[MicroMuse Logo]
MICROMUSE INC.
139 Townsend Street
San Francisco, CA 94107
-----------------------
December 29, 1999
Dear Micromuse Stockholder:
We cordially invite you to attend the Annual Meeting of Stockholders of
Micromuse Inc., which will be held at the Sheraton Palace Hotel, 2 New
Montgomery Street, San Francisco, California 94105, on Wednesday, January 26,
2000, at 10:00 a.m., pacific standard time.
Details of the business to be conducted at the Annual Meeting are given in
the attached Proxy Statement and Notice of Annual Meeting of Stockholders.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We look
forward to seeing you at the Annual Meeting.
Sincerely,
/s/ Gregory Q. Brown
Gregory Q. Brown
Chairman of the Board and
Chief Executive Officer
<PAGE>
MICROMUSE INC.
139 Townsend Street
San Francisco, California 94107
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held January 26, 2000
The Annual Meeting of Stockholders (the "Annual Meeting") of Micromuse
Inc. (the "Company") will be held at the Sheraton Palace Hotel, 2 New Montgomery
Street, San Francisco, California 94105, on Wednesday, January 26, 2000, at
10:00 a.m., pacific standard time, for the following purposes:
1. To elect three directors of the Board of Directors to serve until the
2002 Annual Meeting or until their successors have been duly elected and
qualified;
2. To ratify the appointment of KPMG LLP as independent auditors of the
Company for the fiscal year ending September 30, 2000; and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only stockholders of record at the close of
business on December 14, 1999, are entitled to notice of, and to vote at, the
Annual Meeting and at any adjournments or postponements thereof. A list of such
stockholders will be available for inspection at the Company's principal
executive offices located at 139 Townsend Street, San Francisco, CA 94107,
during ordinary business hours for the ten-day period prior to the Annual
Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Gregory Q. Brown
GREGORY Q. BROWN
Chairman of the Board and Chief Executive Officer
San Francisco, California
December 29, 1999
- -------------------------------------------------------------------------------
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. YOU
MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF YOU DECIDE
TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU MAY DO SO
AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
- --------------------------------------------------------------------------------
<PAGE>
[Micro Muse Logo]
139 Townsend Street
San Francisco, California 94107
---------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
To be held on January 26, 2000
---------------
GENERAL INFORMATION
The enclosed proxy is solicited on behalf of the Board of Directors of
Micromuse Inc., a Delaware corporation ("Micromuse" or the "Company"), for use
at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at the
Sheraton Palace Hotel, 2 New Montgomery Street, San Francisco, California 94105,
on Wednesday, January 26, 2000, and at any adjournment or postponement of the
Annual Meeting. These proxy solicitation materials were first mailed on or about
December 31, 1999, to all stockholders entitled to vote at the Annual Meeting.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The Company's Common Stock is the only type of security entitled to vote
at the Annual Meeting. On December 14, 1999, the record date for determination
of stockholders entitled to vote at the Annual Meeting, there were 16,305,271
shares of Common Stock outstanding. Each stockholder of record on December 14,
1999 is entitled to one vote for each share of Common Stock held by such
stockholder on such date. Shares of Common Stock may not be voted cumulatively.
All votes will be tabulated by the inspector of elections appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes.
Quorum Required
The Company's bylaws provide that the holders of a majority of the
Company's Common Stock issued and outstanding and entitled to vote at the Annual
Meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at the Annual Meeting. Abstentions and broker
non-votes will be counted as present for the purpose of determining the presence
of a quorum.
Votes Required
Proposal 1. Directors are elected by a plurality of the affirmative votes
cast by those shares present in person or represented by proxy and entitled to
vote at the Annual Meeting. The three nominees for director receiving the
highest number of affirmative votes will be elected. Abstentions and broker
non-votes will not be counted towards a nominee's total. Stockholders may not
cumulate votes in the election of directors.
Proposal 2. Ratification of the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ending September 30, 2000 requires the
affirmative vote of a majority of those shares present, in person or represented
by proxy, and entitled to vote at the Annual Meeting. Abstentions are not
affirmative votes and, therefore, will have the same effect as a vote against
the proposal. Broker non-votes will not be treated as entitled to vote on the
matter and thus, will not affect the outcome of the voting on the proposal.
<PAGE>
Proxies
Whether or not you are able to attend the Company's Annual Meeting, you
are urged to complete and return the enclosed proxy, which is solicited by the
Company's Board of Directors and which will be voted as you direct on your proxy
when properly completed. In the event no directions are specified, such proxies
will be voted FOR the Nominees of the Board of Directors (as set forth in
Proposal No. 1) and FOR Proposal No. 2, and in the discretion of the proxy
holder as to other matters that may properly come before the Annual Meeting. You
may also revoke or change your proxy at any time before the Annual Meeting. To
do this, send a written notice of revocation or another signed proxy with a
later date to the Secretary of the Company at the Company's principal executive
offices before the beginning of the Annual Meeting. You may also automatically
revoke your proxy by attending the Annual Meeting and voting in person. All
shares represented by a valid proxy received prior to the Annual Meeting will be
voted.
