Exhibit 10.3

 

MICROMUSE INC.

 

1998 EMPLOYEE STOCK PURCHASE PLAN

 

(AS AMENDED AND RESTATED EFFECTIVE JUNE 1, 2004)

 

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

TABLE OF CONTENTS

 

          Page

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

SECTION 1. PURPOSE OF THE PLAN

   1

SECTION 2. ADMINISTRATION OF THE PLAN

   1

(a)

  

Committee Composition

   1

(b)

  

Committee Responsibilities

   1

SECTION 3. COMMITTEE RULES FOR FOREIGN JURISDICTIONS AND THE NON-423 PLAN

   1

(a)

  

Special Rules and Procedures

   1

(b)

  

Non-423 Plan

   1

SECTION 4. ENROLLMENT AND PARTICIPATION

   2

(a)

  

Offering Periods

   2

(b)

  

Accumulation Periods

   2

(c)

  

Enrollment

   2

(d)

  

Duration of Participation

   2

(e)

  

Applicable Offering Period

   2

(f)

  

Equal Rights and Privileges

   3

SECTION 5. EMPLOYEE CONTRIBUTIONS

   3

(a)

  

Frequency of Payroll Deductions

   3

(b)

  

Amount of Contributions

   3

(c)

  

Changing Contibution Rate

   3

(d)

  

Discontinuing Contributions

   3

(e)

  

Limit on Number of Elections

   3

SECTION 6. WITHDRAWAL FROM THE PLAN

   4

(a)

  

Withdrawal

   4

(b)

  

Re-Enrollment After Withdrawal

   4

SECTION 7. CHANGE IN EMPLOYMENT STATUS

   4

(a)

  

Termination of Employment

   4

(b)

  

Leave of Absence

   4

(c)

  

Death

   4

SECTION 8. PLAN ACCOUNTS AND PURCHASE OF SHARES

   4

(a)

  

Plan Accounts

   4

(b)

  

Purchase Price

   4

(c)

  

Number of Shares Purchased

   5

(d)

  

Available Shares Insufficient

   5

(e)

  

Issuance of Stock

   5

(f)

  

Unused Cash Balances

   5

(g)

  

Stockholder Approval

   6

 

i

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

SECTION 9. LIMITATIONS ON STOCK OWNERSHIP

   6

(a)

  

Five Percent Limit

   6

(b)

  

Dollar Limit

   6

SECTION 10. RIGHTS NOT TRANSFERABLE

   7

SECTION 11. NO RIGHTS AS AN EMPLOYEE

   7

SECTION 12. NO RIGHTS AS A STOCKHOLDER

   7

SECTION 13. SECURITIES LAW REQUIREMENTS

   7

SECTION 14. STOCK OFFERED UNDER THE PLAN

   7

(a)

  

Authorized Shares

   7

(b)

  

Anti-Dilution Adjustments

   8

(c)

  

Reorganizations

   8

SECTION 15. AMENDMENT OR DISCONTINUANCE

   8

SECTION 16. GOVERNING LAW

   8

SECTION 17. DEFINITIONS

   8

(a)

  

Accumulation Period

   8

(b)

  

Affiliate

   8

(c)

  

Board

   9

(d)

  

Code

   9

(e)

  

Committee

   9

(f)

  

Company

   9

(g)

  

Compensation

   9

(h)

  

Corporate Reorganization

   9

(i)

  

Eligible Employee

   9

(j)

  

Exchange Act

   9

(k)

  

Fair Market Value

   9

(l)

  

IPO

   10

(m)

  

Non-423 Plan

   10

(n)

  

Offering Period

   10

(o)

  

Participant

   10

(p)

  

Participating Company

   10

(q)

  

Plan

   10

(r)

  

Plan Account

   10

(s)

  

Purchase Price

   10

(t)

  

Section 423 Plan

   10

(u)

  

Stock

   10

(v)

  

Subsidiary

   10

SECTION 18. AUSTRALIA ADDENDUM

   11

SECTION 19. EXECUTION

   15

 

ii

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

MICROMUSE INC.

1998 EMPLOYEE STOCK PURCHASE PLAN

 

SECTION 1.    PURPOSE OF THE PLAN.

