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.


 

















 


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


 

















 


EXHIBIT A


 


STOCK OPTION AGREEMENT


 

















 


EXHIBIT B


 


OPTION SUMMARY AND PROSPECTUS


 

















 


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


 

















 


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.


 


2


 

















 


(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;


 


3


 

















 


(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.


 


4


 

















 


(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.


 


5


 

















 


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:

  	
   

  	
   

  	
   

  
					



 


 

















 


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.


 

















 


(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


 

















 


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.


 

















 


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.


 

















 


NON-PLAN
INDUCEMENT GRANT


 


 


WEBSENSE, INC.


 


 


NON-PLAN INDUCEMENT GRANT


 


SUMMARY AND PROSPECTUS


 


 


The date of this
Prospectus is January 9, 2006


 

















 


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

















 


	
  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

















 


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


 

















 


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

















 


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

















 


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

















 


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

















 


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.


 


7

















 


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.


 


8

















 


(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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