of directors. The employment agreement provides for Mr. Doerr to
receive an annual base salary of $200,000, subject to annual review for
increases, and an annual cash bonus based on the achievement of individual and
company performance objectives. In the event Mr. Doerr is terminated without
cause, Mr. Doerr will be entitled to receive severance payments equal to six
month's base salary. Pursuant to the employment agreement, in January 1998, Mr.
Doerr and SERENA entered into a restricted stock purchase agreement under which
Mr. Doerr purchased 1,334,250 shares of SERENA's common stock under the 1997
Plan at a purchase price of $1.00 per share. Mr. Doerr paid the purchase price
for his restricted shares in the form of a full recourse promissory note secured
by the purchased common stock. The promissory note bears interest at an annual
rate of 5.9%. SERENA holds a repurchase option on the unvested shares should Mr.
Doerr terminate his employment with SERENA. This repurchase right lapses with
respect to one third of the shares subject to the agreement on the first year
anniversary of Mr. Doerr's initial employment and lapses with respect to the
remaining shares on a monthly basis over the succeeding two years. In the event
of a change in control transaction, SERENA's right to repurchase any unvested
shares will lapse.

SERENA and Douglas D. Troxel, SERENA's founder, Chief Technology Officer and
the Chairman of the board of directors, are parties to an employment agreement
that automatically renews each June unless Mr. Troxel is terminated for cause.

60
<PAGE>
In January 1998, Marianne M. Elkholy, our Vice President, Worldwide
Marketing, and Robert I. Pender, Jr., our Vice President, Finance and
Administration, Chief Financial Officer and Secretary, each purchased 184,500
shares of common stock at a purchase price of $1.00 per share under restricted
stock purchase agreements. Both paid the purchase price for his or her shares in
the form of full recourse promissory notes secured by the purchased common
stock. These promissory notes bear interest at the annual rate of 5.9%. SERENA
holds a repurchase option on unvested shares should the individual executive
officers terminate their relationship with SERENA. This repurchase right lapses
with respect to one quarter of the shares subject to the agreements on the first
anniversary of their hire date, and the remaining shares vest ratably on a
monthly basis over the succeeding three years. In the event of a change in
control transaction, SERENA's right to repurchase unvested shares will lapse.

In February 1998, in connection with his initial employment with SERENA,
Roger A. Richardson, our Vice President, International Operations, was granted
an option to purchase 45,000 shares of SERENA common stock at an exercise price
per share of $1.44 under the 1997 Plan. The option shares vest over four years
with 25% of the shares vesting on the one year anniversary of the grant and the
remaining shares vesting ratably monthly thereafter. Under the 1997 Plan, in the
event of a change of control transaction, vesting of options and restricted
stock issued under the 1997 Plan will automatically accelerate such that options
will become fully exercisable, including with respect to shares for such options
which would otherwise be unvested, and any outstanding repurchase options
relating to restricted stock will lapse. See "Stock Plans--1997 Stock Plan."

LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION

Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for any of the
following acts:

- any breach of their duty of loyalty to the corporation or its
stockholders

- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law

- unlawful payments of dividends or unlawful stock repurchases or
redemptions

- any transaction from which the director derived an improper personal
benefit

Such limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

SERENA's Certificate of Incorporation and Bylaws provide that we will
indemnify our directors and executive officers and may indemnify our other
corporate agents to the fullest extent permitted by law. We believe that
indemnification under our Bylaws covers at least negligence and gross negligence
on the part of indemnified parties. Our Bylaws also permit us to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the Bylaws would permit indemnification.

We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in SERENA's Bylaws.
These agreements, among other things, provide for indemnification of SERENA's
directors and executive officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in the right of SERENA,
arising out of such person's services as a director or executive officer of
SERENA, any subsidiary of SERENA or any other company or enterprise to which the
person provided services at the request of SERENA. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.

61
<PAGE>
CERTAIN TRANSACTIONS

Pursuant to an Agreement and Plan of Reorganization dated as of September
23, 1998, SERENA acquired Optima. In connection with the acquisition, SERENA
issued 3,187,500 shares of common stock, for an aggregate consideration of
$21,420,000, in exchange for all of Optima's issued and outstanding common
stock. The terms of our acquisition of Optima, including the aggregate
consideration paid, were determined by negotiations among the Chief Executive
and Chief Financial Officers of SERENA and the Chief Executive Officer and Chief
Financial Officer of Optima, with the companies' respective financial and
accounting advisors. The Chief Executive and Chief Financial Officer of Optima
collectively held 85% of the outstanding shares of Optima common stock prior to
the acquisition. The number of shares issued in connection with the Optima
acquisition was determined based upon the current and anticipated financial
performance of Optima and its perceived value relative to SERENA's business. The
number of shares of SERENA common stock issued in the acquisition was based on
the percentage ownership of SERENA common stock issued in the acquisition by the
former Optima shareholders on a post-acquisition basis, and was not based on a
specific dollar value. After the principal terms of the acquisition were agreed
to, including the number of shares to be issued in the transaction, our board of
directors determined a fair market value for the shares of SERENA common stock
mainly for accounting purposes. In connection with such valuation, SERENA
retained an independent appraiser. The per share "fair market" valuation for
SERENA common stock issued in the acquisition was determined to be $6.72.
Douglas D. Troxel, SERENA's founder, Chief Technology Officer and the Chairman
of SERENA's board of directors, held 15% of the outstanding shares of Optima
prior to the acquisition. Mr. Troxel did not participate at all in the
negotiations regarding the Optima acquisition. Pursuant to the acquisition, Mr.
Troxel was issued 478,125 shares of SERENA common stock for an aggregate
consideration of $3,213,000. Donald A. Murphy, who served as President and Chief
Executive Officer of Optima and held 70% of Optima's common stock prior to the
acquisition, was issued, 2,231,250 shares of SERENA common stock in the name of
the Murphy Family Trust for an aggregate consideration of $14,994,000. By virtue
of the Optima acquisition, Mr. Murphy and the Murphy Family Trust became
beneficial owners of more than 5% of SERENA's outstanding common stock. Of the
2,231,250 shares of SERENA common stock issued to the Murphy Family Trust,
367,500 shares are subject to an escrow arrangement in favor of SERENA to
satisfy any breaches of representations and warranties made by Optima or certain
of its shareholders under the acquisition agreement. The escrow terminates in
March 2000.

Prior to our acquisition of Optima in September 1998, Optima was the primary
distributor of our flagship CHANGE MAN product for over ten years. Pursuant to a
distribution agreement between Optima and SERENA, Optima, or its
subdistributors, licensed and sold maintenance contracts for CHANGE MAN to end-
user customers. For fiscal 1995, 1996 and 1997, and the six months ended June
30, 1998, Optima recorded an aggregate of $7,076,889, $11,007,066, $16,946,652
and $9,185,549, respectively, in software license revenue and maintenance
revenue from transactions related to licenses of and maintenance agreements for
CHANGE MAN. We were entitled to sublicense fees of 40% and 75% based upon
Optima's initial sales of software licenses and maintenance renewal agreements,
respectively. For the years ended December 31, 1995, 1996, and 1997, Optima's
royalty expenses were $3,809,276, $5,856,783, and $8,972,882, respectively. Mr.
Troxel and Mr. Murphy held 15% and 70%, respectively, of the outstanding shares
of common stock of Optima prior to the acquisition.

In March 1996, SERENA made an unsecured loan in the principal amount of
$250,000 to Mr. Troxel. The loan accrued interest at the rate of 10.0% per year
and was repaid in full in October 1998. In November 1996, SERENA made an
additional loan of $500,000 to Mr. Troxel. The loan accrued interest at a rate
of 10% and was repaid in full in July 1997. In July 1998, SERENA made an
additional loan to Mr. Troxel in the principal amount of $600,000. The loan is
secured by shares of SERENA common stock held by Mr. Troxel. The loan accrues
interest at the rate of 5.56% per year. The principal and accrued interest on
the note are due and payable in three equal installments of $222,641. Each
installment is to be paid on the annual anniversary of the funding of the loan.
Mr. Troxel's loan will become due and payable

62
<PAGE>
270 days after the closing of SERENA's initial public offering of its common
stock to the extent of any proceeds Mr. Troxel receives as a selling stockholder
in the offering, up to the full amount of principal and interest then
outstanding.

SERENA has entered into employment agreements with Richard A. Doerr,
SERENA's President and Chief Executive Officer and a member of SERENA's board of
directors, and Mr. Troxel. In addition, SERENA is a party to restricted stock
agreements with certain of its executive officers pursuant to which the officers
of SERENA purchased an aggregate of 1,840,500 shares of our common stock under
the 1997 Plan in consideration of the delivery of full recourse promissory notes
to SERENA by such officers which notes are secured by the purchased shares. See
"Management--Employment Agreements and Change in Control Arrangements."

In connection with his appointment to our board of directors, Alan H. Hunt
entered into a restricted stock purchase agreement with SERENA in April 1998 to
purchase 56,250 shares of common stock at a per share purchase price of $1.44.
Mr. Hunt paid the purchase price of $81,000 for these shares in the form of a
full recourse promissory note secured by the purchased common stock. The
promissory note bears interest at an annual rate of 5.9%. SERENA holds a
repurchase option on any unvested shares that becomes exercisable in the event
Mr. Hunt ceases to be a member of our board of directors. The repurchase right
lapses with respect to one quarter of the shares on the first anniversary of the
purchase date and with respect to the remaining shares, ratably monthly
thereafter. In the event of a change in control transaction, SERENA's right to
repurchase the unvested shares shall lapse.

In December 1998, in connection with his appointment to our board of
directors, SERENA granted Jerry T. Ungerman an option to purchase up to an
aggregate of 25,000 shares of common stock at a purchase price of $9.00 per
share under the 1997 Plan. One quarter of the option shares vest on the first
anniversary of Mr. Ungerman's membership on the board of directors and the
remaining option shares vest ratably in monthly installments thereafter.

In March 1997, in connection with Athena P. Troxel's resignation of her
position as SERENA's Chief Financial Officer and Corporate Secretary, SERENA
repurchased 630,000 shares of common stock from Ms. Troxel for an aggregate
purchase price of $700,000. The terms of the repurchase were determined in an
arm's length transaction and the parties relied, in part, on the advice of an
independent appraiser in establishing the repurchase price for the SERENA
shares. Prior to the completion of this offering, Ms. Troxel continued to hold
more than five percent of the outstanding shares of SERENA's common stock. Ms.
Troxel was formerly married to Douglas D. Troxel, SERENA's founder, Chief
Technology Officer and Chairman of the board of directors.