 

The Plan was adopted by the Board on January 20, 1998, effective as of the date
of the IPO. The Plan was most recently amended and restated effective as of
April 28, 2004. The purpose of the Plan is to provide Eligible Employees with an
opportunity to increase their proprietary interest in the success of the Company
by purchasing Stock from the Company on favorable terms. The Plan is intended to
qualify under Section 423 of the Code, although the Company makes no undertaking
nor representation to maintain such requirements. In addition, this Plan
document authorizes the grant of options under a non-423 plan which do not
qualify under Section 423 of the Code pursuant to rules, procedures or sub-plans
adopted by the Board or the Committee designed to achieve tax or other desired
objectives.

 

SECTION 2.    ADMINISTRATION OF THE PLAN.

 

(a) Committee Composition. The Plan shall be administered by the Committee. The
Committee shall consist exclusively of one or more directors of the Company, who
shall be appointed by the Board.

 

(b) Committee Responsibilities. The Committee shall interpret the Plan and make
all other policy decisions relating to the operation of the Plan. The Committee
may adopt such rules, guidelines and forms as it deems appropriate to implement
the Plan. The Committee’s determinations under the Plan shall be final and
binding on all persons.

 

SECTION 3.    COMMITTEE RULES FOR FOREIGN JURISDICTIONS AND THE NON-423 PLAN

 

(a) Special Rules and Procedures. The Committee may adopt rules or procedures
relating to the operation and administration of the Plan to accommodate the
specific requirements of local laws and procedures. Without limiting the
generality of the foregoing, the Committee is specifically authorized to adopt
rules and procedures regarding handling of payroll deductions, payment of
interest, conversion of local currency, payroll tax, withholding procedures and
handling of stock certificates which vary with local legal requirements.

 

(b) Non-423 Plan. The Committee may also adopt rules, procedures or sub-plans
applicable to particular Affiliates or locations, which rules, procedures or
sub-plans may be designed to be outside the scope of Code Section 423. The terms
of such rules, procedures or sub-plans may take precedence over other provisions
of this Plan, with the exception of Section 14, but unless otherwise expressly
superseded by the terms of such rule, procedure or sub-plan, the provisions of
this Plan shall govern the operation of the Plan. To the extent inconsistent
with the requirements of Code Section 423, such rules, procedures or sub-plans
shall be considered

 

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

part of the Non-423 Plan, and the options granted thereunder shall not be
considered to comply with Section 423.

 

SECTION 4.    ENROLLMENT AND PARTICIPATION.

 

(a) Offering Periods. While the Plan is in effect, two overlapping Offering
Periods shall commence in each calendar year. The Offering Periods shall consist
of the 24-month periods commencing on each August 1 and February 1, except that
the first Offering Period shall commence on the date of the IPO and end on
January 31, 2000.

 

(b) Accumulation Periods. While the Plan is in effect, two Accumulation Periods
shall commence in each calendar year. The Accumulation Periods shall consist of
the six-month periods commencing on each August 1 and February 1, except that
the first Accumulation Period shall commence on the date of the IPO and end on
July 31, 1998. The duration and timing of Accumulation Periods may be changed or
modified by the Committee.

 

(c) Enrollment. Unless otherwise permitted by the Committee, any individual who,
on the day preceding the first day of an Offering Period, qualifies as an
Eligible Employee may elect to become a Participant in the Plan for such
Offering Period by executing the enrollment form prescribed for this purpose by
the Committee. Unless otherwise permitted by the Company, the enrollment form
shall be filed with the Company at the prescribed location not later than 10
business days prior to the commencement of such Offering Period.

 

(d) Duration of Participation. Once enrolled in the Plan, a Participant shall
continue to participate in the Plan until he or she ceases to be an Eligible
Employee, withdraws from the Plan under Section 6(a) or reaches the end of the
Accumulation Period in which his or her employee contributions were discontinued
under Section 5(d) or 9(b). A Participant who discontinued employee
contributions under Section 5(d) or withdrew from the Plan under Section 6(a)
may again become a Participant, if he or she then is an Eligible Employee, by
following the procedure described in Subsection (c) above. A Participant whose
employee contributions were discontinued automatically under Section 9(b) shall
automatically resume participation at the beginning of the earliest Accumulation
Period ending in the next calendar year, if he or she then is an Eligible
Employee.

