EXHIBIT 10.12
 
[MICROMUSE LOGO]
 
Private and Confidential
 
October 1, 2001
 
Mike Luetkemeyer
22 E. Riverside Drive
Jupiter, Florida 33469
 
Dear Mike:
 
On behalf of the management team and Greg Brown, we are pleased to extend this
offer of employment to you.
 
1.
 
Your position title will be Senior Vice President of Micromuse Inc. (“Micromuse”
or “Company”). You will report to Greg Brown.

 
2.
 
Your start date will be October 1, 2001. No later than 24 October the Board will
appoint you to the position of Chief Financial Officer and name you as the
principal accounting officer of the Company.

 
3.
 
You will be paid a base salary of $10,416.67 semi-monthly, the equivalent of
$250,000.00 per annum. Additionally, you are offered the opportunity of earning
$175,000.00 per annum in bonus compensation, of which the first year is
guaranteed, thus furthering your earning potential to $425,000.00. Bonuses will
be paid per quarter based on Micromuse evaluation of individual and Company
performance and are paid a month in arrears of quarter end. If the Company
terminates your employment or in the event of a change of control as defined in
the Company’s shareholder approved stock option plan (“Plan”), you shall be
guaranteed to receive your base salary and pro rated target bonus for the year
following such termination or change of control, provided you are not terminated
for good cause (e.g., conviction of, or a pleas of nolo contendere with respect
to, a crime involving moral turpitude or a felony; refusal to perform, or gross
negligence in the performance of your duties to the Company; or an act of
willful misfeasance by you that is intended to result in substantial personal
enrichment at the expense of the Company or its subsidiaries or successor in
interest) by the Company or its successor in interest.

 
Additionally, you are eligible for relocation package assistance on your planned
move to the San Francisco area. Enclosed for your review is a copy of our
enhanced Domestic Relocation Policy.
 
4.
 
A performance evaluation will be scheduled approximately twelve (12) months from
your date of hire. At the discretion of the manager, a performance evaluation
may be conducted six months from the date of hire.

 
5.
 
Stock Options: Subject to approval of the Board, you will receive a
non-qualified option grant to purchase 400,000 shares of the Common Stock of
Micromuse Inc. at the fair market value

1

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

 
of the stock (the closing price) on the later of your starting date or the date
approved by the Board soon after your starting date (the “Vesting Commencement
Date”).
 
Of these option shares, 133,333 (one third (33 1/3%) are scheduled to vest on
the nine month anniversary of the option grant date and the remainder of the
option shares are scheduled vest in equal monthly installments over the
following 27 months, subject to the terms of the applicable Option Plan
documents and agreement and provided that you remain an employee of Micromuse.
 
In the event of a change of control of Micromuse as defined in the Plan
documents, you will be entitled to accelerated vesting of unvested option shares
as follows: (a) if the change of control occurs during the first nine (9) months
of your employment, you will vest in 133,333 (1/3) of the 400,000 option shares,
and (b) if the change of control occurs after the first nine months of your
employment, then you shall vest in fifty percent (50%) of the option shares that
are unvested at the time such change of control closes. The foregoing option
acceleration is conditioned upon you being a regular, full-time employee in good
standing at that time of the close of such change of control and that within one
year of such change of control your employment is terminated or your duties are
substantially decreased by Micromuse or by any successor entity.
 
6.
 
Employee benefits, effective the first of the month following your date of hire,
include the following, which are subject to change by Micromuse over time:

 

 
•
 
Group health insurance (medical, dental, vision, EAP) that is fully paid by the
Company;

 
•
 
Long term disability insurance, paid by the Company

 
•
 
Life insurance and AD&D, equivalent one times your annual base salary, paid by
the Company;

 
•
 
Flexible Spending Account (pretax dollars for medical and dependent care
expenses);

 
•
 
401(k) Plan, up to maximum of $10,500 per year (for year 2000).

 
•
 
10 Holidays per year

 
•
 
Up to 6 days paid time off for sick or personal business

 
7.
 
You may participate in the Employee Stock Purchase Plan (ESPP) on either of the
two entry dates of February 1 or August 1 and may elect contributions of up to
15% base pay.

 
8.
 
You are required to work exclusively for Micromuse Inc. and its subsidiaries and
affiliates and to accept the confidential and proprietary nature of our
business. A condition of your employment is that you sign and follow the terms
of the enclosed Proprietary Information, Inventions, and Non-Solicitation
Agreement.

 
9.
 
As an exempt employee, you will not be eligible for overtime pay. It is expected
that you will adapt your schedule to your level of responsibilities and the
expectations of the Company and your customers.

 
10.
 
Normal business expenses incurred in the execution of your duties will be
reimbursed in accordance with the Company’s policies and procedures.

 
11.
 
Micomuse reserves the right to rescind this offer or terminate employment upon
receipt of unsatisfactory background check information.

 
You will indicate your acceptance of this offer by agreeing to, signing and
returning the following:
 
a.    this offer letter, and

2

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

 
b.    the enclosed Proprietary Information, Inventions, and Non-solicitation
Agreement;
c.    the Micromuse Application Form and accompanying forms;
d.    the Receipt and Acknowledgment of Policies and Employment At Will
Agreement.
 
If you have any questions regarding this offer letter, please feel free to
contact Jim De Golia at 415.817.1086/415.819.8026 or Greg Brown at 917.376.7727
 
We look forward to welcoming you to Micromuse.
 
Sincerely,
 
Frank Sole
Director of Staffing & Employee Relations
Human Resources
 
Enclosures

3