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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of SERENA's common stock as of October 31, 1998 by the following
individuals or groups:

- - each person or entity who is known by us to own beneficially more than 5% of
SERENA's outstanding common stock

- - each of the Named Executive Officers

- - each director of SERENA

- - all directors and executive officers
as a group

- - all other selling stockholders

The address for each holder of more than 5% of SERENA's common stock is c/o
SERENA Software, Inc., 500 Airport Boulevard, 2(nd) Floor, Burlingame,
California 94010-1904. Except as otherwise indicated, and subject to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock held by them.
Applicable percentage ownership in the following table is based on 20,204,250
shares of common stock outstanding as of October 31, 1998 and 24,204,250 shares
immediately following the completion of this offering. To the extent that any
shares are issued upon exercise of options, warrants or other rights to acquire
SERENA's capital stock that are presently outstanding or granted in the future
or reserved for future issuance under SERENA's stock plans, there will be
further dilution to new public investors.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED
OFFERING NUMBER OF AFTER OFFERING
------------------- SHARES BEING -------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------- ---------- ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
Murphy Family Trust (1).......... 2,231,250 11.0% 1,070,588 1,160,662 4.8%

EXECUTIVE OFFICERS AND DIRECTORS
Douglas D. Troxel (2)............ 14,086,125 69.7 200,000 13,886,125 57.4
Richard A. Doerr (3)............. 1,334,250 6.6 -- 1,334,250 5.5
Marianne M. Elkholy (4).......... 184,500 * -- 184,500 *
Robert I. Pender, Jr. (5)........ 184,500 * -- 184,500 *
Roger A. Richardson (6).......... -- * -- -- *
Alan H. Hunt (7)................. 56,250 * -- 56,250 *
Jerry T. Ungerman (8)............ -- -- -- -- --
All directors and executive
officers as a group (12
persons)....................... 15,982,875 79.1 200,000 15,782,875 65.2

OTHER SELLING STOCKHOLDERS
- -----------------------------------
Roseann P. Geyer (9)............. 478,125 2.4 229,412 248,713 1.0
Athena Troxel.................... 1,512,000 7.5 500,000 1,012,000 4.2
</TABLE>

- ------------------------------

* Less than 1%

(1) Includes 367,500 shares of common stock that are subject to an escrow in
favor of SERENA to satisfy any breaches of representations and warranties
made by Optima or certain of its shareholders in connection with SERENA's
September 1998 acquisition of Optima. Such escrow will expire in March 2000.
Donald A. Murphy and Pamela J. Murphy are trustees for the Murphy Family
Trust. See "Certain Transactions."

(2) Includes 12,258,000 shares of common stock held by Mr. Troxel as trustee of
the Troxel Living Trust and 1,350,000 shares of common stock held by Mr.
Troxel as a general partner for Troxel Investments, L.P. Mr. Troxel is
SERENA's founder, Chief Technology Officer and Chairman of the board of
directors.

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<PAGE>
(3) Includes 1,334,250 shares of common stock subject to a restricted purchase
stock agreement, of which 667,125 shares were unvested and subject to
SERENA's repurchase option as of October 31, 1998 should Mr. Doerr's
employment with SERENA terminate. Mr. Doerr is SERENA's President and Chief
Executive Officer and a member of the board of Directors. See
"Management--Employment Agreements and Change in Control Arrangements."

(4) Includes 184,500 shares of common stock subject to a restricted stock
purchase agreement, of which 134,531 shares were unvested and subject to
SERENA's repurchase option as of October 31, 1998 should Ms. Elkholy's
employment with SERENA terminate. Ms. Elkholy is SERENA's Vice President,
Worldwide Marketing. See "Management--Employment Agreements and Change in
Control Arrangements."

(5) Includes 184,500 shares of common stock subject to a restricted stock
purchase agreement, all of which were unvested and subject to SERENA's
repurchase option as of October 31, 1998 should Mr. Pender's employment with
SERENA terminate. Mr. Pender is SERENA's Vice President, Finance and
Administration, Chief Financial Officer and Secretary. See
"Management--Employment Agreements and Change in Control Arrangements."

(6) Mr. Richardson is SERENA's Vice President, International Operations.

(7) Includes 56,250 shares of common stock subject to a restricted purchase
stock agreement, all of which are unvested and subject to SERENA's
repurchase option as of October 31, 1998 should Mr. Hunt's membership on
SERENA's board of directors terminate. See "Management--Employment
Agreements and Change in Control Arrangements."

(8) Mr. Ungerman became a member of SERENA's board of directors in December
1998.

(9) Includes 78,750 shares of common stock that are subject to an escrow in
favor of SERENA to satisfy any breaches of representations and warranties of
Optima or certain of its shareholders made in connection with SERENA's
September 1998 acquisition of Optima. Such escrow will expire in March 2000.

65
<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

Upon the completion of this offering, SERENA will be authorized to issue
60,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value. Immediately after the completion
of this offering, we estimate that there will be an aggregate of 24,204,250
shares of common stock outstanding and no shares of preferred stock will be
issued and outstanding. In addition, based on options outstanding as of October
31, 1998, 800,610 shares of common stock will be issuable upon exercise of
outstanding options upon completion of the offering.

The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our Amended and
Restated Certificate of Incorporation and Bylaws and by the provisions of
applicable Delaware law.

The Amended and Restated Certificate of Incorporation and Bylaws contain
certain provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the board of directors and which may have the
effect of delaying, deferring, or preventing a future takeover or change in
control of SERENA unless such takeover or change in control is approved by the
board of directors.

COMMON STOCK

As of October 31, 1998, there were 20,204,250 shares of common stock
outstanding which were held by nine stockholders. Holders of common stock are
entitled to one vote per share on all matters to be voted upon by the
stockholders and do not have cumulative voting rights. Therefore, holders of a
majority of the shares voting for the election of directors will be able to
elect all of the directors. In such event, the holders of the remaining shares
will not be able to elect any directors.

Holders of common stock are entitled to receive such dividends as may be
declared from time to time by the board of directors out of funds legally
available for the payment of dividends, subject to the terms of any existing or
future agreements between SERENA and our debtholders. We have never declared or
paid cash dividends on our capital stock, expect to retain future earnings, if
any, for use in the operation and expansion of our business, and do not
anticipate paying any cash dividends in the foreseeable future. In the event of
the liquidation, dissolution or winding up of SERENA, the holders of common
stock are entitled to share ratably in all assets legally available for
distribution after payment of all debts and other liabilities and subject to the
prior rights of any holders of preferred stock then outstanding.

PREFERRED STOCK

Effective upon the closing of this offering, SERENA will be authorized to
issue 5,000,000 shares of undesignated preferred stock. The board of directors
has the authority to issue the preferred stock in one or more series and to fix
the price, rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting a series or the designation of such series, without any further
vote or action by SERENA's stockholders. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of SERENA without further action by the
stockholders and may adversely affect the market price of, and the voting and
other rights of, the holders of common stock. The issuance of preferred stock
with voting and conversion rights may adversely affect the voting power of the
holders of common stock, including the loss of voting control to others. SERENA
has no current plans to issue any shares of preferred stock.

REGISTRATION RIGHTS

In connection with SERENA's September 1998 acquisition of Optima, we entered
into a registration rights agreement with certain shareholders of Optima who
received an aggregate of 2,709,375 shares of common stock of SERENA in exchange
for their shares of Optima common stock. Pursuant to the registration rights
agreement, such stockholders are entitled to certain rights with respect to the
registration of such shares under the Securities Act. If we propose to register
any of our securities under the Securities Act, either for our own account or
for the account of other security holders, such stockholders are entitled

66
<PAGE>
to notice of such registration and to include shares of common stock in such
registration at our expense. Additionally, such stockholders may require SERENA
to file additional registration statements on Form S-3 at SERENA's expense. All
of these registration rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in such registration.

ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS

Under Delaware law, all stockholder actions must be effected at a duly
called annual or special meeting or by written consent. Our Bylaws provide that,
except as otherwise required by law, special meetings of the stockholders can
only be called by the board of directors, the Chairman of the board of
directors, the Chief Executive Officer of SERENA or stockholders holding shares
in the aggregate entitled to cast not less than 10% of the votes at such
meeting. In addition, our Bylaws establish an advance notice procedure for
stockholder proposals to be brought before an annual meeting of stockholders,
including proposed nominations of persons for election to the board.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the board of directors or by a stockholder who was a stockholder of
record on the record date for the meeting, who is entitled to vote at the
meeting and who has delivered timely written notice in proper form to SERENA's
Secretary of the stockholder's intention to bring such business before the
meeting.

These provisions of our Amended and Restated Certificate of Incorporation
and Bylaws are intended to enhance the likelihood of continuity and stability in
the composition of the board of directors and in the policies formulated by the
board of directors and to discourage certain types of transactions which may
involve an actual or threatened change of control of SERENA. Such provisions are
designed to reduce the vulnerability of SERENA to an unsolicited acquisition
proposal and, accordingly, could discourage potential acquisition proposals and
could delay or prevent a change in control of SERENA. Such provisions are also
intended to discourage certain tactics that may be used in proxy fights but
could, however, have the effect of discouraging others from making tender offers
for our shares and, consequently, may also inhibit fluctuations in the market
price of our shares that could result from actual or rumored takeover attempts.
These provisions may also have the effect of preventing changes in the
management of SERENA. See "Risk Factors--Certain Provisions in Our Charter
Documents May Inhibit Potential Acquisition Bids for SERENA; This May Adversely
Affect the Market Price for SERENA Common Stock and Prevent Changes in the
Management of SERENA."

EFFECT OF DELAWARE ANTITAKEOVER STATUTE

We are subject to Section 203 of the Delaware General Corporation Law, or
the Antitakeover Law, which regulates corporate acquisitions. The Antitakeover
Law prevents certain Delaware corporations, including those whose securities are
listed for trading on the Nasdaq National Market, from engaging, under certain
circumstances in a "business combination" with any "interested stockholder" for
three years following the date that such stockholder became an interested
stockholder. For purposes of the Antitakeover Law, a "business combination"
includes, among other things, a merger or consolidation involving SERENA and the
interested stockholder and the sale of more than ten percent (10%) of SERENA's
assets. In general, the Antitakeover Law defines an "interested stockholder" as
any entity or person beneficially owning 15% or more the outstanding voting
stock of SERENA and any entity or person affiliated with or controlling or
controlled by such entity or person. A Delaware corporation may "opt out" of the
Antitakeover Law with an express provision in its original certificate of
incorporation or an express provision in its certificate of incorporation or
bylaws resulting from amendments approved by the holders of at least a majority
of the corporation's outstanding voting shares. We have not "opted out" of the
provisions of the Antitakeover Law. See "Risk Factors--Delaware Law May Inhibit
Potential Acquisition Bids for SERENA; This May Adversely Affect the Market
Price for SERENA Common Stock and Prevent Changes in the Management of SERENA."

TRANSFER AGENT

The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services, LLC.

67
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, SERENA will have outstanding 24,204,250
shares of common stock based upon shares outstanding at October 31, 1998
(assuming no exercise of the underwriters' over-allotment option). Excluding the
6,000,000 shares of common stock offered hereby and assuming no exercise of the
underwriters' over-allotment option, as of the effective date of the
registration statement, there will be 18,204,250 shares of common stock
outstanding, all of which are "restricted" shares under the Securities Act. All
restricted shares are subject to lock-up agreements with the underwriters
pursuant to which the holders of the restricted shares have agreed not to sell,
pledge or otherwise dispose of such shares for a period of 180 days after the
date of this prospectus. Hambrecht & Quist LLC may release the shares subject to
the lock-up agreements in whole or in part at any time with or without notice.
However, Hambrecht & Quist LLC has no current plans to do so.

The following table indicates approximately when the 18,204,250 shares of
SERENA common stock that are not being sold in the offering but which will be
outstanding at the time the offering is complete will be eligible for sale into
the public market:

<TABLE>
<S> <C>
-----------------------------------------------------------------
ELIGIBILITY OF RESTRICTED SHARES
FOR SALE IN PUBLIC MARKET
- -----------------------------------------------------------------
At effective date 0
- -----------------------------------------------------------------
180 days after effective date 16,516,750
- -----------------------------------------------------------------
After 180 days post-effective date 1,687,500
- -----------------------------------------------------------------
</TABLE>

Most of the restricted shares that will become available for sale in the
public market beginning 180 days after the effective date will be subject to
certain volume and other resale restrictions pursuant to Rule 144 because the
holders are affiliates of SERENA. The 1,687,500 restricted shares that will
become eligible for sale only after the 180th day were issued in connection with
our September 1998 acquisition of Optima and will become available for sale
beginning in September 1999 pursuant to Rule 144. The general provisions of Rule
144 are described below.

In general, under Rule 144, an affiliate of SERENA, or person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least one year, will be entitled to sell in any three-month period a number of
shares that does not exceed the GREATER of

- 1% of the then outstanding shares of the common stock (approximately
242,000 shares immediately after this offering) OR

- the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC.

Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about
SERENA. A person (or persons whose shares are aggregated) who is not deemed to
have been an affiliate of SERENA at any time during the 90 days immediately
preceding the sale and who has beneficially owned his or her shares for at least
two years is entitled to sell such shares pursuant to Rule 144(k) without regard
to the limitations described above.

In addition to the restriction imposed by the securities laws, 1,896,750 of
the restricted shares were issued to certain officers and directors of SERENA
pursuant to restricted stock agreements under the 1997 Plan. Pursuant to the
provisions of these agreements, SERENA has a repurchase option on any unvested
shares. SERENA's repurchase option with respect to such shares lapses ratably
over time. At the 180th day after the effective date, approximately 782,391 of
those shares will remain subject to the repurchase option.

As of October 31, 1998, 2,153,250 shares were reserved for issuance under
the 1997 Plan, of which options to purchase 800,610 shares were then outstanding
although none of these options were then exercisable. Beginning 180 days after
the effective date, approximately 253,267 shares issuable upon the exercise of
vested options will become eligible for sale and 1,114,359 shares issued
pursuant to restricted

68
<PAGE>
stock agreements under the 1997 Plan will no longer be subject to a repurchase
option and will be eligible for resale. In addition, an aggregate of 1,896,750
restricted shares have been issued to certain executive officers and directors
of SERENA under the 1997 Plan pursuant to the restricted stock agreements
described above.

In November 1998, our board of directors approved:

- an increase of 500,000 shares in the number of shares reserved under
the 1997 Plan

- a reserve of 150,000 shares for options under the Director Plan

- a reserve of 225,000 shares for options under the Purchase Plan

We intend to file, within 180 days after the date of this prospectus, a Form
S-8/S-3 registration statement under the Securities Act to register shares
issued pursuant to restricted stock purchase agreements under the 1997 Plan,
shares issued in connection with option exercises and shares reserved for
issuance under all stock plans. Shares of common stock issued pursuant to the
restricted stock agreements under the 1997 Plan or upon exercise of options
after the effective date of the Form S-8/S-3 will be available for sale in the
public market, subject to Rule 144 volume limitations applicable to affiliates
and lock-up agreements.

LOCK-UP AGREEMENTS

All officers and directors and certain holders of common stock and options
to purchase common stock have agreed pursuant to certain "lock-up" agreements
that they will not offer, sell, contract to sell, pledge, grant any option to
sell, or otherwise dispose of, directly or indirectly, any shares of common
stock or securities convertible or exchangeable for common stock, or warrants or
other rights to purchase common stock for a period of 180 days after the date of
this prospectus without the prior written consent of Hambrecht & Quist LLC.

69
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC,
SG Cowen Securities Corporation, and SoundView Technology Group, Inc., have
severally agreed to purchase from SERENA and the selling stockholders the
following respective numbers of shares of common stock.

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------ -------------
<S> <C>
Hambrecht & Quist LLC....................................... 2,100,000
SG Cowen Securities Corporation............................. 1,260,000
SoundView Technology Group, Inc............................. 840,000
BT Alex. Brown Incorporated................................. 180,000
CIBC Oppenheimer Corp....................................... 180,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 180,000
Charles Schwab & Co., Inc................................... 180,000
Salomon Smith Barney Inc.................................... 180,000
Adams Harkness & Hill, Inc.................................. 90,000
Dain Rauscher Wessels....................................... 90,000
First Albany Corporation.................................... 90,000
Gruntal & Co................................................ 90,000
Laidlaw Global Securities, Inc.............................. 90,000
Raymond James & Associates Inc.............................. 90,000
Sanders Morris Mundy Inc.................................... 90,000
Tucker Anthony Incorporated................................. 90,000
C.E. Unterberg, Towbin...................................... 90,000
Van Kasper & Company........................................ 90,000
-------------
Total....................................................... 6,000,000
-------------
-------------
</TABLE>

The Underwriting Agreement provides that the obligations of the underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in SERENA's business and the receipt of certain
certificates, opinions and letters from SERENA and the selling stockholders,
their counsel and the independent auditors. The nature of the underwriters'
obligation is such that they are committed to purchase all shares of common
stock offered hereby if any of the shares are purchased.

The underwriters propose to offer the shares of common stock directly to the
public at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $0.55 per share. The underwriters may allow and such dealers may reallow a
concession not in excess of $0.10 per share to certain other dealers. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the underwriters.

SERENA has granted to the underwriters an option, exercisable no later than
30 days after the date of this prospectus, to purchase up to 900,000 additional
shares of common stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of common stock to be purchased by it shown in the
above table bears to the total number of shares of common stock offered hereby.
SERENA will be obligated, pursuant to the option, to sell shares to the
underwriters to the extent the option is exercised. The underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of common stock offered hereby.

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<PAGE>
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

SERENA and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the underwriters may be required
to make in respect thereof.

SERENA, the selling stockholders, and the other stockholders of SERENA,
including executive officers and directors, who will own in the aggregate
18,204,250 shares of common stock after the offering have agreed that they will
not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of common stock, options or warrants to acquire
shares of common stock or securities exchangeable for or convertible into shares
of common stock owned by them during the 180-day period following the date of
this prospectus. SERENA has agreed that it will not, without the prior written
consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares
of common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock during
the 180-day period following the date of this prospectus, except that SERENA may
issue shares upon the exercise of options granted prior to the date hereof, and
may grant additional options under its stock option plans, provided that,
without the prior written consent of Hambrecht & Quist LLC, such additional
options shall not be exercisable during such period.

Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq National Market, in the over-the counter market or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.

Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock was determined by
negotiations among SERENA, the selling stockholders and the representatives.
Among the factors considered in determining the initial public offering price
were prevailing market and economic conditions, revenues and earnings of SERENA,
market valuations of other companies engaged in activities similar to SERENA,
estimates of the business potential and prospects of SERENA, the present state
of SERENA's business operations, SERENA's management and other factors deemed
relevant.

71
<PAGE>
LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for
SERENA by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters will be passed upon for the underwriters by
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California.

EXPERTS

The consolidated financial statements and schedule of SERENA Software, Inc.
as of January 31, 1997 and 1998 and October 31, 1998, and for each of the years
in the three-year period ended January 31, 1998, and the nine months ended
October 31, 1998, and the financial statements of Optima Software, Inc. as of
December 31, 1996 and 1997, and for each of the years in the three-year period
ended December 31, 1997, included herein and in the registration statement are
included in reliance upon the reports of KPMG LLP, independent auditors,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

CHANGE IN AUDITORS

PricewaterhouseCoopers LLP was previously the principal accountants for
SERENA. On March 15, 1998, PricewaterhouseCoopers LLP was dismissed as principal
accountants and KPMG LLP was engaged to audit SERENA's and its subsidiaries'
consolidated financial statements. The Board of Directors has approved the
appointment of KPMG LLP as principal accountants for SERENA.

In connection with the audit for the fiscal year ended January 31, 1997 and
the subsequent interim period through March 15, 1998, there were no
disagreements with PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement.

The audit report of PricewaterhouseCoopers LLP on the consolidated financial
statements of SERENA and our subsidiaries as of and for the year ended January
31, 1997 did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope, or accounting
principles.

ADDITIONAL SERENA INFORMATION

We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock offered hereby. This prospectus, which constitutes a part of
the registration statement, does not contain all of the information set forth in
the registration statement or the exhibits and schedules which are part of the
registration statement. For further information with respect to SERENA and the
common stock, reference is made to the registration statement and the exhibits
and schedules thereto. You may read and copy any document we file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information about
the public reference rooms. Our SEC filings are also available to the public
from our Web site at http://www.serena.com or the SEC's Web site at
http://www.sec.gov. Information contained on SERENA's Web site does not
constitute part of this prospectus.

Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms, our Web site and the Web site of the SEC referred to above.

72
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SERENA SOFTWARE, INC. CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report....................................................... F-2
Consolidated Balance Sheets........................................................ F-3
Consolidated Statements of Income.................................................. F-4
Consolidated Statements of Stockholders' Equity.................................... F-5
Consolidated Statements of Cash Flows.............................................. F-6
Notes to Consolidated Financial Statements......................................... F-7

OPTIMA SOFTWARE, INC. FINANCIAL STATEMENTS
Independent Auditors' Report....................................................... F-20
Balance Sheets..................................................................... F-21
Statements of Income and Retained Earnings......................................... F-22
Statements of Cash Flows........................................................... F-23
Notes to Financial Statements...................................................... F-24

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Combined Statement of Income......................... F-30
Notes to Unaudited Pro Forma Condensed Combined Financial Statements of Income..... F-32
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders

SERENA Software, Inc.

We have audited the accompanying consolidated balance sheets of SERENA
Software, Inc. and subsidiaries as of January 31, 1997 and 1998 and October 31,
1998, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the years in the three-year period ended January 31,
1998 and the nine month period ended October 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SERENA
Software, Inc. and its subsidiaries as of January 31, 1997 and 1998 and October
31, 1998, and the results of their operations and their cash flows for each of
the years in the three-year period ended January 31, 1998 and the nine month
period ended October 31, 1998, in conformity with generally accepted accounting
principles.

KPMG LLP

Mountain View, California
December 18, 1998, except as to Note 4(b),
which is as of January 5, 1999