Solicitation of Proxies
The cost of soliciting proxies, including the preparation, assembly,
printing, and mailing of this Proxy Statement, the proxy, and any additional
soliciting material furnished to stockholders will be borne by the Company. The
Company may retain and pay for the services of a proxy solicitor, plus
out-of-pocket expenses. In addition, the Company may reimburse brokerage houses
and other persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. The Company will
furnish copies of solicitation material to such brokerage houses and other
representatives. Proxies may also be solicited by certain of the Company's
directors, officers and employees, without additional compensation, personally
or by telephone, telecopy or telegram. Except as described above, the Company
does not presently intend to solicit proxies other than by mail.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a Classified Board
of Directors, with the terms of office of each of the two classes of Directors
ending in successive years. The Company currently has authorized five directors
on the Board. Nominations for election of directors at the Annual Meeting were
made by the full Board of Directors of the Company. At the Annual Meeting, three
directors are to be elected as Class II directors, to serve until the Company's
Annual Meeting following the end of fiscal year 2001, or until their successors
are elected and qualified. The directors who are being nominated for election to
the Board of Directors (the "Nominees"), their ages as of December 14, 1999,
their positions and offices held with the Company and certain biographical
information are set forth below. Each Nominee for election has agreed to serve
if elected, and management has no reason to believe that any Nominee will be
unavailable to serve. In the event any Nominee is unable or declines to serve as
a director at the time of the Annual Meeting, the proxies will be voted for any
nominee who may be designated by the present Board of Directors to fill the
vacancy. Unless otherwise instructed, the proxy holders will vote the Proxies
received by them FOR the Nominees named below. The three Nominees receiving the
highest number of affirmative votes of the shares represented and voting on this
proposal at the Annual Meeting will be elected directors of the Company.
<TABLE>
<CAPTION>
Year First
Nominees Age Elected Director Positions & Offices Held with the Company
-------- --- ---------------- -----------------------------------------
<S> <C> <C> <C>
Gregory Q. Brown 39 1999 Chairman of the Board and Chief Executive Officer
Michael E.W. Jackson(1) 49 1994 Director
Kathleen M.H. Wallman 42 1999 Director
</TABLE>
- ----------
(1) Member of Audit Committee, Compensation Committee and Stock Option
Committee
Mr. Brown was named Chairman and CEO of Micromuse Inc. in February 1999.
His 19 years of high-tech experience includes leadership positions in the
telecommunications, data networking, cable TV and computer software industries.
From September 1996 until joining Micromuse Inc., Brown served as president of
Ameritech Custom Business Services, a unit of Ameritech Corporation that
provides large business customers with custom communications and information
technology. This $1.4 billion unit served many Fortune 500 companies as a single
source for the provisioning and management of network and desktop-based voice,
data, video, and local-access services. For the three years prior to his
position at Custom Business Services, Brown was president of Ameritech New
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Media Inc. As president, Brown was responsible for all of Ameritech's consumer
cable TV operations. Additionally Brown was a member of the board of directors
of Americast, the video programming joint venture involving Ameritech, The Walt
Disney Company, GTE, Bell South, and Southern New England Telephone. Before
joining Ameritech in 1987, Brown held a variety of sales and marketing positions
with AT&T in Detroit, Michigan for five years. He also worked for the IBM
Company in various sales and support capacities in the early 80's. Mr. Brown
received his degree in Economics from Rutgers University in June 1982.
Mr. Jackson has been a director of the Company since July 1998. Mr.
Jackson has also been a director of the Company's or its subsidiary Micromuse
plc since September 1993. Mr. Jackson has been a Chairman of Elderstreet
Investments, a venture capital and investment house since 1990. Since January
1998, Mr. Jackson has served as Deputy Chairman of Planit plc. Mr. Jackson has
also served as a non-executive director for Hat Pin plc since June 1996 and
Spargo Consulting plc since May 1994. Mr. Jackson has also served as a director
of Sage Group plc., an accounting software company, since July 1984 and as
non-executive chairman since September 1997. Mr. Jackson received his LLB in Law
from Cambridge University.
Ms. Wallman has been a director of the Company since May 6, 1999. Wallman
held several senior positions at the FCC and in the White House from 1994 until
November 1997, serving as Chief of the Common Carrier Bureau at the FCC and as
Deputy Assistant to the President for Economic Policy and Counselor and Chief of
Staff of the National Economic Council. In November 1997 Wallman founded and she
still leads Wallman Strategic Consulting, LLC, providing strategic advice in the
areas of telecommunications, information technology, and communications
infrastructure issues. Prior to joining the administration, she was a partner at
the Washington D.C. based law firm of Arnold & Porter. Wallman received her B.A.
from the Catholic University of America where she was graduated in 1979 summa
cum laude, Phi Beta Kappa. She earned a J.D. from Georgetown University Law
Center graduating in 1984 magna cum laude, and at the same time, a M.S. from
Georgetown's Walsh School of Foreign Service, graduating with honors.