 

(e) Applicable Offering Period. For purposes of calculating the Purchase Price
under Section 8(b), the applicable Offering Period shall be determined as
follows:

 

(i) Once a Participant is enrolled in the Plan for an Offering Period, such
Offering Period shall continue to apply to him or her until the earliest of (A)
the end of such Offering Period, (B) the end of his or her participation under
Subsection (d) above or (C) re-enrollment in a subsequent Offering Period under
Paragraph (ii) below.

 

(ii) In the event that the Fair Market Value of Stock on the last trading day
before the commencement of the Offering Period in which the Participant is
enrolled is higher than on the last trading day before the commencement of any

 

2

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

subsequent Offering Period, the Participant shall automatically be re-enrolled
for such subsequent Offering Period.

 

(iii) When a Participant reaches the end of an Offering Period but his or her
participation is to continue, then such Participant shall automatically be
re-enrolled for the Offering Period that commences immediately after the end of
the prior Offering Period.

 

(f) Equal Rights and Privileges. All Eligible Employees who participate in the
Plan shall have the same rights and privileges under the Plan, except for
differences that may be mandated by local law and that are consistent with Code
Section 423(b)(5); provided, however, that Eligible Employees participating in
the Non-423 Plan by means of rules, procedures or sub-plans adopted pursuant to
Section 3(b) need not have the same rights and privileges as Eligible Employees
participating in the Section 423 Plan. The Board may impose restrictions on
eligibility and participation of eligible Employees who are officers and
directors to facilitate compliance with federal or state securities laws or
foreign laws.

 

SECTION 5.    EMPLOYEE CONTRIBUTIONS.

 

(a) Frequency of Payroll Deductions. Unless otherwise determined by the
Committee, a Participant may purchase shares of Stock under the Plan solely by
means of payroll deductions. Payroll deductions, as designated by the
Participant pursuant to Subsection (b) below, shall occur on each payday during
participation in the Plan.

 

(b) Amount of Contributions. An Eligible Employee shall designate on the
enrollment form the portion of his or her Compensation that he or she elects to
contribute for the purchase of Stock. Such portion shall be a whole percentage
of the Eligible Employee’s Compensation, but not less than 1% nor more than 15%.

 

(c) Changing Contribution Rate. If a Participant wishes to change the rate of
contributions to the Plan, he or she may do so by filing a new enrollment form
with the Company at the prescribed location at any time. The new rate shall be
effective as soon as reasonably practicable after such form has been received by
the Company. The new rate shall be a whole percentage of the Eligible Employee’s
Compensation, but not less than 1% nor more than 15%.

 

(d) Discontinuing Contributions. If a Participant wishes to discontinue employee
contributions entirely, he or she may do so by filing a new enrollment form with
the Company at the prescribed location at any time. Contributions shall cease as
soon as reasonably practicable after such form has been received by the Company.
(In addition, employee contributions may be discontinued automatically pursuant
to Section 9(b).) A Participant who has discontinued employee contributions may
resume such contributions by filing a new enrollment form with the Company at
the prescribed location. Payroll withholding shall resume as soon as reasonably
practicable after such form has been received by the Company.

 

(e) Limit on Number of Elections. No Participant shall make more than two
elections under Subsection (c) or (d) above during any Accumulation Period.

 

3

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

SECTION 6.    WITHDRAWAL FROM THE PLAN.

 

(a) Withdrawal. A Participant may elect to withdraw from the Plan by filing the
prescribed form with the Company at the prescribed location at any time before
the last day of an Accumulation Period. As soon as reasonably practicable
thereafter, contributions shall cease and the entire amount credited to the
Participant’s Plan Account shall be refunded to him or her in cash, without
interest unless otherwise required under local law. No partial withdrawals shall
be permitted.

 

(b) Re-Enrollment After Withdrawal. A former Participant who has withdrawn from
the Plan shall not be a Participant until he or she re-enrolls in the Plan under
Section 4(c). Re-enrollment may be effective only at the commencement of an
Offering Period.