F-2
<PAGE>
SERENA SOFTWARE, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JANUARY 31,
----------------------- OCTOBER 31,
1997 1998 1998
---------- ----------- ------------
<S> <C> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents................................. $4,030,890 $ 9,024,015 $16,878,350
Accounts receivable, net of allowance of $30,000, $197,000
and $281,000, in fiscal 1997, 1998 and 1999,
respectively............................................ 2,543,806 8,964,905 10,565,121
Due from principal stockholder............................ 609,381 81,265 199,129
Prepaid expenses and other current assets................. 340,616 738,055 742,440
---------- ----------- ------------
Total current assets.................................... 7,524,693 18,808,240 28,385,040
Property and equipment, net................................. 1,311,168 1,389,843 1,814,174
Due from principal stockholder.............................. 174,471 108,640 409,250
Intangible assets, net...................................... -- -- 21,485,541
Other assets................................................ 222,679 259,798 344,371
---------- ----------- ------------
$9,233,011 $20,566,521 $52,438,376
---------- ----------- ------------
---------- ----------- ------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable.......................................... $ 258,417 $ 455,015 $ 239,051
Income taxes payable...................................... 142,297 707,934 544,438
Accrued expenses.......................................... 1,891,219 4,567,009 5,294,466
Deferred revenue.......................................... 4,614,699 6,136,460 9,422,588
---------- ----------- ------------
Total current liabilities............................... 6,906,632 11,866,418 15,500,543
Deferred revenue, net of current portion.................... 280,565 1,715,349 2,056,323
---------- ----------- ------------
Total liabilities....................................... 7,187,197 13,581,767 17,556,866
---------- ----------- ------------
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; 15,750,000, 16,960,500 and 20,204,250 shares
issued and outstanding in fiscal 1997, 1998 and 1999,
respectively............................................ 15,750 16,961 20,204
Additional paid-in capital................................ (14,747) 5,102,542 27,018,112
Deferred stock-based compensation......................... -- (3,098,197) (1,445,146)
Notes receivable from stockholders........................ -- (1,840,500) (1,921,500)
Accumulated other comprehensive losses.................... (28,603) (30,604) (19,061)
Retained earnings......................................... 2,073,414 6,834,552 11,228,901
---------- ----------- ------------
Total stockholders' equity.............................. 2,045,814 6,984,754 34,881,510
---------- ----------- ------------
$9,233,011 $20,566,521 $52,438,376
---------- ----------- ------------
---------- ----------- ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
SERENA SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER
FISCAL YEAR ENDED JANUARY 31, 31,
------------------------------------------- ----------------------------
1996 1997 1998 1997 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software licenses (includes related party
amounts of $1,763,666, $2,848,572,
$5,492,184, $3,860,419 and $3,762,455,
respectively)............................ $ 4,605,844 $ 8,228,650 $ 17,838,946 $ 10,237,366 $ 16,684,740
Maintenance (includes related party amounts
of $2,135,963, $2,896,670, $4,175,191,
$2,982,687 and $3,060,770,
respectively)............................ 5,679,303 8,730,172 12,257,724 8,830,963 12,097,957
Professional services...................... 458,814 495,251 2,050,366 1,420,571 2,363,034
------------- ------------- ------------- ------------- -------------
Total revenue............................ 10,743,961 17,454,073 32,147,036 20,488,900 31,145,731
------------- ------------- ------------- ------------- -------------
Cost of revenue:
Software licenses.......................... 552,317 1,298,338 1,086,820 701,079 1,265,901
Maintenance................................ 2,434,434 3,502,572 4,009,823 2,776,584 3,184,703
Professional services...................... 343,612 406,051 1,716,597 1,189,248 2,057,139
------------- ------------- ------------- ------------- -------------
Total cost of revenue.................... 3,330,363 5,206,961 6,813,240 4,666,911 6,507,743
------------- ------------- ------------- ------------- -------------
Gross profit............................. 7,413,598 12,247,112 25,333,796 15,821,989 24,637,988
------------- ------------- ------------- ------------- -------------
Operating expenses:
Sales and marketing...................... 2,504,664 4,605,138 7,946,797 5,243,742 8,955,779
Research and development................. 2,997,889 4,320,905 5,517,787 3,774,631 3,220,017
General and administrative............... 1,727,305 2,295,586 3,295,842 1,912,718 2,786,034
Stock-based compensation................. -- -- 879,803 -- 2,070,864
Amortization of intangible assets........ -- -- -- -- 185,814
------------- ------------- ------------- ------------- -------------
Total operating expenses............... 7,229,858 11,221,629 17,640,229 10,931,091 17,218,508
------------- ------------- ------------- ------------- -------------
Operating income............................. 183,740 1,025,483 7,693,567 4,890,898 7,419,480
Interest and other income, net............... 159,973 115,223 321,061 223,311 570,502
------------- ------------- ------------- ------------- -------------
Income before income taxes............... 343,713 1,140,706 8,014,628 5,114,209 7,989,982
Income taxes................................. 66,218 278,332 3,253,490 1,833,052 3,595,633
------------- ------------- ------------- ------------- -------------
Net income............................... 277,495 862,374 4,761,138 3,281,157 4,394,349
Translation adjustment....................... 4,904 (25,782) (2,001) (2,723) 11,543
------------- ------------- ------------- ------------- -------------
Comprehensive income..................... $ 282,399 $ 836,592 $ 4,759,137 $ 3,278,434 $ 4,405,892
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income per share:
Basic...................................... $ 0.02 $ 0.05 $ 0.31 $ 0.21 $ 0.27
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Diluted.................................... $ 0.02 $ 0.05 $ 0.31 $ 0.21 $ 0.26
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Shares used to compute net income per share:
Basic...................................... 15,750,000 15,750,000 15,247,750 15,290,333 16,145,234
Diluted.................................... 15,750,000 15,750,000 15,272,189 15,290,333 17,121,779
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
SERENA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1998

<TABLE>
<CAPTION>
NOTES ACCUMULATED
COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE OTHER TOTAL
---------------------- PAID-IN STOCK-BASED FROM COMPREHENSIVE RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS LOSSES EARNINGS EQUITY
---------- ---------- ---------- ------------ ------------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of
January 31,
1995.......... 15,750,000 $ 15,750 $ (14,747) $ -- $ -- $ (7,725) $ 933,545 $ 926,823
Net income...... -- -- -- -- -- -- 277,495 277,495
Translation
adjustment.... -- -- -- -- -- 4,904 -- 4,904
---------- ---------- ---------- ------------ ------------- ------------- ---------- -------------
Balances as of
January 31,
1996.......... 15,750,000 15,750 (14,747) -- -- (2,821) 1,211,040 1,209,222
Net income...... -- -- -- -- -- -- 862,374 862,374
Translation
adjustment.... -- -- -- -- -- (25,782) -- (25,782)
---------- ---------- ---------- ------------ ------------- ------------- ---------- -------------
Balances as of
January 31,
1997.......... 15,750,000 15,750 (14,747) -- -- (28,603) 2,073,414 2,045,814
Repurchase of
common
stock......... (630,000) (630) (699,370) -- -- -- -- (700,000)
Issuance of
restricted
common stock
for notes
receivable.... 1,840,500 1,841 5,519,659 (3,681,000) (1,840,500) -- -- --
Deferred
stock-based
compensation
related to
grants of
stock
options....... -- -- 297,000 (297,000) -- -- -- --
Amortization of
deferred
stock-based
compensation... -- -- -- 879,803 -- -- -- 879,803
Net income...... -- -- -- -- -- -- 4,761,138 4,761,138
Translation
adjustment.... -- -- -- -- -- (2,001) -- (2,001)
---------- ---------- ---------- ------------ ------------- ------------- ---------- -------------
Balances as of
January 31,
1998.......... 16,960,500 16,961 5,102,542 (3,098,197) (1,840,500) (30,604) 6,834,552 6,984,754
Acquisition of
Optima
Software,
Inc........... 3,187,500 3,187 21,416,813 -- -- -- -- 21,420,000
Issuance of
restricted
common stock
for note
receivable.... 56,250 56 238,757 (157,813) (81,000) -- -- --
Deferred
stock-based
compensation
related to
grants of
stock
options....... -- -- 260,000 (260,000) -- -- -- --
Amortization of
deferred
stock-based
compensation... -- -- -- 2,070,864 -- -- -- 2,070,864
Net income...... -- -- -- -- -- -- 4,394,349 4,394,349
Translation
adjustment.... -- -- -- -- -- 11,543 -- 11,543
---------- ---------- ---------- ------------ ------------- ------------- ---------- -------------
Balances as of
October 31,
1998.......... 20,204,250 $ 20,204 $27,018,112 $(1,445,146) $(1,921,500) $ (19,061) $11,228,901 $34,881,510
---------- ---------- ---------- ------------ ------------- ------------- ---------- -------------
---------- ---------- ---------- ------------ ------------- ------------- ---------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
SERENA SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER
FISCAL YEAR ENDED JANUARY 31, 31,
---------------------------------------- ---------------------------
1996 1997 1998 1998
------------ ------------ ------------ 1997 -------------
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 277,495 $ 862,374 $ 4,761,138 $ 3,281,157 $ 4,394,349
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation......................................... 218,083 327,648 430,664 310,298 456,505
Deferred income taxes................................ (51,429) 2,208 (462,876) -- --
Gain on sale of property and equipment............... -- -- 58,130 -- --
Amortization of deferred stock-based compensation.... -- -- 879,803 -- 2,070,864
Amortization of intangible assets.................... -- -- -- -- 185,814
Changes in operating assets and liabilities:
Accounts receivable................................ (1,144,500) (98,782) (6,421,099) (2,135,172) 703,774
Prepaid expenses and other assets.................. 89,769 (130,210) 28,318 (181,790) (70)
Accounts payable................................... 115,198 (25,094) 196,598 (14,103) (215,964)
Income taxes payable............................... -- 142,297 565,637 738,379 (202,653)
Accrued expenses................................... 911,680 154,877 2,675,790 403,319 (1,088,474)
Deferred revenue................................... 1,080,883 1,407,578 2,956,545 461,602 3,623,571
------------ ------------ ------------ ------------ -------------
Net cash provided by operating activities........ 1,497,179 2,642,896 5,668,648 2,863,690 9,927,716
------------ ------------ ------------ ------------ -------------
Cash flows used in investing activities:
Purchases of property and equipment.................... (614,620) (676,420) (567,469) (489,217) (755,542)
Cash and cash equivalents acquired in Optima
acquisition.......................................... -- -- -- -- 439,092
Issuance of notes due from stockholder................. -- (750,000) (130,000) (130,000) (600,000)
Payment of notes due from stockholder.................. -- -- 723,947 679,595 181,526
------------ ------------ ------------ ------------ -------------
Net cash (used) provided by investing
activities..................................... (614,620) (1,426,420) 26,478 60,378 (734,924)
------------ ------------ ------------ ------------ -------------
Cash flows from financing activities:
Repurchase of common stock............................. -- -- (700,000) (700,000) --
Payment of notes to stockholders of Optima............. -- -- -- -- (1,350,000)
------------ ------------ ------------ ------------ -------------
Net cash used by financing activities............ -- -- (700,000) (700,000) (1,350,000)
------------ ------------ ------------ ------------ -------------
Effect of exchange rate changes on cash.................. 4,904 (25,782) (2,001) (2,723) 11,543
------------ ------------ ------------ ------------ -------------
Net increase in cash and cash equivalents................ 887,463 1,190,694 4,993,125 2,221,345 7,854,335
Cash and cash equivalents at beginning of period......... 1,952,733 2,840,196 4,030,890 4,030,890 9,024,015
------------ ------------ ------------ ------------ -------------
Cash and cash equivalents at end of period............... $ 2,840,196 $ 4,030,890 $ 9,024,015 $ 6,252,235 $ 16,878,350
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Supplemental disclosures of cash flow information:
Income taxes paid........................................ $ 62,083 $ 119,200 $ 3,106,632 $ 1,349,896 $ 3,730,824
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Noncash investing and financing activity:
Restricted stock issued in exchange for notes
receivable........................................... $ -- $ -- $ 1,840,500 $ -- $ 81,000
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Issuance of common stock and notes for aquisition of
Optima Software, Inc................................. $ -- $ -- $ -- $ -- $ 21,420,000
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1997 AND 1998

(INFORMATION FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 IS UNAUDITED)

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) DESCRIPTION OF BUSINESS

SERENA Software, Inc. (the "Company") is a leading provider of software
change management products and services for managing and controlling
change throughout the software application lifecycle. Its principal
markets are North America and Europe. Export sales represented
approximately 19%, 15%, 15%, and 19% of revenue in fiscal 1996, 1997,
1998, and the nine months ended October 31, 1998, respectively.

(b) PRINCIPLES OF CONSOLIDATION

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

The functional currency of the Company's U.K. subsidiary is the British
pound. This foreign subsidiary's financial statements are translated
using current exchange rates for balance sheet accounts and average
rates for income statement accounts. Translation adjustments are
recorded in stockholders' equity. Foreign currency transaction gains and
(losses) are included in other income, and totaled $(26,000), $(5,000),
$74,000, and $(30,000) in fiscal 1996, 1997, 1998, and the nine months
ended October 31, 1998, respectively.

(d) CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with
remaining maturities of three months or less at the date of purchase to
be cash equivalents. As of January 31, 1997 and 1998 and October 31,
1998, cash equivalents consisted of commercial paper and money market
funds.

(e) PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets,
generally three to five years. Recoverability of property and equipment
is measured by comparison of the carrying amount to future net cash
flows the property and equipment are expected to generate. If such
assets are considered to be impaired, the impairment to be recognized is
measured as the difference between the carrying amount of the property
and equipment and its fair value. To date, the Company has made no
adjustments to the carrying values of its long-lived assets.

(f) INTANGIBLE ASSETS

Intangible assets include workforce, non-compete, and goodwill
associated with the acquisition of Optima Software, Inc, and are
amortized using the straight-line method over the estimated useful lives
of the related assets, from 6 months to 15 years.