Continuing Directors
Set forth below is information regarding the continuing Directors of the
Company, including their ages, the period during which each has served as a
Director, and information furnished by them as to principal occupations and
directorships held by them in corporations whose shares are publicly registered.
Their terms as Class I directors are scheduled to end at the Company's Annual
Meeting following the end of fiscal year 2000.
Stephen Allott, age 41, has served as the Company's President and as a
director since October 1998 and as the Company's Chief Financial Officer since
July 1998. Mr. Allott served as the Company's Senior Vice President, Finance
from September 1997 to July 1998. From June 1997 to September 1997, Mr. Allott
served as Vice President, Global Telco Industry. From April 1996 to September
1997, Mr. Allott served as Managing Director, Micromuse Europe. From September
1995 to April 1996 he served as the Company's Business Development Director. Mr.
Allott has also been a director of Micromuse plc since March 1996. Prior to
joining the Company, Mr. Allott served as a strategy consultant with McKinsey &
Company from September 1990 to September 1995. From May 1988 to September 1990,
Mr. Allott served as United Kingdom legal counsel for Sun Microsystems, UK. Mr.
Allott received his M.A., Law from Trinity College, Cambridge and was called to
the English Bar at Gray's Inn.
David C. Schwab, age 42, has been a director of the Company since December
1996. Mr. Schwab has been a general partner of Sierra Ventures since June 1996.
Prior to joining Sierra Ventures, Mr. Schwab co-founded Scopus Technology, Inc.,
a client-server software systems company, and served in various capacities from
August 1991 to June 1996, most recently as Vice President of Sales. Mr. Schwab
has also been a director of SalesLogix since August of 1998 and Fat Brain from
December 1996 until November 1999, and several private companies. He received
his B.A. in Systems Engineering from University of California San Diego, an M.S.
and ENG. in Aerospace Engineering from Stanford University, and an MBA from
Harvard Business School.
Board of Directors Meetings and Committees
During the fiscal year ended September 30, 1999, the Board of Directors
held ten meetings and acted by written consent on one occasion. For the fiscal
year, each of the directors during the term of their tenure attended or
participated in at least 75% of the aggregate of (i) the total number of
meetings or actions by written consent of the Board of Directors and (ii) the
total number of meetings held by all Committees of the Board of Directors on
which each such director served. During such year the Board of Directors had an
Audit Committee, a Compensation Committee and a Stock Option Committee.
During the fiscal year ended September 30, 1999, the Audit Committee held
four meetings. The Audit Committee currently consists of two directors, Messrs.
Jackson and Schwab. The Audit Committee reviews, acts on and reports to the
Board of Directors with respect to various auditing and accounting matters,
including the selection of the Company's independent accountants, the scope
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<PAGE>
of the annual audits, fees to be paid to the independent accountants, the
performance of the Company's independent accountants and the accounting
practices of the Company.
During the fiscal year ended September 30, 1999, the Compensation
Committee acted by Written Consent on nine occasions and met in conjunction with
the full Board of Directors on ten occasions. The Compensation Committee
currently consists of two directors, Messrs. Jackson and Schwab. The
Compensation Committee establishes salaries, incentives and other forms of
compensation for officers and other employees of the Company and administers the
incentive compensation and benefit plans of the Company and will administer the
1997 Stock Option/Stock Issuance Plan, 1998 Stock Option Plan and Employee Stock
Purchase Plan (collectively "Stock Plans").
Director Compensation
Directors are reimbursed for reasonable expenses incurred by them in
attending meetings of the Board of Directors and any applicable Committee
meetings. Non-employee directors may also receive periodic option grants under
the Company's 1997 Stock Option/Stock Issuance Plan ("1997 Option Plan").
Michael E.W. Jackson received $20,000 in cash for his service as a Board member
and received $3,000 for each meeting of the Board of Directors that he attended
in Fiscal 1999. On December 11, 1998 Mr. Jackson also received a stock option
for 25,000 shares under the 1997 Option Plan. On September 23, 1999, the Board
of Directors unanimously approved discontinuance of cash compensation for
non-employee directors and approved the issuance to non-employee directors of
options to purchase 20,000 shares of the Company's stock at the fair market
value of the stock on October 1, 1999 (the first day of the Company's fiscal
year 2000).
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED HEREIN.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 30, 1999 by (i) each
person known by the Company to be the beneficial owner of more than five percent
of the outstanding shares of the Company's Common Stock, (ii) each of the
Company's directors and the executive officers named in the "Executive
Compensation -- Summary Compensation Table," and (iii) all current directors and
executive officers as a group.
Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934 (the "Exchange Act"). Under this rule,
certain shares may be deemed to be beneficially owned by more than one person
(if, for example, persons share the power to vote or the power to dispose of the
shares). In addition, shares are deemed to be beneficially owned by a person if
the person has the right to acquire shares (for example, upon exercise of an
option) within 60 days of the date as of which the information is provided; in
computing the percentage ownership of any person, the amount of shares is deemed
to include the amount of shares beneficially owned by such person (and only such
person) by reason of these acquisition rights. As a result, the percentage of
outstanding shares of any person as shown in the following table does not
necessarily reflect the person's actual voting power at any particular date.
