SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
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|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
MICROMUSE, INC.
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee Required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
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[LOGO]
MICROMUSE INC.
139 Townsend Street
San Francisco, CA 94107
---------------
December 28, 2000
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 Thursday, February 1,
2001, 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 February 1, 2001
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 Thursday, February 1, 2001, at 10:00
a.m., Pacific Standard Time, for the following purposes:
1. To elect two 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, 2001; 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 8, 2000 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 28, 2000
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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>
[LOGO]
139 Townsend Street
San Francisco, California 94107
---------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
To be held on February 1, 2001
---------------
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 Thursday, February 1, 2001, and at any adjournment or postponement of the
Annual Meeting. These proxy solicitation materials were first mailed on or about
December 28, 2000, to all stockholders entitled to vote at the Annual Meeting.
Unless specifically noted otherwise, all Common Stock data in this Proxy
Statement has been adjusted to reflect the effect of the two-for-one stock
splits declared payable on February 22, 2000 and December 19, 2000.
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 8, 2000, the record date for determination of
stockholders entitled to vote at the Annual Meeting, there were 35,525,319
shares of Common Stock outstanding (before distribution of the December 19, 2000
two-for-one stock split). Each stockholder of record on December 8, 2000 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 two nominees for director receiving the
<PAGE>
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, 2001 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.
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, two
directors are to be elected as Class I directors, to serve until the Company's
Annual Meeting following the end of fiscal year 2002, 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 28, 2000,
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 two 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.
2
<PAGE>
<TABLE>
<CAPTION>
Year First
Nominees Age Elected Director Positions & Offices Held with the Company
--------- --- ---------------- -----------------------------------------
<S> <C> <C> <C>
Stephen A. Allott 42 1998 Director, President and Chief Financial Officer
David C. Schwab (1) 43 1996 Director
</TABLE>
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(1) Member of Audit Committee and Compensation Committee
Stephen A. Allott, age 42, 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 43, has been a director of the Company since December
1996. Mr. Schwab has been a general partner of Sierra Ventures since November
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 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.
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 II directors are scheduled to end at the Company's Annual
Meeting following the end of fiscal year 2001.
Mr. Brown, age 40, was named Chairman and CEO of Micromuse Inc. in
February 1999. His 20 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., Mr. 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, Mr. Brown was president of
Ameritech New Media Inc. As president, Mr. Brown was responsible for all of
Ameritech's consumer cable TV operations. Additionally Mr. 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, Mr. Brown held a variety of
sales and marketing positions with AT&T in Michigan for five years. Mr. Brown
received his degree in Economics from Rutgers University in June 1982.
Mr. Jackson, age 50, has been a director of the Company since July 1998.
Mr. Jackson has also been a director of the Company's subsidiary Micromuse plc
since March 1994. Mr. Jackson has been a Chairman of Elderstreet Investments
LTD, 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 director of Sage Group plc, an accounting software company, since July 1984
and as non-executive chairman since September 1997. Mr. Jackson was trained and
employed as a CPA at Coopers & Lybrand and received his LLB in Law from
Cambridge University.
Ms. Wallman, age 43, has been a director of the Company since May 6, 1999.
Ms. 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 Ms.
Wallman founded and she still leads Wallman
3
<PAGE>
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. Ms. 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.
Board of Directors Meetings and Committees
During the fiscal year ended September 30, 2000, the Board of Directors
held 8 meetings. For the fiscal year, each of the directors during the term of
his or her tenure attended or participated in all meetings of the Board and
Committees of the Board of Directors on which each such director served, except
for one director who did not attend one Board meeting. During such year the
Board of Directors had an Audit Committee and a Compensation Committee and the
Compensation Committee had a Stock Option Committee.
During the fiscal year ended September 30, 2000, the Audit Committee held
6 meetings. The Audit Committee currently consists of three non-employee
directors, Messrs. Jackson and Schwab and Ms. Wallman. 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 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. The Board has adopted
and approved a charter for the Audit Committee, a copy of which is attached
hereto as Appendix A. The Board has determined that all members of the Audit
Committee are "independent" as that term is defined in Rule 4200 of the listing
standards of the National Association of Securities Dealers.
During the fiscal year ended September 30, 2000, the Compensation
Committee acted by written consent on 3 occasions and met in conjunction with
the full Board of Directors on 8 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 including the 1997 Stock
Option/Stock Issuance Plan, 1998 Stock Option Plan and Employee Stock Purchase
Plan (collectively "Stock Plans").