 

SECTION 7.    CHANGE IN EMPLOYMENT STATUS.

 

(a) Termination of Employment. Termination of employment as an Eligible Employee
for any reason, including death, shall be treated as an automatic withdrawal
from the Plan under Section 6(a). (A transfer from one Participating Company to
another shall not be treated as a termination of employment.)

 

(b) Leave of Absence. For purposes of the Plan, employment shall not be deemed
to terminate when the Participant goes on a military leave, a sick leave or
another bona fide leave of absence, if the leave was approved by the Company in
writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work.

 

(c) Death. In the event of the Participant’s death, the amount credited to his
or her Plan Account shall be paid to a beneficiary designated by him or her for
this purpose on the prescribed form as permitted by the Company or, if none, to
the Participant’s estate. Such form shall be valid only if it was filed with the
Company at the prescribed location before the Participant’s death.

 

SECTION 8.    PLAN ACCOUNTS AND PURCHASE OF SHARES.

 

(a) Plan Accounts. The Company shall maintain a Plan Account on its books in the
name of each Participant. Whenever an amount is deducted from the Participant’s
Compensation or otherwise contributed under the Plan, such amount shall be
credited to the Participant’s Plan Account. Amounts credited to Plan Accounts
shall not be trust funds and may be commingled with the Company’s general assets
and applied to general corporate purposes, unless otherwise required under local
law. No interest shall be credited to Plan Accounts, unless otherwise required
under local law.

 

(b) Purchase Price. The Purchase Price for each share of Stock purchased at the
close of an Accumulation Period shall be the lower of:

 

(i) 85% of the Fair Market Value of such share on the last trading day in such
Accumulation Period; or

 

4

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

(ii) 85% of the Fair Market Value of such share on the last trading day before
the commencement of the applicable Offering Period (as determined under Section
4(e)) or, in the case of the first Offering Period under the Plan, 85% of the
price at which one share of Stock is offered to the public in the IPO.

 

(c) Number of Shares Purchased. As of the last day of each Accumulation Period,
each Participant shall be deemed to have elected to purchase the number of
shares of Stock calculated in accordance with this Subsection (c), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 6(a). The amount then in the Participant’s Plan Account shall be divided
by the Purchase Price, and the number of shares that results shall be purchased
from the Company with the funds in the Participant’s Plan Account. The foregoing
notwithstanding, effective April 28, 2004 for Offering Periods beginning in 2004
and later, no Participant shall purchase more than 1,250 shares of Stock with
respect to any Accumulation Period nor more than the amounts of Stock set forth
in Sections 9(b) and 14(a). The Committee may determine with respect to all
Participants that any fractional share, as calculated under this Subsection (c),
shall be (i) rounded down to the next lower whole share or (ii) credited as a
fractional share.

 

(d) Available Shares Insufficient. In the event that the aggregate number of
shares that all Participants elect to purchase during an Accumulation Period
exceeds the maximum number of shares remaining available for issuance under
Section 14(a), then the number of shares to which each Participant is entitled
shall be determined by multiplying the number of shares available for issuance
by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.

 

(e) Issuance of Stock. Certificates representing the shares of Stock purchased
by a Participant under the Plan shall be issued to him or her as soon as
reasonably practicable after the close of the applicable Accumulation Period,
except that the Committee may determine that such shares shall be held for each
Participant’s benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property to the extent permitted under local law.

 

(f) Unused Cash Balances. An amount remaining in the Participant’s Plan Account
that represents the Purchase Price for any fractional share shall be carried
over in the Participant’s Plan Account to the next Accumulation Period. Any
amount remaining in the Participant’s Plan Account that represents the Purchase
Price for whole shares that could not be purchased by reason of Subsection (c)
above, Section 9(b) or Section 14(a) shall be refunded to the Participant in
cash, without interest, unless otherwise required under local law.

 

5

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

(g) Stockholder Approval. Any other provision of the Plan notwithstanding, no
shares of Stock shall be purchased under the Plan unless and until the Company’s
stockholders have approved the adoption of the Plan.

 

SECTION 9.    LIMITATIONS ON STOCK OWNERSHIP.