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned (1)(2)
----------------------------------------------------------------
Beneficial Owner Number of Shares Percentage Ownership
- --------------------------------------------------------------- ------------------------------- ----------------------------
<S> <C> <C>
Pilgrim Baxter & Associates (3) ............................ 1,523,500 9.3%
825 Duportail Road
Wayne, PA 19087
Essex Investment Management & Research (3) ................. 1,407,920 8.6%
125 High Street
29th Floor
Boston, MA 02110
Fidelity Management & Research (3).......................... 1,393,500 8.5%
One Federal Street
Boston, MA 02109
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned (1)(2)
----------------------------------------------------------------
Beneficial Owner Number of Shares Percentage Ownership
- --------------------------------------------------------------- ------------------------------- ----------------------------
<S> <C> <C>
Franklin Advisers, Inc (3).................................. 1,202,477 7.4%
777 Mariners Island Blvd.
Seventh Floor
San Mateo, CA 94404
Stephen A. Allott (4)...................................... 82,661 *
Disraeli House
90 Putney Bridge Road
London, U.K. SW18 1DA
Gregory Q. Brown (5) ....................................... 70,167 *
139 Townsend Street, 5th Floor
San Francisco, CA 94117
James B. De Golia (6) ...................................... 17,999 *
139 Townsend Street, 5th Floor
San Francisco, CA 94117
Michael S. Donohue (7) ..................................... 10,441 *
139 Townsend Street, 5th Floor
San Francisco, CA 94117
David N. Dorrance (8)...................................... 52,395 *
Disraeli House
90 Putney Bridge Road
London, U.K. SW18 1DA
Michael E.W. Jackson (9).................................... 13,779 *
Elderstreet Investments Ltd.
32 Bedford Road
London WC1R 4HE
David C. Schwab (10)........................................ 186,131 1%
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
Peter Shearan (11) ......................................... 67,840 *
Disraeli House
90 Putney Bridge Road
London, U.K. SW18 1DA
Kathleen M. H. Wallman (12) ................................ 1,867 *
555 - 12th Street NW
Suite 321
Washington, DC 20004
Directors and Executive Officers as a group 503,280 3%
( 9 persons) (12)..........................................
</TABLE>
- ----------
* Less than one percent of the outstanding shares of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of November 30,
1999, are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing percentage ownership of each
other person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, the persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock. To the Company's knowledge, the entities named in the table
have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) Percentage ownership is based on 16,305,242 shares of Common Stock
outstanding on November 30, 1999.
5
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(3) As of September 30, 1999.
(4) Includes 81,411 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 1999.
(5) Includes 66,667 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 1999.
(6) Includes 17,499 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 1999.
(7) Includes 9,624 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 1999.
(8) Includes 6,250 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 1999.
(9) Includes 8,438 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 1999.
(10) Includes 1,667 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 1999.
(11) Includes 66,379 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 1999.
(12) Includes 1,667 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 1999.
COMPENSATION COMMITTEE REPORT
Report of Executive Compensation
This Report describes the compensation policies and rationale applied to
the compensation paid to the Company's executive officers for the fiscal year
ended September 30, 1999.
Purpose
For the 1999 fiscal year the Board of Directors, with the recommendation
of the Compensation Committee, established the level of base salary and bonus
programs to be paid to the Chief Executive Officer, President and Chief
Financial Officer and other executive officers of the Company and administered
the Company's Stock Plans. In addition, the Board approved the hiring of the
Chief Executive Officer and his compensation, bonus, option grants and
employment terms and conditions. The Board also approved the hiring, option
grants, compensation, and employment terms of other executive officers hired
during the year and the individual bonus programs to be in effect for the
officers and certain other key employees each fiscal year.
For the 1999 fiscal year, the process used to determine executive officer
compensation levels was based upon the Board's judgment, with reference to
outside sources. Among the factors considered by the Compensation Committee and
the Board were the recommendations of the Chief Executive Officer and President
and Chief Financial Officer with respect to the compensation of the Company's
executive officers. However, the Board made the final compensation decisions for
all officers.
General Compensation Policy
The Company's executive compensation policy is to offer the Company's
executive officers competitive compensation opportunities based upon increasing
stockholder value and individual achievement of defined objectives. The policy
is intended to be
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competitive in order to recruit, retain and motivate people of needed
capabilities. It is the Company's objective to have compensation be highly
competitive with that of public software companies (the "Peer Companies").
Compensation should include meaningful equity in the Company, which strengthens
the mutuality of interests between the executive officers and the stockholders.
Each executive officer's compensation package is generally comprised of three
elements: (i) base salary, (ii) cash incentive bonuses, and (iii) long-term
common stock-based incentive awards.
