Exhibit 10.15

 

WEBSENSE, INC.

 

NOTICE OF GRANT OF STOCK OPTION

 

Notice is hereby given of the following option grant (the “Option”) to purchase
shares of the Common Stock of Websense, Inc. (the “Corporation”):

 

Optionee:  Vernon Gene Hodges

 

Grant Date:  January 9, 2006

 

Vesting Commencement Date:  January 9, 2006

 

Exercise Price:  $          per share

 

Number of Option Shares:            shares

 

Expiration Date:

 

Type of Option:  Non-Statutory Stock Option

 

Exercise Schedule:  The Option shall become exercisable for twenty-five percent
(25%) of the Option Shares upon Optionee’s completion of                    
 year(s) of Service measured from the Vesting Commencement Date and shall become
exercisable for the balance of the Option Shares in a series of thirty-six (36)
successive equal monthly installments upon Optionee’s completion of each
additional month of Service over the thirty-six (36) month period measured from
the first anniversary of the Vesting Commencement Date.

 

In the event the Corporation terminates Optionee’s employment other than for
Cause, or Optionee resigns his employment for Good Reason, contingent upon
Optionee providing the Corporation with a fully-effective waiver and release of
claims in a form satisfactory to the Corporation, the vesting of the Option
Shares that are not vested at the time of such termination or resignation shall
be accelerated such that the Option Shares that would have vested if Optionee
had remained continuously employed by the Corporation for a period of twelve
(12) months following the date of such termination or resignation shall be
vested.

 

Except as provided above, in no event shall the Option become exercisable for
any additional Option Shares after Optionee’s cessation of Service.

 

Optionee understands and agrees that the Option is granted subject to and in
accordance with and further agrees to be bound by the terms of the Option as set
forth in the Stock Option Agreement attached hereto as Exhibit A. Optionee
hereby acknowledges the receipt of a copy of the official prospectus for the
Option in the form attached hereto as Exhibit B.

 

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Employment at Will. Nothing in this Notice or in the attached Stock Option
Agreement shall confer upon Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Optionee) or of Optionee, which rights are hereby expressly reserved
by each, to terminate Optionee’s Service at any time for any reason, with or
without cause.

 

Definitions. Except as otherwise specified herein, all capitalized terms in this
Notice shall have the meaning assigned to them in this Notice or in the attached
Stock Option Agreement.

 

 

DATED:

 

 

 

 

 

 

 

 

WEBSENSE, INC.

 

 

 

By:

 

 

 

 

 

Title:

 

 

 

 

 

 

 

 

 

 

OPTIONEE

 

 

 

 

Address:

 

 

 

 

 

 

 

 

 

 

ATTACHMENTS
Exhibit A - Stock Option Agreement
Exhibit B – Option Summary and Prospectus

 

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EXHIBIT A

 

STOCK OPTION AGREEMENT

 

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EXHIBIT B

 

OPTION SUMMARY AND PROSPECTUS

 

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Non-Plan Inducement Grant

 

WEBSENSE, INC.

 

STOCK OPTION AGREEMENT

 

RECITALS

 

A.                                   Optionee has not previously been an
employee or a non-employee member of the Corporation’s Board.

 

B.                                     Consistent with Nasdaq Marketplace
Rule 4350(i)(1)(A)(iv), the Corporation has  made the promise of a stock option
to Optionee as an inducement material to Optionee’s entering into Service with
the Corporation.

 

C.                                     Optionee is to render valuable services
to the Corporation (or a Parent or Subsidiary), and this Agreement is executed
pursuant to, and is intended to carry out the purposes of, the Corporation’s
grant of an option to Optionee.

 

D.                                    All capitalized terms in this Agreement
shall have the meaning assigned to them in the attached Appendix.

 

NOW, THEREFORE, it is hereby agreed as follows:

 

1.                                       Grant of Option. The Corporation hereby
grants to Optionee, as of the Grant Date, a Non-Statutory Option to purchase up
to the number of Option Shares specified in the Grant Notice. The Option Shares
shall be purchasable from time to time during the option term specified in
Paragraph 2 at the Exercise Price.

 

2.                                       Option Term. This option shall expire
at the close of business on the Expiration Date, unless sooner terminated in
accordance with Paragraph 5 or 6.

 

3.                                       Limited Transferability.

 

(A)                                  THIS OPTION SHALL BE NEITHER TRANSFERABLE
NOR ASSIGNABLE BY OPTIONEE OTHER THAN BY WILL OR THE LAWS OF INHERITANCE
FOLLOWING OPTIONEE’S DEATH AND MAY BE EXERCISED, DURING OPTIONEE’S LIFETIME,
ONLY BY OPTIONEE. HOWEVER, OPTIONEE MAY  DESIGNATE ONE OR MORE PERSONS AS THE
BENEFICIARY OR BENEFICIARIES OF THIS OPTION, AND THIS OPTION SHALL, IN
ACCORDANCE WITH SUCH DESIGNATION, AUTOMATICALLY BE TRANSFERRED TO SUCH
BENEFICIARY OR BENEFICIARIES UPON THE OPTIONEE’S DEATH WHILE HOLDING THIS
OPTION. SUCH BENEFICIARY OR BENEFICIARIES SHALL TAKE THE TRANSFERRED OPTION
SUBJECT TO ALL THE TERMS AND CONDITIONS OF THIS AGREEMENT, INCLUDING (WITHOUT
LIMITATION) THE LIMITED TIME PERIOD DURING WHICH THIS OPTION MAY, PURSUANT TO
PARAGRAPH 5, BE EXERCISED FOLLOWING OPTIONEE’S DEATH.

 

(B)                                 IN ADDITION, TO THE EXTENT THAT SUCH ACTION
IS PERMITTED BY THE BOARD AND IS CONSISTENT WITH APPLICABLE SECURITIES LAWS,
THIS OPTION MAY BE ASSIGNED IN WHOLE OR IN PART DURING OPTIONEE’S LIFETIME TO
ONE OR MORE MEMBERS OF OPTIONEE’S FAMILY OR TO A TRUST ESTABLISHED

 

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FOR THE EXCLUSIVE BENEFIT OF ONE OR MORE SUCH FAMILY MEMBERS OR TO OPTIONEE’S
FORMER SPOUSE, TO THE EXTENT SUCH ASSIGNMENT IS IN CONNECTION WITH THE
OPTIONEE’S ESTATE PLAN OR PURSUANT TO A DOMESTIC RELATIONS ORDER. THE ASSIGNED
PORTION SHALL BE EXERCISABLE ONLY BY THE PERSON OR PERSONS WHO ACQUIRE A
PROPRIETARY INTEREST IN THE OPTION PURSUANT TO SUCH ASSIGNMENT. THE TERMS
APPLICABLE TO THE ASSIGNED PORTION SHALL BE THE SAME AS THOSE IN EFFECT FOR THIS
OPTION IMMEDIATELY PRIOR TO SUCH ASSIGNMENT.

 

4.                                       Dates of Exercise. This option shall
become exercisable for the Option Shares in one or more installments as
specified in the Grant Notice. As the option becomes exercisable for such
installments, those installments shall accumulate, and the option shall remain
exercisable for the accumulated installments until the Expiration Date or sooner
termination of the option term under Paragraph 5 or 6.

 

5.                                       Cessation of Service. The option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date should any of the following provisions
become applicable:

 

(A)                                  SHOULD OPTIONEE CEASE TO REMAIN IN SERVICE
FOR ANY REASON (OTHER THAN DEATH, PERMANENT DISABILITY OR MISCONDUCT) WHILE
HOLDING THIS OPTION, THEN OPTIONEE SHALL HAVE A PERIOD OF THREE (3) MONTHS
(COMMENCING WITH THE DATE OF SUCH CESSATION OF SERVICE) DURING WHICH TO EXERCISE
THIS OPTION, BUT IN NO EVENT SHALL THIS OPTION BE EXERCISABLE AT ANY TIME AFTER
THE EXPIRATION DATE.

 

(B)                                 SHOULD OPTIONEE DIE WHILE HOLDING THIS
OPTION, THEN THE PERSONAL REPRESENTATIVE OF OPTIONEE’S ESTATE OR THE PERSON OR
PERSONS TO WHOM THE OPTION IS TRANSFERRED PURSUANT TO OPTIONEE’S WILL OR THE
LAWS OF INHERITANCE SHALL HAVE THE RIGHT TO EXERCISE THIS OPTION. HOWEVER, IF
OPTIONEE HAS DESIGNATED ONE OR MORE BENEFICIARIES OF THIS OPTION, THEN THOSE
PERSONS SHALL HAVE THE EXCLUSIVE RIGHT TO EXERCISE THIS OPTION FOLLOWING
OPTIONEE’S DEATH. ANY SUCH RIGHT TO EXERCISE THIS OPTION SHALL LAPSE, AND THIS
OPTION SHALL CEASE TO BE OUTSTANDING, UPON THE EARLIER OF (I) THE EXPIRATION OF
THE TWELVE (12)-MONTH PERIOD MEASURED FROM THE DATE OF OPTIONEE’S DEATH OR
(II) THE EXPIRATION DATE.

