1997 Stock Option/Stock Issuance Plan



 Exhibit 10.2 
  
 MICROMUSE INC. 
  
 1997 STOCK OPTION/STOCK ISSUANCE PLAN 
  
 (AS AMENDED AND
RESTATED THROUGH OCTOBER 1, 2003) 







 TABLE OF CONTENTS 
  

	 	  	Page


	 ARTICLE I. GENERAL PROVISIONS
	  	1
			
	 	 	 I. PURPOSE OF THE PLAN
	  	1
			
	 	 	 II. STRUCTURE OF THE PLAN
	  	1
			
	 	 	 III. ADMINISTRATION OF THE PLAN
	  	1
			
	 	 	 IV. ELIGIBILITY
	  	2
			
	 	 	 V. STOCK SUBJECT TO THE PLAN
	  	3
		
	 ARTICLE II. DISCRETIONARY OPTION GRANT PROGRAM
	  	5
			
	 	 	 I. OPTION TERMS
	  	5
	 	 	 	  	A. Exercise Price	  	5
	 	 	 	  	B. Exercise and Term of Options	  	6
	 	 	 	  	C. Effect of Termination of Service	  	6
	 	 	 	  	D. Stockholder Rights	  	7
	 	 	 	  	E. Repurchase Rights	  	7
	 	 	 	  	F. First Refusal Rights	  	7
	 	 	 	  	G. Limited Transferability of Options	  	7
			
	 	 	 II. INCENTIVE OPTIONS
	  	7
	 	 	 	  	A. Eligibility	  	8
	 	 	 	  	B. Exercise Price	  	8
	 	 	 	  	C. Dollar Limitation	  	8
	 	 	 	  	D. 10% Stockholder	  	8
			
	 	 	 III. CORPORATE TRANSACTION/CHANGE IN CONTROL
	  	8
			
	 	 	 IV. CANCELLATION AND REGRANT OF OPTIONS
	  	10
			
	 	 	 V. STOCK APPRECIATION RIGHTS
	  	10
		
	 ARTICLE III. STOCK ISSUANCE PROGRAM
	  	12
			
	 	 	 I. STOCK ISSUANCE TERMS
	  	12
	 	 	 	  	A. Purchase Price	  	12
	 	 	 	  	B. Vesting Provisions	  	12
			
	 	 	 II. CORPORATE TRANSACTION/CHANGE IN CONTROL
	  	13

  

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	 	 	 III. SHARE ESCROW/LEGENDS
	  	14
		
	 ARTICLE IV. MISCELLANEOUS
	  	15
			
	 	 	 I. FINANCING
	  	15
			
	 	 	 II. TAX WITHHOLDING
	  	15
			
	 	 	 III. EFFECTIVE DATE AND TERM OF THE PLAN
	  	16
			
	 	 	 IV. AMENDMENT OF THE PLAN
	  	16
			
	 	 	 V. USE OF PROCEEDS
	  	17
			
	 	 	 VI. REGULATORY APPROVALS
	  	17
			
	 	 	 VII. NO EMPLOYMENT/SERVICE RIGHTS
	  	17
			
	 	 	 VIII. FINANCIAL REPORTS
	  	17
		
	 AMENDMENT 1. 1997 STOCK INCENTIVE PLAN FOR FRENCH EMPLOYEES
	  	19
		
	 AMENDMENT 2. AUSTRALIAN ADDENDUM
	  	26

  

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 MICROMUSE INC.  
 1997 STOCK OPTION/STOCK ISSUANCE PLAN 
  
 (As amended and restated October 1, 2003) 
  
 ARTICLE I 
  
 GENERAL
PROVISIONS 
  
 I. PURPOSE OF THE PLAN 

 
 This 1997 Stock Option/Stock Issuance Plan is intended to promote the
interests of Micromuse Inc., a Delaware corporation, by providing eligible persons with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the
service of the Corporation. 
  
 Capitalized terms shall have the
meanings assigned to such terms in the attached Appendix. 
  
 II.
STRUCTURE OF THE PLAN 
  
 A. The Plan shall be divided
into two separate equity programs: 
  
 (i) the Discretionary
Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock, and 
  

(ii) the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for services rendered to the Corporation (or any Parent or Subsidiary). 
  
 B. The provisions of Articles One and Four shall apply to all equity programs under the Plan and shall accordingly govern the interests of all persons
under the Plan. 
  
 III. ADMINISTRATION OF THE PLAN

  
 A. Prior to the Section 12(g) Registration Date, the
Discretionary Option Grant and Stock Issuance Programs shall be administered by the Board. 
  
 B. Beginning with the Section 12(g) Registration Date, the Primary Committee shall have sole and exclusive authority to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16
Insiders. Administration of the Discretionary Option Grant and Stock Issuance Programs with respect to all other persons eligible to participate in those programs may, at the Board’s discretion, be vested in the Primary Committee or a Secondary
Committee, or the Board may retain the power to administer those programs with respect to all such persons. 







 C. Members of the Primary Committee or any Secondary Committee shall serve for such period of time as the
Board may determine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Committee and reassume all powers and authority previously delegated to such committee. 
  
 D. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Option Grant and Stock Issuance Programs and to make such determinations under,
and issue such interpretations of, the provisions of such programs and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions
under the Plan shall be final and binding on all parties who have an interest in the Discretionary Option Grant or Stock Issuance Program under its jurisdiction or any option or stock issuance thereunder. 
  
 E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Primary Committee or the
Secondary Committee shall be liable for any act or omission made in good faith with respect to the Plan or any option grants or stock issuances under the Plan. 
  

IV. ELIGIBILITY 
  
 A. The persons eligible to participate in the Discretionary Option Grant and Stock Issuance Programs are as follows: 
  
 (i) Employees, 
  
 (ii) non-employee members of the Board or the board of directors of any
Parent or Subsidiary, and 
  
 (iii) consultants and other
independent advisors who provide services to the Corporation (or any Parent or Subsidiary). 
  
 B. Each Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full authority (subject to the provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to receive option grants, the time or times when such option grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as
either an Incentive Option or a Non-Statutory Option, the time or times at which each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding
and (ii) with respect to stock 

  

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issuances under the Stock Issuance Program, which eligible persons are to receive stock issuances, the time or times when such issuances are to be made, the
number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration to be paid for such shares. 
  