 

(a) Five Percent Limit. Any other provision of the Plan notwithstanding, no
Participant shall be granted a right to purchase Stock under the Plan if such
Participant, immediately after his or her election to purchase such Stock, would
own stock possessing 5% or more of the total combined voting power or value of
all classes of stock of the Company or any parent or Subsidiary of the Company.
For purposes of this Subsection (a), the following rules shall apply:

 

(i) Ownership of stock shall be determined after applying the attribution rules
of Section 424(d) of the Code;

 

(ii) Each Participant shall be deemed to own any stock that he or she has a
right or option to purchase under this or any other plan; and

 

(iii) Each Participant shall be deemed to have the right to purchase 1,250
shares of Stock under this Plan with respect to each Accumulation Period.

 

(b) Dollar Limit. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:

 

(i) In the case of Stock purchased during an Offering Period that commenced in
the current calendar year, the limit shall be equal to (A) $25,000 minus (B) the
Fair Market Value of the Stock that the Participant previously purchased in the
current calendar year (under this Plan and all other employee stock purchase
plans of the Company or any parent or Subsidiary of the Company).

 

(ii) In the case of Stock purchased during an Offering Period that commenced in
the immediately preceding calendar year, the limit shall be equal to (A) $50,000
minus (B) the Fair Market Value of the Stock that the Participant previously
purchased (under this Plan and all other employee stock purchase plans of the
Company or any parent or Subsidiary of the Company) in the current calendar year
and in the immediately preceding calendar year.

 

(iii) In the case of Stock purchased during an Offering Period that commenced in
the second preceding calendar year, the limit shall be equal to (A) $75,000
minus (B) the Fair Market Value of the Stock that the Participant previously
purchased (under this Plan and all other employee stock purchase plans of the
Company or any parent or Subsidiary of the Company) in the current calendar year
and in the two preceding calendar years.

 

6

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

For purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. Employee stock purchase plans not described in Section 423
of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Accumulation Period ending in the next calendar
year (if he or she then is an Eligible Employee).

 

SECTION 10.    RIGHTS NOT TRANSFERABLE.

 

The rights of any Participant under the Plan, or any Participant’s interest in
any Stock or moneys to which he or she may be entitled under the Plan, shall not
be transferable by voluntary or involuntary assignment or by operation of law,
or in any other manner other than by beneficiary designation or the laws of
descent and distribution. If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or interest under the Plan, other
than by beneficiary designation or the laws of descent and distribution, then
such act shall be treated as an election by the Participant to withdraw from the
Plan under Section 6(a).

 

SECTION 11.    NO RIGHTS AS AN EMPLOYEE.

 

Nothing in the Plan or in any right granted under the Plan shall confer upon the
Participant any right to continue in the employ of a Participating Company for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Participating Companies or of the Participant, which
rights are hereby expressly reserved by each, to terminate his or her employment
at any time and for any reason, with or without cause.

 

SECTION 12.    NO RIGHTS AS A STOCKHOLDER.

 

A Participant shall have no rights as a stockholder with respect to any shares
of Stock that he or she may have a right to purchase under the Plan until such
shares have been purchased on the last day of the applicable Accumulation
Period.

 

SECTION 13.    SECURITIES LAW REQUIREMENTS.

 

Shares of Stock shall not be issued under the Plan unless the issuance and
delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the United States Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, any applicable foreign law and the regulations
of any stock exchange or other securities market on which the Company’s
securities may then be traded.

 

SECTION 14.    STOCK OFFERED UNDER THE PLAN.

 

(a) Authorized Shares. The aggregate number of shares of Stock available for
purchase under the Plan shall be 300,000, as of January 20, 1998 subject to
adjustment pursuant

 

7

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

to this Section 14. Such number shall automatically be increased by 160,000
shares, as of January 28, 1998 on the first day of each fiscal year of the
Company, commencing with October 1, 1999, subject to adjustment pursuant to this
Section 14. The foregoing numbers are as originally stated in the Plan when it
was adopted on January 28, 1998 and do not reflect the adjustment made to the
aggregate number of shares offered under the Plan as a result of the two 2:1
stock splits in February 2000 and December 2000.