 

(C)                                  SHOULD OPTIONEE CEASE SERVICE BY REASON OF
PERMANENT DISABILITY WHILE HOLDING THIS OPTION, THEN OPTIONEE SHALL HAVE A
PERIOD OF TWELVE (12) MONTHS (COMMENCING WITH THE DATE OF SUCH CESSATION OF
SERVICE) DURING WHICH TO EXERCISE THIS OPTION. IN NO EVENT SHALL THIS OPTION BE
EXERCISABLE AT ANY TIME AFTER THE EXPIRATION DATE.

 

(D)                                 DURING THE LIMITED PERIOD OF POST-SERVICE
EXERCISABILITY, THIS OPTION MAY NOT BE EXERCISED IN THE AGGREGATE FOR MORE THAN
THE NUMBER OF OPTION SHARES FOR WHICH THE OPTION IS EXERCISABLE AT THE TIME OF
OPTIONEE’S CESSATION OF SERVICE. UPON THE EXPIRATION OF SUCH LIMITED EXERCISE
PERIOD OR (IF EARLIER) UPON THE EXPIRATION DATE, THIS OPTION SHALL TERMINATE AND
CEASE TO BE OUTSTANDING FOR ANY EXERCISABLE OPTION SHARES FOR WHICH THE OPTION
HAS NOT BEEN EXERCISED. HOWEVER, THIS OPTION SHALL, IMMEDIATELY UPON OPTIONEE’S
CESSATION OF SERVICE FOR ANY REASON, TERMINATE AND CEASE TO BE OUTSTANDING WITH
RESPECT TO ANY OPTION SHARES FOR WHICH THIS OPTION IS NOT OTHERWISE AT THAT TIME
EXERCISABLE.

 

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(E)                                  SHOULD OPTIONEE’S SERVICE BE TERMINATED FOR
MISCONDUCT OR SHOULD OPTIONEE OTHERWISE ENGAGE IN ANY MISCONDUCT WHILE THIS
OPTION IS OUTSTANDING, THEN THIS OPTION SHALL TERMINATE IMMEDIATELY AND CEASE TO
REMAIN OUTSTANDING.

 

6.                                       Special Acceleration of Option. If
(a) within the eighteen (18) months immediately following a Change in Control
your employment is terminated by the Corporation or any successor or assign
without Cause or you resign your employment for Good Reason or (ii) the
Corporation terminates your employment without Cause during the pendency of a
merger agreement or tender offer which would result in a Change in Control,
contingent upon you providing the Corporation with a fully-effective waiver and
release of claims in a form satisfactory to the Corporation, this option, to the
extent outstanding at the time of a Change in Control but not otherwise fully
exercisable, shall automatically accelerate so that this option shall,
immediately prior to the Change in Control, become exercisable for all of the
Option Shares at the time subject to this option and may be exercised for any or
all of those Option Shares as fully vested shares of Common Stock. This
Agreement shall not in any way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.

 

7.                                       Adjustment in Option Shares. Should any
change be made to the Common Stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation’s
receipt of consideration, appropriate adjustments shall be made to (i) the total
number and/or class of securities subject to this option and (ii) the Exercise
Price in order to reflect such change and thereby preclude a dilution or
enlargement of benefits hereunder.

 

8.                                       Stockholder Rights. The holder of this
option shall not have any stockholder rights with respect to the Option Shares
until such person shall have exercised the option, paid the Exercise Price and
become a holder of record of the purchased shares.

 

9.                                       Manner of Exercising Option.

 

(A)                                  IN ORDER TO EXERCISE THIS OPTION WITH
RESPECT TO ALL OR ANY PART OF THE OPTION SHARES FOR WHICH THIS OPTION IS AT THE
TIME EXERCISABLE, OPTIONEE (OR ANY OTHER PERSON OR PERSONS EXERCISING THE
OPTION) MUST TAKE THE FOLLOWING ACTIONS:

 

(I)                                     EXECUTE AND DELIVER TO THE CORPORATION A
NOTICE OF EXERCISE FOR THE OPTION SHARES FOR WHICH THE OPTION IS EXERCISED.

 

(II)                                  PAY THE AGGREGATE EXERCISE PRICE FOR THE
PURCHASED SHARES IN ONE OR MORE OF THE FOLLOWING FORMS:

 

(A)                              CASH OR CHECK MADE PAYABLE TO THE CORPORATION;

 

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(B)                                SHARES OF COMMON STOCK HELD BY OPTIONEE (OR
ANY OTHER PERSON OR PERSONS EXERCISING THE OPTION) FOR THE REQUISITE PERIOD
NECESSARY TO AVOID AN ADDITIONAL CHARGE TO THE CORPORATION’S EARNINGS FOR
FINANCIAL REPORTING PURPOSES OVER THAT RECOGNIZED AT THE DATE OF GRANT AND
VALUED AT FAIR MARKET VALUE ON THE EXERCISE DATE; OR

 

(C)                                IF PREVIOUSLY AUTHORIZED BY THE BOARD, IN ITS
SOLE DISCRETION, THROUGH A SPECIAL SALE AND REMITTANCE PROCEDURE PURSUANT TO
WHICH OPTIONEE (OR ANY OTHER PERSON OR PERSONS EXERCISING THE OPTION) SHALL
CONCURRENTLY PROVIDE IRREVOCABLE INSTRUCTIONS (I) TO A CORPORATION-DESIGNATED
BROKERAGE FIRM TO EFFECT THE IMMEDIATE SALE OF THE PURCHASED SHARES AND REMIT TO
THE CORPORATION, OUT OF THE SALE PROCEEDS AVAILABLE ON THE SETTLEMENT DATE,
SUFFICIENT FUNDS TO COVER THE AGGREGATE EXERCISE PRICE PAYABLE FOR THE PURCHASED
SHARES PLUS ALL APPLICABLE FEDERAL, STATE AND LOCAL INCOME AND EMPLOYMENT TAXES
REQUIRED TO BE WITHHELD BY THE CORPORATION BY REASON OF SUCH EXERCISE AND
(II) TO THE CORPORATION TO DELIVER THE CERTIFICATES FOR THE PURCHASED SHARES
DIRECTLY TO SUCH BROKERAGE FIRM IN ORDER TO COMPLETE THE SALE.

 

Except to the extent the sale and remittance procedure is utilized in connection
with the option exercise, payment of the Exercise Price must accompany the
Notice of Exercise delivered to the Corporation in connection with the option
exercise.

 

(III)                               FURNISH TO THE CORPORATION APPROPRIATE
DOCUMENTATION THAT THE PERSON OR PERSONS EXERCISING THE OPTION (IF OTHER THAN
OPTIONEE) HAVE THE RIGHT TO EXERCISE THIS OPTION.

 

(IV)                              MAKE APPROPRIATE ARRANGEMENTS WITH THE
CORPORATION (OR PARENT OR SUBSIDIARY EMPLOYING OR RETAINING OPTIONEE) FOR THE
SATISFACTION OF ALL FEDERAL, STATE AND LOCAL INCOME AND EMPLOYMENT TAX
WITHHOLDING REQUIREMENTS APPLICABLE TO THE OPTION EXERCISE.

 

(B)                                 AS SOON AS PRACTICAL AFTER THE EXERCISE
DATE, THE CORPORATION SHALL ISSUE TO OR ON BEHALF OF OPTIONEE (OR ANY OTHER
PERSON OR PERSONS EXERCISING THIS OPTION) A CERTIFICATE FOR THE PURCHASED OPTION
SHARES, WITH THE APPROPRIATE LEGENDS AFFIXED THERETO.

 

(C)                                  IN NO EVENT MAY THIS OPTION BE EXERCISED
FOR ANY FRACTIONAL SHARES.

 

10.                                 Compliance with Laws and Regulations.

 

(A)                                  THE EXERCISE OF THIS OPTION AND THE
ISSUANCE OF THE OPTION SHARES UPON SUCH EXERCISE SHALL BE SUBJECT TO COMPLIANCE
BY THE CORPORATION AND OPTIONEE WITH ALL APPLICABLE REQUIREMENTS OF LAW RELATING
THERETO AND WITH ALL APPLICABLE REGULATIONS OF ANY STOCK EXCHANGE (OR THE NASDAQ
NATIONAL MARKET, IF APPLICABLE) ON WHICH THE COMMON STOCK MAY BE LISTED FOR
TRADING AT THE TIME OF SUCH EXERCISE AND ISSUANCE.