 C. The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Discretionary
Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program. 
  
 V. STOCK SUBJECT TO THE PLAN 
  
 A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed three million three hundred twelve thousand (3,312,600) shares. 
  
 B. The number of shares of Common Stock available for issuance under the Plan
shall automatically increase on October 1 of each fiscal year during the term of the Plan, beginning with October 1, 1999, by an amount equal to the lesser of (i) one million (1,000,000) shares of Common Stock (subject to adjustment for stock
splits) or (ii) five percent (5%) of the total number of shares of Common Stock then outstanding. 
  
 C. No one person participating in the Plan may receive options, separately exercisable stock appreciation rights and direct stock issuances for more than
500,000 shares of Common Stock per calendar year beginning with the 1997 calendar year. 
  
 D. Shares of Common Stock subject to outstanding options shall be available for subsequent issuance under the Plan to the extent (i) the options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of Section IV of Article Two. Unvested shares issued under the Plan and subsequently repurchased by the Corporation at the original issue price paid per share pursuant to
the Corporation’s repurchase rights under the Plan shall be added back to the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly be available for reissuance through one or more subsequent option grants
or direct stock issuances under the Plan. However, should the exercise price of an option under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise of an option or the vesting of a stock issuance under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the
gross number of shares for which the option is exercised or which vest under the stock issuance, and not by the net number of shares of Common Stock issued to the holder of such option or stock issuance. 
  
 E. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of 

  

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consideration, appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the number and/or
class of securities for which any one person may be granted options, separately exercisable stock appreciation rights and direct stock issuances per calendar year and (iii) the number and/or class of securities and the exercise price per share in
effect under each outstanding option in order to prevent the dilution or enlargement of benefits thereunder. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. 
  

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 ARTICLE II 
  

DISCRETIONARY OPTION GRANT PROGRAM 
  
 I. OPTION TERMS 
  
 Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options. 
  
 A. Exercise Price. 
  

1. The exercise price per share shall be fixed by the Plan Administrator in accordance with the following provisions: 
  
 (i) To the extent required by applicable tax or securities laws, the
exercise price per share shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the option grant date; otherwise, the exercise price per share shall be determined in the sole discretion of the Plan
Administrator. 
  
 (ii) To the extent required by applicable tax
or securities laws, if the person to whom the option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant
date; otherwise, the exercise price per share shall be determined in the sole discretion of the Plan Administrator. 
  
 2. The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section I of Article Four and the
documents evidencing the option, be payable in cash or check made payable to the Corporation. Should the Common Stock be registered under Section 12(g) of the 1934 Act at the time the option is exercised, then the exercise price may also be paid as
follows: 
  
 (i) in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or 
  
 (ii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written instructions to (a) a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such
exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. 
  

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 Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for
the purchased shares must be made on the Exercise Date. 
  
 B.
Exercise and Term of Options. Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the
option. However, no option shall have a term in excess of ten (10) years measured from the option grant date or, if required by the United Kingdom or Australian tax or securities laws, a term in excess of seven (7) years. 
  
 C. Effect of Termination of Service. 
  
 1. The following provisions shall govern the exercise of any options held
by the Optionee at the time of cessation of Service or death: 
  
 (i) Should the Optionee cease to remain in Service for any reason other than death, Disability or Misconduct, then the Optionee shall have a period of three (3) months following the date of such cessation of Service during which to exercise
each outstanding option held by such Optionee. 
  
 (ii) Should
Optionee’s Service terminate by reason of Disability, then the Optionee shall have a period of twelve (12) months following the date of such cessation of Service during which to exercise each outstanding option held by such Optionee.

  
 (iii) If the Optionee dies while holding an outstanding
option, then the personal representative of his or her estate or the person or persons to whom the option is transferred pursuant to the Optionee’s will or the laws of inheritance shall have a twelve (12)-month period following the date of the
Optionee’s death to exercise such option. 
  
 (iv) Under no
circumstances, however, shall any such option be exercisable after the specified expiration of the option term. 
  
 (v) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for
which the option is exercisable on the date of the Optionee’s cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee’s cessation of Service, terminate and cease to be outstanding to the extent the option is not otherwise at
that time exercisable for vested shares. 
  
 (vi) Should the
Optionee’s Service be terminated for Misconduct, then all outstanding options held by the Optionee shall terminate immediately and cease to be outstanding. 
  

2. The Plan Administrator shall have the discretion, exercisable either at the time an option is granted or at any time while the option remains
outstanding, to: 
  

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 (i) extend the period of time for which the option is to remain exercisable following the
Optionee’s cessation of Service from the period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or 
  
 (ii) permit the option to be exercised, during the applicable post-Service
exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee’s cessation of Service but also with respect to one or more additional installments in which
the Optionee would have vested under the option had the Optionee continued in Service. 
  
 D. Stockholder Rights. The holder of an option shall have no stockholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price
and become a holder of record of the purchased shares. 
  
 E.
Repurchase Rights. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall
have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting
schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. The Plan Administrator may not impose a vesting schedule upon the option grant or any shares of Common
Stock subject to that option which is more restrictive than twenty percent (20%) per year vesting, with the initial vesting to occur not later than one (1) year after the option grant date. However, such limitation shall not be applicable to any
option grants made to individuals who are officers of the Corporation, non-employee Board members or independent consultants. 
  
 F. First Refusal Rights. Until such time as the Common Stock is first registered under Section 12(g) of the 1934 Act, the Corporation shall
have the right of first refusal with respect to any proposed disposition by the Optionee (or any successor in interest) of any shares of Common Stock issued under the Plan. Such right of first refusal shall be exercisable in accordance with the
terms established by the Plan Administrator set forth in the document evidencing such right. 
  
 G. Limited Transferability of Options. During the lifetime of the Optionee, the option shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the
laws of descent and distribution following the Optionee’s death. The foregoing notwithstanding, the Plan Administrator shall have the discretion, exercisable either at the time the option is granted or at any time while the option remains
outstanding, to provide for the limited or unlimited transferability of a Non-Statutory Option. 
  
