1998 Employee Stock Purchase Plan



 Exhibit 10.3 
  
 MICROMUSE INC. 
  
 1998 EMPLOYEE STOCK PURCHASE PLAN 
  
 (AS AMENDED AND
RESTATED EFFECTIVE FEBRUARY 1, 2005) 







 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	  	3
	 (f)
	  	Equal Rights and Privileges	  	3
		
	SECTION 5. EMPLOYEE CONTRIBUTIONS	  	3
	 (a)
	  	Frequency of Payroll Deductions	  	3
	 (b)
	  	Amount of Contributions	  	3
	 (c)
	  	Changing Withholding Rate	  	3
	 (d)
	  	Discontinuing Contributions	  	3
	 (e)
	  	Limit on Number of Elections	  	4
		
	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	  	5
	 (a)
	  	Plan Accounts	  	5
	 (b)
	  	Purchase Price	  	5
	 (c)
	  	Number of Shares Purchased	  	5
	 (d)
	  	Available Shares Insufficient	  	5
	 (e)
	  	Issuance of Stock	  	5
	 (f)
	  	Unused Cash Balances	  	6
	 (g)
	  	Stockholder Approval	  	6

  

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	 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.	  	8
		
	SECTION 14. STOCK OFFERED UNDER THE PLAN	  	8
	 (a)
	  	Authorized Shares	  	8
	 (b)
	  	Anti-Dilution Adjustments	  	8
	 (c)
	  	Reorganizations	  	8
		
	SECTION 15. AMENDMENT OR DISCONTINUANCE	  	8
		
	SECTION 16. GOVERNING LAW	  	9
		
	SECTION 17. DEFINITIONS	  	9
	 (a)
	  	Accumulation Period	  	9
	 (b)
	  	Affiliate	  	9
	 (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	  	10
	 (k)
	  	Fair Market Value	  	10
	 (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	  	11
	 (s)
	  	Purchase Price	  	11
	 (t)
	  	Section 423 Plan	  	11
	 (u)
	  	Stock	  	11
	 (v)
	  	Subsidiary	  	11
		
	SECTION 18. SUB-PLAN	  	12
		
	SECTION 19. EXECUTION	  	14

  

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 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 February 1, 2005. Eligible Employees not participating in the Plan as of February 1, 2005 are eligible to participate in the Sub-Plan to the Micromuse Inc. 1998
Employee Stock Purchase Plan for New Participants as of February 1, 2005, attached hereto as Section 18. 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. (Please note: This sub-section does not apply to Participants who enroll on or after February 1, 2005, please refer to Section 18. Sub-Plan.) 
  
 (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. (Please note: This sub-section does not apply to Participants who enroll on or after February 1, 2005, please refer to Section 18. Sub-Plan.) 
  
 (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. To the extent that a Participant withdraws from the Plan and wishes to become a Participant again after the February 1, 2005 Offering Period has begun, that individual will be enrolled in the Sub-Plan
to the Micromuse Inc. 1998 Employee Stock Purchase Plan as of February 1, 2005. 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. 
  

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 (e) Applicable Offering Period. (Please note: This sub-section does not apply to Participants who
enroll on or after February 1, 2005, please refer to Section 18. Sub-Plan.) 
  
 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 or (B) the end of his or her participation under Subsection (d) above. 
  
 (ii) 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. However, to the extent that a Participant reaches the end of an Offering Period after February 1, 2005, such Participant
shall automatically be re-enrolled in the Sub-Plan to the Micromuse Inc. 1998 Employee Stock Purchase Plan for the Offering Period that commences immediately after the end of the prior Offering Period under the Plan. 
  
 (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 

  

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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. 
  
 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 as described in Section 4. 
  
 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. 
  

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 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. (Please note: This sub-section does not apply to
Participants who enroll on or after February 1, 2005, please refer to Section 18. Sub-Plan.) 
  
 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 
  
 (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, 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 

  

 5 








 
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. 
  

(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).

  

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 (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. 
  
 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. 
  

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 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, subject to adjustment
pursuant to this Section 14. Such number shall automatically be increased by 160,000 shares on the first day of each fiscal year of the Company, commencing with October 1, 1999, subject to adjustment pursuant to this Section 14. 
  
