Document:

1997 Stock Option/ Stock Issuance Plan

 Exhibit 10.2 
  
 MICROMUSE INC. 
  
 1997 STOCK OPTION/STOCK ISSUANCE PLAN

  
 (AS AMENDED
AND RESTATED THROUGH JUNE 30, 1999) 

 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
	  	8
	 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
	  	16
		
	 VI. REGULATORY APPROVALS
	  	17
		
	 VII. NO EMPLOYMENT/SERVICE RIGHTS
	  	17
		
	 VIII. FINANCIAL REPORTS
	  	17

  

 ii 

 MICROMUSE INC.  
 1997 STOCK OPTION/STOCK ISSUANCE PLAN 
  
 (As amended and restated June 30, 1999) 
  
 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 (3,312,000) 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 
  

 3 

 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. 
  

 4 

 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 
  

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 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. 
  
 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 
  

 8 

 Transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the
time the repurchase right is issued. 
  
 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 
  

 9 

 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 
  

 10 

 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. 
  
 (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 
  

 12 

 
the Participant’s unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 
  
 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 
  

 13 

 
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. 
  
 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 
  

 15 

 
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. 
  
 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. 
  

 17 

 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 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 
  

 A-1 

 
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. 
  
 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. 
  

 A-2 

 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 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. 
  

 A-3 

 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. 
  
 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

  

 A-4 

 
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). 
  
 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-5 

 EXHIBIT 10.2 
  
 Micromuse Inc 
 ID: 94-3288385 
  
 139 Townsend Street 
 San Francisco, CA 94107 
  
 Notice of Grant of
Stock Options 
 and Option Agreement 
  

	Optionee	  	Option Number:    00003005
	 	  	Plan:                        1997
	 	  	ID:
                          999-99-9999

  
 Effective 01/01/1997, you have been
granted a(n) Non-Qualified Stock Option to buy 100.00 shares of Micromuse Inc. (the Company) stock at $0.010000 per share. 
  
 The total option price of the shares granted is $1.00. 
  
 Shares in each period will become fully vested on the date shown. 
  

	 Shares

	 	 Vest Type

	 	 Full Vest

	 	 Expiration

	 17.00
	 	On Vest Date	 	07/01/1997	 	01/01/2007
	 83.00
	 	Monthly	 	01/01/2000	 	01/01/2007

  
 Exercise Schedule: The Option
shall become exercisable with respect to (i) one-sixth (1/6) of the Option Shares upon Optionee’s completion of six (6) months of Service measured from January 1, 1997 and (ii) the balance of the Option Shares in a series of thirty (30)
successive equal monthly installments upon Optionee’s completion of each additional month of Service over the thirty (30)-month period measured from the six (6) month anniversary of January 1,1997. In no event shall the Option become
exercisable for any additional Option Shares after Optionee’s cessation of Service. 
  
 Please review the Stock Option Agreement on the reverse of this Notice of Grant of Stock Option. 
  
 By your signature and the Company’s signature below, you and the Company agree that these options are granted under and governed by the terms and conditions of the
Company’s Stock Option Plan as amended and the Option Agreement, all of which are attached and made a part of this document. 
  

		
	Micromuse Inc.	 	Date
		
	Optionee	 	Date

 Additional Terms of Stock Option Agreement 
  
 Optionee understands and agrees that the Option is granted subject to and in accordance with
the terms of the Micromuse Inc. 1997 Stock Option Plan (the “Plan”). Optionee further agrees to be bound by the terms of the Plan and the terms of the Option as set forth in the Stock Option Agreement. 
  
 Optionee hereby acknowledges of a copy of the official prospectus for the Plan, which is
available on the Company Intranet at http://intranet.micromuse.com/hrinfo/optiondocs/1997planprospectus.doc. A copy of the Plan is also available at http://intranet.micromuse.com/hrinfo/optiondocs/1997plandoc. 
  
 No Employment or Service Contract – Nothing in this Notice or in the attached
Stock Option Agreement or Plan shall confer upon Optionee 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 Optionee) or of Optionee, which rights are hereby expressly reserved by each, to terminate Optionee’s Service or any time for any reason, with or without cause. In no event shall the Option become exercisable for any additional Option
Shares after Optionee’s cessation of Service. 
  