During the fiscal year ended September 30, 2000, the Stock Option
Committee held no meetings and acted by written consent on 12 occasions. The
Stock Option Committee currently consists of Mr. Brown and has authority to make
option grants to non-officer employees and consultants for up to 25% of the
shares authorized for issuance as options per quarter on terms determined to
promote alignment with shareholder interests and employee retention. The
Committee provides detailed reports of its stock grant activity to the
Compensation Committee and the Board on at least a quarterly basis.
Director Compensation
The Board of Directors unanimously approved discontinuance of cash
compensation for non-employee directors and approved the issuance to each
non-employee director of options to purchase 80,000 shares of the Company's
Common Stock in September 1999. On October 20, 2000, the Board of Directors
issued to each non-employee director options to purchase 30,000 shares of the
Company's Common Stock. Director options vest monthly over a three year period,
and the exercise price is the fair market value on the date of grant. The Board
grant figures have been adjusted for the two 2-for-1 stock splits.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE DIRECTOR NOMINEES
LISTED ABOVE.
4
<PAGE>
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, 2000 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. Where information regarding shareholders is based
on Schedules 13D and 13G, the number of shares is as of the date for which
information was provided in such schedules.
Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended (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)(3)
--------------------------------------
Beneficial Owner Number of Shares Percentage Ownership
-------------------------------------------- ---------------- --------------------
<S> <C> <C>
Putnam Investments, Inc.(4) ................ 7,460,042 10.52%
One Post Office Square
Boston, MA 02109
FMR Corp. (5) .............................. 4,480,000 6.32%
82 Devonshire Street
Boston, MA 02109
Pilgrim Baxter & Associates (6) ............ 5,292,000 7.47%
825 Duportail Road
Wayne, PA 19087
Essex Investment Management Company (7) .... 4,841,960 6.83%
125 High Street
Boston, MA 02110
Franklin Advisers, Inc. (8) ................ 4,183,732 5.90%
777 Mariners Island Blvd
San Mateo, CA 94404
Stephen A. Allott (9) ..................... 213,170 *
Gregory Q. Brown (10) ...................... 1,390,666 1.92
James B. De Golia (11) ..................... 56,922 *
Michael S. Donohue (12) .................... 54,436 *
Michael E.W. Jackson (13) .................. 69,282 *
David C. Schwab (14) ....................... 530,010 *
Peter Shearan (15) ......................... 330,552 *
Kathleen M. H. Wallman (16) ................ 36,534 *
Directors and Executive Officers as a
group (8 persons) (17) ..................... 2,681,572 3.67%
</TABLE>
----------
* Less than one percent of the outstanding shares of Common Stock.
5
<PAGE>
(1) 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 70,880,356 shares of Common Stock
outstanding on November 30, 2000, adjusted per note (3) below.
(3) All share numbers have been adjusted to reflect 2-for-1 stock splits in
February and December of calendar year 2000.
(4) Based solely on information provided by Marsh & McLennan Companies, Inc.
("Marsh") in a Schedule 13G filed with the Securities and Exchange
Commission on August 17, 2000. Putnam Investments, Inc., a wholly-owned
subsidiary of Marsh, wholly owns two registered investment advisors:
Putnam Investment Management, Inc. ("PIM") and Putnam Advisory Company,
Inc. ("PAC"). PIM and PAC report shared power to dispose of 6,621,942 and
838,100 shares, respectively, and PAC reports shared power to vote 195,600
shares.
(5) Based solely on information provided by FMR Corp. in a Schedule 13G filed
with the Securities and Exchange Commission on February 11, 2000, which
reports beneficial ownership of certain FMR affiliates as follows:
3,641,600 shares held by Fidelity Management & Research Company, 676,800
shares held by Fidelity Management Trust Company, and 161,600 shares held
by Fidelity International Limited, as to which, on an aggregate basis,
these persons report sole power to dispose of 4,480,000 shares and sole
power to vote 830,400 shares.
(6) Based solely on information provided by Pilgrim Baxter & Associates in an
amended Schedule 13G filed with the Securities and Exchange Commission on
January 7, 2000, which reports sole power to vote 4,991,200 shares and
sole power to dispose all of the shares stated in the table above.
(7) Based solely on information provided by Essex Investment Management
Company in a Schedule 13G filed with the Securities and Exchange
Commission on February 2, 2000, which reports sole power to vote 3,406,380
shares and sole power to dispose of all of the shares stated in the table
above.