 

(b) Anti-Dilution Adjustments. The aggregate number of shares of Stock offered
under the Plan, the 1,250-share limitation described in Section 8(c) and the
price of shares that any Participant has elected to purchase shall be adjusted
proportionately by the Committee for any increase or decrease in the number of
outstanding shares of Stock resulting from a subdivision or consolidation of
shares or the payment of a stock dividend, any other increase or decrease in
such shares effected without receipt or payment of consideration by the Company,
the distribution of the shares of a Subsidiary to the Company’s stockholders or
a similar event.

 

(c) Reorganizations. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period and Accumulation Period then in progress shall terminate and
shares shall be purchased pursuant to Section 8, unless the Plan is assumed by
the surviving corporation or its parent corporation pursuant to the plan of
merger or consolidation. The Plan shall in no event be construed to restrict in
any way the Company’s right to undertake a dissolution, liquidation, merger,
consolidation or other reorganization.

 

SECTION 15.    AMENDMENT OR DISCONTINUANCE.

 

The Board shall have the right to amend, suspend or terminate the Plan at any
time and without notice. Except as provided in Section 14, any increase in the
aggregate number of shares of Stock to be issued under the Plan shall be subject
to approval by a vote of the stockholders of the Company. In addition, any other
amendment of the Plan shall be subject to approval by a vote of the stockholders
of the Company to the extent required by an applicable law or regulation.

 

SECTION 16.    GOVERNING LAW.

 

This Plan shall be governed by Delaware law, without regard to that State’s
choice of law rules.

 

SECTION 17.    DEFINITIONS.

 

(a) “Accumulation Period” means a six-month period during which contributions
may be made toward the purchase of Stock under the Plan, as determined pursuant
to Section 4(b).

 

(b) “Affiliate” means any (i) Subsidiary and (ii) any other entity in which the
Company has an equity interest.

 

8

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

(c) “Board” means the Board of Directors of the Company, as constituted from
time to time.

 

(d) “Code” means the United States Internal Revenue Code of 1986, as amended.

 

(e) “Committee” means a committee of the Board, as described in Section 2.

 

(f) “Company” means Micromuse Inc., a Delaware corporation.

 

(g) “Compensation” means (i) the total compensation paid in cash to a
Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under Sections 401(k) or 125
of the Code. “Compensation” shall exclude all non-cash items, moving or
relocation allowances, cost-of-living equalization payments, car allowances,
tuition reimbursements, imputed income attributable to cars or life insurance,
severance pay, fringe benefits, contributions or benefits received under
employee benefit plans, income attributable to the exercise of stock options,
and similar items. The Committee shall determine whether a particular item is
included in Compensation.

 

(h) “Corporate Reorganization” means:

 

(i) The consummation of a merger or consolidation of the Company with or into
another entity or any other corporate reorganization; or

 

(ii) The sale, transfer or other disposition of all or substantially all of the
Company’s assets or the complete liquidation or dissolution of the Company.

 

(i) “Eligible Employee” means any employee of a Participating Company whose
customary employment is for more than five months per calendar year and for more
than 20 hours per week, unless an employee whose customary employment is less
than these thresholds is otherwise required to be eligible to participate under
local law. The foregoing notwithstanding, an individual shall not be considered
an Eligible Employee if his or her participation in the Plan is prohibited by
the law of any country which has jurisdiction over him or her or if he or she is
subject to a collective bargaining agreement that does not provide for
participation in the Plan.

 

(j) “Exchange Act” means the United States Securities Exchange Act of 1934, as
amended.

 

(k) “Fair Market Value” means the market price of Stock, determined by the
Committee as follows:

 

(i) If the Stock was traded on The Nasdaq National Market on the date in
question, then the Fair Market Value shall be equal to the last-transaction
price quoted for such date by The Nasdaq National Market;

 

9

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

(ii) If the Stock was traded on a stock exchange on the date in question, then
the Fair Market Value shall be equal to the closing price reported by the
applicable composite transactions report for such date; or

 

(iii) If none of the foregoing provisions is applicable, then the Fair Market
Value shall be determined by the Committee in good faith on such basis as it
deems appropriate.

 

Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal or as reported
directly to the Company by Nasdaq or a stock exchange. Such determination shall
be conclusive and binding on all persons.