F-7
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1997 AND 1998

(INFORMATION FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 IS UNAUDITED)

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(g) SOFTWARE DEVELOPMENT COSTS

Development costs related to software products are expensed as incurred
until technological feasibility of the product has been established.
Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs
incurred by the Company between completion of the working model and the
point at which the product is ready for general release have not been
significant, and, accordingly, no costs have been capitalized.

(h) INCOME TAXES

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

(i) CONCENTRATIONS OF CREDIT RISK

Financial instruments, potentially subjecting the Company to
concentrations of credit risk, consist primarily of temporary cash
investments and accounts receivable. The Company places its temporary
cash investments with two major financial institutions. The Company
maintains an allowance for potential credit losses on customer accounts.
For the fiscal years ended January 31, 1996, 1997, and 1998, Optima
Software, Inc. (Optima), a distributor, accounted for 36%, 31%, and 27%
of revenues, respectively. Optima accounted for 33% and 19% of accounts
receivable as of January 31, 1997 and 1998, respectively. The Company's
principal stockholder owns 15% of the capital stock of Optima.

(j) FAIR VALUE OF FINANCIAL INSTRUMENTS

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

(k) USE OF ESTIMATES

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

F-8
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1997 AND 1998

(INFORMATION FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 IS UNAUDITED)

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(l) REVENUE RECOGNITION

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

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

(m) STOCK-BASED COMPENSATION

The Company uses the intrinsic value method to account for stock-based
compensation. The Company amortizes deferred stock-based compensation in
accordance with Financial Accounting Standards Board ("FASB")
Interpretation No. 28.

(n) NET INCOME PER SHARE

Basic net income per share is computed using the weighted-average number
of shares of common stock. 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.

(o) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSSES)

Accumulated other comprehensive income (losses) consists entirely of
cumulative translation adjustments resulting from the Company's
application of its foreign currency translation policy. The tax effects
of translation adjustments were not significant during any of the
periods presented.

(p) 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

F-9
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1997 AND 1998

(INFORMATION FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 IS UNAUDITED)

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 by October 1, 1999. The Company does not
anticipate that SFAS No. 133 will have an effect on its financial
statements.

(2) PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
----------------------------- -------------
1997 1998 1998
------------- ------------- -------------
<S> <C> <C> <C>
Computers and equipment................. $ 1,856,513 $ 1,714,960 $ 2,293,308
Furniture and fixtures.................. 350,991 399,145 850,226
Automobiles............................. 107,110 107,110 107,110
------------- ------------- -------------
2,314,614 2,221,215 3,250,644
Less accumulated depreciation........... 1,003,446 831,372 1,436,470
------------- ------------- -------------
$ 1,311,168 $ 1,389,843 $ 1,814,174
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

(3) ACCRUED EXPENSES

Accrued expenses consists of the following:

<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
----------------------------- -------------
1997 1998 1998
------------- ------------- -------------
<S> <C> <C> <C>
Profit sharing.......................... $ 665,054 $ 1,443,014 $ 962,883
Management incentive bonuses............ 420,500 816,476 715,863
Payroll-related items................... 143,399 242,365 425,565
Royalties............................... 320,974 655,958 978,770
Commissions............................. 157,088 592,527 844,139
Other................................... 184,204 816,669 1,367,246
------------- ------------- -------------
$ 1,891,219 $ 4,567,009 $ 5,294,466
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

(4) STOCKHOLDERS' EQUITY

(a) REPURCHASE OF COMMON STOCK

In April 1997, the Company repurchased 630,000 shares of its common
stock for cash at a price of $1.11 per share from a founder.

F-10
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1997 AND 1998

(INFORMATION FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 IS UNAUDITED)

(4) STOCKHOLDERS' EQUITY (CONTINUED)
(b) STOCK SPLITS AND REINCORPORATION

In June 1997, the Company's Board of Directors authorized a 70,000 to 1
stock split. In July 1998 and again in November 1998, the Company's
Board of Directors authorized a 3-for-2 stock split. In January 1999,
the Company reincorporated in the State of Delaware. Share information
has been restated in the accompanying consolidated financial statements
to reflect the reincorporation and stock splits for all periods
presented.

In January 1998, the Company issued 1,840,500 shares of restricted
common stock to certain officers at $1.00 per share in exchange for full
recourse notes. In March 1998, the Company issued 56,250 shares of
restricted common stock to a director at $1.44 per share in exchange for
a full recourse note. Restrictions lapse over three or four years,
depending upon the individual, based on continued employment or service
on the Board of Directors. In the event an employee is terminated or the
director leaves the service of the Board, the Company has the right to
repurchase, for a price equal to the individual's original purchase
price, any remaining restricted shares held by the individual.

In connection with restricted common stock issued in January 1998, the
Company recorded deferred stock-based compensation of $3,681,000
representing the difference between the issuance price and the fair
value of the Company's common stock at the date of issuance. An
additional $157,813 of deferred stock-based compensation was recorded
for the March 1998 issuance. These amounts are being amortized over the
restriction period of the individual shares. Stock-based compensation
related to restricted common stock of $865,228 and $1,843,456 was
recognized during the fiscal year ended January 31, 1998 and the nine
months ended October 31, 1998, respectively.

F-11
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1997 AND 1998

(INFORMATION FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 IS UNAUDITED)

(4) STOCKHOLDERS' EQUITY (CONTINUED)
(d) NET INCOME PER SHARE

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, OCTOBER 31,
--------------------------------------------- -----------------------------
1996 1997 1998 1998
------------- ------------- ------------- 1997 -------------
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic net income per share--
weighted average number of
common shares outstanding... 15,750,000 15,750,000 15,247,750 15,290,333 16,145,234
Effect of potentially dilutive
securities outstanding--
restricted stock and
options..................... -- -- 24,439 -- 976,545
------------- ------------- ------------- ------------- -------------
Shares used in diluted net
income per share
computation................. 15,750,000 15,750,000 15,272,189 15,290,333 17,121,779
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>

F-12
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1997 AND 1998

(INFORMATION FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 IS UNAUDITED)

(5) INCOME TAXES

Income taxes are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal............................... $ 114,504 $ 267,376 $ 3,135,927
State................................. 1,279 3,171 554,436
Foreign............................... 1,864 5,577 26,003
------------- ------------- -------------
117,647 276,124 3,716,366
------------- ------------- -------------
Deferred:
Federal............................... (22,765) (9,427) (361,220)
State................................. (29,906) 8,433 (101,656)
Foreign............................... 1,242 3,202 --
------------- ------------- -------------
(51,429) 2,208 (462,876)
------------- ------------- -------------
Total income taxes.................. $ 66,218 $ 278,332 $ 3,253,490
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The Company's effective tax rate differs from the statutory federal
income tax rate of 34% primarily due to the following:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Tax expense at federal statutory rate... $ 116,863 $ 387,839 $ 2,724,974
Research and experimentation credit..... (52,836) (158,663) (233,996)
State tax, net of federal benefit....... (18,894) 7,659 298,833
Foreign sales corporation benefit....... -- -- (53,208)
Nondeductible stock-based
compensation........................ -- -- 299,132
Other................................... 21,085 41,497 217,755
------------- ------------- -------------
Total income taxes.................. $ 66,218 $ 278,332 $ 3,253,490
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

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

F-13
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1997 AND 1998

(INFORMATION FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 IS UNAUDITED)

(5) INCOME TAXES (CONTINUED)
The Company's net deferred tax assets are summarized as follows:

<TABLE>
<CAPTION>
JANUARY 31,
---------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts..... $ -- $ -- $ 83,143
Accrued expenses.................... -- -- 321,911
Cash to accrual adjustments......... 213,833 234,525 274,643
State taxes......................... -- -- 111,608
Other............................... 93,197 70,297 24,411
------------- ------------- -------------
Total deferred tax asset........ 307,030 304,822 815,716
Deferred tax liability--property and
equipment............................. -- -- (48,018)
------------- ------------- -------------
Net deferred tax asset.............. $ 307,030 $ 304,822 $ 767,698
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

Management believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the
net deferred tax assets.

(6) EMPLOYEE BENEFIT PLANS

(a) RETIREMENT PLAN

The Company has a defined contribution retirement plan for all eligible
employees. Participants may make contributions to the plan in accordance
with provisions of the plan. The Company may make discretionary
contributions to the plan. For the years ended January 31, 1996, 1997,
and 1998 and the nine months ended October 31, 1998, the Company made
contributions of $98,554, $196,329, $285,486, and $282,027,
respectively. Such contributions generally vest over six years.

(b) STOCK OPTION PLAN

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

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

F-14
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1997 AND 1998

(INFORMATION FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 IS UNAUDITED)

(6) EMPLOYEE BENEFIT PLANS (CONTINUED)
Stock option activity under the Plan is as follows:

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
SHARES WEIGHTED- GRANT DATE
AVAILABLE FOR OPTIONS AVERAGE FAIR VALUE
GRANT OUTSTANDING EXERCISE PRICE PER SHARE
------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Shares reserved......................... 3,375,000 --
Restricted stock issued--Note 4(c)...... (1,840,500) --
Granted with an exercise price below the
fair value of common stock............ (204,750) 204,750 $1.00 $3.00
------------- -----------
Balances as of January 31, 1998......... 1,329,750 204,750 1.00 3.00
Authorized.............................. 675,000 --
Restricted stock issued--Note 4(c)...... (56,250) --
Granted with an exercise price below the
fair value of common stock............ (101,250) 101,250 1.54 4.11
Granted with an exercise price equal to
the fair value of common stock........ (573,360) 573,360 4.68 4.68
Cancelled............................... 78,750 (78,750) 2.06
------------- -----------
Balances as of October 31, 1998......... 1,352,640 800,610 3.60
------------- -----------
------------- -----------
</TABLE>

In connection with options granted in January 1998, the Company has
recorded deferred stock-based compensation of $297,000 representing the
difference between the exercise price and the fair value of the
Company's common stock at the date of grant. An additional $260,000 of
deferred stock-based compensation was recorded for options issued during
the nine months ended October 31, 1998. The amount is being amortized
over the vesting period of the individual options, generally 4 years.
Stock-based compensation related to options to purchase common stock of
$14,575 and $227,406 was recognized during the fiscal year ended January
31, 1998 and nine months ended October 31, 1998, respectively. The grant
date fair value per share was determined by management after considering
a number of factors, including a prior cash transaction for the
Company's common stock, an appraisal performed by an outside consultant,
the methodologies used by the Company's underwriters to establish the
anticipated IPO price, the effect of the Optima acquisition and the
Company's operating results and future prospects.

On November 2, 1998 and November 19, 1998 the Company granted options to
purchase 376,290 and 178,500 shares of common stock, respectively, with
an exercise price of $7.00 per share. On December 2, 1998, the Company
granted options to purchase an additional 32,500 shares of common stock
at $9.00 per share. The fair value of the Company's common stock on the
date of grant for such options was estimated principally using the
midpoint of the offering range adjusted for the change in comparable
company price-to-earnings multiples between the grant date and the date
the midpoint was established. Fair value per share of the Company's
common stock was determined to be $7.25, $7.85, and $9.00 as of November
2 and 19, 1998 and December 2, 1998, respectively. The Company will
record additional deferred stock-based compensation totaling $245,798
during the fourth quarter of fiscal 1999.

F-15
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1997 AND 1998

(INFORMATION FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 IS UNAUDITED)

(6) EMPLOYEE BENEFIT PLANS (CONTINUED)
Had compensation expense for the Company's stock-based compensation
plans, including the restricted stock discussed in Note 4(c), been
determined consistent with SFAS No. 123 using the minimum value
option-pricing model, the Company's net income in fiscal 1998 or for the
nine-months ended October 31, 1998 would not have been materially
affected. Assumptions used for fiscal 1998 and the nine-months ended
October 31, 1998 were as follows: no expected dividends; an average
risk-free interest rate of 5.9%; and an average expected restricted
stock or option term of 4.5 years. As of January 31, 1998 and October
31, 1998, the weighted average exercise price and weighted-average
remaining contractual life of outstanding options was $1.00 and 4.4
years and $3.60 and 4.1 years, respectively. As of January 31, 1998 and
October 31, 1998, none of the outstanding options were exercisable. The
weighted-average fair value of options granted in fiscal 1998 and the
nine-months ended October 31, 1998 was $2.00 and $0.64 per share,
respectively.