Base Salary
The base salary for each executive officer is set on the basis of
responsibilities, personal performance and a review of comparable positions at
the Peer Companies. The level of base salary set for such executive officers to
date has been comparable to the surveyed compensation data for the Peer
Companies.
Annual Incentive Compensation
The performance of the Company substantially exceeded the Company's Fiscal
1999 targets. On an annual or more frequent basis, it is the policy of the Board
or Compensation Committee to establish a set of objectives for executive
officers based on Company performance and on achievement of individual
objectives. At the end of the fiscal year or other measurement period, the Board
or Compensation Committee will evaluate the objectives to determine whether the
specified objectives were met and will determine whether extraordinary
accomplishments should be considered in determining the bonus award. For 1999,
target incentives varied by group and each officer's objectives required
achievement of his group's objectives, as well as achievement of corporate
revenue and/or corporate bookings. For 1999, actual bonuses paid reflected an
individual's accomplishment of both corporate and functional objectives, with
approximately equal weight being given to achievement of corporate and
functional objectives.
Long-Term Incentive Compensation
During the 1999 fiscal year, the Compensation Committee, in its
discretion, made option grants to key employees, including executive officers
under the 1997 Option Plan. The size of each grant was set at a level that
together with past option grants the Board and the Compensation Committee deemed
appropriate to create a meaningful opportunity for stock ownership based upon
the individual's current position with the Company. However, other factors
considered include: the individual's potential for future responsibility, the
individual's performance in the recent period, and the number of unvested
options held by the individual at the time of the new grant.
The grants are designed to align the interests of the executive officer
with those of the stockholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner with an equity
stake in the business. Each grant allows the officer to acquire shares of the
Company's Common Stock at a fixed price per share (the market price on the grant
date or later date) over a specified period of time. The option generally vests
in periodic installments over a four-year period, contingent upon the executive
officer's continued employment with the Company. Accordingly, the option will
provide a return to the executive officer only if he remains in the Company's
employ, and then only if the market price of the Company's Common Stock
appreciates over the option term.
CEO Compensation
The annual base salary, bonus and option grants for Mr. Brown, the
Company's Chairman of the Board and Chief Executive Officer, was established by
the Board based on advice from recruiting and compensation experts at Heidrick &
Struggles and on the Board's subjective evaluation of his capabilities and
duties at the time he was hired. Under the terms of his February 17, 1999
Employment Agreement, Mr. Brown will receive a base salary of $350,000 per year
and his bonus is targeted at $350,000 in the first year. He also received
options to purchase a total of 800,000 shares of the Company's Common Stock,
comprised of: 320,000 shares that vest after 18 months of continuous employment;
320,000 shares that vest monthly over his first 48 months of employment; and
160,000 shares that vest, commencing October 1, 2000, over periods of 24 months
or 48 months, depending on Company performance. The Employment Agreement also
provides for twelve months of base salary, pro-rated bonus in the event his
employment terminates other than for cause or permanent disability or with good
reason. Within the first year of employment if the Company experiences a change
in control and Mr. Brown is terminated (not for cause or permanent disability)
or if he resigns for good reason within 18 months following such change in
control, then 50% of Mr. Brown's unvested option shares will become vested. If
the Company experiences such a change in control, and such termination occurs
following Mr. Brown's completion of 12 months of employment with the Company,
then all of Mr. Brown's unvested option shares will become vested. The Agreement
also includes
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<PAGE>
non-competition, non-solicitation and other restrictive covenants, including an
obligation to sign a release in order to receive such termination benefits.
Tax Limitation
Under the federal tax laws, a publicly held company such as Micromuse Inc.
will not be allowed a federal income tax deduction for compensation paid to
certain executive officers to the extent that compensation exceeds $1 million
per officer in any year. It is not expected that the compensation to be paid to
the Company's executive officers for the 1999 fiscal year will exceed the $1
million limit per officer. In order to qualify option grants under the Company's
1997 Stock Option/Stock Issuance Plan for an exemption available to
performance-based compensation, the stockholders have approved certain
provisions of that Plan, including a limit on the maximum number of option
shares that any one participant may receive each calendar year. Accordingly, any
compensation deemed paid to an executive officer when he exercises an
outstanding option under the 1997 Stock Option/Stock Issuance Plan with an
exercise price equal to the fair market value of the option shares on the grant
date should qualify as performance-based compensation that will not be subject
to the $1 million limitation.
COMPENSATION COMMITTEE
David C. Schwab
Michael E.W. Jackson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was formed
in February, 1999 and the members of the Compensation Committee are Messrs.
Jackson and Schwab. None of the members of the Compensation Committee was at any
time during the 1999 fiscal year or at any other time an officer or employee of
the Company. No executive officer of the Company serves as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder return
on the Company's Common Stock between February 13, 1998 (the date the Company's
Common Stock commenced public trading) and September 30, 1999, with the
cumulative total return of (i) the S&P 500 Index and (ii) the Nasdaq Stock
Market - U.S. Index, over the same period. This graph assumes the investment of
$100.00 on February 13, 1998 in the Company's Common Stock, the S&P 500 Index
and the Nasdaq Stock Market - U.S. Index, and assumes the reinvestment of
dividends, if any.