(8) Based solely on information provided by Franklin Resources, Inc.
("Franklin Resources"), and Charles B. Johnson and Rupert H. Johnson, Jr.
in an amended Schedule 13G filed with the Securities and Exchange
Commission on January 28, 2000, which reports that Franklin Advisers,
Inc., an advisory subsidiary of Franklin Resources, has sole power to vote
4,100,960 shares.
(9) Includes 203,170 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 2000.
(10) Includes 1,390,666 shares of Common Stock issuable upon exercise of
options that are currently exercisable or exercisable within 60 days of
November 30, 2000.
(11) Includes 39,202 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 2000.
(12) Includes 51,164 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 2000.
(13) Includes 67,918 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 2000.
(14) Includes 35,834 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 2000.
(15) Includes 327,952 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 2000.
(16) Includes 35,834 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of November
30, 2000.
(17) Includes 2,151,740 shares of Common Stock issuable upon exercise of
options that are currently exercisable or exercisable within 60 days of
November 30, 2000.
6
<PAGE>
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, 2000.
Purpose
For the 2000 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. 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 2000 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 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
2000 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 2000,
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 2000, 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.
7
<PAGE>
Long-Term Incentive Compensation
During the 2000 fiscal year, the Compensation Committee, in its
discretion, made option grants to key employees, including executive officers
under the 1997 Option/Stock Issuance 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 or she 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
Under the terms of Mr. Brown's February 17, 1999 Employment Agreement, in
fiscal year 2000 he received a base salary of $350,000, and his target bonus of
$350,000 was increased to $525,000 based on Company performance and Compensation
Committee approval. Under the terms of his Employment Agreement, on a split
adjusted basis, he received options to purchase a total of 3,200,000 shares of
the Company's Common Stock, comprised of: 1,280,000 shares that vested after 18
months of continuous employment; 1,280,000 shares that are vesting monthly over
his first 48 months of employment; and 640,000 shares that, because of superior
Company performance in fiscal year 2000, began to vest over a 24 month period
commencing October 1, 2000. The Employment Agreement also provides for twelve
months of base salary, and pro-rated bonus in the event his employment
terminates other than for cause or permanent disability or with good reason. If
the Company experiences a change in control, and Mr. Brown is terminated (not
for cause or permanent disability) all of Mr. Brown's unvested option shares
will then become vested. The Agreement also includes non-competition,
non-solicitation and other restrictive covenants, including an obligation to
sign a release in order to receive such termination benefits. On October 20,
2000, after reviewing the performance of Mr. Brown and the Company, the
Compensation Committee increased to $400,000 each of Mr. Brown's base and target
bonus compensation for fiscal year 2001.
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 2001 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
8
<PAGE>
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 2000 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.
AUDIT COMMITTEE REPORT
The following is the report of the audit committee with respect to the
Company's audited financial statements for the fiscal year ended September 30,
2000, included in the Company's Annual Report on Form 10-K for that year.
The audit committee has reviewed and discussed these audited financial
statements with management of the Company.
The audit committee has discussed with the Company's independent auditors,
KPMG LLP, the matters required to be discussed by SAS 61 (Codification of
Statements on Auditing Standards, AU Section 380) as amended, which includes,
among other items, matters related to the conduct of the audit of the Company's
financial statements.
The audit committee has received the written disclosures and the letter
from KPMG LLP required by Independence Standards Board Standard No. 1
("Independence Discussions with Audit Committees") as amended, and has discussed
with KPMG LLP the independence of KPMG LLP from the Company.
Based on the review and discussions referred to above in this report, the
audit committee recommended to the Company's Board of Directors that the audited
financial statements be included in the Company's Annual Report on Form 10-K for
the year ended September 30, 2000 for filing with the Securities and Exchange
Commission.