 Definitions –
All capitalized terms in this Notice shall have the meaning assigned to them in this Notice or in the Stock Option Agreement. 

 Additional Terms of Stock Option Agreement 
  
 By your signature and the Company’s signature on the Notice of Grant of Stock Options
and Option Agreement (“Agreement”), Optionee understands and agrees that these options are granted under and governed by the terms and conditions of the Micromuse Inc. 1997 Stock Option Plan (the “Plan”). Optionee further agrees
to be bound by the terms of the Plan and the terms of the Option as set forth in the Agreement. 
  
 Optionee hereby acknowledges receipt of a copy of the official prospectus for the Plan, which is available on the Company Intranet at: http://intranet.micromuse.com/hrinfo/optiondocs/1997planprospectus.doc. A
copy of the Plan is also available at http://intranet.micromuse.com/hrinfo/optiondocs/1997plandoc. A copy of the Plan is also available by request from the company. 
  
 No Employment or Service Contract – Nothing in this Notice or Stock Option Agreement or Plan shall confer upon Optionee 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 Optionee) or of Optionee, which rights are hereby
expressly reserved by each, to terminate Optionee’s Service or any time for any reason, with or without cause. In no event shall the Option become exercisable for any additional Option Shares after Optionee’s cessation of Service.

  
 Definitions – All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or Stock Option Agreement. 
  
 Acceleration following Change in Control/Hostile Take-Over or Corporate Transaction 
  
 Immediately prior to a Change in Control or Corporate Transaction, the Option, to the extent outstanding at the time but not otherwise fully exercisable, shall automatically accelerate so that the Option shall become
immediately exercisable for all the Option Shares at the time subject to the Option and may be exercised for any or all of those Option Shares as fully vested shares. 
  
 The Option, as accelerated pursuant to this Addendum, shall remain so exercisable until the earlier of (i) the Expiration Date or
(ii) the expiration of the [one (1)-year] period measured from the date of the Optionee’s Involuntary Termination. 
  
 The provisions of this Addendum shall govern the treatment of the Option upon a Change in Control or Corporate Transaction and the period for which the Option is to
remain exercisable following a Change in Control or Corporate Transaction and shall supersede any provisions to the contrary in the Option Agreement.Amended & Restated Promissory Note dated July 29, 2003

 Exhibit 10.1 
  
 AMENDED AND RESTATED PROMISSORY NOTE 
  
 DATE: July 29, 2003 
  
 Malibu, California 
  
 THIS AMENDED AND RESTATED PROMISSORY NOTE (THIS “NOTE”), SUPERSEDES AND REPLACES THAT CERTAIN PROMISSORY NOTE DATED DECEMBER 31, 2001 MADE BY
HEALTHCARE HOLDINGS, INC., AS MAKER, IN FAVOR OF LTC PROPERTIES, INC., AS PAYEE IN THE ORIGINAL PRINCIPAL AMOUNT OF SEVEN MILLION DOLLARS ($7,000,000.00) (THE “ORIGINAL NOTE”). 
  
 NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged, Maker and Payee agree as follows: 
  
 RECITALS 
  
 A. As of the date hereof, Maker certifies,
acknowledges and agrees the outstanding principal balance of the Note plus accrued interest as of July 29, 2003 is $7,631,917.81 prior to any additional amounts borrowed under B below. 
  
 B. Subject to the limitations described herein, Maker desires to amend this Note from Payee to enable Maker to borrow from Payee up to an
additional Two Million dollars ($2,000,000) and to allow Maker to “upstream” any additional advances to Maker’s parent company, CLC Healthcare, Inc. (“CLC”). 
  