The comparisons shown in the graph below are based upon historical data
and the Company cautions that the stock price performance shown in the graph
below is not indicative of, nor intended to forecast, the potential future
performance of the Company's Common Stock. Information used in the graph was
obtained from Standard & Poor's Compustat Total Return Service, a source
believed to be reliable, but the Company is not responsible for any errors or
omissions in such information.
Comparison of Cumulative Total Return Among Micromuse Inc.,
the S&P 500 Index and the Nasdaq Stock Market - U.S. Index
NEW CHART TO BE INSERTED HERE
8
<PAGE>
The Company effected its initial public offering on February 12, 1998 at a
per share price of $12.00. The graph above, however, commences with the closing
price of $18.88 per share on February 13, 1998 -- the date the Company's Common
Stock commenced public trading.
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or the
Exchange Act, as amended, that might incorporate this Proxy Statement or future
filings made by the Company under those statutes, the Compensation Report and
Stock Performance Graph are not deemed filed with the Securities and Exchange
Commission and shall not be deemed incorporated by reference into any of those
prior filings or into any future filings made by the Company under those
statutes.
Executive Compensation
The following Summary Compensation Table sets forth the compensation
earned by the Company's Chief Executive Officer and the four other most highly
compensated officers whose salary and bonus for the fiscal year ended September
30, 1999 exceeded $100,000 (collectively, the "Named Executive Officers"), for
services rendered in all capacities to the Company and its subsidiaries for the
fiscal year ended September 30, 1999.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
--------------------------------------------------
Awards
----------------
Securities
Fiscal Underlying
Name and Principal Position Year Salary($) Bonus($) Options(#)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gregory Q. Brown (1) ........................ 1999 204,166 230,417 800,000
Chairman of the Board and
Chief Executive Officer
Stephen A. Allott............................ 1999 257,141 253,395 100,000
Director, President and Chief Financial 1998 226,716 9,767 --
Officer 1997 161,581 -- 19,033
James B. De Golia (2) ....................... 1999 135,000 30,000 70,000
Senior Vice President, Secretary
and General Counsel
Michael S. Donohue (3) ...................... 1999 150,910 472,399 90,000
Senior Vice President ,
Sales and Business Operations
Peter Shearan................................ 1999 148,113 37,673 35,000
Senior Vice President, 1998 140,201 6,869 15,000
Technical Services 1997 110,444 -- 72,484
David N. Dorrance (4)........................ 1999 109,520 301,362 35,000
Senior Vice President, Sales 1998 149,561 233,524 20,000
1997 32,158 -- 65,000
</TABLE>
- --------------
(1) Mr. Brown commenced his employment on February 17, 1999.
(2) Mr. De Golia commenced his employment on January 1, 1999.
(3) Mr. Donohue commenced his employment on October 22, 1998.
(4) Mr. Dorrance resigned his employment in April of 1999.
9
<PAGE>
Option Grants
The following table contains information concerning the stock option
grants made to each of the Named Executive Officers in the fiscal year ended
September 30, 1999. No stock appreciation rights were granted to these
individuals during such year.
<TABLE>
<CAPTION>
Individual Grant
---------------------------------------
Potential
Number of % of Total Realizable Value at
Securities Options Assumed
Underlying Granted Annual Rates of
Options to Exercise Stock Price Appreciation
Granted Employees Price Expiration for Option Term (3)
in ---------------------------
Name (#) 1999 (1)(%) ($/Sh) (2) Date 5% ($) 10% ($)
- ------------------------------------------- ----------- ------------- --------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gregory Q. Brown ......................... 480,000 21.4 29.625 03/01/09 8,942,882 22,663,018
320,000 14.3 29.625 03/01/09 5,961,921 15,108,679
Stephen A. Allott ........................ 100,000 4.5 8.750 10/08/05 356,213 830,127
James B. De Golia ........................ 70,000 3.1 17.625 01/01/09 775,899 1,966,280
Michael S. Donohue ....................... 50,000 2.2 13.438 10/22/08 422,554 1,070,836
40,000 1.8 39.875 05/28/09 1,003,087 2,542,019
Peter Shearan ............................ 25,000 1.1 8.750 10/08/05 89,053 207,532
10,000 * 26.250 01/13/06 106,864 249,038
David N. Dorrance......................... 25,000 1.1 8.750 10/08/05 89,053 207,532
10,000 * 26.250 01/13/09 165,085 418,357
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than one percent of the Total Options Granted to Employees in fiscal
1999.
(1) Based on an aggregate of 2,241,963 option shares granted in fiscal 1999.
(2) The exercise price per share of options granted represented the fair
market value of the underlying shares of Common Stock on the option grant
date, which is equal to the closing price, as reported by the Nasdaq
National Market System on the option grant date. The exercise price may be
paid in cash, in shares of the Company's Common Stock valued at fair
market value on the exercise date or through a cashless broker-assisted
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of
the Company's securities that the actual stock price appreciation over the
option term will be at the assumed 5% or 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates
over the option term, no value will be realized from the option grants
made to the executive officers.