Submitted by the Audit Committee
of the Board of Directors
Michael E. W. Jackson
David C. Schwab
Kathleen Wallman
9
<PAGE>
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, 2000, with the
cumulative total return of (i) the S&P 500 Index, (ii) the Nasdaq Stock Market -
U.S. Index, and (iii) Chase H & Q Computer Software 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, the Nasdaq Stock Market - U.S. Index, and Chase
H & Q Computer Software 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 31 MONTH CUMULATIVE TOTAL RETURN*
AMONG MICROMUSE INC. THE NASDAQ STOCK MARKET (U.S.) INDEX,
THE S&P 500 INDEX AND THE CHASE H & Q COMPUTER SOFTWARE INDEX
[PERFORMANCE GRAPH]
Cumulative Total Return
------------------------------------
2/13/98 9/98 9/99 9/00
MICROMUSE INC. 100.00 94.70 340.40 2129.14
NASDAQ STOCK MARKET (U.S.) 100.00 105.18 171.83 228.12
S & P 500 100.00 104.84 133.99 151.79
CHASE H & Q COMPUTER SOFTWARE 100.00 108.35 159.82 310.32
*$100 INVESTED ON 2/13/98 IN STOCK OR IN 1/31/98
IN INDEX - INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
The above graph commences with the closing price of the Company's Common
Stock on February 13, 1998, the day the stock commenced public trading on. On a
split adjusted basis, the Common Stock closed that day at a price $4.72 per
share (a 57% increase from its initial offering price of $3.00 per share).
10
<PAGE>
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 Committee
Report, the Audit Committee Report, Audit Committee Charter, reference to the
independence of the Audit Committee members 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, 2000 exceeded $100,000 (collectively, the "Named Executive Officers"), for
services rendered in all capacities to the Company and its subsidiaries for the
fiscal year ended September 30, 2000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------------ --------------
Awards
--------------
Securities
Fiscal Underlying
Name and Principal Position Year Salary($) Bonus($) Options(#)
------------------------------------------------- ---- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Gregory Q. Brown (1) ............................ 2000 350,000 525,000 --
Chairman of the Board and 1999 204,166 230,417 3,200,000
Chief Executive Officer
Stephen A. Allott (4)............................ 2000 231,047 224,117 --
President and Chief Financial Officer 1999 257,141 253,395 400,000
1998 226,716 9,767 --
James B. De Golia (2) ........................... 2000 180,000 30,000 --
Senior Vice President, Secretary 1999 135,000 30,000 280,000
and General Counsel
Michael S. Donohue (3) .......................... 2000 160,000 443,321 120,000
Senior Vice President, 1999 150,910 472,399 360,000
Sales and Business Operations
Peter Shearan (4)................................ 2000 126,577 52,203 --
Senior Vice President, 1999 148,113 37,673 140,000
Product Management and Customer Support 1998 140,201 6,869 60,000
</TABLE>
----------
(1) Mr. Brown commenced his employment on February 17, 1999.
(2) Mr. De Golia commenced his employment on January 1, 1999.
(3) Mr. Donohue commenced his employment on October 22, 1998.
(4) Messrs Allott and Shearan are compensated in British Pounds and the cash
compensation reported for them reflects conversion of those aggregate sums
into U.S. dollars at the applicable conversion rate on September 30.
11
<PAGE>
Option Grants
The following table contains information concerning the stock option
grants made to each of the Named Executive Officers in the fiscal year ended
September 30, 2000.
<TABLE>
<CAPTION>
Individual Grant
---------------------------------------------------
Number of % of Total Potential
Securities Options Realizable Value at Assumed
Underlying Granted Stock Price Appreciation
Options To Employees Exercise for Option Term(3)
Granted in Price Expiration ---------------------------
Name (#) 2000(%)(1) ($/Sh)(2) Date 5%($) 10%($)
----------------------------- ------- ----------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gregory Q. Brown ............ 0
Stephen A. Allott ........... 0
James B. De Golia ........... 0
Michael S. Donohue .......... 80,000 1.5 $61.50 6/21/10 $3,094,162 $7,841,213
40,000 * $37.50 4/14/10 $ 943,342 $2,390,614
Peter Shearan ............... 0
</TABLE>
----------
* Less than one percent of the total options granted to employees in fiscal
2000.
(1) Based on an aggregate of 5,361,604 option shares granted in fiscal 2000.
(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 options normally vest
over a 4 year period (except as noted in the description of Mr. Brown's
compensation in the Compensation Committee Report) and 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 based on 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 number of options exercised during
fiscal year 2000 with respect to each of the Named Executive Officers.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Shares Securities Underlying in-the-Money
Acquired Unexercised Options Options
on Exercise Value Realized At FY-End(#) at FY-End($)(2)
----------- --------------- --------------------- ---------------------------
Name (#) ($) (1) Vested Unvested Vested Unvested
----------------------------- ------- ----------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gregory Q. Brown ............ 336,000 $15,081,157 1,424,000 1,440,000 $132,521,356 $134,010,360
Stephen A. Allott ........... 240,000 $11,676,639 225,000 213,548 $ 22,170,799 $ 20,995,968
James B. De Golia ........... 82,800 $ 3,876,588 33,868 163,332 $ 3,253,453 $ 15,690,121
Michael S. Donohue .......... 108,000 $ 5,330,297 41,168 330,832 $ 3,780,809 $ 25,405,088
Peter Shearan ............... 72,000 $ 2,896,706 296,470 121,466 $ 29,387,212 $ 11,880,224
</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) Based on the fair market value of the Company's Common Stock at fiscal
year end (100.469 per share), and such value is equal to the closing
price, as reported by the Nasdaq National Market System at that date, less
the exercise price payable for such shares.