 II. INCENTIVE OPTIONS 
  
 The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Four shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II. 
  

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 A. Eligibility. Incentive Options may only be granted to Employees. 
  
 B. Exercise Price. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. 
  
 C. Dollar Limitation. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one (1) calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such
options as Incentive Options shall be applied on the basis of the order in which such options are granted. 
  
 D. 10% Stockholder. If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the option term shall not exceed five
(5) years measured from the option grant date. 
  
 III.
CORPORATE TRANSACTION/CHANGE IN CONTROL 
  
 A. In the
event of any Corporate Transaction, each outstanding option shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable for all of the shares of Common
Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding option shall not so accelerate if and to the extent: (i) such option is, in
connection with the Corporate Transaction, either to be assumed by the successor corporation (or parent thereof) or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation (or parent thereof),
(ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the unvested option shares at the time of the Corporate Transaction and provides for subsequent payout in accordance
with the same vesting schedule applicable to such option or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive. 
  
 B. All outstanding repurchase rights shall also terminate automatically, and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to the extent: (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. 
  

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 C. Notwithstanding Section III.A. and Section III.B. of this Article Two, the Plan Administrator shall
have the discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to provide for the automatic acceleration of one or more outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of Common Stock subject to those rights) upon the occurrence of a Corporate Transaction, whether or not those options are to be assumed or replaced (or those repurchase rights
are to be assigned) in the Corporate Transaction. The Plan Administrator shall also have the discretion to grant options which do not accelerate whether or not such options are assumed (and to provide for repurchase rights that do not terminate
whether or not such rights are assigned) in connection with a Corporate Transaction. 
  
 D. Immediately following the consummation of the Corporate Transaction, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent
thereof). 
  
 E. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the
option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to (i) the number and class of securities available for issuance under the Plan following the consummation of such Corporate
Transaction, (ii) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same and (iii) the maximum number of securities and/or class of
securities for which any one person may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances under the Plan. 
  
 F. The Plan Administrator shall have the discretion, exercisable at the time the option is granted or at any time while the option remains outstanding, to
provide for the automatic acceleration of any options which are assumed or replaced in a Corporate Transaction and do not otherwise accelerate at that time (and the termination of any of the Corporation’s outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction) in the event the Optionee’s Service should subsequently terminate by reason of an Involuntary Termination within eighteen (18) months following the effective date of such
Corporate Transaction. Any options so accelerated shall remain exercisable for fully-vested shares until the earlier of (i) the expiration of the option term or (ii) the expiration of the one (1)-year period measured from the effective date
of the Involuntary Termination. 
  
 G. The Plan Administrator
shall have the discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to (i) provide for the automatic acceleration of one or more outstanding options (and the automatic termination of
one or more outstanding repurchase rights with the immediate vesting of the shares of Common Stock subject to those rights) upon the occurrence of a Change in Control or (ii) condition any 

  

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such option acceleration (and the termination of any outstanding repurchase rights) upon the subsequent Involuntary Termination of the Optionee’s
Service within a specified period (not to exceed eighteen (18) months) following the effective date of such Change in Control. Any options accelerated in connection with a Change in Control shall remain fully exercisable until the expiration or
sooner termination of the option term. 
  
 H. The portion of any
Incentive Option accelerated in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the
extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws. 
  
 I. The grant of options under the Discretionary Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 
  
 IV. CANCELLATION AND REGRANT OF OPTIONS 
  
 The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the
affected option holders, the cancellation of any or all outstanding options under the Discretionary Option Grant Program and to grant in substitution new options covering the same or different number of shares of Common Stock but with an exercise
price per share based on the Fair Market Value per share of Common Stock on the new grant date. 
  
 V. STOCK APPRECIATION RIGHTS 
  
 A. The Plan Administrator shall have full power and authority to grant to selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights. 
  
 B. The following terms shall govern the
grant and exercise of tandem stock appreciation rights: 
  
 (i)
One or more Optionees may be granted the right, exercisable upon such terms as the Plan Administrator may establish, to elect between the exercise of the underlying option for shares of Common Stock and the surrender of that option in exchange for a
distribution from the Corporation in an amount equal to the excess of (a) the Fair Market Value (on the option surrender date) of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion
thereof) over (b) the aggregate exercise price payable for such shares. 
  
 (ii) No such option surrender shall be effective unless it is approved by the Plan Administrator. If the surrender is so approved, then the distribution to which the Optionee shall be entitled may be made in shares of
Common Stock valued at Fair Market Value on the option surrender date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate. 
  

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 (iii) If the surrender of an option is rejected by the Plan Administrator, then the Optionee shall
retain whatever rights the Optionee had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at any time prior to the later of (a) five (5) business days after the receipt of
the rejection notice or (b) the last day on which the option is otherwise exercisable in accordance with the terms of the documents evidencing such option, but in no event may such rights be exercised more than ten (10) years after the option grant
date. 
  
 C. The following terms shall govern the grant and
exercise of limited stock appreciation rights: 
  
 (i) One or
more Section 16 Insiders may be granted limited stock appreciation rights with respect to their outstanding options. 
  
 (ii) Upon the occurrence of a Hostile Take-Over, each such individual holding one or more options with such a limited stock appreciation right shall have
the unconditional right (exercisable for a thirty (30)-day period following such Hostile Take-Over) to surrender each such option to the Corporation, to the extent the option is at the time exercisable for vested shares of Common Stock. In return
for the surrendered option, the Optionee shall receive a cash distribution from the Corporation in an amount equal to the excess of (a) the Take-Over Price of the shares of Common Stock which are at the time vested under each surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the option surrender date. 
  
 (iii) Neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with such
option surrender and cash distribution. 
  
 (iv) The balance of
the option (if any) shall continue in full force and effect in accordance with the documents evidencing such option. 
  

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 ARTICLE III 
  
 STOCK ISSUANCE PROGRAM 
  

I. STOCK ISSUANCE TERMS 
  
 Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each
such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. 
  