Option Exercises and Fiscal Year-End Values
The following table sets forth information concerning the year-end number
and value of unexercised options; and the following table also sets forth the
number of options exercised during fiscal year 1999 with respect to each of the
Named Executive Officers. No stock appreciation rights were exercised by the
Named Executive Officers in fiscal year 1999, and no stock appreciation rights
were outstanding at the end of that year.
<TABLE>
<CAPTION>
Value of
Shares Number of Unexercised
Acquired Securities Underlying in-the-Money
on Value Unexercised Options Options
Exercise Realized at FY-End(#)(2) at FY-End($)(3)
----------- ---------- ---------------------- --------------------------
Name (#) ($) (1) Vested Unvested Vested Unvested
- ------------------------------------------- ----------- ---------- ------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gregory Q. Brown ......................... -- -- 40,000 760,000 1,385,000 26,315,000
Stephen A. Allott ........................ 15,000 779,712 63,575 106,062 3,974,336 5,924,328
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Value of
Value of
Shares Number of Unexercised
Acquired Securities Underlying in-the-Money
on Value Unexercised Options Options
Exercise Realized at FY-End(#)(2) at FY-End($)(3)
----------- ---------- ---------------------- --------------------------
Name (#) ($) (1) Vested Unvested Vested Unvested
- ------------------------------------------- ----------- ---------- ------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
James B. De Golia ........................ -- -- -- 70,000 -- 3,263,750
Michael S. Donohue ....................... -- -- -- 90,000 -- 3,515,600
Peter Shearan ............................ -- -- 61,112 61,372 3,756,475 3,347,846
David N. Dorrance......................... 44,895 1,379,585 -- 75,105 -- 4,179,815
</TABLE>
- --------------
(1) The amounts in this column are equal to the fair market value of the
purchased shares on the option exercise date, less the exercise price paid
for such shares.
(2) Any shares purchased under the options will be subject to vesting
requirements and may be repurchased at the original exercise price per
share upon the optionee's cessation of service prior to vesting in such
shares.
(3) Based on the fair market value of the Company's Common Stock at fiscal
year end ($64.25 per share), and such value is equal to the closing price,
as reported by the Nasdaq National Market System, less the exercise price
payable for such shares.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company's executive officers have standard offer letters with the Company
that set forth their base salary, option grant and eligibility to participate in
employee benefit programs available to similarly situated employees, except as
noted below. The Company's executive officers do not have any severance
agreements with the Company, and their employment may be terminated at any time
at the discretion of the Board of Directors. Mr. Brown's employment agreement is
described in the Compensation Committee Report. Allott's terms of employment
provide that he be given twelve months notice should he be terminated other than
for cause after October 2000. Mr. De Golia's offer letter also provides that the
Company must provide twelve month notice of termination in the event of
termination without cause or resignation for defined good reasons and vesting of
his options will accelerate if he is terminated without cause within twelve
months of a change of control. He is also obligated to sign a release
non-competition agreement in order to receive such termination benefits.
Upon a Corporate Transaction, the vesting of each outstanding option shall
automatically accelerate so that each such option shall become fully vested and
exercisable (and applicable repurchase rights shall lapse), except to the extent
any such option is assumed or replaced with a comparable option or cash
incentive program by the successor corporation. In addition, the Plan
Administrator, the Board or an authorized committee, shall have the discretion
to provide for the automatic vesting acceleration of any options upon the
occurrence of a Corporate Transaction or Change in Control or upon an
involuntary termination following such a transaction. See "Proposal 2 -
Amendment to the 1997 Stock Option/Stock Issuance Plan."
- ----------
PROPOSAL NO. 2 -- RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of KPMG LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending September 30, 2000. KPMG LLP has audited the Company's financial
statements since the fiscal year ended September 30, 1995.
A representative of KPMG LLP is expected to be present at the Annual
Meeting, will have the opportunity to make a statement if he or she desires to
do so, and will be available to respond to appropriate questions. In the event
the stockholders fail to ratify the appointment, the Board of Directors will
reconsider its selection.
11
<PAGE>
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF KPMG LLP TO SERVE AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING SEPTEMBER 30, 2000.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended, which require them to file reports
with respect to their ownership of the Company's Common Stock and their
transactions in such Common Stock. Based upon (i) the copies of Section 16(a)
reports that the Company received from such persons for their 1999 fiscal year
transactions in the Common Stock and their Common Stock holdings and (ii) the
written representations received from one or more of such persons that no annual
Form 5 reports were required to be filed by them for the 1999 fiscal year except
for option grants made by the Company to Messrs. Brown, De Golia and Donohue.