 

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(B)                                 THE INABILITY OF THE CORPORATION TO OBTAIN
APPROVAL FROM ANY REGULATORY BODY HAVING AUTHORITY DEEMED BY THE CORPORATION TO
BE NECESSARY TO THE LAWFUL ISSUANCE AND SALE OF ANY COMMON STOCK PURSUANT TO
THIS OPTION SHALL RELIEVE THE CORPORATION OF ANY LIABILITY WITH RESPECT TO THE
NON-ISSUANCE OR SALE OF THE COMMON STOCK AS TO WHICH SUCH APPROVAL SHALL NOT
HAVE BEEN OBTAINED. THE CORPORATION, HOWEVER, SHALL USE ITS BEST EFFORTS TO
OBTAIN ALL SUCH APPROVALS.

 

11.                                 Successors and Assigns. Except to the extent
otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and Optionee, Optionee’s assigns, the legal representatives, heirs
and legatees of Optionee’s estate and any beneficiaries of this option
designated by Optionee.

 

12.                                 Notices. Any notice required to be given or
delivered to the Corporation under the terms of this Agreement shall be in
writing and addressed to the Corporation at its principal corporate offices. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated below Optionee’s signature line
on the Grant Notice. All notices shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.

 

13.                                 Construction. All decisions of the Board
with respect to any question or issue arising under this Agreement shall be
conclusive and binding on all persons having an interest in this option.

 

14.                                 Governing Law. The interpretation,
performance and enforcement of this Agreement shall be governed by the laws of
the State of California without resort to that State’s conflict-of-laws rules.

 

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EXHIBIT I

 

NOTICE OF EXERCISE

 

I hereby notify Websense, Inc. (the “Corporation”) that I elect to purchase
                             shares of the Corporation’s Common Stock (the
“Purchased Shares”) at the option exercise price of
$                          per share (the “Exercise Price”) pursuant to that
certain option (the “Option”) granted to me
on                                     ,               .

 

Concurrently with the delivery of this Exercise Notice to the Corporation, I
shall hereby pay to the Corporation the Exercise Price for the Purchased Shares
in accordance with the provisions of my agreement with the Corporation (or other
documents) evidencing the Option and shall deliver whatever additional documents
may be required by such agreement as a condition for exercise. Alternatively, if
previously authorized by the Board, in its sole discretion, I may utilize the
special broker-dealer sale and remittance procedure specified in my agreement to
effect payment of the Exercise Price.

 

                                            ,               

Date

 

 

 

 

 

 

 

 

Optionee

 

 

 

 

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 

 

Print name in exact manner it is to
appear on the stock certificate:

 

 

 

 

 

 

 

Address to which certificate is to
be sent, if different from address
above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Social Security Number:

 

 

 

 

 

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APPENDIX

 

The following definitions shall be in effect under the Agreement:

 

A.                                   AGREEMENT SHALL MEAN THIS STOCK OPTION
AGREEMENT.

 

B.                                     BOARD SHALL MEAN THE CORPORATION’S BOARD
OF DIRECTORS.

 

C.                                     CAUSE FOR TERMINATION SHALL MEAN A
TERMINATION OF YOUR EMPLOYMENT BY THE CORPORATION BASED UPON A GOOD FAITH
DETERMINATION BY THE BOARD THAT ONE OR MORE OF THE FOLLOWING HAS OCCURRED:
(A) YOUR COMMISSION OF A MATERIAL ACT OF FRAUD WITH RESPECT TO THE CORPORATION,
(B) YOUR INTENTIONAL REFUSAL OR WILLFUL FAILURE TO CARRY OUT THE REASONABLE
INSTRUCTIONS OF THE BOARD, (C) YOUR CONVICTION OF, OR PLEA OF NOLO CONTENDERE
TO, AT ANY TIME, A MISDEMEANOR CRIME OF MORAL TURPITUDE OR A FELONY (EVEN IF
SUCH HAS OCCURRED PRIOR TO YOUR EMPLOYMENT WITH THE CORPORATION), (D) YOUR GROSS
MISCONDUCT IN CONNECTION WITH THE PERFORMANCE OF YOUR DUTIES, OR (E) YOUR
MATERIAL BREACH OF YOUR OBLIGATIONS TO THE CORPORATION OR ANY AGREEMENT BETWEEN
YOU AND THE CORPORATION.

 

D.                                    CHANGE IN CONTROL SHALL MEAN SHALL MEAN
ANY OF THE FOLLOWING:

 

(I)                                     THE ACQUISITION BY ANY INDIVIDUAL,
ENTITY, OR GROUP (WITHIN THE MEANING OF SECTION 13(D)(3) OR 14(D)(2) OF THE
EXCHANGE ACT), OTHER THAN BY THE CORPORATION OR ANY AFFILIATE THEREOF OR ANY
AFFILIATE OF A SHAREHOLDER OF THE CORPORATION IMMEDIATELY PRIOR TO SUCH
ACQUISITION, OF BENEFICIAL OWNERSHIP (WITHIN THE MEANING OF RULE 13D-3
PROMULGATED UNDER THE EXCHANGE ACT) OF 50% OR MORE OF THE COMBINED VOTING POWER
OR ECONOMIC INTERESTS OF THE THEN OUTSTANDING VOTING SECURITIES OF THE
CORPORATION ENTITLED TO VOTE GENERALLY IN THE ELECTION OF DIRECTORS;

 

(II)                                  A CHANGE IN THE COMPOSITION OF THE BOARD
OCCURRING WITHIN A TWENTY-FOUR MONTH PERIOD, AS A RESULT OF WHICH FEWER THAN A
MAJORITY OF THE DIRECTORS OF THE BOARD ARE INCUMBENT DIRECTORS;

 

(III)                               A REORGANIZATION, MERGER, OR CONSOLIDATION,
IN EACH CASE, WITH RESPECT TO WHICH ALL OR SUBSTANTIALLY ALL OF THE PERSONS THAT
WERE THE RESPECTIVE BENEFICIAL OWNERS OF THE VOTING SECURITIES OF THE
CORPORATION IMMEDIATELY PRIOR TO SUCH REORGANIZATION, MERGER, OR CONSOLIDATION
DO NOT, FOLLOWING SUCH REORGANIZATION, MERGER, OR CONSOLIDATION, BENEFICIALLY
OWN, DIRECTLY OR INDIRECTLY, MORE THAN 50% OF THE COMBINED VOTING POWER OF THE
THEN OUTSTANDING VOTING SECURITIES ENTITLED TO VOTE GENERALLY IN THE ELECTION OF
DIRECTORS OF THE CORPORATION RESULTING FROM SUCH REORGANIZATION, MERGER, OR
CONSOLIDATION; OR

 

(IV)                              THE SALE OR OTHER DISPOSITION OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS OF THE CORPORATION IN ONE TRANSACTION OR
SERIES OF RELATED TRANSACTIONS.

 

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(V)                                 NOTWITHSTANDING THE FOREGOING, A CHANGE IN
CONTROL SHALL NOT BE DEEMED TO OCCUR BECAUSE A MAJORITY OR MORE OF THE
OUTSTANDING VOTING SECURITIES OF THE CORPORATION IS ACQUIRED BY (A) A TRUSTEE OR
OTHER FIDUCIARY HOLDING SECURITIES UNDER ONE OR MORE EMPLOYEE BENEFIT PLANS
MAINTAINED BY THE CORPORATION OR ANY OF ITS AFFILIATES, OR (B) ANY PERSON THAT,
IMMEDIATELY PRIOR TO SUCH ACQUISITION, IS OWNED DIRECTLY OR INDIRECTLY BY THE
STOCKHOLDERS OF THE CORPORATION IN APPROXIMATELY THE SAME PROPORTION AS THEIR
OWNERSHIP OF STOCK IN THE CORPORATION IMMEDIATELY PRIOR TO SUCH ACQUISITION.

 

E.                                      COMMON STOCK SHALL MEAN SHARES OF THE
CORPORATION’S COMMON STOCK.

 

F.                                      CODE SHALL MEAN THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED.

 

G.                                     CORPORATION SHALL MEAN WEBSENSE, INC., A
DELAWARE CORPORATION, AND ANY SUCCESSOR CORPORATION TO ALL OR SUBSTANTIALLY ALL
OF THE ASSETS OR VOTING STOCK OF WEBSENSE, INC. WHICH SHALL BY APPROPRIATE
ACTION ASSUME THE OPTION.

 

H.                                    EMPLOYEE SHALL MEAN AN INDIVIDUAL WHO IS
IN THE EMPLOY OF THE CORPORATION (OR ANY PARENT OR SUBSIDIARY), SUBJECT TO THE
CONTROL AND DIRECTION OF THE EMPLOYER ENTITY AS TO BOTH THE WORK TO BE PERFORMED
AND THE MANNER AND METHOD OF PERFORMANCE.