 A. Purchase Price. 
  
 1. The purchase price per share shall be fixed by the Plan Administrator, but shall not be less than eighty-five percent (85%) of the Fair Market Value
per share of Common Stock on the issue date. However, the purchase price per share of Common Stock issued to a 10% Stockholder shall not be less than one hundred and ten percent (110%) of such Fair Market Value. 
  
 2. Subject to the provisions of Section I of Article Four, shares of Common
Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: 
  
 (i) cash or check made payable to the Corporation, or 
  
 (ii) past services rendered to the Corporation (or any Parent or Subsidiary). 
  
 B. Vesting Provisions. 
  
 1. Shares of Common Stock issued under the Stock Issuance Program may, in
the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant’s period of Service or upon attainment of specified performance objectives. However, the Plan
Administrator may not impose a vesting schedule upon any stock issuance effected under the Stock Issuance Program which is more restrictive than twenty percent (20%) per year vesting, with initial vesting to occur not later than one (1) year after
the issuance date. Such limitation shall not apply to any Common Stock issuances made to the officers of the Corporation, non-employee Board members or independent consultants. 
  
 2. Any new, substituted or additional securities or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to the Participant’s unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other
change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant’s unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 
  

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 3. The Participant shall have full stockholder rights with respect to any shares of Common Stock issued
to the Participant under the Stock Issuance Program, whether or not the Participant’s interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on
such shares. 
  
 4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall
be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the Participant’s purchase-money indebtedness), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal
balance of any outstanding purchase-money note of the Participant attributable to the surrendered shares. 
  
 5. The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the cessation of the Participant’s Service or the non-attainment of the performance objectives applicable to those shares. Such waiver shall result in the immediate vesting of the
Participant’s interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant’s cessation of Service or the attainment or non-attainment of the
applicable performance objectives. 
  
 II. CORPORATE
TRANSACTION/CHANGE IN CONTROL 
  
 A. All of the
Corporation’s outstanding repurchase rights under the Stock Issuance Program shall terminate automatically, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent (i) those repurchase rights are assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed in
the Stock Issuance Agreement. 
  
 B. Notwithstanding Section II.A.
of this Article Three, the Plan Administrator shall have the discretionary authority, exercisable either at the time the unvested shares are issued or any time while the Corporation’s repurchase rights remain outstanding under the Stock
Issuance Program, to provide that those rights shall automatically terminate in whole or in part, and the shares of Common Stock subject to those terminated rights shall immediately vest, in the event of a Corporate Transaction, whether or not those
repurchase rights are to be assigned to the successor corporation (or its parent) in connection with such Corporate Transaction. The Plan Administrator shall also have the discretion to provide for repurchase rights with terms different from those
in effect under this Section II in connection with a Corporate Transaction. 
  

 13 








 C. The Plan Administrator shall have the discretion, exercisable either at the time the unvested shares
are issued or at any time while the Corporation’s repurchase rights remain outstanding, to provide that any repurchase rights that are assigned in the Corporate Transaction shall automatically terminate, and the shares of Common Stock subject
to those terminated rights shall immediately vest in full, in the event the Participant’s Service should subsequently terminate by reason of an Involuntary Termination within eighteen (18) months following the effective date of such Corporate
Transaction. 
  
 D. The Plan Administrator shall have the
discretion, exercisable either at the time the unvested shares are issued or at any time while the Corporation’s repurchase right remains outstanding, to (i) provide for the automatic termination of one or more outstanding repurchase rights and
the immediate vesting of the shares of Common Stock subject to those rights upon the occurrence of a Change in Control or (ii) condition any such accelerated vesting upon the subsequent Involuntary Termination of the Participant’s Service
within a specified period (not to exceed eighteen (18) months) following the effective date of such Change in Control. 
  
 III. SHARE ESCROW/LEGENDS 
  
 Unvested shares may, in the Plan Administrator’s discretion, be held in escrow by the Corporation until the Participant’s interest in such
shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares. 
  

 14 








 ARTICLE IV 
  
 MISCELLANEOUS 
  
 I. FINANCING 
  
 A. The Plan Administrator may permit any Optionee or Participant to pay the option exercise price under the Discretionary Option Grant Program or the
purchase price for shares issued under the Stock Issuance Program by delivering a full-recourse, interest bearing promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms
of repayment) shall be established by the Plan Administrator in its sole discretion. In all events, the maximum credit available to the Optionee or Participant may not exceed the sum of (i) the aggregate option exercise price or purchase price
payable for the purchased shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase. 
  
 B. The Plan Administrator may, in its discretion, determine that one or more
such promissory notes shall be subject to forgiveness by the Corporation in whole or in part upon such terms as the Plan Administrator may deem appropriate. 
  
 II. TAX WITHHOLDING 
  
 A. The Corporation’s obligation to deliver shares of Common Stock upon the exercise of options or upon the issuance or vesting of such shares under
the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements and any United Kingdom or Australian income or employment tax withholding requirements. 
  
 B. The Plan Administrator may, in its discretion, provide any or all holders
of Non-Statutory Options or unvested shares of Common Stock under the Plan with the right to use shares of Common Stock in satisfaction of all or part of the Taxes incurred by such holders in connection with the exercise of their options or the
vesting of their shares. Such right may be provided to any such holder in either or both of the following formats: 
  
 (i) Stock Withholding: The election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed one hundred percent (100%)) designated by the holder. 
  
 (ii) Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more shares of Common Stock previously acquired by such holder (other than in connection with the option exercise or share vesting triggering the Taxes) with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to exceed one hundred percent (100%)) designated by the holder. 
  

 15 








 III. EFFECTIVE DATE AND TERM OF THE PLAN 
  
 A. The Plan shall become effective on the Plan Effective Date. Options may
be granted at any time on or after the Plan Effective Date. However, no options granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation’s stockholders. If such
stockholder approval is not obtained within twelve (12) months after the Plan Effective Date, then all options previously granted under this Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares
shall be issued under the Plan. 
  
 B. The Plan shall terminate
upon the earliest of (i) March 6, 2006, (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully-vested shares or (iii) the termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all outstanding options and unvested stock issuances shall continue to have force and effect in accordance with the provisions of the documents evidencing such options or issuances. 
  