(7) COMMITMENTS AND CONTINGENCIES

(a) LEASES

The Company has remaining noncancelable operating lease agreements for
office space that expire in 2001 and 2002. Minimum lease payments for
the five succeeding years as of October 31, 1998, are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
- ----------------------------------------
<S> <C>
1999.................................... $ 149,525
2000.................................... 602,415
2001.................................... 597,085
2002.................................... 681,517
2003.................................... 379,880
-------------
$ 2,410,422
-------------
-------------
</TABLE>

Rent expense was $261,766, $357,262, $454,087, and $461,062 for the
fiscal years ended January 31, 1996, 1997, and 1998 and the nine months
ended October 31, 1998, respectively.

(b) LICENSING AND OTHER AGREEMENTS

The Company has commitments under licensing agreements that provide for
payments based on revenues of certain products. For the fiscal years
ended January 31, 1996, 1997, and 1998, the Company's fees paid or
accrued under these license agreements were $1,276,843, $1,425,918, and
$2,075,083, respectively.

The Company had a Marketing Agreement with Sterling Software, Inc.
(Sterling). Pursuant to the Marketing Agreement, Sterling was granted
the exclusive right to market and sell the Company's COMPAREX software
product and was obligated to pay the Company a license fee of 50% of all
license and maintenance revenues. Pursuant to a Termination Agreement
dated September 20, 1995, Sterling forfeited all rights relating to the
Company's COMPAREX software product. The Company was obligated to pay
Sterling a certain percentage of maintenance revenues related to

F-16
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1997 AND 1998

(INFORMATION FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 IS UNAUDITED)

(7) COMMITMENTS AND CONTINGENCIES (CONTINUED)
maintenance agreement renewals for existing Sterling customers through
September 1996. In addition, pursuant to an amended Termination
Agreement, dated September 30, 1996, the Company paid Sterling
$1,250,000, representing payment in full for all maintenance renewals in
lieu of any further payments, as set forth in the original Termination
Agreement. The Company recorded the termination payment as a cost of
revenue in the year ended January 31, 1997.

The Company had a Marketing Agreement with Optima Software, Inc.
(Optima). The principal stockholder of the Company owned 15% of the
capital stock of Optima. Pursuant to the Marketing Agreement, the
Company granted the exclusive right within most jurisdictions to market
and sell SERENA's CHANGE MAN software product to Optima. The Company was
entitled to license fees of 40% and 75% upon initial sales of software
licenses and maintenance and renewal maintenance, respectively. For the
years ended January 31, 1996, 1997, 1998 and the nine months ended
October 31, 1998, revenues under this license agreement were $3,899,629,
$5,745,242, $9,667,375, and $6,823,225, respectively.

The Company's U.K. subsidiary (Serena-UK) had a reseller agreement with
Optima. Pursuant to the agreement, Serena-UK has a non-exclusive right
to market and license CHANGE MAN to end users in the U.K. Serena-UK was
required to pay a license fee of 30% for all new license agreements and
50% for all maintenance renewals sold under the terms of the agreement.

License fee expense associated with the agreement totaled $25,169,
$17,039, $203,804, and $317,578 for the fiscal years ended January 31,
1996, 1997, and 1998 and the nine months ended October 31, 1998,
respectively.

In September 1998, Compuware Corporation, or Compuware, filed suit
against the Company 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 the Company's STARTOOL and STARWARP products.
Compuware served the complaint on the Company on November 18, 1998. Due
to the nature of litigation generally and because the lawsuit brought by
Compuware is at an early stage, 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
the Company has meritorious defenses to the allegations contained in
Compuware's complaint. The Company believes that this matter will not
have a material adverse effect on its results of operations or financial
condition.

(8) DUE FROM PRINCIPAL STOCKHOLDER

In March 1996, the Company advanced $250,000 to its principal
stockholder and received an unsecured promissory note to be paid in
three equal annual installments of principal and interest on March 15,
1997, March 15, 1998, and March 15, 1999, with a stated interest rate of
10% per

F-17
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1997 AND 1998

(INFORMATION FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 IS UNAUDITED)

(8) DUE FROM PRINCIPAL STOCKHOLDER (CONTINUED)
annum. As of January 31, 1997 and 1998. $272,969 and $189,905,
respectively, of principal and accrued interest was outstanding.

In November 1996, the Company advanced $500,000 to its principal
stockholder in exchange for an unsecured promissory note due upon the
earlier of the sale of his residence or November 13, 1997, with a stated
interest rate of 10% per annum. As of January 31, 1997, $510,883 of
principal and accrued interest was outstanding. Principal and accrued
interest was paid in full during fiscal 1998.

In July 1998, the Company advanced $600,000 to its principal stockholder
in exchange for a promissory note secured by shares of the Company's
common stock. The loan accrues interest at 5.56%. The principal and
interest are due and payable in three equal installments of $222,641
payable on the annual anniversary of the funding of the loan. As of
October 31, 1998, $608,379 of principal and accrued interest was
outstanding.

Interest income on amounts due from the principal stockholder was
$33,852, $35,769 and $16,410 for fiscal 1997 and 1998 and the nine
months ended October 31, 1998, respectively.

(9) ACQUISITION

On September 25, 1998, the Company acquired Optima, the primary
distributor of the Company's CHANGE MAN software product. Optima will
function as a wholly-owned subsidiary of the Company. The acquisition
was accounted for using the purchase method of accounting, and
accordingly, the results of operations of Optima have been included in
the Company's consolidated financial statements from September 25, 1998.
The Company acquired all of the outstanding shares of Optima in exchange
for the issuance of 3,187,500 shares of the Company's common stock
valued at $6.72 per share. The fair value of the shares issued in the
Optima acquisition was determined in accordance with Accounting
Principles Board Opinion No. 16 and its interpretations and was computed
based upon the midpoint of management's estimate of the pre- and post-
agreement fair value of the Company's common stock. The transaction was
valued at approximately $21.4 million and the allocation of the purchase
price was as follows:

<TABLE>
<S> <C>
Net tangible liabilities....................................... $ (251,355)
Work-force-in-place............................................ 300,000
Noncompete agreement........................................... 200,000
Goodwill....................................................... 21,171,355
----------
Total purchase price....................................... $21,420,000
----------
----------
</TABLE>

Work-force-in-place, consisting principally of Optima's sales force, 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 an Optima
officer and founder who will not 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

F-18
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FISCAL YEARS ENDED JANUARY 31, 1996, 1997, AND 1998 AND NINE MONTHS ENDED
OCTOBER 31, 1997 AND 1998

(INFORMATION FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 IS UNAUDITED)

(9) ACQUISITION (CONTINUED)
one-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 15 years. Management determined to use this period
after considering that Optima has sold CHANGE MAN profitably since 1988,
CHANGE MAN is an integral part of many large company IT infrastructures
for managing change to mainframe applications, and customers who
purchase and implement CHANGE MAN make a considerable investment, not
only in the software, but in the creation of an automated and consistent
software change management process. Moreover, management believes this
investment has a long lasting effect on IT environments, and annual
maintenance releases of CHANGE MAN have consisted principally of bug
fixes and updates, including updates to remain compatible with the
stable IBM MVS operating system, which was introduced over 20 years ago.

Summary unaudited proforma information giving effect to the acquisition
of Optima as if it had occurred on February 1, 1997 follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
YEAR ENDED
JANUARY 31, -----------------------------
1998 1997 1998
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue................................. $ 41,315 $ 26,013 $ 36,899
Net income.............................. 3,454 1,931 4,687
Basic net income per share.............. 0.19 0.10 0.25
Diluted net income per share............ 0.19 0.10 0.24
</TABLE>

F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders

Optima Software, Inc.

We have audited the accompanying balance sheets of Optima Software, Inc.
as of December 31, 1996 and 1997, and the related statements of income and
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Optima Software,
Inc. as of December 31, 1996 and 1997, and the results of their operations and
their cash flows for each of the years in the three-year period ended December
31, 1997, in conformity with generally accepted accounting principles.

KPMG LLP

Mountain View, California
October 16, 1998

F-20
<PAGE>
OPTIMA SOFTWARE, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997 JUNE 30, 1998
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents............................................ $ 1,645,467 $ 1,439,613 $ 3,408,156
Accounts receivable.................................................. 2,993,583 5,513,058 3,928,437
Prepaid expenses and other current assets............................ 3,874 43,982 79,633
------------ ------------ -------------
Total current assets............................................... 4,642,924 6,996,653 7,416,226

Property and equipment, net............................................ 43,229 122,679 142,884
Other assets........................................................... 88,886 121,807 177,087
------------ ------------ -------------
$ 4,775,039 $ 7,241,139 $ 7,736,197
------------ ------------ -------------
------------ ------------ -------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities--accounts payable and accrued expenses............. $ 2,035,853 $ 3,347,135 $ 2,948,003
------------ ------------ -------------
Commitments

Shareholders' equity:
Common stock, no par value; 1,000 shares authorized, issued and
outstanding in 1996 and 1997....................................... 130,000 130,000 130,000
Retained earnings.................................................... 2,609,186 3,764,004 4,658,194
------------ ------------ -------------
Total shareholders' equity......................................... 2,739,186 3,894,004 4,788,194
------------ ------------ -------------
$ 4,775,039 $ 7,241,139 $ 7,736,197
------------ ------------ -------------
------------ ------------ -------------
</TABLE>

See accompanying notes to financial statements.

F-21
<PAGE>
OPTIMA SOFTWARE, INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------- ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Distributed software products........ $ 7,076,889 $ 11,007,066 $ 16,946,652 $ 6,937,020 $ 9,185,549
Professional services................ 944,102 1,703,178 3,612,152 1,489,881 2,319,781
------------ ------------- ------------- ------------ -------------
Total revenue...................... 8,020,991 12,710,244 20,558,804 8,426,901 11,505,330
------------ ------------- ------------- ------------ -------------
Operating expenses:
Cost of distributed software
products........................... 4,172,951 6,044,824 8,980,457 3,705,705 5,858,538
Cost of professional services........ 637,599 1,150,241 2,439,467 980,535 1,193,723
Sales and marketing.................. 1,497,113 2,224,703 3,650,997 1,398,726 1,228,303
General and administrative........... 946,244 1,404,149 2,281,320 917,727 494,486
------------ ------------- ------------- ------------ -------------
Total operating expenses........... 7,253,907 10,823,917 17,352,241 7,002,693 8,775,050
------------ ------------- ------------- ------------ -------------
Operating income................... 767,084 1,886,327 3,206,563 1,424,208 2,730,280
Interest and other income, net......... 5,041 87,755 139,387 40,661 76,544
------------ ------------- ------------- ------------ -------------
Income before income taxes......... 772,125 1,974,082 3,345,950 1,464,869 2,806,824
Income taxes........................... 31,219 81,757 186,132 106,308 103,301
------------ ------------- ------------- ------------ -------------
Net income......................... 740,906 1,892,325 3,159,818 1,358,561 2,703,523
Retained earnings at beginning of
period............................... 494,017 829,445 2,609,186 2,609,186 3,764,004
Dividends paid......................... (405,478) (112,584) (2,005,000) (1,355,000) (1,809,333)
------------ ------------- ------------- ------------ -------------
Retained earnings at end of period..... $ 829,445 $ 2,609,186 $ 3,764,004 $ 2,612,747 $ 4,658,194
------------ ------------- ------------- ------------ -------------
------------ ------------- ------------- ------------ -------------
Unaudited pro forma information:
Income before income taxes, as
reported........................... 772,125 1,974,082 3,345,950 1,464,869 2,806,824
Pro forma income taxes............... 321,192 849,419 1,424,973 623,858 1,192,900
------------ ------------- ------------- ------------ -------------
Pro forma net income............... $ 450,933 $ 1,124,663 $ 1,920,977 $ 841,011 $ 1,613,924
------------ ------------- ------------- ------------ -------------
------------ ------------- ------------- ------------ -------------
</TABLE>

See accompanying notes to financial statements.