 

I.                                         EXERCISE DATE SHALL MEAN THE DATE ON
WHICH THE OPTION SHALL HAVE BEEN EXERCISED IN ACCORDANCE WITH PARAGRAPH 9 OF THE
AGREEMENT.

 

J.                                        EXERCISE PRICE SHALL MEAN THE EXERCISE
PRICE PER OPTION SHARE AS SPECIFIED IN THE GRANT NOTICE.

 

K.                                    EXPIRATION DATE SHALL MEAN THE DATE ON
WHICH THE OPTION EXPIRES AS SPECIFIED IN THE GRANT NOTICE.

 

L.                                      FAIR MARKET VALUE PER SHARE OF COMMON
STOCK ON ANY RELEVANT DATE SHALL BE DETERMINED IN ACCORDANCE WITH THE FOLLOWING
PROVISIONS:

 

(I)                                     IF THE COMMON STOCK IS AT THE TIME
TRADED ON THE NASDAQ NATIONAL MARKET, THEN THE FAIR MARKET VALUE SHALL BE DEEMED
EQUAL TO THE CLOSING SELLING PRICE PER SHARE OF COMMON STOCK ON THE DATE IN
QUESTION, AS THE PRICE IS REPORTED BY THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS ON THE NASDAQ NATIONAL MARKET AND PUBLISHED IN THE WALL STREET JOURNAL.
IF THERE IS NO CLOSING SELLING PRICE FOR THE COMMON STOCK ON THE DATE IN
QUESTION, THEN THE FAIR MARKET VALUE SHALL BE THE CLOSING SELLING PRICE ON THE
LAST PRECEDING DATE FOR WHICH SUCH QUOTATION EXISTS, OR

 

(II)                                  IF THE COMMON STOCK IS AT THE TIME LISTED
ON ANY STOCK EXCHANGE, THEN THE FAIR MARKET VALUE SHALL BE DEEMED EQUAL TO THE
CLOSING SELLING PRICE PER SHARE OF COMMON STOCK ON THE DATE IN QUESTION ON THE
STOCK EXCHANGE DETERMINED BY THE BOARD TO BE THE PRIMARY MARKET FOR THE COMMON
STOCK, AS SUCH PRICE IS OFFICIALLY QUOTED IN THE COMPOSITE TAPE OF TRANSACTIONS
ON SUCH EXCHANGE AND PUBLISHED IN THE WALL STREET JOURNAL. IF THERE IS NO
CLOSING SELLING PRICE FOR

 

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THE COMMON STOCK ON THE DATE IN QUESTION, THEN THE FAIR MARKET VALUE SHALL BE
THE CLOSING SELLING PRICE ON THE LAST PRECEDING DATE FOR WHICH SUCH QUOTATION
EXISTS.

 

M.                                 GOOD REASON SHALL MEAN YOUR RESIGNATION
WITHIN NINETY (90) DAYS OF THE OCCURRENCE OF ANY ONE OR MORE OF THE FOLLOWING
EVENTS WITHOUT YOUR WRITTEN CONSENT, PROVIDED THAT YOU COMPLY WITH A REASONABLE
GOOD REASON PROCESS PROVIDING THE CORPORATION WITH AN OPPORTUNITY TO CURE THE
ALLEGED GOOD REASON: (A) A MATERIAL REDUCTION IN YOUR BASE SALARY AND/OR TARGET
BONUS OTHER THAN IN CONNECTION WITH A CORPORATION-WIDE REDUCTION IN EXECUTIVE
COMPENSATION, (B) A MATERIAL REDUCTION IN YOUR BENEFITS, OTHER THAN IN
CONNECTION WITH A CORPORATION-WIDE REDUCTION IN EXECUTIVE BENEFITS, (C) A
MATERIAL AND SIGNIFICANT REDUCTION IN YOUR AUTHORITY, TITLE AND/OR DUTIES
WITHOUT SUFFICIENT BASIS, (D) A REQUIREMENT THAT YOU RELOCATE MORE THAN
THIRTY-FIVE (35) MILES FROM YOUR THEN-CURRENT OFFICE LOCATION. NOTWITHSTANDING
THE FOREGOING SENTENCE, YOUR RECEIPT OF LESS BONUS OR NO BONUS AS A RESULT OF
NOT MEETING THE RELEVANT GOALS FOR A BONUS IS NOT A GOOD REASON.

 

N.                                    GRANT DATE SHALL MEAN THE DATE OF GRANT OF
THE OPTION AS SPECIFIED IN THE GRANT NOTICE.

 

O.                                    GRANT NOTICE SHALL MEAN THE NOTICE OF
GRANT OF STOCK OPTION ACCOMPANYING THE AGREEMENT, PURSUANT TO WHICH OPTIONEE HAS
BEEN INFORMED OF THE BASIC TERMS OF THE OPTION EVIDENCED HEREBY.

 

P.                                      INCUMBENT DIRECTORS SHALL MEAN MEMBERS
OF THE BOARD WHO ARE (A) MEMBERS OF THE BOARD AS OF THE DATE HEREOF, OR
(B) ELECTED, OR NOMINATED FOR ELECTION, TO THE BOARD WITH THE AFFIRMATIVE VOTES
OF AT LEAST A MAJORITY OF THE INCUMBENT DIRECTORS AT THE TIME OF SUCH ELECTION
OR NOMINATION.

 

Q.                                    MISCONDUCT SHALL MEAN THE COMMISSION OF
ANY ACT OF FRAUD, EMBEZZLEMENT OR DISHONESTY BY OPTIONEE, ANY UNAUTHORIZED USE
OR DISCLOSURE BY OPTIONEE OF CONFIDENTIAL INFORMATION OR TRADE SECRETS OF THE
CORPORATION (OR ANY PARENT OR SUBSIDIARY), OR ANY OTHER INTENTIONAL MISCONDUCT
BY OPTIONEE ADVERSELY AFFECTING THE BUSINESS OR AFFAIRS OF THE CORPORATION (OR
ANY PARENT OR SUBSIDIARY) IN A MATERIAL MANNER. THE FOREGOING DEFINITION SHALL
NOT BE DEEMED TO BE INCLUSIVE OF ALL THE ACTS OR OMISSIONS WHICH THE CORPORATION
(OR ANY PARENT OR SUBSIDIARY) MAY CONSIDER AS GROUNDS FOR THE DISMISSAL OR
DISCHARGE OF OPTIONEE OR ANY OTHER INDIVIDUAL IN THE SERVICE OF THE CORPORATION
(OR ANY PARENT OR SUBSIDIARY).

 

R.                                     NON-STATUTORY OPTION SHALL MEAN AN OPTION
NOT INTENDED TO SATISFY THE REQUIREMENTS OF CODE SECTION 422.

 

S.                                      NOTICE OF EXERCISE SHALL MEAN THE NOTICE
OF EXERCISE IN THE FORM ATTACHED HERETO AS EXHIBIT I.

 

T.                                     OPTION SHARES SHALL MEAN THE NUMBER OF
SHARES OF COMMON STOCK SUBJECT TO THE OPTION AS SPECIFIED IN THE GRANT NOTICE.

 

U.                                    OPTIONEE SHALL MEAN THE PERSON TO WHOM THE
OPTION IS GRANTED AS SPECIFIED IN THE GRANT NOTICE.

 

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V.                                     PARENT SHALL MEAN ANY CORPORATION (OTHER
THAN THE CORPORATION) IN AN UNBROKEN CHAIN OF CORPORATIONS ENDING WITH THE
CORPORATION, PROVIDED EACH CORPORATION IN THE UNBROKEN CHAIN (OTHER THAN THE
CORPORATION) OWNS, AT THE TIME OF THE DETERMINATION, STOCK POSSESSING FIFTY
PERCENT (50%) OR MORE OF THE TOTAL COMBINED VOTING POWER OF ALL CLASSES OF STOCK
IN ONE OF THE OTHER CORPORATIONS IN SUCH CHAIN.

 

W.                                PERMANENT DISABILITY SHALL MEAN THE INABILITY
OF OPTIONEE TO ENGAGE IN ANY SUBSTANTIAL GAINFUL ACTIVITY BY REASON OF ANY
MEDICALLY DETERMINABLE PHYSICAL OR MENTAL IMPAIRMENT WHICH IS EXPECTED TO RESULT
IN DEATH OR HAS LASTED OR CAN BE EXPECTED TO LAST FOR A CONTINUOUS PERIOD OF
TWELVE (12) MONTHS OR MORE.