 

(l) “IPO” means the initial offering of Stock to the public pursuant to a
registration statement filed by the Company with the United States Securities
and Exchange Commission.

 

(m) “Non-423 Plan” means an employee stock purchase plan which does not meet the
requirements set forth in Code Section 423.

 

(n) “Offering Period” means a 24-month period with respect to which the right to
purchase Stock may be granted under the Plan, as determined pursuant to Section
4(a).

 

(o) “Participant” means an Eligible Employee who elects to participate in the
Plan, as provided in Section 4(c).

 

(p) “Participating Company” means (i) the Company and (ii) each present or
future Affiliate designated by the Committee as a Participating Company. In the
event that the Participating Company is not a Subsidiary, it shall be designated
for participation in the Non-423 Plan.

 

(q) “Plan” means this Micromuse Inc. 1998 Employee Stock Purchase Plan, as it
may be amended from time to time.

 

(r) “Plan Account” means the account established for each Participant pursuant
to Section 8(a).

 

(s) “Purchase Price” means the price at which Participants may purchase Stock
under the Plan, as determined pursuant to Section 8(b).

 

(t) “Section 423 Plan” means an employee stock purchase plan which is designed
to meet the requirements set forth in Code Section 423.

 

(u) “Stock” means the Common Stock of the Company.

 

(v) “Subsidiary” means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company, if each of the corporations
other than the last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.

 

10

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

SECTION 18.  AUSTRALIA ADDENDUM

 

AUSTRALIA ADDENDUM

for the

1988 EMPLOYEE STOCK PURCHASE PLAN

 

1. Purpose

 

This Addendum (the “Australian Addendum”) to the Micromuse, Inc. 1998 Employee
Stock Purchase Plan is hereby adopted to set forth certain rules which, together
with those provisions of the U.S. Plan which are not modified by this addendum
to ensure compliance with the Class Order (see below)), shall govern the
operation of the Plan with respect to Australian-resident employees of Micromuse
and its Participating Companies located in Australia. The Plan is intended to
comply with the provisions of the Corporations Act 2001, ASIC Policy Statement
49 and ASIC Class Order 03/184 (the “Class Order”).

 

2. Definitions

 

Except as set out below, capitalized terms used herein shall have the meaning
ascribed to them in the U.S. Plan. In the event of any conflict between these
provisions and the U.S. Plan, these provisions shall prevail.

 

For the purposes of this Australian Addendum:

 

“ASIC” means the Australian Securities & Investments Commission;

 

“Australian Subsidiary(ies)” means Micromuse Australia Pty Ltd;

 

“Company” means Micromuse, Inc.;

 

“Micromuse” means Micromuse, Inc.;

 

“Plan” means the U.S. Plan as modified for implementation in Australia by the
Australian Addendum;

 

“Stock” means the common stock, US$0.01 par value, of the Company; and

 

“U.S. Plan” means the Micromuse, Inc. 1998 Employee Stock Purchase Plan.

 

3. Forms of Awards

 

Only ordinary shares of Stock and options or rights to acquire shares of Stock
shall be awarded or offered under the Plan in Australia.

 

4. Employees

 

In Australia, the Plan must be extended only to persons who at the time of the
offer are full or part-time employees or directors of the Company or an
Australian Subsidiary.

 

11

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

5. Form of Offer

 

5.1 Any offer made in Australia to participate in the Plan must be included in a
document (“Offer Document”) which sets out the terms of the offer and which must
include or be accompanied by a copy of the rules of the Plan, or a summary of
the rules of the Plan. Where a summary only is provided with the offer, the
Offer Document must include an undertaking that during the Offering Period, the
Company or its Australian subsidiary will, within a reasonable period of the
offeree so requesting, provide the offeree without charge with a copy of the
rules of the Plan.

 

The Offer Document must also state:

 

  (a) the name of the Australian bank where the offeree’s contributions are
held;

 

  (b) the length of time they may be held;

 

  (c) the rate of interest payable (if any) on the contributions held in the
account.

 

5.2 The Company must take reasonable steps to ensure that any offeree to whom an
offer is made is given a copy of the Offer Document.