 IV. AMENDMENT OF THE PLAN 
  
 A. The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect any rights and obligations with respect to options, stock appreciation rights or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or modification. In addition, amendments to the Plan shall be subject to approval of the Corporation’s stockholders to the extent required by applicable laws or regulations.

  
 B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program and shares of Common Stock may be issued under the Stock Issuance Program that are in each instance in excess of the number of shares then available for issuance under the Plan, provided any excess shares
actually issued under those programs are held in escrow until there is obtained stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such stockholder approval is
not obtained within twelve (12) months after the date the first such excess grants or issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding. 
  

 16 








 V. USE OF PROCEEDS 
  
 Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for
general corporate purposes. 
  
 VI. REGULATORY APPROVALS

  
 A. The implementation of the Plan, the granting of any option
or stock appreciation right under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any option or stock appreciation right or (ii) under the Stock Issuance Program shall be subject to the Corporation’s procurement
of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options and stock appreciation rights granted under it and the shares of Common Stock issued pursuant to it. 
  
 B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws and all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on
which Common Stock is then listed for trading. 
  
 VII. NO
EMPLOYMENT/SERVICE RIGHTS 
  
 Nothing in the Plan shall
confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining
such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service at any time for any reason, with or without cause. 
  
 VIII. FINANCIAL REPORTS 
  
 The Corporation shall deliver a balance sheet and an income statement at
least annually to each individual holding an outstanding option under the Plan, unless such individual is a key Employee whose duties in connection with the Corporation (or any Parent or Subsidiary) assure such individual access to equivalent
information. 
  
 APPENDIX 
  
 The following definitions shall be in effect under the Plan: 
  
 A. Board shall mean the Corporation’s Board of Directors.

  
 B. Change in Control shall mean a change in
ownership or control of the Corporation effected through either of the following transactions: 
  
 (i) the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or
indirectly controls, is 

  

 17 








 
controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders, which the Board does not
recommend such stockholders to accept, or 
  
 (ii) a change in
the composition of the Board over a period of thirty-six (36)consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either
(A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in
office at the time the Board approved such election or nomination. 
  
 C. Code shall mean the Internal Revenue Code of 1986, as amended. 
  
 D. Common Stock shall mean the Corporation’s common stock. 
  
 E. Corporate Transaction shall mean either of the following stockholder-approved transactions to which the Corporation is a party:

  
 (i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction; or

  
 (ii) the sale, transfer or other disposition of all or
substantially all of the Corporation’s assets in complete liquidation or dissolution of the Corporation. 
  
 F. Corporation shall mean Micromuse Inc., a Delaware corporation, and any corporate successor to all or substantially all of the assets or
voting stock of Micromuse Inc. which shall by appropriate action adopt the Plan. 
  
 G. Disability shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and shall be
determined by the Plan Administrator on the basis of such medical evidence as the Plan Administrator deems warranted under the circumstances. 
  
 H. Discretionary Option Grant Program shall mean the discretionary option grant program in effect under the Plan. 
  
 I. Employee shall mean an individual who is in the employ of
the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. 
  
 J. Exercise Date shall mean the date on which the Corporation shall have received written notice of the option
exercise. 
  

 A-2 








 K. Fair Market Value per share of Common Stock on any relevant date shall be determined in
accordance with the following provisions: 
  
 (i) If the Common
Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the
Nasdaq National Market or any successor system. If there is no closing price for the Common Stock on the date in question, then the Fair Market Value shall be the closing price on the last preceding date for which such quotation exists. 

 
 (ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such
quotation exists. 
  
 (iii) For purposes of any option grants
made on the Underwriting Date, the Fair Market Value shall be deemed to be equal to the price per share at which the Common Stock is sold in the initial public offering pursuant to the Underwriting Agreement. 
  
 (iv) For purposes of any option grants made prior to the Underwriting Date,
the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate. 
  
 L. Hostile Take-Over shall mean the acquisition, directly or indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders which the Board does not recommend such stockholders to
accept. 
  
 M. Incentive Option shall mean an option
which satisfies the requirements of Code Section 422. 
  
 N.
Involuntary Termination shall mean the termination of the Service of any individual which occurs by reason of: 
  
 (i) such individual’s involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or 
  
 (ii) such individual’s voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces his or her level of responsibility, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and participation in corporate-performance based bonus
or incentive programs) by more 

  

 A-3 








 
than fifteen percent (15%) or (C) a relocation of such individual’s place of employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the individual’s consent. 
  
 O. Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or
trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee, Participant or other person in the Service of the
Corporation (or any Parent or Subsidiary). 
  
 P. 1934
Act shall mean the Securities Exchange Act of 1934, as amended. 
  
 Q. Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422. 
  
 R. Optionee shall mean any person to whom an option is granted under the Plan. 
  
 S. Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending
with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain. 
  
 T.
Participant shall mean any person who is issued shares of Common Stock under the Stock Issuance Program. 
  
 U. Plan shall mean the Corporation’s 1997 Stock Option/Stock Issuance Plan, as set forth in this document. 
  
 V. Plan Administrator shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is authorized to administer the Discretionary Option Grant and Stock Issuance Programs with respect to one or more classes of eligible persons, to the extent such entity is carrying
out its administrative functions under those programs with respect to the persons under its jurisdiction. 
  
 W. Plan Effective Date shall mean March 7, 1997, the date on which the Plan was adopted by the Board. 
  
 X. Primary Committee shall mean the committee of two (2) or
more non-employee Board members appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders. 
  

 A-4 








 Y. Secondary Committee shall mean a committee of one (1) or more Board members appointed by
the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to eligible persons other than Section 16 Insiders. 
  
 Z. Section 12(g) Registration Date shall mean the date on which the Common Stock is first registered under Section 12(g) of the 1934 Act.

  
 AA. Section 16 Insider shall mean an officer or
director of the Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act. 
  
 BB. Service shall mean the performance of services to the Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance. 
  
 CC. Stock Exchange shall mean either the American Stock
Exchange or the New York Stock Exchange. 
  
 DD. Stock
Issuance Agreement shall mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance Program. 
  