 

X.                                    SERVICE SHALL MEAN THE OPTIONEE’S
PERFORMANCE OF SERVICES FOR THE CORPORATION (OR ANY PARENT OR SUBSIDIARY) IN THE
CAPACITY OF AN EMPLOYEE, A NON-EMPLOYEE MEMBER OF THE BOARD OF DIRECTORS OR A
CONSULTANT OR INDEPENDENT ADVISOR.

 

Y.                                     STOCK EXCHANGE SHALL MEAN THE AMERICAN
STOCK EXCHANGE OR THE NEW YORK STOCK EXCHANGE.

 

Z.                                     SUBSIDIARY SHALL MEAN ANY CORPORATION
(OTHER THAN THE CORPORATION) IN AN UNBROKEN CHAIN OF CORPORATIONS BEGINNING WITH
THE CORPORATION, PROVIDED EACH CORPORATION (OTHER THAN THE LAST CORPORATION) IN
THE UNBROKEN CHAIN OWNS, AT THE TIME OF THE DETERMINATION, STOCK POSSESSING
FIFTY PERCENT (50%) OR MORE OF THE TOTAL COMBINED VOTING POWER OF ALL CLASSES OF
STOCK IN ONE OF THE OTHER CORPORATIONS IN SUCH CHAIN.

 

AA.                         SUFFICIENT BASIS SHALL MEAN A REASSIGNMENT OR
REDUCTION IN DUTIES AS A RESULT OF DISCIPLINARY ACTION BASED UPON SERIOUS
VIOLATION OF CORPORATION POLICY OR VIOLATION OF AN AGREEMENT BETWEEN YOU AND THE
CORPORATION.

 

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NON-PLAN INDUCEMENT GRANT

 

 

WEBSENSE, INC.

 

 

NON-PLAN INDUCEMENT GRANT

 

SUMMARY AND PROSPECTUS

 

 

The date of this Prospectus is January 9, 2006

 

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TABLE OF CONTENTS

 

 

Page

 

 

QUESTIONS AND ANSWERS ABOUT THE OPTION GRANTS

1

 

 

GRANT OF OPTIONS

1

 

 

1.

How are options granted?

1

2.

How is the exercise price determined?

1

3.

How is the fair market value of the Common Stock determined?

1

4.

What type of option have I been granted?

1

5.

Can the Corporation cancel my option and grant me a new option?

1

6.

Can I assign or transfer my option?

2

7.

When do I acquire the rights of a stockholder?

2

 

 

 

EXERCISE OF OPTIONS

2

 

 

 

8.

When may I exercise my option?

2

9.

When will my option terminate?

2

10.

How do I exercise my option?

2

11.

How do I pay the exercise price?

2

12.

Can my tax withholding obligations upon exercise of my option be satisfied from
the shares of Common Stock purchased under my option?

3

 

 

 

EARLY TERMINATION OF OPTIONS

3

 

 

 

13.

What happens to my options if my service terminates?

3

14.

What happens to my options if I am discharged from service for Misconduct?

3

15.

What happens to my options if I die or become disabled?

4

16.

What happens to my options if the Corporation is acquired or merged?

4

17.

What happens to my options that are assumed upon a Corporate Transaction?

4

18.

What happens to my options if there is a change in control of the Corporation?

5

 

 

 

DISPOSITION OF SHARES

5

 

 

 

19.

When can I sell my shares acquired pursuant to the exercise of my option?

5

 

 

 

MISCELLANEOUS

5

 

 

 

20.

Is financing available?

5

21.

Do I have the right to remain employed until my options vest?

6

22.

Are there any circumstances which would cause me to lose my rights with respect
to an option grant?

6

23.

Does the grant of an option affect my eligibility to participate in stock plans
or other compensatory plans of the Corporation?

6

24.

What is a parent corporation?

6

25.

What is a subsidiary corporation?

6

26.

What shares of Common Stock will be issued to me upon exercise of my option?

6

27.

What happens if there is a change in the Corporation’s capital structure?

6

28.

Can my option be amended or terminated?

6

 

 

 

RESTRICTIONS ON RESALE

7

 

 

 

29.

What restrictions apply if I am a Section 16 Insider?

7

30.

What restrictions apply if I am an affiliate?

8

 

 

 

QUESTIONS AND ANSWERS ON FEDERAL TAX CONSEQUENCES

8

 

 

 

T1.

Will the grant of a non-statutory option result in federal income tax liability
to me?

8

 

i

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T2.

Will the exercise of a non-statutory option result in federal income tax
liability to me?

8

T3.

Will I recognize additional income when I sell shares acquired under a
non-statutory option?

8

T4.

What are the consequences of paying the exercise price of a non-statutory option
in the form of shares of Common Stock previously acquired upon the exercise of
employee options or through open-market purchases?

9

T5.

What are the federal tax consequences to the Corporation?

9

 

 

 

FEDERAL TAX RATES

9

 

 

 

T6.

What are the applicable federal tax rates?

9

 

 

 

CORPORATION INFORMATION

9

 

ii

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THIS DOCUMENT CONSTITUTES PART OF THE OFFICIAL PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.

 

Websense, Inc., a Delaware corporation (the “Corporation”), is offering shares
of its common stock (the “Common Stock”) to eligible individuals pursuant to
special inducement non-statutory stock option grants. The purpose of the grants
is to offer persons who have not previously been employees or directors of the
Corporation, or following a bona fide period of non-employment (“New Hires”) the
opportunity to acquire an ownership interest in the Corporation as an inducement
material to such persons entering into employment with the Corporation. Unless
the context indicates otherwise, all references to the Corporation in this
Summary and Prospectus include Websense, Inc. and its parent and subsidiary
corporations, whether now existing or subsequently established.

 

QUESTIONS AND ANSWERS ABOUT THE OPTION GRANTS

 

This Summary and Prospectus sets forth in question and answer format the
principal terms of the option grants which may be made from time to time to New
Hires as an inducement material to such individuals entering into employment
with the Corporation, including individuals who will commence providing services
to the Corporation as executive officers of the Corporation or Board members
subject to the short-swing profit restrictions of Section 16(b) of the
Securities Exchange Act of 1934 (the “1934 Act”). Such individuals will be
referred to in this document as “Section 16 Insiders.”

 

GRANT OF OPTIONS

 

1.                                      HOW ARE OPTIONS GRANTED?

 

The Board has complete discretion to determine when and to whom options will be
granted and the terms of each such grant. Your option grant will be evidenced by
one or more option documents (collectively, the “Option Agreement”) executed by
the Corporation and you.

 

2.                                      HOW IS THE EXERCISE PRICE DETERMINED?

 

The exercise price of your option will be determined by the Board.

 

3.                                      HOW IS THE FAIR MARKET VALUE OF THE
COMMON STOCK DETERMINED?

 

The fair market value per share of Common Stock on any relevant date will be the
closing selling price per share on that date, as reported on the Nasdaq National
Market and published in The Wall Street Journal. If the Common Stock is not
traded on that day, the fair market value will be the closing selling price per
share on the last preceding date for which such quotation exists.

 

4.                                      WHAT TYPE OF OPTION HAVE I BEEN GRANTED?

 

You have been granted a non-statutory stock option that is not intended to
satisfy the requirements of Internal Revenue Code Section 422 to be an
“Incentive Stock Option.”  For information about the tax consequences of your
option transactions, see the “Questions and Answers on Federal Tax Consequences”
section below.

 

5.                                      CAN THE CORPORATION CANCEL MY OPTION AND
GRANT ME A NEW OPTION?

 

Yes. The Board has the authority to cancel outstanding options and to issue new
options in replacement, but your consent will be required in connection with
your participation in any such cancellation/regrant program. The new options can
cover the same or a different number of shares of Common Stock and will have an

 

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exercise price per share not less than the fair market value of the Common Stock
on the new grant date. In addition, it is likely that the new options will have
a vesting schedule based on the new grant date, without any credit provided for
the period the cancelled options were outstanding.

 

6.                                      CAN I ASSIGN OR TRANSFER MY OPTION?

 

Generally, no. Your option generally cannot be assigned or transferred, except
by the provisions of your will or the laws of inheritance following your death
or pursuant to any beneficiary designation you have in effect for your option at
the time of your death. However, to the extent permitted by the Board, your
option will be assignable in whole or in part during your lifetime to one or
more members of your immediate family or to a trust established exclusively for
one or more such family members or to your former spouse. The assigned portion
may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. No such assignment will be
permitted, however, unless it is effected in connection with your estate plan or
pursuant to a domestic relations order.

 

7.                                      WHEN DO I ACQUIRE THE RIGHTS OF A
STOCKHOLDER?

 

You will not have any stockholder rights with respect to the option shares. You
will not acquire stockholder rights until you exercise the option, pay the
exercise price and become a holder of record of the purchased shares.