 

  6. Australian Dollar Equivalent of Purchase Price at Offer Date

 

The Offer Document must specify the Australian dollar equivalent of the Purchase
Price of the Stock as if the Purchase Price formula were applied at the date of
the Offer Document.

 

  7. Updated Purchase Price Information

 

The Offer Document must include an undertaking that the Company will, during the
Offering Period and within a reasonable period of an offeree so requesting, make
available to the offeree the following information:

 

  (i) the Australian dollar equivalent of the current market price of shares in
the same class as the shares of Stock to which the offer relates; and

 

  (ii) the Australian dollar equivalent of the Purchase Price,

 

as at the date of the offeree’s request.

 

For the purposes of this clause, the current market price of a share of Stock
shall be taken as the closing price published by the National Association of
Securities Dealers on the NASDAQ National Market for the previous trading day.

 

  8. Exchange Rate for Australia Dollar Equivalent of the Purchase Price

 

For the purposes of clauses 6 and 7, the Australian dollar equivalent of the
Purchase Price and current market price of shares of Stock shall be calculated
by reference to the Australian/U.S. dollar exchange rate published by an
Australian bank (the “Bank”) no earlier than the business day before the day to
which the price relates.

 

12

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

  9. No Loan or Financial Assistance

 

Neither the Company nor any Australian Subsidiary may offer offerees any loan or
other financial assistance for the purpose of, or in connection with, acquiring
the Stock to which the offer relates.

 

  10. Restriction on Capital Raising: 5% limit

 

The number of shares of Stock that are the subject of the offer under the Plan,
or to be received on exercise of an option when aggregated with:

 

  (a) the number of shares of Stock in the same class which would be issued were
each outstanding offer of shares of Stock or Option to acquire unissued shares
of Stock under the Plan or any other employee share scheme of the Company,
accepted or exercised (as the case may be); and

 

  (b) the number of shares of Stock in the same class issued during the previous
five years pursuant to the Plan or any other employee share scheme extended only
to employees or directors of the Company or of associated bodies corporate of
the Company;

 

but disregarding any offer made, or option acquired or shares of Stock issued by
way or as a result of:

 

  (c) an offer to a person situated at the time of receipt of the offer outside
Australia;

 

  (d) an offer that was an excluded offer or invitation within the meaning of
the Corporations Law as it stood prior to 13 March 2000;

 

  (e) an offer that did not require disclosure to investors because of section
708 of the Corporations Act 2001;

 

  (f) an offer that did not require the giving of a Product Disclosure Statement
because of section 1012D of the Corporations Act 2001; or

 

  (g) an offer made under a disclosure document or a Product Disclosure
Statement,

 

must not exceed 5% of the total number of issued shares in that class of shares
of the Company as at the time of the offer or invitation.

 

  11. Lodgment of Offer Document with the ASIC

 

A copy of the Offer Document (which need not contain details of the offer
particular to the offeree such as the identity or entitlement of that offeree)
and each accompanying document must be provided to ASIC not later than 7 days
after the provision of that material to the offeree.

 

  12. Compliance with Undertakings

 

The Company or an Australian Subsidiary must comply with any undertaking
required to be made in the Offer Document by reason of the Class Order.

 

13

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

  13. Contribution Plan

 

All deductions from wages or salary made in connection with participation in the
Plan must be authorized by the offeree on the same form of application which is
used in respect of the offer, or on a form that is included in or accompanies
the Offer Document.

 

Any contributions made by an offeree as part of the Plan must be held by the
Company in trust for the offeree in an account of an Australian bank (the
“Bank”) which is established and kept by the Company solely for the purpose of
depositing contribution moneys and other money paid by offerees for the Stock on
offer under the Plan.

 

The Australian offeree may elect to discontinue their participation in the Plan
under procedures established under the Plan at any time up to the end of each
Accumulation Period. As soon as practicable after that election is made, all
money deposited with the bank in relation to that offeree including any
accumulated interest must be repaid to that offeree.

 

14

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

SECTION 19.    EXECUTION.

 

To record the amendment and restatement of the Plan by the Board on April 28
2004, the Company has caused its authorized officer to execute the same.

 

MICROMUSE INC.

By:

   

Title:

   

 

15