12
<PAGE>
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. Mr.
Allott's offer letter also provides that he must give the Company three months
of notice prior to a resignation. Mr. 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 and non-competition
agreement in order to receive such termination benefits.
Under the Company's 1997 Stock Option/Stock Issuance Plan, upon a
Corporate Transaction generally, qualified by reference to the detailed
provisions of the plan, meaning a transfer of all or substantially all of the
Company's assets in dissolution or liquidation, or transfer of voting control of
the Company in a merger or consolidation, 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 acceleration of vesting of any options upon the
occurrence of a Corporate Transaction or Change in Control (generally, qualified
by reference to the detailed provision of the plan, where a person or group
acquires control of the Company without approval by the Board of Directors or if
certain defined changes in the Board of Directors occur during a 36 month
period) or upon an involuntary termination of employment following such a
transaction.
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, 2001. 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.
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, 2001.
Section 16(a) Beneficial Ownership Reporting Compliance
The members of the Board of Directors, the executive officers of the
Company and persons, if any, who hold more than 10% of the Company's outstanding
Common Stock are subject to the reporting requirements of Section 16(a) of the
Exchange Act, which require them to file reports with respect to their ownership
of the Company's Common Stock and their transactions in the Common Stock. Based
upon the copies of Section 16(a) reports that the Company received from such
persons or the written representations received from one or more of such persons
concerning reports required to be filed by them for the 2000 fiscal year, the
Company believes that all reporting requirements under Section 16(a) for such
fiscal year were met in a timely manner by the persons subject to the Section
16(a) reporting requirements.
13
<PAGE>
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 2000, 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 2002 ANNUAL MEETING
Under the Company's Bylaws, stockholders seeking to bring business or
nominate directors at an annual meeting of stockholders must provide timely
notice in writing to the Company. To be timely, a stockholder's notice must be
delivered to the attention of the Secretary at the principal executive offices
of the Company not less than 60 days nor more than 90 days prior to the
anniversary date of the immediately preceding annual meeting or, for the 2002
annual meeting, not after December 3, 2001 and not before November 3, 2001.
However, in the case of an annual meeting that is called for a date that is not
within 30 days before or 60 days after the anniversary date of the immediately
preceding annual meeting, such notice to be timely must be so delivered not
earlier than the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the date of first public disclosure of the meeting. The
Bylaws specify further requirements for the form and content of a stockholder's
notice. If the Company does not receive timely notice of a stockholder proposal,
management of the Company will use its discretionary authority to vote the
proxies received as the Board of Directors may recommend.
Any stockholder who intends to present a proposal for consideration at the
2002 Annual Meeting and intends to have that proposal included in the proxy
statement and related materials for the 2002 Annual Meeting, must deliver a
written copy of the proposal to the Company's principal executive offices no
later than August 30, 2001, in order for the proposal to be considered for
inclusion under the rules of the Securities and Exchange Commission. These
proposals should be addressed to Micromuse Inc., 139 Townsend Street, San
Francisco, California 94107, Attention: Secretary.
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 28, 2000
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.
14
<PAGE>
Appendix A
Audit Committee Charter
MICROMUSE INC.
AUDIT COMMITTEE CHARTER
Statement of Policy
The Company's independent accountants' ultimate accountability is to the board
of directors of the Company and the audit committee, as representatives of
stockholders. The audit committee, as such representatives, has the ultimate
authority and responsibility to select, evaluate, and, where appropriate,
replace the independent accountants (or to nominate the independent accountants
to be proposed for stockholder ratification in any proxy statement).
Composition
There shall be an audit committee, comprised of at least three independent
directors, reporting to and assisting the board of directors in the proper
discharge of their statutory and fiduciary responsibilities. All audit committee
members shall be financially literate, or shall become financially literate
within a reasonable period of time after appointment to the audit committee, and
at least one member shall have accounting or related financial management
expertise.