 

EXERCISE OF OPTIONS

 

8.                                      WHEN MAY I EXERCISE MY OPTION?

 

Your option will become exercisable for the option shares in a series of
installments over the period that you remain in the Corporation’s service. The
exercise schedule applicable to your option will be determined by the Board at
the time of grant and will be set forth in the Option Agreement. You
may exercise your option at any time for the shares for which your option is
exercisable, provided you do so before the option terminates.

 

9.                                      WHEN WILL MY OPTION TERMINATE?

 

The actual expiration date of your option will be set forth in the Option
Agreement. Your option may, however, terminate prior to its designated
expiration date in the event of your termination of service or upon the
occurrence of certain other events. See the “Early Termination of Options”
section below.

 

10.                               HOW DO I EXERCISE MY OPTION?

 

To exercise your option, you must provide the Corporation with written notice of
the exercise in which you indicate the number of shares to be purchased under
your option. The notice must be accompanied by payment of the exercise price for
the purchased shares, together with appropriate proof that the person exercising
the option (if other than yourself) has the right to effect such exercise. You
will be required to satisfy all applicable income and employment tax withholding
requirements at that time. For information about such tax withholding, see the
“Questions and Answers on Federal Tax Consequences” section below.

 

11.                               HOW DO I PAY THE EXERCISE PRICE?

 

The exercise price may be paid in cash or check payable to the Corporation or in
shares of Common Stock. Any shares delivered in payment of the exercise price
will be valued at fair market value on the exercise date and must have been held
for the requisite period necessary to avoid a charge to the Corporation’s
earnings for financial reporting purposes (generally a six (6)-month period).

 

2

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The Board may, in its sole discretion, elect to allow you to use a cashless
exercise procedure to exercise your option. To use this procedure, you must
provide irrevocable instructions to a Corporation-designated brokerage firm to
effect the immediate sale of the vested shares of Common Stock purchased under
your option and to pay over to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable withholding
taxes. Concurrently with such instructions, you must also direct the Corporation
to deliver the certificates for the purchased shares to the brokerage firm in
order to complete the sale.

 

12.                               CAN MY TAX WITHHOLDING OBLIGATIONS UPON
EXERCISE OF MY OPTION BE SATISFIED FROM THE SHARES OF COMMON STOCK PURCHASED
UNDER MY OPTION?

 

The Board may, in its sole discretion, elect to allow you to have the
Corporation withhold, from the shares of Common Stock purchased under your
option, a portion of those shares with a fair market value equal to a designated
percentage (not to exceed one hundred percent (100%)) of the federal, state and
local income and employment withholding taxes to which you may become subject in
connection with the exercise of your option. In lieu of such direct withholding,
the Board may allow you to deliver previously acquired shares of Common Stock in
satisfaction of the withholding tax liability. However, no shares of Common
Stock will actually be withheld or accepted in satisfaction of such withholding
tax liability except to the extent approved by the Board, and any such withheld
or delivered shares will be valued at fair market value on the date of the
option exercise.

 

EARLY TERMINATION OF OPTIONS

 

13.                               WHAT HAPPENS TO MY OPTIONS IF MY SERVICE
TERMINATES?

 

After your termination of service for any reason other than death, disability or
Misconduct (as defined below in Question 14), you will have a limited period of
time in which to exercise your outstanding options for any shares of Common
Stock in which you are vested on the date your service terminates. The length of
this period will be set forth in your Option Agreement and will generally not be
in excess of three (3) months. However, your option will in all events terminate
on the specified expiration date of the option term. To the extent your options
are not exercisable for one or more vested shares at the time of your
termination of service, your options will immediately terminate and cease to be
outstanding with respect to those unvested shares.

 

Unless your Option Agreement specifically provides otherwise, you will be deemed
to continue in service for so long as you render services to the Corporation,
whether as (i) an employee, subject to the control and direction of the employer
entity as to both the work to be performed and the manner and method of
performance, (ii) a non-employee Board member or (iii) a consultant or other
independent advisor.

 

The Board has the discretion to extend the period during which you may exercise
one or more of your options following your termination of service and/or to
permit such options to be exercised not only with respect to the number of
shares of Common Stock in which you are at the time vested but also with respect
to one or more additional installments in which you would have vested had you
continued in service. You will be notified in writing in the event the Board
decides to provide you with any of those additional benefits.

 

14.                               WHAT HAPPENS TO MY OPTIONS IF I AM DISCHARGED
FROM SERVICE FOR MISCONDUCT?

 

Should you be discharged from service for Misconduct or otherwise engage in
Misconduct while your options are outstanding, then all of your outstanding
options will immediately terminate. Misconduct includes (i) any act of fraud,
embezzlement or dishonesty, (ii) any unauthorized use or disclosure of
confidential information or trade secrets of the Corporation, or (iii) any other
intentional misconduct adversely affecting the business or affairs of the
Corporation in a material manner. However, the foregoing list is not inclusive
of all the acts or omissions which may be considered as grounds for dismissal or
discharge of any individual in the Corporation’s service.

 

3

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15.                               WHAT HAPPENS TO MY OPTIONS IF I DIE OR BECOME
DISABLED?

 

If you die while any of your options are outstanding, the personal
representative of your estate or the person or persons to whom the options are
transferred by the provisions of your will or the laws of inheritance or
pursuant to the beneficiary designation you have in effect for those options
may exercise each of those options for any or all vested shares of Common Stock
for which the option was exercisable on the date your service with the
Corporation terminated, less any shares you may have subsequently purchased
prior to your death. The right to exercise each such option will lapse upon the
earlier of (i) the expiration of the option term or (ii) the first anniversary
of the date of your death.

 

If you terminate your service with the Corporation because you become
permanently disabled, you will normally have a period of twelve (12) months from
such termination date during which to exercise your options for any or all of
the vested shares for which those options were exercisable at the time of such
termination. In no event, however, may you exercise any option after the
specified expiration of the option term. For purposes of your option grant, you
will be deemed to be permanently disabled if you are unable to perform any
substantial gainful activity by reason of any medically-determinable physical or
mental impairment expected to result in death or to be of continuous duration of
twelve (12) consecutive months or more.

 

16.                               WHAT HAPPENS TO MY OPTIONS IF THE CORPORATION
IS ACQUIRED OR MERGED?

 

In the event of a Corporate Transaction, your option will automatically vest on
an accelerated basis so that your option will, immediately prior to the
effective date of the Corporate Transaction, become exercisable for all the
shares of Common Stock at the time subject to that option and may be exercised
for any or all of those shares as fully-vested shares. However, your option will
not vest and become exercisable on such an accelerated basis, if and to the
extent: (i) the option is assumed by the successor corporation, (ii) such option
is replaced with a cash incentive program which preserves the option spread
existing on the unvested shares subject to the option at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to those option shares or (iii) the
acceleration of the option is subject to other limitations imposed by the Board
in the Option Agreement.

 

Your option will, to the extent not assumed by the successor corporation,
terminate and cease to be outstanding immediately following the completion of
the Corporate Transaction.

 

A Corporate Transaction will be deemed to occur upon (i) a merger or
consolidation in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation’s outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such transaction or (ii) a sale, transfer or
other disposition of all or substantially all the assets of the Corporation in
liquidation or dissolution of the Corporation.

 

17.                               WHAT HAPPENS TO MY OPTIONS THAT ARE ASSUMED
UPON A CORPORATE TRANSACTION?

 

If your option is assumed by a successor corporation in a Corporation
Transaction, then your option will, immediately after the Corporate Transaction,
be appropriately adjusted to apply to the number and class of securities which
would have been issued to you in consummation of the Corporate Transaction had
your option been exercised immediately prior to the Corporate Transaction.
Appropriate adjustments will also be made to the exercise price payable per
share under your assumed option, provided the aggregate exercise price for the
option shares will remain the same. To the extent the actual holders of the
Corporation’s outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Corporate Transaction, the successor
corporation may, in connection with the assumption of your option, substitute
one or more shares of its own common stock with a fair market value equivalent
to the cash consideration paid per share of Common Stock in such Corporate
Transaction.

 

The Board may structure one or more options so that those options will
immediately vest and become exercisable for all the option shares as fully
vested shares upon an Involuntary Termination of the

 

4

--------------------------------------------------------------------------------

 

optionee’s service within a designated period (not to exceed eighteen (18)
months) following the effective date of a Corporate Transaction in which the
options are assumed or are otherwise continued in effect. You should review your
Option Agreement to determine whether the options you hold will in fact
accelerate upon such an Involuntary Termination.

 

An Involuntary Termination will be deemed to occur upon (i) the optionee’s
involuntary dismissal or discharge by the Corporation for reasons other than
Misconduct or (ii) such individual’s voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces his
or her duties and responsibilities or the level of management to which he or she
reports, (B) a reduction in his or her level of compensation (including base
salary, fringe benefits and target bonus under any corporate performance-based
bonus or incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual’s place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is effected by
the Corporation without the optionee’s consent.