 EE. Stock Issuance Program shall mean the stock issuance program in effect under the Plan. 
  
 FF. Subsidiary shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other corporations in such chain. 
  
 GG. Take-Over Price shall mean the greater of (i) the Fair Market Value per share of Common Stock on the date the option is
surrendered to the Corporation in connection with a Hostile Take-Over or (ii) the highest reported price per share of Common Stock paid by the tender offeror in effecting such Hostile Take-Over. However, if the surrendered option is an Incentive
Option, the Take-Over Price shall not exceed the clause (i) price per share. 
  
 HH. Taxes shall mean the Federal, state and local income and employment tax liabilities incurred by the holder of Non-Statutory Options or unvested shares of Common Stock in connection with the exercise
of those options or the vesting of those shares. 
  
 II. 10%
Stockholder shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary).

  

 A-5 








 JJ. Underwriting Agreement shall mean the agreement between the Corporation and the
underwriter or underwriters managing the initial public offering of the Common Stock. 
  
 KK. Underwriting Date shall mean the date on which the Underwriting Agreement is executed and the initial public offering price of the Common Stock is established. 
  

 A-6 








 AMENDMENT 1 
  
 1997 STOCK INCENTIVE PLAN FOR FRENCH EMPLOYEES 
  
 1. Introduction 
  
 The Board of Directors of Micromuse Inc. (the “Company”) has established the Micromuse Inc. 1997 Stock Option/Stock Issuance Plan (the
“U.S. Plan”) for the benefit of certain employees of the Company, its parent and subsidiary companies, including its French subsidiaries, (the “Subsidiary” or the “Subsidiaries”) of which the Company holds directly or
indirectly at least 10% of the capital. Article I Section III of the U.S. Plan specifically authorizes the Plan Administrator to establish rules applicable to options granted under the U.S. Plan (including those in France) (the “ Board”)
to adopt procedures and forms relating to the U.S. Plan as it deems advisable. The Plan Administrator has determined that it is advisable to establish a sub-plan of the U.S. Plan for France for the purpose of permitting such Options, to qualify for
French favorable local tax and social security treatment. The Plan Administrator, therefore, intends to establish a sub-plan of the U.S. Plan for the purpose of granting options which qualify for the favorable tax and social security treatment in
France applicable to Options granted under Sections L 225-177 to L 225-186 of the French Commercial Code to qualifying employees who are resident in France for French tax purposes (the “French Optionees”). The terms of the U.S. Plan,
effective as of March 7, 1997, and as set out in Appendix 1 hereto, shall, subject to the modifications in the following rules, constitute the Micromuse Inc. 1997 Stock Incentive Plan for French Employees (the “French Plan”). 

 
 Under the French Plan, the qualifying employees will be granted only Stock
Options as defined in Section 2 hereunder. The provisions of Article I Section II(ii), Article II Section V, and Article III of the U.S. Plan permitting the grant of stock appreciation rights or direct issuance of Common Stock are not applicable to
grants made under the French Plan. In addition, in no case will grants under the French Plan include any other substitute awards, e.g., stock bonuses, cash awards or other similar awards. 
  
 2. Definitions 
  
 Capitalized terms used in the French Plan shall have the same meanings as set forth in the U.S. Plan. 
  
 In addition, the term “Option” shall have the following meaning:

  

	 	A.	Purchase Stock Options, that are rights to acquire Common Stock repurchased by the Company prior to the vesting of the Options; or 

  

	 	B.	Subscription Stock Options, that are rights to subscribe newly issued Common Stock. 

  

 19 








 The term “Closed Period” means specific periods as set forth by section L. 225-177 of the
French commercial code as amended during which French qualifying Options cannot be granted. 
  
 Notwithstanding any provisions in the U.S. Plan, the term “Grant Date” shall be the date on which the board both (a) designates the Optionee and (b) specifies the terms and conditions of the Option including
the number of shares and the modalities to determine the Option Price. 
  
 Notwithstanding any provisions in the U.S. Plan to the contrary, for Options granted to French Optionees under the French Plan, no preferred stock in lieu of Common Stock may be issued. 
  
 The term “Effective Grant Date” shall be the date on which option
is effectively granted, i.e. the date on which the condition precedent of the expiration of a Closed Period, if any, under which the option is granted, is satisfied. Such condition precedent shall be satisfied when the Committee or the body entitled
thereto shall so determine, i.e. shall determine that the granting of options is no longer prevented under a Closed Period. If the Date of Grant does not occur within a Closed Period, the “Effective Grant Date” shall be the same day as the
“Grant Date”. 
  
 The term “Vesting Date”
shall mean the date on which an French Optionee’s right to all or a portion of an Option granted under the French Plan becomes non-forfeitable. The Vesting Date or Vesting Schedule shall be noted on the Stock Option Agreement entered into with
each optionee. 
  
 The term “Exercise Date” shall mean
the date on which a portion of Optionee’s Option becomes exercisable. 
  
 The term “Disposition Date” shall mean the first date on which the Optionee may make a Disposition of Shares. 
  
 The term “Disposition” shall mean a sale of Shares or transfer, assignment or any other similar event. 
  
 Under the French Plan, the Disposition Date shall be the fourth anniversary
of the Effective Grant Date or, if different, on the date specified in Section 163 bis of the French Tax Code, as subsequently amended. 
  
 3. Entitlement to Participate 
  
 Any individual who is salaried employee or corporate Officer of a Subsidiary at the date of grant of the Option under the French Plan shall be eligible to
receive Options under the French Plan provided that he or she also satisfies the eligibility conditions of Article I, section IV of the U.S. Plan. Options may not be issued under the French Plan to employees or officers owning more than ten percent
(10%) of the Company’s share capital or to individuals other than employees and corporate officers of the Subsidiary. Options may not be issued to directors of the Subsidiary, other than managing directors (Président du Conseil
d’Administration, Directeur Général, Directeur Général Délégué, Membre du Directoire, Gérant de sociétés par actions), unless they are employed by the Subsidiary. 