 (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. 
  

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 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. 
  
 (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. 
  

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 (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;

  
 (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). (Please note: This sub-section does not apply to Participants who enroll on or after February 1, 2005, please refer to
Section 18. Sub-Plan.) 
  
 (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. 
  


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 (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. 
  

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 SECTION 18. SUB-PLAN 
  
 Sub-Plan to the 
 Micromuse Inc.

 1998 Employee Stock Purchase Plan 
 For New Participants 
 As of February 1, 2005 
  
 I. PURPOSE OF THE SUB-PLAN. 
  
 Micromuse Inc. has established the 1998 Employee Stock Purchase Plan (the
“Plan”) 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. 
  
 Sections 2 and 3 of the Plan specifically authorize the Committee to adopt rules and make other policy decisions with regard to the administration and
operation of the Plan. The Committee has determined that it is appropriate and advisable to establish a sub-plan to the Plan, with effect from February 1, 2005, for the purpose of allowing Eligible Employees to participate in a modified form of the
Plan beginning with the February 1, 2005 Offering Period in order to reduce the expense charge associated with the offering of this equity program. The terms of the Plan shall, subject to the modifications in the following rules, constitute the
Sub-Plan to the Micromuse Inc. 1998 Employee Stock Purchase Plan for New Participants as of February 1, 2005 (the “Sub-Plan”). 
  
 II. TERMS OF THE SUB-PLAN. 
  
 Capitalized terms not otherwise defined herein shall have the same meanings as set forth in the Plan. The term set out below will have the following
meaning: 
  
 “Offering Periods”, for purposes of
the Sub-Plan, means a 6-months period with respect to which the right to purchase Stock may be granted under the Sub-Plan, as determined pursuant to Section 4(a). 
  
 III. ELIGIBILITY TO PARTICIPATE IN THE SUB-PLAN. 
  
 A. All Eligible Employees who are not currently participating in the Plan as of February 1, 2005 and who enroll in any
Offering Period which commences on or after February 1, 2005, shall be deemed to be participating in the Sub-Plan. 
  

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 B. All Eligible Employees who are currently participating in the Plan and who continue to participate in
any Offering Period which commences after February 1, 2005, shall be deemed to be participating in the Sub-Plan. 
  
 SECTION 4. ENROLLMENT AND PARTICIPATION. 
  
 THE FOLLOWING SUB-SECTIONS OF SECTION 4 WILL REPLACE THE EQUIVALENT SUB-SECTIONS FOUND IN THE PLAN FOR PURPOSES OF THE OPERATION OF THE SUB-PLAN:

  
 (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 6-month periods commencing on each August 1 and February 1. The first Offering Period for purposes of the Sub-Plan shall commence on
February 1, 2005. The duration and timing of Offering Periods may be changed or modified by the Committee. 
  
 (b) Accumulation Periods. While the Sub-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. The first Accumulation Period for purposes of the Sub-Plan shall commence on February 1, 2005. The duration and timing of Accumulation Periods may be changed or
modified by the Committee. 
  
 (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 or (B) the end of his or her participation under Subsection (d) above. 
  
 (ii) 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 of the Sub-Plan that commences immediately after the end of the prior Offering Period. 
  
 SECTION 8. PLAN ACCOUNTS AND PURCHASE OF SHARES. 
  
 THE FOLLOWING SUB-SECTION OF SECTION 8 WILL REPLACE THE EQUIVALENT SUB-SECTION FOUND IN THE PLAN FOR PURPOSES OF THE OPERATION OF THE SUB-PLAN:

  
 (b) Purchase Price. For purposes of the Sub-Plan,
the purchase price for each share of stock purchased at the close of an Offering Period shall be 85% of the Fair Market Value of such share on the last trading day of the applicable Offering Period (as determined under Section 4(e)). 
  

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 SECTION 19. EXECUTION. 
  

To record the amendment and restatement of the Plan by the Board on February 1, 2005, the Company has caused its authorized officer to execute the
same. 
  

			
	MICROMUSE INC.
		
	By:	 	 /s/ Lloyd A. Carney


	Title:	 	Chairman and Chief Executive Officer


  

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