 

18.                               WHAT HAPPENS TO MY OPTIONS IF THERE IS A
CHANGE IN CONTROL OF THE CORPORATION?

 

The Board may structure one or more options so that those options will
immediately vest and become exercisable for all the option shares as fully
vested shares either upon the occurrence of a Change in Control or upon an
Involuntary Termination of the optionee’s service within a designated period
(not to exceed eighteen (18) months) following the effective date of that Change
in Control. You should review your Option Agreement to determine whether the
options you hold will in fact accelerate upon a Change in Control or your
subsequent Involuntary Termination.

 

A Change in Control will be deemed to occur in the event (i) any person directly
or indirectly acquires securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation’s outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation’s
stockholders or (ii) there is a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a majority of the
Board ceases, by reason of one or more contested elections for Board membership,
to be comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in office
at the time such election or nomination was approved by the Board.

 

DISPOSITION OF SHARES

 

19.                               WHEN CAN I SELL MY SHARES ACQUIRED PURSUANT TO
THE EXERCISE OF MY OPTION?

 

If you are a Section 16 Insider, you will be subject to certain restrictions in
connection with your option grant. These restrictions are described in detail in
the “Restrictions on Resale” section below.

 

MISCELLANEOUS

 

20.                               IS FINANCING AVAILABLE?

 

As a result of the Sarbanes-Oxley Act of 2002, the Company may no longer allow
Section 16 Insiders to finance their acquisition of shares of Common Stock
through the use of promissory notes. However, if you are not a Section 16
Insider, the Board may assist you in the acquisition of shares of Common Stock
by permitting you to pay the purchase price for the shares through a promissory
note payable in one or more installments. The terms of any such promissory note,
including the interest rate and terms of repayment, will be established in the
sole discretion of the Board. Promissory notes will be made on a full-recourse
basis, and the maximum credit available to you may not exceed the purchase price
payable for the acquired shares plus any withholding tax liability incurred by
you in connection with such acquisition. In addition, the Corporation will
comply with all applicable requirements of Regulation U of the Board of
Governors of the Federal Reserve System in connection with any financing
extended to you.

 

5

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21.                               DO I HAVE THE RIGHT TO REMAIN EMPLOYED UNTIL
MY OPTIONS VEST?

 

No. Nothing in any option grant is intended to provide any person with the right
to remain in the Corporation’s service for any specific period, and both you and
the Corporation will each have the right to terminate your service at any time
and for any reason, with or without cause.

 

22.                               ARE THERE ANY CIRCUMSTANCES WHICH WOULD CAUSE
ME TO LOSE MY RIGHTS WITH RESPECT TO AN OPTION GRANT?

 

Yes. The grant of options and the issuance of Common Stock under such options
are subject to the Corporation’s procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Corporation’s
grant of options. It is possible that the Corporation could be prevented from
granting options or from issuing shares of Common Stock in the event one or more
required approvals or permits were not obtained.

 

23.                               DOES THE GRANT OF AN OPTION AFFECT MY
ELIGIBILITY TO PARTICIPATE IN STOCK PLANS OR OTHER COMPENSATORY PLANS OF THE
CORPORATION?

 

No. Option grants do not in any way affect, limit or restrict your eligibility
to participate in any other stock plan or other compensation or benefit plan or
program maintained by the Corporation.

 

24.                               WHAT IS A PARENT CORPORATION?

 

A corporation is a parent corporation if such corporation owns, directly or
indirectly, stock possessing fifty percent (50%) or more of the total combined
voting power of the Corporation’s outstanding securities.

 

25.                               WHAT IS A SUBSIDIARY CORPORATION?

 

A corporation is a subsidiary corporation if the Corporation owns, directly or
indirectly, stock possessing fifty percent (50%) or more of the total combined
voting power of the outstanding securities of that corporation.

 

26.                               WHAT SHARES OF COMMON STOCK WILL BE ISSUED TO
ME UPON EXERCISE OF MY OPTION?

 

The Common Stock will be made available either from authorized but unissued
shares of Common Stock or from shares of Common Stock reacquired by the
Corporation, including shares repurchased on the open market.

 

27.                               WHAT HAPPENS IF THERE IS A CHANGE IN THE
CORPORATION’S CAPITAL STRUCTURE?

 

In the event of a Recapitalization, appropriate adjustments will automatically
be made to the number and/or class of securities and the exercise price per
share in effect under your outstanding options. The adjustments to your
outstanding options will preclude the dilution or enlargement of your rights and
benefits available under those options.

 

A Recapitalization will include any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation’s
receipt of consideration.

 

28.                               CAN MY OPTION BE AMENDED OR TERMINATED?

 

Yes. However, no amendment or modification may, without your consent, adversely
affect your rights and obligations under your outstanding stock options.

 

6

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RESTRICTIONS ON RESALE

 

29.                               WHAT RESTRICTIONS APPLY IF I AM A SECTION 16
INSIDER?

 

Section 16(b) of the 1934 Act requires the Corporation to recover any profit
realized by any officer, director or beneficial owner of more than ten percent
(10%) of the outstanding Common Stock (a “Section 16 Insider”) from any purchase
and sale, or sale and purchase, of such Common Stock made within a period of
less than six (6) months.

 

The Securities and Exchange Commission (the “SEC”) has issued a series of
revised rules under Section 16(b) of the 1934 Act which govern the short-swing
liability treatment of certain transactions effected by a Section 16 Insider
under equity incentive plans. The application of those rules to option
transactions may be summarized as follows.

 

Option Grant. The receipt of an option grant will not be treated as an exempt
“purchase” of the underlying option shares for short-swing liability purposes.

 

Option Exercise. The exercise of an option will be an exempt purchase so that it
will not be treated as a “purchase” of the acquired shares for short-swing
liability purposes.

 

Delivery of Shares. The delivery of shares of Common Stock in payment of the
exercise price will be treated as an exempt sale for short-swing liability
purposes.

 

Stock Withholding. The withholding of a portion of the shares of Common Stock
otherwise issuable to the Section 16 Insider by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of his or her
outstanding option will be treated as an exempt sale for short-swing liability
purposes if such withholding is approved by the Board at the time of the option
exercise or at any earlier time. The delivery of shares of Common Stock out of
the Section 16 Insider’s existing investment portfolio in satisfaction of the
applicable tax withholding liability similarly will be treated as an exempt sale
for short-swing liability purposes if approved by the Board.

 

Sale of Shares. The sale of any shares acquired will be treated as a “sale” for
short-swing liability purposes and will be matched with any non-exempt purchases
of Common Stock (e.g. open-market purchases) made within six (6) months before
or after the date of such sale.

 

Reporting Requirements

 

As a result of the Sarbanes-Oxley Act of 2002, each of the following
transactions involving the Section 16 Insider must be reported on a Form 4 filed
by such individual no later than the close of the second business day following
the date on which such transaction occurs:

 

•                                          Receipt of option grant

•                                          Exercise of option grant, whether or
not the acquired shares are sold immediately

•                                          Sale of Common Stock acquired upon
option exercise

 

If the exercise price is paid with shares of Common Stock, then the disposition
of those shares should also be reported on the same Form 4 for the option
exercise.

 

When shares of Common Stock are withheld in satisfaction of applicable
withholding taxes, the Section 16 Insider should report the gross number of
shares acquired upon the exercise of the option (including the withheld shares)
on the Form 4 reporting the option exercise and should also report the
disposition of the withheld shares on that same Form 4 on which the option
exercise is reported.

 

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30.                               WHAT RESTRICTIONS APPLY IF I AM AN AFFILIATE?

 

In general, persons with power to manage and direct the policies of the
Corporation, their relatives and trusts, estates, corporations or other entities
controlled by any of those persons may be deemed to be affiliates of the
Corporation. Affiliates of the Corporation are obligated to resell their shares
of Common Stock in compliance with SEC Rule 144. This rule requires such sales
to be effected in “brokers’ transactions,” as defined in the rule, and a written
notice of each sale must be filed with the SEC at the time of such sale. The
rule also limits the number of shares which may be sold in any three (3)-month
period to the greater of (i) one percent (1%) of the outstanding shares of
Common Stock or (ii) the average weekly reported volume of trading in such
shares on all securities exchanges during the four (4) calendar weeks preceding
the filing of the required notice of proposed sale. However, there will be no
Rule 144 holding period requirements applicable to the shares of Common Stock
acquired pursuant to the exercise of your option.

 

As an officer or director of the Corporation, you should consult with counsel
before offering for sale any shares of Common Stock acquired pursuant to the
exercise of an option in order to assure your compliance with Rule 144,
Section 16 and all other applicable provisions of federal and state securities
laws.