The primary roles in the Committee shall be to:
o Assist the board of directors in fulfilling its fiduciary responsibilities
for the integrity of financial reporting and the adequacy of internal
controls.
o Serve as focal point for communications among non-committee directors,
Company's management and the independent accountants.
o Function as an agent for the board of directors to help ensure the
independence of the Company's independent accountants, the integrity of
management and the adequacy of disclosure to stockholders.
The audit committee shall have the power to conduct or authorize investigations
into any matters within the committee's scope of responsibilities. The audit
committee shall be empowered to retain independent counsel, accountants, or
others to assist it in the conduct of any investigation.
The audit committee will perform such other functions as assigned by law, the
Company's charter or bylaws, or the board of directors.
Responsibilities
1. OVERSIGHT OF FINANCIAL REPORTING PROCESS:
a. Ensure that management has established corporate ethical standards
dealing with financial reporting integrity.
b. Review with management and the independent accountants at the
completion of annual examination:
i. The acceptability and quality of the Company's annual
financial statements and related footnotes, SEC filings,
Management Discussion and Analysis.
ii. The independent accountants' audit of the financial statements
and report thereon.
iii. Any significant changes required in the independent
accountants' audit plan.
iv. Any serious difficulties or disagreements that arose between
the auditors and management during the course of the audit.
A-1
<PAGE>
v. Other matters related to the conduct of the audit which are to
be communicated to the committee under Generally Accepted
Auditing Standards.
c. Review the Company's interim financial information to stockholders
and regulatory agencies. Pay particular attention to judgmental,
high-risk, and sensitive areas in the financial statements. Review
with management and the independent accountants the acceptability
and quality of the Company's quarterly financial statements and
related footnotes, SEC filings, Management Discussion and Analysis.
d. Review significant matters arising since previous audit reports.
e. Review and discuss with management and the Company's legal counsel
any threatened, pending or ongoing litigation which may result in a
material financial impact to the Company.
f. Review, in consultation with the independent accountants, the
adequacy and appropriateness of the Company's accounting principles,
policies and practices.
g. Review the impact of new accounting pronouncements or reporting
practices relevant to the Company and other matters of interest.
h. Review and discuss with the independent accountants their
independence from management and the Company and the matters
included in the written disclosure required by Independence
Standards Board.
i. Review the scope and fees of audits and non-audit services of the
independent accountants.
j. Recommend to the board of directors the appointment of the
independent accountants.
k. Review on an annual basis this charter and update it as appropriate.
2. OVERSIGHT OF THE INTERNAL CONTROLS:
a. Evaluate the general procedures and practices of the Company to
ensure the adequacy of internal controls, including revenue
recognition and the security surrounding assets and computerized
information systems. Review need for internal audit function.
b. Consider the findings and comments from the independent accountants
on internal controls and review the status of prior period audit
recommendations made by the independent accountants.
c. Provide opportunity to meet with the independent accountants in
private session without management.
d. Review succession planning for financial staff, obtain staff
evaluation from auditors.
e. Review the adequacy of the policies and practices related to:
i. Conflict of interest
ii. Ethical conduct.
iii. Compliance with key regulatory issues such as the Foreign
Corrupt Practice Act.
3. COMMITTEE MEETINGS AND REPORTING
The audit committee shall hold such meetings periodically as the audit committee
deems necessary, but no less than two times annually. The audit committee
chairman shall request that members of management and representatives of the
independent accountants be present at the meetings of the audit committee. Such
meetings shall provide executive sessions with the independent accountants.
Semi-annually, the audit committee shall report to the board of directors
outlining its activities, future plans and any significant matters brought forth
by the independent accountants.
A-2
<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 FEBRUARY 1, 2001
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 Thursday, February
1, 2001 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 ^
<PAGE>
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Please mark
your votes as |X|
indicated in
this example
WITHOLD
FOR all AUTHORITY for
nominees all nominees
1. To elect the following directors
to serve for a term ending upon the
2003 Annual Meeting of Stockholders |_| |_|
or until their successors are elected
and qualified;
Nominees: Stephen A. Allott David C. Schwab
FOR the nominees, except vote withheld from the following nominees:
__________________________________________________________________
2. To ratify the appointment of KPMG LLP FOR AGAINST ABSTAIN
as the Company's independent accountants
for the fiscal year ending |_| |_| |_|
September 30, 2001.
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 ____________, 2001
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 ^