 

 20 








 4. Conditions and exercise of the Option / Option Price 
  
 Notwithstanding any provision in the U.S. Plan to the contrary, the
conditions of the U.S. Plan, of the French Plan and of any Options granted thereunder (and as determined in the respective Stock Option Agreement) shall not be modified after the Effective Grant Date unless authorized by French law and subject to
the prior written consent of the Optionee, and except that the Option price and number of shares may be modified as provided under Section 7 of the French plan. In this respect, the fact that French Optionees approve or would have approved such
modification is irrelevant. 
  
 Notwithstanding any provision in
the U.S. Plan to the contrary and since Common Stock of the Company are traded on a regulated securities market, no option may be granted to eligible optionees in France during specific Closed Periods as set forth by section L. 225-177 of the French
commercial code as amended. 
  
 4.1. Vesting and
exercisability 
  
 Vesting and exercisability of the
option may be modified as provided in Section 5 of the French Plan. 
  
 The Options will vest and be exercisable pursuant to the terms and conditions set forth in the U.S Plan, the French Plan and under the respective Stock Option Agreement entered into with each Optionee. 
  
 I. The Vesting and exercisability of Options may be accelerated in accordance
with the provisions of Section II, III A of the U.S. Plan. Notwithstanding any provisions of the U.S. Plan, the Disposition Date shall continue to be the fourth anniversary of the Effective Grant Date or, if different, on the date specified in
Section 163 bis of the French Tax Code, as subsequently amended. The Vesting Date shall not be accelerated to any date that would result in the time period between the Disposition Date and the date of Vesting or exercisability which exceeds the
maximum time allowed between such events under French law (i.e., under current law, restrictions on sale may continue for only three years from the date of exercise, so Vesting or exercisability shall be accelerated to a date no earlier than three
years preceding the Disposition Date set forth above), except in the cases of dismissal, forced retirement, disability or death as defined by section 91-ter of Exhibit II to the French tax code and as construed by Tax Circulars and subject to the
fulfilment of the related condition. 
  
 Specific provisions apply
in the event of termination of employment/service and death as provided in Articles 6 and 8 below and as provided in the Stock Option Agreement entered into with each Optionee. 
  

 21 








 4.2. Option Price 
  
 II. The modalities of determination of the Option Price payable pursuant to Options issued hereunder shall be fixed by the
Plan Administrator on the date the Option is granted. If Options are considered as granted on the Effective Date of Grant, Option Price will be determined in accordance with the modalities of the Option Price’s determination set forth by the
Board on the Grant Date. In no event shall the Option price per share be less than the greater of: 
  

	 	A.	with respect to Purchase Options over Common Stock, the higher of either 80% of the average quotation price of such Common Stock during the 20 days of quotation immediately
preceding the Effective Grant Date or 80% of the average purchase price paid for such Common Stock by the Company; 

  

	 	B.	with respect to Subscription Options over the Common Stock, 80% of the average quotation price of such Common Stock during the 20 days of quotation immediately preceding the
Effective Grant Date; and 

  

	 	C.	the minimum Option Price permitted under the U.S. Plan. 

  
 4.3. Exercise of an Option 
  
 The Options will become vested on the Vesting Date as defined under Section 2 above. However, notwithstanding the above, special provisions apply
in the event of termination of employment due to death and disability (as defined hereunder) as follows: 
  
 In the event of the death of a French Optionee, outstanding Options shall be immediately vested and exercisable under the conditions set forth in Section
8 of the French Plan. 
  
 Notwithstanding any provisions in the
U.S. Plan to the contrary, shares issued upon exercise of an Option shall be issued in the name of the French Optionee only, except in the event of death as referred to under Section 8 of the French Plan. 
  
 4.4. Payment of the Option Price 
  
 Notwithstanding any provisions in the U.S. Plan to the contrary, upon
exercise of an Option, the full Option Price will be paid either in cash, by check or by credit transfer, exclusive of any other method of payment. Under a cashless exercise program, the French Optionee may give irrevocable instructions to a
stockbroker to properly deliver the Option price to the Company. Notwithstanding any provisions in the U.S. Plan to the contrary, no delivery of prior owned shares having a fair market value on the date of delivery equal to the aggregate exercise
price of the shares may be used as consideration for exercising the Options. 
  
 Furthermore, notwithstanding any provisions in the U.S. Plan to the contrary, shares owed to the French Optionee upon exercise may not be withheld in order to meet the tax 

  

 22 








 
and/or social security contributions which might be due at the time of exercise or sale of the underlying Shares. However, upon sale of the underlying
Shares, the Company and/or the Subsidiary shall have the right to withhold, or request any third party to withhold, from the proceeds to be paid to the French Optionee the sums corresponding to any social security contributions due at exercise or
sale by the French Optionee. If such amounts are due and are not withheld, the French Optionee agrees to submit the amount due to the Subsidiary by means of check, cash or credit transfer. 
  
 The Shares acquired upon exercise of an Option will be recorded in an account
in the name of the shareholder with a broker or in such other manner as the Company may otherwise determine in order to ensure compliance with applicable law, and any other applicable limitations or restrictions in the U.S. Plan, the French Plan,
and the Stock Option Agreement, including limitations and restrictions on the Disposition or Disposition Date. 
  
 ARTICLE V 5. Non-transferability of Options 
  
 Notwithstanding any provision in the U.S. Plan to the contrary and except in the case of death, Options cannot be transferred to any third party. In addition, the Options are only exercisable by the French Optionee
during the lifetime of the French Optionee. 
  
 ARTICLE VI 6. Termination of
Employment/Service 
  
 If a termination of eligibility status
is due to death, the Options shall be exercisable as set forth by Article 8 below. 
  
 In case of termination of eligibility status for other reasons than death, specific provisions regarding the exercise of the options by the Optionee are provided for in the Stock Option Agreement entered into with
each Optionee. 
  