 

QUESTIONS AND ANSWERS ON FEDERAL TAX CONSEQUENCES

 

CIRCULAR 230 DISCLAIMER. THE FOLLOWING DISCLAIMER IS PROVIDED IN ACCORDANCE WITH
THE INTERNAL REVENUE SERVICE’S CIRCULAR 230 (21 C.F.R. PART 10). THIS ADVICE IS
NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED BY YOU FOR THE PURPOSE
OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED ON YOU. THIS ADVICE WAS WRITTEN TO
SUPPORT THE PROMOTION OR MARKETING OF PARTICIPATION IN THE COMPANY’S EQUITY
INCENTIVE PLANS. YOU SHOULD SEEK ADVICE BASED ON YOUR PARTICULAR CIRCUMSTANCES
FROM AN INDEPENDENT TAX ADVISOR.

 

The following is a general description of the United States federal income tax
consequences of certain option transactions. You should understand, however,
that this tax information is not complete. For example, it does not address
state or local tax laws or the application of laws if you are subject to tax
laws in other countries. Furthermore, because tax laws and regulations
may change, and interpretations of these laws and regulations can change the way
the laws and regulations apply to you, this information may need to be updated
after the delivery of this prospectus. Therefore, you should consult with a tax
advisor if you have questions relating to the tax consequences of participation
in, and the sale of shares received under the Plan.

 

T1.                              WILL THE GRANT OF A NON-STATUTORY OPTION RESULT
IN FEDERAL INCOME TAX LIABILITY TO ME?

 

No.

 

T2.                              WILL THE EXERCISE OF A NON-STATUTORY OPTION
RESULT IN FEDERAL INCOME TAX LIABILITY TO ME?

 

You will recognize ordinary income in the year in which your non-statutory
option is exercised in an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date over (ii) the exercise price
paid for those shares. This income will be reported by the Corporation on your
W-2 wage statement for the year of exercise (or on a Form 1099 if you are not an
employee), and you will be required to satisfy the tax withholding requirements
applicable to this income.

 

T3.                              WILL I RECOGNIZE ADDITIONAL INCOME WHEN I SELL
SHARES ACQUIRED UNDER A NON-STATUTORY OPTION?

 

Yes. You will recognize a capital gain to the extent the amount realized upon
the sale of such shares exceeds their fair market value at the time you
recognized the ordinary income with respect to their acquisition. A capital loss
will result to the extent the amount realized upon the sale is less than such
fair market value. The gain or loss will be long-term if the shares are held for
more than one (1) year prior to the disposition.

 

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(Please see Question T6 below for the tax rates applicable to capital gain.) 
The holding period normally starts at the time the non-statutory option is
exercised.

 

T4.                              WHAT ARE THE CONSEQUENCES OF PAYING THE
EXERCISE PRICE OF A NON-STATUTORY OPTION IN THE FORM OF SHARES OF COMMON STOCK
PREVIOUSLY ACQUIRED UPON THE EXERCISE OF EMPLOYEE OPTIONS OR THROUGH OPEN-MARKET
PURCHASES?

 

You will not recognize any taxable income to the extent the shares of Common
Stock received upon the exercise of the non-statutory option equal in number the
shares of Common Stock delivered in payment of the exercise price. For Federal
income tax purposes, these newly-acquired shares will have the same basis and
capital gain holding period as the delivered shares. To the extent the delivered
shares were acquired under an Incentive Option, the new shares received upon the
exercise of the non-statutory option will continue to be subject to taxation as
Incentive Option shares.

 

The additional shares of Common Stock received upon the exercise of the
non-statutory option will, in general, have to be reported as ordinary income
for the year of exercise in an amount equal to their fair market value on the
exercise date. These additional shares will have a tax basis equal to such fair
market value and a capital gain holding period measured (in general) from the
exercise date.

 

T5.                              WHAT ARE THE FEDERAL TAX CONSEQUENCES TO THE
CORPORATION?

 

The Corporation will be entitled to an income tax deduction equal to the amount
of ordinary income you recognize in connection with the exercise of the
non-statutory option. The deduction will, in general, be allowed for the taxable
year of the Corporation in which you recognize such ordinary income.

 

FEDERAL TAX RATES

 

T6.                              WHAT ARE THE APPLICABLE FEDERAL TAX RATES?

 

Currently, the maximum marginal federal income tax rate applicable to ordinary
income and short-term capital gain is 35% for 2005. Currently, the maximum
marginal federal income tax rate for long-term capital gain is 15%. Even lower
long-term capital gain rates may apply to taxpayers in the 15% and 10% marginal
income tax brackets.

 

Additionally, capital gains and losses are subject to certain other provisions
of the Internal Revenue Code of 1986, as amended (the “Code”) not applicable to
ordinary income. For example, capital gains and losses are netted against other
capital gains and losses, but only $3,000 of net capital losses may be deducted
against ordinary income in any calendar year by any individual taxpayer. Consult
your tax advisor for more information regarding the rates and provisions that
apply to you.

 

CORPORATION INFORMATION

 

Websense, Inc. is a Delaware corporation which maintains its principal executive
offices at 10240 Sorrento Valley Road, San Diego, CA  92121. The telephone
number at the executive offices is (858) 320-8000. You may contact the
Corporation at this address or telephone number for further information.

 

An important part of your participation in the Plan is understanding the
Company, its products, operations, and financial condition. You can keep
yourself informed about the Company by reviewing proxy statements, reports to
stockholders, and other documents that we prepare for our stockholders and the
general public. If you become one of our stockholders, you will be entitled to
attend our stockholder meetings and to vote in the election of directors and on
other matters brought before the stockholders.

 

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The United States federal securities laws require the Company to provide
information about its business and financial status in (a) Annual Reports,
commonly filed on a Form 10-K; (b) Quarterly Reports, commonly filed on a
Form 10-Q; and (c) Current Reports relating to important corporate events
occurring during the year, commonly filed on a Form 8-K. These reports are filed
with the Securities and Exchange Commission (the “SEC”). The Company also
prepares and files with the SEC a proxy statement in connection with its Annual
Meeting of Stockholders. The proxy statement provides further information about
the Company and its officers, directors, and major stockholders.

 

From time to time the Company may also file other documents with the SEC as
required by Sections 13(a), 13(c), 14 and 15(d) of the 1934 Act. The following
documents we filed with the SEC are incorporated by reference into these
materials, which constitute the prospectus for the Plan:

 

(a)                                  The Company’s latest annual report on
Form 10-K filed pursuant to Sections 13(a) or 15(d) of the 1934 Act, or either
(1) our latest prospectus filed pursuant to Rule 424(b) under the Securities Act
of 1933, as amended, that contains audited financial statements for our latest
fiscal year for which such statements have been filed, or (2) our effective
registration statement on Form 10 or 20-F filed under the 1934 Act containing
audited financial statements for our latest fiscal year.

 

(b)                                 All other reports filed pursuant to Sections
13(a) or 15(d) of the 1934 Act since the end of the fiscal year covered by the
annual report, the prospectus or the registration statement referred to in
(a) above.

 

(c)                                  The description of our common stock which
is contained in a registration statement filed under the 1934 Act, including any
amendment or report filed for the purpose of updating such description.

 

All reports and other documents filed pursuant to Sections 13(a), 13(c), 14 and
15(d) of the 1934 Act shall be deemed to be incorporated by reference herein and
to be a part of this prospectus from the date of the filing of such reports and
documents, if such reports or other documents are filed (a) after the date of
this prospectus, and (b) prior to the filing of a post effective amendment which
indicates that all securities offered pursuant to the registration statement on
Form S-8 we filed with the SEC registering the shares reserved under the Plan
have been sold or which deregisters all securities then remaining unsold.

 

A copy of these documents is always available without charge and upon written or
oral request directed to the Stock Plan Administrator at 10240 Sorrento Valley
Road, San Diego, CA 92121 or (858) 320-8000. If you are already one of our
stockholders or a participant in any of our equity incentive plans, you should
already receive either paper or electronic copies of our proxy statement,
reports to stockholders, and other stockholder communications. If you have not
already received a copy of our current annual report, a copy should be delivered
to you with these materials. Whether or not you have already received this
information, copies of our current annual report or other stockholder
communications are always available without charge and upon written or oral
request directed to the Stock Administrator. Alternatively, copies of the most
recent reports containing audited financial statements for our most recent
fiscal year (which may be the final prospectus by which shares of our common
stock are sold to the general public or the annual report to our stockholders)
and our other SEC filings, are available through the Company’s filings with the
SEC on the following web site:

 

http://www.sec.gov/edgar/searchedgar/companysearch.html.

 

*    *    *    *

 

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