 C. At Maturity Date, as hereinafter defined, for value received, Maker hereby promises to pay to the order of Payee, at Payee’s
principal place of business in Malibu, California, or such other place as Payee may from time to time designate, the principal sum then outstanding. Principal amounts outstanding will accrue interest at the rate of 5%, compounded annually,
(“Compounded Interest”). In addition, during the term of the Note, Maker shall pay to Payee on an annual basis accrued interest at the rate of 2% (“Annual Interest”) on the principal balance then outstanding on each December 31st
and ending with the last payment of Annual Interest on December 31, 2006. All principal and accrued Compound Interest shall be due on or before December 31, 2006 (the “Maturity Date”). Principal and interest due hereunder shall be payable
in lawful money of the United States. 
  
 1. Payments on
Maturity Date. Assuming no acceleration by Payee and no prepayment in full of the Loan by Maker, on the Maturity Date, Maker shall pay to Payee the entire outstanding principal, compound interest and accrued interest owing to Payee by Maker
under this Note. 
  
 2. Prepayments. Maker shall have the
right to prepay all or any part of the principal and accrued interest balance of this Note any time without premium, penalty, or charge of any kind whatsoever; provided, however, there shall be no discount of any kind for any prepayment. 

 
 3. Security Documents. This Note is a full recourse obligation of
the Maker and is secured by all of the assets of Maker, whether heretofore or hereafter, including, but not limited to the Assisted Living Concepts, Inc. “(ALF”) common shares currently held by Maker. Reference is made to the Security
Documents for a description of the collateral provided for therein and the rights of Payee with respect to such collateral. 
  
 4. Sale of Collateral. Maker may not at any time sell all or a portion of the Collateral underlying this Note without Payee’s written consent.
One hundred percent (100%) of the proceeds, as hereinafter defined, must be remitted to the Payee within 3 business days of receipt of such proceeds. “Proceeds” is defined as total cash received before any costs, expenses or fees
associated with such sale. Such Proceeds, to the extent of the proceeds, will first be applied to reduce any accrued but unpaid Annual Interest, second to reduce any accrued but unpaid Compounded Interest and finally to reduce the principal of the
Note. 
  

 1 

 5. Restrictive Covenants. Maker hereby covenants and agrees with Payee that, for so long as the
obligations of Maker under this Note remain outstanding under the Note, Maker will comply with all of the following: 
  
 (a) Maker will not, and will not permit any subsidiary of Maker to, create, assume, incur or suffer to exist any lien or encumbrance of any kind, upon all
or any portion of the Collateral (as defined in the Security Documents). 
  
 (b) Maker will not, and will not permit any subsidiary to pay a dividend, provide any loan guaranty, lend money or borrow any additional sums beyond this Note without prior approval of Payee. 
  
 (c) Maker will not, and will not permit any subsidiary to (i) lease, assign
or sell all or substantially all of its property or business to any other Person (as hereinafter defined), (ii) merge or consolidate with or into any other Person, (iii) purchase or lease or otherwise acquire all or substantially all of the assets
of any other Person, (iv) sell, transfer, pledge or otherwise dispose of capital stock of Maker or any of its subsidiaries, (v) liquidate, suspend or dissolve its business operations, (vi) change its name, identity or corporate, partnership or other
structure, or (vii) change the current principal place of business or chief executive office, in each case without the prior written consent of Payee. 
  
 6. Acknowledgement and Restrictive Covenant of CLC Healthcare, Inc., parent of Maker (“CLC”). CLC hereby acknowledges that it has
heretofore pledged as collateral all of the outstanding stock of Maker pursuant to that certain First Amendment to Second Amended and Restated Promissory Note and Security Agreement dated October 1, 2002, which obligation remains in effect, and
hereby further covenants and agrees with Payee that, for so long as the obligations of Maker under this Note remain outstanding, CLC will not pledge the stock of Maker, or otherwise encumber the stock of Maker, in any manner for any reason.