F-22
<PAGE>
OPTIMA SOFTWARE, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- --------------------------
1995 1996 1997 1997 1998
---------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 740,906 $ 1,892,325 $ 3,159,818 $ 1,358,561 $ 2,703,523
Adjustment to reconcile net income to
net cash provided by operating
activities:
Depreciation.......................... 40,537 47,403 43,949 21,833 21,596
Changes in operating assets and
liabilities:
Accounts receivable................. (719,057) (1,082,937) (2,519,475) (308,189) 1,584,621
Prepaid expenses and other assets... (10,053) (1,470) (31,841) (19,276) (90,301)
Accounts payable and accrued
expenses.......................... 322,129 561,020 1,311,282 655,989 (399,132)
Deferred revenues................... 50,000 (50,000) -- 57,253 --
---------- ------------ ------------ ------------ ------------
Net cash provided by operating
activities...................... 424,462 1,366,341 1,963,733 1,766,171 3,820,307
---------- ------------ ------------ ------------ ------------
Cash flows used in investing activities:
Purchase of property and equipment...... (52,380) (33,882) (123,399) (20,224) (41,801)
Issuance of notes receivable............ -- -- (41,188) -- (630)
Payment of notes due from shareholder... (92,528) (144,003) -- -- --
---------- ------------ ------------ ------------ ------------
Net cash used in investing
activities...................... (144,908) (177,885) (164,587) (20,224) (42,431)
---------- ------------ ------------ ------------ ------------
Cash flows from financing activities--
payment of dividends.................... (405,478) (112,584) (2,005,000) (1,355,000) (1,809,333)
---------- ------------ ------------ ------------ ------------
Net change in cash and cash equivalents... (125,924) 1,075,872 (205,854) 390,947 1,968,543
Cash and cash equivalents at beginning of
period.................................. 695,519 569,595 1,645,467 1,645,467 1,439,613
---------- ------------ ------------ ------------ ------------
Cash and cash equivalents at end of
period.................................. $ 569,595 $ 1,645,467 $ 1,439,613 $ 2,036,414 $ 3,408,156
---------- ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------
Supplemental disclosures of cash flow
information--income taxes paid........ $ 15,862 $ 80,163 $ 181,535 $ 106,308 $ 103,301
---------- ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------
</TABLE>

See accompanying notes to financial statements.

F-23
<PAGE>
OPTIMA SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998

(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1997 AND 1998 IS UNAUDITED)

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) DESCRIPTION OF BUSINESS

Optima Software, Inc. (the "Company") is the primary distributor of
SERENA Software, Inc.'s ("SERENA") CHANGE MAN product. Its principal
markets are North America, Europe, and Asia. Foreign sales represented
approximately 13%, 12%, and 14% of revenue for the years ended December
31, 1995, 1996, and 1997, respectively.

(b) CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with
remaining maturities of three months or less at the date of purchase to
be cash equivalents. As of December 31, 1996 and 1997, cash equivalents
consisted of treasury bills and money market funds.

Property and equipment are stated at cost and are depreciated using the
double-declining balance method over the estimated useful lives of the
assets, generally three to seven years. Recoverability of property and
equipment is measured by comparing its carrying amount to the future net
cash flows expected to be generated. If such assets are considered to be
impaired, the impairment recognized is measured as the difference between
the carrying amount of the property and equipment and its fair value. To
date, the Company has made no adjustments to the carrying values of its
long-lived assets.

(d) FAIR VALUE OF FINANCIAL INSTRUMENTS

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

(e) USE OF ESTIMATES

(f) REVENUE RECOGNITION

Revenue from the resale of software licenses and maintenance is
recognized upon receipt and acceptance of a signed contract and delivery
of the software, provided the fee is fixed and determinable,
collectibility of the revenue is probable and the arrangement does not
involve significant customization of the software. If an acceptance
period is required, revenues are recognized upon the earlier of customer
acceptance or the expiration of the acceptance period, as defined in the
applicable software license agreement. Maintenance is provided by the
licensor and the Company does not incur any costs, other than the license
fee paid to the licensor,

F-24
<PAGE>
OPTIMA SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998

(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1997 AND 1998 IS UNAUDITED)

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
associated with the performance of maintenance contracts. Consequently,
sufficient vendor-specific historical evidence exists to demonstrate that
the costs to provide maintenance are incurred on other than a
straight-line basis and the Company believes it is probable that the
costs incurred in performing current arrangements will follow a similar
pattern.

Professional services revenue includes fees derived from the delivery of
training, installation, and consulting services. Revenue from training,
installation, and consulting services is recognized as the related
services are performed. Deferred revenue represents payments received by
the Company in advance of product delivery or service performance.

(g) INCOME TAXES

The Company has elected to be taxed for Federal and state income tax
purposes as a Subchapter S corporation under the Internal Revenue Code of
1986, as amended, and under certain comparable state tax laws. As a
result, earnings are taxed directly to the Company's shareholders at
applicable Federal and state income tax rates. Unaudited pro forma
information has been included in the statements of income and retained
earnings and the notes to financial statements setting forth income taxes
and net income as if the Company had been fully subject to tax during the
periods presented.

(h) CONCENTRATIONS OF CREDIT RISK

(2) PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Computers and equipment................................. $ 120,029 $ 167,403
Furniture and fixtures.................................. 43,078 97,688
Automobiles............................................. 21,863 21,863
--------- ---------
184,970 286,954
Less accumulated depreciation........................... 141,741 164,275
--------- ---------
$ 43,229 $ 122,679
--------- ---------
--------- ---------
</TABLE>

F-25
<PAGE>
OPTIMA SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998

(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1997 AND 1998 IS UNAUDITED)

(3) ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Commissions............................. $ 203,437 $ 592,101
Royalties............................... 1,522,429 2,333,249
Other................................... 309,987 421,785
------------- -------------
$ 2,035,853 $ 3,347,135
------------- -------------
------------- -------------
</TABLE>

(4) INCOME TAXES

The Company has elected to be taxed as a Subchapter S corporation for
Federal and certain state income tax purposes, whereby income is taxed to
the individual shareholders. California imposes a 1.5% minimum franchise tax
on Subchapter S corporations. Accordingly, only state income tax has been
provided for in the accompanying financial statements. The following table
sets forth income taxes on a pro forma basis as if the Company had been a C
corporation during the periods presented.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Pro forma income taxes:
Current
Federal............................................. $ 288,055 $ 724,939 $ 1,283,473
State............................................... 71,054 177,201 305,413
---------- ---------- ------------
Total current..................................... 359,109 902,140 1,588,886
---------- ---------- ------------
Deferred
Federal............................................. $ (33,493) $ (48,406) $ (137,936)
State............................................... (4,424) (4,315) (25,977)
---------- ---------- ------------
Total deferred.................................... (37,917) (52,721) (163,913)
---------- ---------- ------------
Total pro forma income taxes...................... $ 321,192 $ 849,419 $ 1,424,973
---------- ---------- ------------
---------- ---------- ------------
</TABLE>

F-26
<PAGE>
OPTIMA SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998

(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1997 AND 1998 IS UNAUDITED)

(4) INCOME TAXES (CONTINUED)
The following tabulation reconciles the expected pro forma federal income
tax expense (computed by multiplying the Company's income before taxes by
34%) to the Company's unaudited pro forma income tax expense for the periods
presented:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Expected pro forma income tax expense............................. $ 262,523 $ 671,188 $ 1,137,623
State income taxes, net of federal tax effect..................... 66,066 168,868 277,433
Other............................................................. (7,397) 9,363 9,917
---------- ---------- ------------
$ 321,192 $ 849,419 $ 1,424,973
---------- ---------- ------------
---------- ---------- ------------
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the unaudited pro forma deferred tax assets and deferred tax
liabilities as of December 31, 1995, 1996 and 1997 are presented below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Pro forma deferred tax assets:
Property and equipment, principally due to differences in
depreciation...................................................... $ 1,053 $ 1,096 $ 998
Reserves and accruals............................................... 16,278 37,752 172,353
State income taxes.................................................. 20,586 51,790 81,200
--------- --------- ----------
Total deferred tax assets......................................... $ 37,917 $ 90,638 $ 254,551
--------- --------- ----------
--------- --------- ----------
</TABLE>

(5) EMPLOYEE BENEFIT PLANS

RETIREMENT PLAN

The Company has a defined contribution retirement plan for all eligible
employees. Participants may make contributions to the plan in accordance
with provisions of the plan. The Company may make discretionary
contributions to the plan. For the years ended December 31, 1995, 1996, and
1997, the Company made contributions of $100,141, $116,023, and $183,493,
respectively. Such contributions generally vest over six years.

F-27
<PAGE>
OPTIMA SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1998

(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1997 AND 1998 IS UNAUDITED)

(6) COMMITMENTS

(a) LEASES

The Company has a noncancelable operating lease agreement for office
space that expires in 2002. Minimum lease payments for the five
succeeding years are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------------------------------------------------
<S> <C>
1998.............................................................. $ 143,664
1999.............................................................. 143,664
2000.............................................................. 150,672
2001.............................................................. 150,672
2002.............................................................. 113,004
---------
$ 701,676
---------
---------
</TABLE>

Rent expense was $78,727, $89,833, $91,646 and for the years ended
December 31, 1995, 1996, and 1997, respectively.

(b) LICENSING AND OTHER AGREEMENTS

The Company has a Marketing Agreement with SERENA. The principal
stockholder of SERENA owns 15% of the capital stock of the Company.
Pursuant to the Marketing Agreement, the Company was granted the
exclusive right to market and sell SERENA's CHANGE MAN software product
in most jurisdictions. SERENA is entitled to license fees of 40% and 75%
upon initial sales of software licenses and maintenance and renewal
maintenance, respectively. For the years ended December 31, 1995, 1996,
and 1997, fees paid or accrued under this license agreement were
$3,809,276, $5,856,783, and $8,972,882, respectively.

In January 1994, the Company entered into a reseller agreement with
Serena International, Ltd, U.K. (Serena-UK). Pursuant to the agreement,
Serena-UK has a non-exclusive right to market and license CHANGE MAN to
end users in the U.K. Serena-UK shall pay a license fee of 30% for all
new license agreements and 50% for all maintenance renewals sold under
the terms of the agreement.

Amounts received pursuant to the agreement totaled $25,169, $17,039, and
$148,894 for the fiscal years ended January 31, 1996, 1997, and 1998.

(7) SUBSEQUENT EVENT

On September 25, 1998, SERENA acquired all of the outstanding shares of the
Company in exchange for 3,187,500 shares of SERENA's common stock.

F-28
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

The unaudited pro forma condensed combined statements of income
presented below are derived from the historical consolidated financial
statements of SERENA Software, Inc. ("SERENA") and Optima Software, Inc.
("Optima"). The unaudited pro forma condensed combined statements of income for
the fiscal year ended January 31, 1998, and for the nine months ended October
31, 1998, give effect to the acquisition of Optima as if it had occurred on
February 1, 1997. For purposes of the unaudited pro forma condensed combined
statements of income for the fiscal year ended January 31, 1998, SERENA's
results of operations for such period have been combined with Optima's results
of operations for the year ended December 31, 1997. The unaudited pro forma
condensed combined statements of income for the nine months ended October 31,
1998, combine both SERENA's and Optima's results of operations for such period.