The Company believes that all reporting requirements under Section 16(a) for
such fiscal year were met in a timely manner by its executive officers, Board
members and greater than ten-percent stockholders, except that one late Form 4
was filed by David C. Schwab.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
COMPANY'S REPORT ON FORM 10-K FOR FISCAL YEAR 1999, INCLUDING THE FINANCIAL
STATEMENTS, SCHEDULES, AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO
MICROMUSE INC., 139 TOWNSEND STREET, SAN FRANCISCO, CALIFORNIA 94107, ATTN:
INVESTOR RELATIONS.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Stockholder proposals that are intended to be presented at the 2001 Annual
Meeting that are eligible for inclusion in the Company's proxy statement and
related proxy materials for that meeting under the applicable rules of the
Securities and Exchange Commission must be received by the Company no later than
November 29, 2000 in order to be included. Pursuant to new amendments to Rule
14a-4(c) of the Securities Exchange Act of 1934, as amended, if a stockholder
who intends to present a proposal at the 2001 annual meeting of stockholders
does not notify the Company of such proposal on or prior to November 29, 2000,
then management proxies would be allowed to use their discretionary voting
authority to vote on the proposal when the proposal is raised at the annual
meeting, even though there is no discussion of the proposal in the 2000 proxy
statement. The Company currently believes that the 2001 annual meeting of
stockholders will be held during the last week of January 2001. Such stockholder
proposals should be addressed to Micromuse Inc., 139 Townsend Street, San
Francisco, CA 94107, Attn: Investor Relations.
12
<PAGE>
OTHER MATTERS
The Board knows of no other matters to be presented for stockholder action
at the Annual Meeting. However, if other matters do properly come before the
Annual Meeting or any adjournments or postponements thereof, the Board intends
that the persons named in the proxies will vote upon such matters in accordance
with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
OF MICROMUSE INC.
San Francisco, California
December 29, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL
MEETING. IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR
PROXY VOTE, YOU MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING.
13
<PAGE>
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Please mark
your votes as |X|
indicated in
this example
FOR all nominees
except for
nominees
1. To elect the following directors to FOR WITHHELD written below.
serve for a term ending upon the 2001
Annual Meeting of Stockholders or until |_| |_| |_|
their successors are elected and
qualified;
Nominees: Gregory Q. Brown Michael E. W. Jackson Kathleen M. H. Wallman
2. To ratify the appointment of FOR AGAINST ABSTAIN
KPMG Peat Marwick LLP as the Company's
Independent accountants for the fiscal |_| |_| |_|
year ending September 30, 2000.
NOMINEES EXCEPTION(S)
- -------------------------------------------------
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Annual Meeting.
The undersigned acknowledges receipt of the accompanying Notice of Annual
Meeting of Stockholders and Proxy Statement.
Signature(s)_____________________________________________________________
Date_____________, 2000 Please date and sign exactly as your name(s) is (are)
shown on the share certificate(s) to which the Proxy applies. When shares are
held as joint-tenants, both should sign. When signing as an executor,
administrator, trustee, guardian, attorney-in fact or other fiduciary, please
give full title as such. When signing as a corporation, please sign in full
corporate name by President or other authorized officer. When signing as a
partnership, please sign in partnership name by an authorized person.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
- --------------------------------------------------------------------------------
PROXY
MICROMUSE INC.
139 TOWNSEND STREET, SAN FRANCISCO CA 94107
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MICROMUSE INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JANUARY 26, 2000
The undersigned holder of Common Stock, par value $0.01, of Micromuse Inc. (the
"Company") hereby appoints Gregory Q. Brown and James B. DeGolia severally proxy
for the undersigned, with full power of substitution, to represent and to vote
as specified in this Proxy all Common Stock of the Company that the undersigned
stockholder would be entitled to vote if personally present at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held on Wednesday, January
26, 2000 at 10:00 a.m. pacific standard time, at the Sheraton Palace Hotel, 2
New Montgomery Street, San Francisco, California, 94105 and at any adjournments
or postponements of the Annual Meeting. The undersigned stockholder hereby
revokes any proxy or proxies heretofore executed for such matters.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF THE DIRECTORS (PROPOSAL 1) AND FOR RATIFICATION OF
INDEPENDENT AUDITORS (PROPOSAL 2) AND IN ACCORDANCE WITH THE DETERMINATION OF
THE BOARD OF DIRECTORS AS TO OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING. THE UNDERSIGNED STOCKHOLDER MAY REVOKE THIS PROXY AT ANY TIME BEFORE IT
IS VOTED BY DELIVERING TO THE CORPORATE SECRETARY OF THE COMPANY EITHER A
WRITTEN REVOCATION OF THE PROXY OR A DULY EXECUTED PROXY BEARING A LATER DATE,
OR BY APPEARING AT THE ANNUAL MEETING AND VOTING IN PERSON.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
DIRECTORS (PROPOSAL 1), AND "FOR" PROPOSAL 2. TO VOTE AT THE ANNUAL MEETING IN
ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF MICROMUSE INC.,
YOU MAY SIGN AND DATE THE REVERSE SIDE OF THIS CARD WITHOUT CHECKING ANY BOX.
PLEASE MARK, SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED
RETURN ENVELOPE. IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND RETURN
ALL CARDS IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