  
 7. Change of Control. Notwithstanding anything to the
contrary contained herein, upon a Change of Control (as hereinafter defined) Payee may, in its sole discretion, declare the entire balance of principal and interest hereon immediately due and payable, together with all applicable charges and
payments due hereunder, all costs of collection, including reasonable attorneys’ fees and all other costs and expenses incurred, and shall have all remedies available under the Security Documents, at law or in equity. For purposes of this Note,
a “Change of Control” shall mean and include (i) the sale by Maker, or CLC (each hereinafter referred to as “Party”) and/or any subsidiary of either Party of all or substantially all of the assets of either Party and its
subsidiaries taken as a whole, (ii) any Acquisition by any person or any persons acting together which would constitute a “group” for purposes of Section 13(d) of the Exchange Act (a “Group”) of 30% or more of the total voting
power of all classes of capital stock of either Party entitled to vote generally in the election of the Board of Directors of either Party, (iii) any Acquisition by any person or Group of the power to elect, appoint or cause the election or
appointment of at least a majority of the members of the Board of Directors of either party, through beneficial ownership of the capital stock or otherwise, or, (iv) a majority of the members of the Boards of Directors of either Party cease to be
Continuing Directors (as hereinafter defined). As used herein, “Continuing Directors” means, as of any date of determination, any member of the Board of Directors of either party, who (i) was a member of the Boards of Directors of either
Party on the date of this Note, or (ii) was nominated for election or elected to such Board with the approval of a majority of the Continuing Directors who were members of such Boards at the time of such nomination or election. For the purposes of
this definition, “Acquisition” of the power or properties and assets stated in the preceding sentence means the earlier of (a) the actual possession thereof and (b) the consummation of any transaction or series of related
transactions which, with the passage of time, will give such Person or Persons that actual possession thereof. As used herein, “Person” shall mean an individual, corporation, trust, partnership, joint venture, unincorporated
organization, government agency or any agency or political subdivision thereof, or other entity. 
  
 8. Late Payment Charge; No Waiver. MAKER ACKNOWLEDGES THAT LATE PAYMENT TO PAYEE OF ANY SUMS DUE HEREUNDER WILL CAUSE PAYEE TO INCUR COSTS NOT
CONTEMPLATED HEREUNDER, THE EXACT AMOUNT OF WHICH WILL BE IMPRACTICABLE OR EXTREMELY DIFFICULT TO ASCERTAIN. SUCH COSTS INCLUDE, BUT ARE NOT LIMITED TO, PROCESSING AND ACCOUNTING CHARGES. ACCORDINGLY, IF ANY INSTALLMENT IS NOT RECEIVED BY PAYEE WHEN
DUE, OR IF ANY REMAINING PRINCIPAL AND ACCRUED BUT UNPAID INTEREST OWING UNDER THIS NOTE IS NOT PAID IN FULL ON THE MATURITY DATE, MAKER 
  

 2 

 SHALL THEN PAY TO PAYEE AN ADDITIONAL SUM OF FIVE PERCENT (5%) OF THE OVERDUE AMOUNT AS A LATE CHARGE. THE PARTIES HEREBY
AGREE THAT THE LATE CHARGE REPRESENTS A FAIR AND REASONABLE ESTIMATE OF THE COSTS PAYEE WILL INCUR BY REASON OF LATE PAYMENT. THIS PROVISION SHALL NOT, HOWEVER, BE CONSTRUED AS EXTENDING THE TIME FOR PAYMENT OF ANY AMOUNT HEREUNDER, AND ACCEPTANCE
OF SUCH LATE CHARGE BY PAYEE SHALL IN NO EVENT CONSTITUTE A WAIVER OF MAKER’S DEFAULT WITH RESPECT TO SUCH OVERDUE AMOUNT NOR PREVENT PAYEE FROM EXERCISING ANY OF ITS OTHER RIGHTS AND REMEDIES WITH RESPECT TO SUCH DEFAULT. 
  
 INITIAL:_________ 
                    Maker 
  
 9. Default. The occurrence of any of the following shall constitute an
event of default (“Event of Default”) under this Note: 
  
 (a) failure to make any payment of principal, interest, or any other sums due hereunder within five (5) business days of the date due; 
  
 (b) the occurrence of any breach or default of any other obligation of Maker, CLC, or any of their respective subsidiaries, monetary or otherwise,
hereunder or otherwise, which breach or default (except as provided below) shall continue for more than ten (10) calendar days after Maker or CLC has received written notice thereof from Payee; 
  
 (c) notwithstanding anything to the contrary contained in this Section,
immediately upon the breach or default of any provision of Sections 4, 5 and 6 hereof; or 
  
 (d) a breach or default under the Security Documents. 
  