 ARTICLE VII 7. Changes In Capitalization 
  
 Notwithstanding any provisions of the U.S. Plan to the contrary, adjustments
to the Option Price and/or the number of Shares subject to an Option issued hereunder shall be made to preclude the dilution or enlargement of benefits under the Option only in the event of one or more of the transactions listed below by the
Company. Furthermore, even upon occurrence of one or more of the transactions listed below, no adjustment to the kind of shares to be granted shall be made (i.e., only shares of Common Stock shall be granted to French Optionees). The
transactions are as follows: 
  

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	 	A.	an issuance of new shares for cash consideration reserved to the Company’s already existing shareholders; 

  

	 	B.	an issuance of convertible or exchangeable bonds reserved to the Company’s existing shareholders; 

  

	 	C.	a capitalization of retained earnings, profits, or issuance premiums; 

  

	 	D.	a distribution of reserves by payment in cash or shares; 

  

	 	E.	a cancellation of shares in order to absorb losses; 

  

	 	F.	the repurchase of its own shares by a listed company at a price higher than the stock quotation price in the open market. 

  
 An increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company is not within the scope of the prohibition of the first paragraph of this Section 7. 
  
 ARTICLE VIII 8. Death 
  
 ARTICLE IX 
  
 ARTICLE X In the event of the
death of a French Optionee, the Options shall become immediately vested, exercisable and available for Disposition. The French Optionee’s heirs may exercise the Option within six months following the death, even if the Option that was held by
the deceased Optionee expires during this 6 month- period, but any Option which remains unexercised shall expire six months following the date of the Optionee’s death. 
  
 9. Term of the Option 
  
 The Term of the Option will be nine years and six months. This term can only be extended in the event of the death of the French Optionee. 
  
 ARTICLE XI 10. Interpretation 
  
 It is intended that Options granted under the French Plan shall qualify for
the favorable tax and social security treatment applicable to stock options granted under Sections L225-177 to 225-186 of the French Commercial Code, as subsequently amended, and in accordance with the relevant provisions set forth by French tax law
and the French tax administration. The terms of the French Plan shall be interpreted accordingly and in accordance with the relevant provisions set forth by French tax and social security laws, as well as the French tax and social security
administrations. 
  

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 In the event of any conflict between the provisions of the present French Plan and the U.S. Plan, the
provisions of the French Plan shall control for any grants made thereunder to Optionees. 
  
 ARTICLE XII 11. Employment Rights 
  
 The adoption of this French sub-plan shall not confer upon the Participants any employment rights and shall not be construed as a part of the Participants employment contracts. 
  
 ARTICLE XIII 12. Adoption 
  
 The French Plan is effective as of July 1, 2001 
  

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 AMENDMENT 2 
  
 AUSTRALIA ADDENDUM 
  

	1.	Purpose 

  
 This Addendum (the “Australian Addendum”) to the Micromuse Inc. 1997 Stock Option/Stock Issuance Plan is 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 Australian subsidiary(ies). The Plan is intended to comply
with the provisions of the Corporations Act 2001, ASIC Policy Statement 49 and 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.; 
  
 “Common Stock” means
the common stock of the Company; 
  
 “Company” means
Micromuse Inc.; 
  
 “Micromuse” means Micromuse Inc.;

  
 “Option” means an option to acquire, by way of
issue, a share of Common Stock of the Company. It excludes a right to acquire a stock appreciation right referred to in section V of the U.S. Plan; 
  
 “Plan” means the U.S. Plan as modified for implementation in Australia by the Australian Addendum; and 
  
 “U.S. Plan” means the Micromuse Inc. 1997 Stock Option/Stock
Issuance Plan. 
  

	3.	Forms of Awards 

  
 Only shares of Common Stock and options to acquire shares of Common Stock shall be awarded or offered under the Plan in Australia. Options must be granted
at no monetary cost. 
  

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	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. 
  

	5.	No Contribution Plan or Trust 

  
 An offer of shares of Common Stock or Options under the Plan must not involve a contribution plan or any offer, issue or sale being made through a trust.

  

	6.	Form of Offer 

  
 6.1 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 period (the
“offer period”) during which an Optionee may exercise Options acquired under the Plan, the Company or its Australian subsidiary will, within a reasonable period of the Optionee so requesting, provide the Optionee without charge with a copy
of the rules of the Plan. 
  
 6.2 The Company must take
reasonable steps to ensure that any Optionee to whom an offer is made is given a copy of the Offer Document. 
  

	7.	Australian Dollar Equivalent of Exercise Price or Purchase Price at Offer Date 

  
 For the Options, the Offer Document must specify the Australian dollar equivalent of the exercise price of the Options the
subject of the Offer Document (“Exercise Price”) as at the date of the offer. 
  
 For the offer of shares of Common Stock, the Offer Document must specify the Australian dollar equivalent of the purchase price of the shares the subject of the Offer Document (“Purchase Price”) as at the
date of the offer. 
  

	8.	Updated Pricing Information 

  
 The Offer Document must include an undertaking that, and an explanation of the way in which the Company will, during the offer period and within a
reasonable period of an Optionee so requesting, make available to the Optionee the following information: 
  
 (i) the Australian dollar equivalent of the current market price of a share of Common Stock; and 
  
 (ii) in the case of Options, the Australian dollar equivalent of the
Exercise Price, as at the date of the Optionee’s request; and 
  

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 (iii) in the case of shares of Common Stock, the Australian dollar equivalent of the Purchase Price, as
at the date of the Optionee’s request. 
  
 For the purposes
of this clause, the current market price of a share of Common 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. 
  

	9.	Exchange Rate for Australia Dollar Equivalent of a Price 

  
 For the purposes of clauses 7 and 8, the Australian dollar equivalent of the Exercise Price or Purchase Price and current market price of shares of Common
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. 
  

	10.	Loan or Financial Assistance 

  
 If the Company or any Australian subsidiary offers an Optionee any loan or other financial assistance for the purpose of acquiring the Common Stock to
which the offer relates, the Offer Document must disclose the conditions, obligations and risks associated with such loan or financial assistance. 
  

	11.	Restriction on Capital Raising: 5% limit 

  
 In the case of any offer that will involve the issue of shares of Common Stock including as a result of an exercise of an Option, the number of shares of
Common 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 Common Stock in the same class which would be issued were each outstanding offer of shares of Common Stock or Option to
acquire unissued shares of Common 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 Common 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 Common 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; 
  

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 (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. 
  

	12.	Lodgment of Offer Document with the ASIC 

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

	13.	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.

  

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