The unaudited pro forma condensed combined financial statements give
effect to the acquisition under the purchase method of accounting. The fair
value of the consideration paid has been allocated to the assets and liabilities
acquired based upon the fair values of such assets at the date of acquisition
and may be revised for a period of up to one year from the date of acquisition.
The preliminary estimates and assumptions as to the value of the assets and
liabilities of Optima to the combined company is based upon information
available at the date of preparation of these unaudited pro forma condensed
combined financial statements, and will be adjusted upon final allocation of
purchase price within one year from the acquisition date. The items awaiting
final allocation include noncurrent asset valuations and certain valuation
allowances and accruals. It is anticipated, however, that the final allocation
of the purchase price will not differ materially from the preliminary
allocation.

The unaudited pro forma condensed combined financial statements do not
purport to represent what SERENA's results of operations or financial condition
would have actually been or what operations would be if the transactions that
give rise to the pro forma adjustments had occurred on the dates assumed and are
not indicative of future results. The unaudited pro forma condensed combined
financial statements below should be read in conjunction with the historical
consolidated financial statements and related notes thereto of SERENA and Optima
included elsewhere herein.

F-29
<PAGE>
SERENA SOFTWARE, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FISCAL YEAR ENDED JANUARY 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL
---------------- PRO FORMA PRO FORMA
SERENA OPTIMA ADJUSTMENTS COMBINED
------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Revenue:
Software licenses................ $17,839 $16,946 $ (4,690)(1) $22,962
(204)(2)
(6,929)(3)
Maintenance...................... 12,258 -- 433(3) 12,691
Professional services............ 2,050 3,612 -- 5,662
------- ------- ------------- ---------
Total revenue.................. 32,147 20,558 (11,390) 41,315
------- ------- ------------- ---------
Cost of revenue:
Software licenses................ 1,087 8,981 (9,044)(1) 1,024
Maintenance...................... 4,009 -- -- 4,009
Professional services............ 1,717 2,439 -- 4,156
------- ------- ------------- ---------
Total cost of revenue.......... 6,813 11,420 (9,044) 9,189
------- ------- ------------- ---------
Gross profit..................... 25,334 9,138 (2,346) 32,126
------- ------- ------------- ---------
Operating expenses:
Sales and marketing.............. 7,947 3,651 (204)(2) 11,394
Research and development......... 5,518 -- -- 5,518
General and administrative....... 3,296 2,281 -- 5,577
Stock-based compensation......... 880 -- -- 880
Amortization of intangible -- -- 1,911(4) 1,911
assets.........................
------- ------- ------------- ---------
Total operating expenses....... 17,641 5,932 1,707 25,280
------- ------- ------------- ---------
Operating income............... 7,693 3,206 (4,053) 6,846
Other income, net.................. 321 140 (251)(5) 210
------- ------- ------------- ---------
Income before income taxes..... 8,014 3,346 (4,304) 7,056
Income taxes....................... 3,253 186 163(6) 3,602
------- ------- ------------- ---------
Net income..................... $4,761 $3,160 $ (4,467) $ 3,454
------- ------- ------------- ---------
------- ------- ------------- ---------
Net income per share:
Basic............................ $ 0.31 $ 0.19
------- ---------
------- ---------
Diluted.......................... $ 0.31 $ 0.19
------- ---------
------- ---------
Shares used to compute net income
per share:
Basic............................ 15,248 18,436
Diluted.......................... 15,272 18,460
</TABLE>

See accompanying notes to pro forma condensed combined financial statements.

F-30
<PAGE>
SERENA SOFTWARE, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

NINE MONTHS ENDED OCTOBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL
------------------------ PRO FORMA PRO FORMA
SERENA OPTIMA ADJUSTMENTS COMBINED
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Revenue:
Software licenses............................. $ 16,685 $ 4,066 $ (1,761)(1) $ 18,672
(318)(2)
Maintenance................................... 12,098 5,341 (4,238)(3) 13,201
Professional services......................... 2,363 2,663 -- 5,026
----------- ----------- ------------- -----------
Total revenue............................... 31,146 12,070 (6,317) 36,899
----------- ----------- ------------- -----------
Cost of revenue:
Software licenses............................. 1,266 5,852 (5,584)(1) 1,534
Maintenance................................... 3,185 -- -- 3,185
Professional services......................... 2,057 1,857 -- 3,914
----------- ----------- ------------- -----------
Total cost of revenue....................... 6,508 7,709 (5,584) 8,633
----------- ----------- ------------- -----------
Gross profit.................................. 24,638 4,361 (733) 28,266
----------- ----------- ------------- -----------
Operating expenses:
Sales and marketing........................... 8,956 1,642 (318)(2) 10,280
Research and development...................... 3,220 -- -- 3,220
General and administrative.................... 2,786 517 -- 3,303
Stock-based compensation...................... 2,071 -- -- 2,071
Amortization of intangible assets............. 186 -- 873(5) 1,059
----------- ----------- ------------- -----------
Total operating expenses.................... 17,219 2,159 555 19,933
----------- ----------- ------------- -----------
Operating income............................ 7,419 2,202 (1,288) 8,333
Other income, net............................... 571 137 (127)(6) 581
----------- ----------- ------------- -----------
Income before income taxes.................. 7,990 2,339 (1,415) 8,914
Income taxes.................................... 3,596 129 502(7) 4,227
----------- ----------- ------------- -----------
Net income.................................. $ 4,394 $ 2,210 $ (1,917) $ 4,687
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Net income per share:
Basic......................................... $ 0.27 $ 0.25
----------- -----------
----------- -----------
Diluted....................................... $ 0.26 $ 0.24
----------- -----------
----------- -----------
Shares used to compute net income per share:
Basic......................................... 16,145 18,735
----------- -----------
----------- -----------
Diluted....................................... 17,122 19,712
----------- -----------
----------- -----------
</TABLE>

See accompanying notes to pro forma condensed combined financial statements.

F-31
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

SUMMARY OF TRANSACTION

In connection with SERENA's acquisition of Optima, SERENA issued
3,187,500 shares of its own common stock valued at $6.72 per share in exchange
for all the outstanding capital stock of Optima.

The allocation of the purchase price was as follows (in thousands):

<TABLE>
<S> <C>
Allocation of purchase price:
Net tangible liabilities......................................... $ (251)
Work-force-in-place(a)........................................... 300
Noncompete agreement(b).......................................... 200
Goodwill(c)...................................................... 21,171
---------
Total purchase price........................................... 21,420
---------
---------
</TABLE>

----------------------------

(a) Work-force-in-place, consisting principally of Optima's sales force,
was valued on a replacement cost basis and will be amortized over a
six-month period, the period of time SERENA estimates would be required
to hire, train, and achieve full productivity for a replacement work
force.

(b) The noncompete agreement was entered into with an Optima officer and
founder who will not 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 one-year term of
the agreement.

(c) Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired and will be amortized over 15 years.

PRO FORMA ADJUSTMENTS

(1) To eliminate intercompany software licence royalty revenue recorded by
SERENA and intercompany royalty expense recorded by Optima.

(2) To eliminate Optima's software license revenues against SERENA's royalty
expense with respect to certain sales transactions initiated by a foreign
subsidiary of SERENA's and to which Optima was entitled royalties.

(3) To conform Optima's revenue recognition policy for maintenance to SERENA's.
SERENA initially defers and then recognizes maintenance revenues, including
maintenance to be provided to Optima's customers, ratably over the contract
term, generally 12 months. Optima recognized maintenance revenue upon
receipt and acceptance of a signed contract and delivery of the software,
provided the fee is fixed and determinable, collectibility of the revenue is
probable and the arrangement does not involve significant customization of
the software. Sufficient vendor-specific historical evidence exists to
demonstrate that Optima's cost to provide maintenance are incurred on other
than a straight-line basis and Optima believes it is probable that the costs
incurred in performing current arrangements will follow a similar pattern.

F-32
<PAGE>
SERENA SOFTWARE, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (CONTINUED)

(4) To record the amortization of intangible assets resulting from the
allocation of the purchase price as follows:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
JANUARY 31, ENDED OCTOBER 31,
1998 1998
----------- -----------------
<S> <C> <C>
Work-force-in-place........................................... $ 300 $ --
Noncompete agreement.......................................... 200 --
Goodwill...................................................... 1,411 1,059
----------- ------
Total pro forma combined.................................... 1,911 1,059
Less amount recorded in post-acquisition period............... -- 186
----------- ------
Pro forma adjustment.......................................... $ 1,911 $ 873
----------- ------
----------- ------
</TABLE>

(5) To record a reduction in interest income for a $4,750,000 distribution to
Optima shareholders declared prior to the acquisition date. Because Optima
did not have average cash balances in excess of the distribution during the
periods presented, this amount has been computed using a rate of 5.29%, the
rate assigned to notes issued to the Optima shareholders for the noncash
portion of the distribution subsequently paid by SERENA. This rate exceeds
the effective rate earned by SERENA and Optima on average cash balances
during the period. The effect of using a more precise rate would be
immaterial.

(6) To record income taxes for Optima as if it were a C corporation during the
periods presented and for the tax effect of the various pro forma
adjustments set forth above. This adjustment is based on a combined
effective Federal and state statutory rate of 48.3% and 46.8% during the
fiscal year ended January 31, 1998 and six months ended July 31, 1998,
respectively.

F-33
<PAGE>
[DESCRIPTION OF INSIDE BACK COVER GRAPHIC]

A large, solid outer circle and a smaller inner circle composed of
arrows appearing within the larger circle appears at the center of the top-half
of the page. The top three-quarters of the larger outer circle has the caption
"THE AUTOMATED SOFTWARE LIFE CYCLE" super-imposed on it. The caption "Change Man
Automates The Life Cycle With A Proven Process!" appears at the center of the
smaller inner circle composed of arrows. At the one o'clock position of the
smaller inner circle, the caption "validate & audit" is superimposed on an
arrow. Moving clock-wise, the caption "freeze test approve" is superimposed on
an arrow. Continuing to move clock-wise, the caption "synchronize" is
super-imposed on an arrow appearing at the six o'clock position. Still moving
clock-wise, the caption "install" is super-imposed on the blunt part of an
arrow. The pointed part of the arrow is bent 90 degrees such that the pointed
part of the arrow moves beyond the larger outer circle. The caption "backout" is
superimposed on the pointed part of the arrow. Resuming the movement clockwise
on the inner circle, an arrow with the caption "checkout create" super-imposed
on it appears between the nine and the ten o'clock positions. Finally, the
caption "develop & stage" is super-imposed on an arrow at the eleven o'clock
position of the inner circle.

The text appearing on the bottom half of the page is as follows: SERENA
provides comprehensive SCM products and services for customers to establish an
automated infrastructure which manages and controls change throughout the
software application life cycle. Change Man, SERENA's flagship product provides:

- full life cycle management

- consistent process management

- high adaptability for fast implementation and control

- online management of approvals and authorizations

- management of concurrent development efforts

- code freezing to prevent further development while testing

- auditing and automating the back-out of changes

Change Man is a flexible, compatible SCM solution that supports multiple
database platforms and integrates easily with existing IT environments by using
standard IBM programming languages and working with existing customer security
systems, libraries, and inventory lists.

The above-described graphic and text is super-imposed against a scaled
back photographic background of binary number sequences.
<PAGE>
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6,000,000 SHARES

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COMMON STOCK

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PROSPECTUS

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HAMBRECHT & QUIST

SG COWEN

SOUNDVIEW TECHNOLOGY GROUP

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February 11, 1999

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YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE
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