 10. Acceleration Rights; Remedies. Upon the occurrence of an Event of Default or Change of Control hereunder, Payee may, in its sole discretion, declare the entire balance of principal and interest hereon
immediately due and payable, together with all applicable charges and payments due hereunder, costs of collection, including reasonable attorneys’ fees and all other costs and expenses incurred, and shall have any and all remedies available
under the Security Documents, at law or in equity. 
  
 11.
Attorneys’ Fees and Costs. In the event it becomes necessary for Payee to utilize legal counsel for the enforcement of this Note or any of its terms, if Payee is successful in such enforcement by legal proceedings or otherwise, Payee
shall be reimbursed immediately by Maker for all reasonable attorneys’ fees and other costs and expenses. 
  
 12. Waivers. Maker of this Note hereby waives diligence, demand, presentment for payment, exhibit of this Note, notice of non-payment or dishonor,
protest and notice of protest, notice of demand, notice of election of any right of holder hereof, any and all exemption rights against this indebtedness, and expressly agrees that, at Payee’s election, the time for performance of any
obligation under this note may be extended from time to time, without notice and that no such extension, renewal, or partial release shall release Maker from its obligation of payment of this Note or any installment hereof, and consents to offset of
any sums owed to Maker by the holder hereof at any time. 
  
 13.
Assignment/Transfer by Payee. Payee, in Payee’s sole and absolute discretion, and without notice to Maker, shall have the absolute right to sell, assign, gift, transfer, convey, encumber or otherwise dispose of all or a portion of the
holder’s rights in this Note or any other agreement related thereto. Maker may not assign, gift, transfer, convey, encumber or otherwise dispose of all or a portion of its rights, nor delegate its duties or obligations under this Note or any
other agreement related thereto. 
  
 14. Governing Law.
This Note shall in all respects be interpreted, enforced, and governed by and under the internal law of the State of California without resort to choice of law principles. 
  

 3 

 15. Severability. Every provision hereof is intended to be several. If any provision of this Note
is determined by a court of competent jurisdiction to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall not affect the other provisions hereof, which shall remain binding and enforceable. 
  
 16. Compliance With Usury Laws. It is the intention of the parties
hereto to conform strictly to applicable usury laws regarding the use, forbearance or detention of the indebtedness evidenced by this Note, whether such laws are not or hereafter in effect, including the laws of the Untied States of America or any
other jurisdiction whose laws are applicable, and including subsequent revisions to or judicial interpretations of those laws, in each case to the extent they are applicable to this Note (the “Applicable Usury Laws”); provided, however, if
such laws shall hereafter permit higher rates of interest, then the Applicable Usury Laws shall be the laws allowing the higher rate of interest. Accordingly, the following shall apply: 
  
 (a) If any acceleration of the Maturity Date of this Note or any payment by maker or any other person or entity results in
the amount of interest contracted for, charged, taken, reserved, received by or paid by Maker or such other person or entity on the principal amount outstanding, from time to time, on the Note being deemed to have been in excess of the Maximum
Amount (as hereinafter defined) or if any transaction contemplated hereby would otherwise be usurious under any Applicable Usury Laws, then, in that event, notwithstanding anything to the contrary in this Note, it is agreed as follows: (i) the
provisions of this Section 17 shall govern and control; (ii) the aggregate of all interest under Applicable Usury Laws that is contracted for, charged, taken, reserved or received under this Note, or under any of the other aforesaid agreements or
instruments or otherwise shall under no circumstances exceed the Maximum Amount, and any excess shall either be refunded to Maker or applied in reduction of principal, if permitted by California law, in the sole discretion of Payee; (iii) neither
Maker nor any other person or entity shall be obligated to apply the amount of such interest to the extent it is in excess of the Maximum Amount; (iv) any interest contracted for, charge, reserved, taken or received in excess of the Maximum Amount
shall be deemed an accidental or bona fide error and canceled automatically to the extent of such excess; and (v) the effective rate of interest on the Loan shall be ipso facto reduced to the Highest Lawful Rate (as hereinafter defined), and the
provision of this Note shall be deemed reformed, without the necessity of the execution of any new document, so as to comply with all Applicable Usury Laws. All sums paid, or agreed to be paid, to Payee for the use, forbearance, or the detention of
the indebtedness of Maker to payee evidenced by this Note shall, to the fullest extent permitted by the Applicable Usury Laws, be amortized, pro-rated, allocated and spread throughout the full term of the indebtedness evidenced by this Note so that
the actual rate of interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. As used herein, the term “Maximum Amount” means the maximum non-usurious amount of interest which may be
lawfully contracted for, charged, reserved, taken or received by Payee in connection with the indebtedness evidenced by this Note under all applicable Usury Laws. 
  
 (b) If at any time interest on the Loan, together with any fees and additional amounts payable hereunder or under any other
agreements or instruments that are deemed to constitute interest under Applicable Usury Laws (the “Additional Interest”), exceeds the Highest Lawful Rate, then the amount of interest to accrue pursuant to this Note shall be limited,
notwithstanding anything to the contrary in this Note, or any other agreement or instrument, to the amount of interest that would accrue at the Highest Lawful Rate; provided, however, that to the fullest extent permitted by Applicable Usury Laws,
any subsequent reductions in the interest rate shall not reduce the interest to accrue pursuant to this Note below the Highest Lawful Rate until the aggregate amount of interest actually accrued pursuant to this Note, together with all Additional
Interest, equals the amount of Interest which would have accrued if the Highest Lawful Rate had at all times been in effect and such Additional Interest, if any, had been paid in full. 
  
 For purposes of this Note, the term “Highest Lawful Rate” means the maximum rate of interest and other charges (if
any such maximum exists) for the forbearance of the payment of monies, if any that may be charged, contracted for, reserved, taken or received under all Applicable Usury Laws on the principal balance of this Note from time to time outstanding.

  

 4 

 17. Notices. Any notice or other communication required or permitted to be given under this Note
shall be in writing and sent by United States mail, registered or certified mail, postage prepaid, return receipt requested, and addressed as follows: 
  

	 If to Maker:
	  	 Healthcare Holdings, Inc.
 7610 N.
Stemmons Fwy, Suite 500
 Dallas, Texas 75247
 Attention: Chief
Financial Officer

		
	 with a copy to:
	  	 Healthcare Holdings, Inc.
 7610 N.
Stemmons Fwy, Suite 500
 Dallas, Texas 75247
 Attention: Legal
Department

		
	 If to Parent:
	  	 CLC Healthcare, Inc.
 7610 N. Stemmons
Fwy, Suite 500
 Dallas, Texas 75247
 Attention: Chief Financial
Officer

		
	 If to Payee:
	  	 LTC Properties, Inc.
 22917 Pacific Coast
Hwy, Suite 350
 Malibu, California 90265
 Attention: Chief
Financial Officer

		
	 with a copy to:
	  	 LTC Properties, Inc.
 22917 Pacific Coast
Hwy, Suite 350
 Malibu, California 90265
 Attention: Legal
Department

  
 or such other address
as either party may from time to time specify in writing to the other in the manner aforesaid. If personally delivered, such notices or other communications shall be deemed delivered upon delivery. If sent by United States mail, registered or
certified mail, postage prepaid, return receipt requested, such notices or other communications shall be deemed delivered upon delivery or refusal to accept delivery as indicated on the return receipt. 
  
 [SIGNATURE PAGE FOLLOWS] 
  

 5 

 IN WITNESS WHEREOF, the Maker has caused this Note to be executed as of the date first above
written. 
  

	MAKER:
	
	 HEALTHCARE HOLDINGS, INC.,
 a Nevada corporation

		
	 By:
	 	 /s/    KIMBERLY
DAUGHERTY        

	Name:	 	Kimberly Daugherty
	Its:	 	Senior Vice President

  
  
  

	PARENT:
	
	 CLC HEALTHCARE, INC.,
 a Nevada corporation

		
	 By:
	 	 /s/    ANDREW
KERR        

	Name:	 	Andrew Kerr
	Its:	 	Chief Financial Officer

  

 6

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