Exhibit (d)(3) WATCHGUARD TECHNOLOGIES, INC. 1996 STOCK INCENTIVE COMPENSATION PLAN STOCK OPTION LETTER AGREEMENT To: ((name)) We are pleased to inform you that you have been granted a stock option (the "Option") for the purchase of shares of common...

                                                                  Exhibit (d)(3)

                         WATCHGUARD TECHNOLOGIES, INC.
                    1996 STOCK INCENTIVE COMPENSATION PLAN
                         STOCK OPTION LETTER AGREEMENT

To:  ((name))

     We are pleased to inform you that you have been granted a stock option (the
"Option") for the purchase of shares of common stock of WatchGuard Technologies,
Inc., a Delaware corporation (the "Company"), under the 1996 Stock Incentive
Compensation Plan (the "Plan").

     The terms of the Option are as set forth in this Agreement and in the Plan,
a copy of which is attached. The Plan is incorporated into this Agreement by
reference, which means that this Agreement is limited by and subject to the
express terms and provisions of the Plan. Capitalized terms that are not defined
in this Agreement have the meanings given to them in the Plan. The Option terms
are as follows:

Number of Shares:  ((shares))                 Exercise Price:  $((price))

Grant Date:  ((grantdate))                    Term:  Ten years

Type of Option:  Incentive Stock Option

Vesting:

  Date On and After Which Option            Portion of Total Option Which
     Is Vested and Exercisable                Is Vested and Exercisable
---------------------------------------  ----------------------------------
       ((oneyraftrgrdt))                                  25%

Each one-month period of continuous
   service completed thereafter                    An additional 1/48

       ((fouryraftgrdt))                                 100%

     ISO Qualification: The Option is intended to qualify as an ISO under
federal income tax law, but the Company does not represent or guarantee that the
Option qualifies as such. To the extent that the aggregate Fair Market Value of
the shares with respect to which the Option is exercisable for the first time by
you during any calendar year (under this Option and all other Incentive Stock
Options you hold) exceeds $100,000, the excess portion will be treated as a
Nonqualified Stock Option, unless the Internal Revenue Service changes the rules
and regulations governing the $100,000 limit for Incentive Stock Options.

     Termination: This Option will terminate in accordance with the terms of the
Plan in the event your employment or other service with the Company terminates.
This Option must be exercised within three months after termination of
employment for reasons other than death or disability and one year after
termination of employment due to disability to qualify for the beneficial tax
treatment afforded to Incentive Stock Options.

     Payment for Shares: Unless the Plan Administrator at any time determines
otherwise, this option may be exercised by the delivery of any combination of
(a) cash or check; (b) tendering


(either actually or by attestation) shares of the capital stock of the Company
held by you for a period of at least six months having a Fair Market Value on
the day prior to exercise equal to the exercise price; (c) if and so long as the
Common Stock is registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale or loan proceeds to pay the exercise
price and any withholding tax obligations; or such other consideration as the
Plan Administrator may permit.

     Withholding Taxes: As a condition to the exercise of any portion of this
Option that is treated as a Nonqualified Stock Option, you must make such
arrangements as the Company may require for the satisfaction of any federal,
state or local withholding tax obligations that may arise in connection with
such exercise. The Company has the right to retain without notice sufficient
shares of stock to satisfy the withholding obligation. Unless the Plan
Administrator determines otherwise, you may satisfy the withholding obligation
by electing to have the Company or related corporation withhold from the shares
to be issued upon exercise that number of shares having a Fair Market Value
equal to the amount required to be withheld.

     Transfer of Option: This Option is not transferable except by will, by
designated beneficiary, or by the applicable laws of descent and distribution.

     Holding Periods:

     a.  Securities Exchange Act Section 16

     If an individual subject to Section 16 of the Exchange Act sells shares of
Common Stock obtained upon the exercise of a stock option within six months
after the date this Option was granted, such sale may result in short-swing
profit liability under Section 16(b) of the Exchange Act.

     b.  Taxation of Stock Options

     In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Internal Revenue Code of 1986, as amended, you must
hold the shares issued upon the exercise of an Incentive Stock Option for two
years after the date of grant of this Option and one year from the date of
exercise. By accepting this Option, you agree to promptly notify the Company if
you dispose of any Option Shares within one year from the date you exercise all
or part of the Option or within two years from the Grant Date. You may be
subject to the alternative minimum tax at the time of exercise. You should
obtain tax advice when exercising any Option and prior to the disposition of the
shares issued upon the exercise of any Option.

     Registration: At the present time, the Company has an effective
registration statement with respect to the Shares covered by this Option. The
Company intends to maintain this registration but has no obligation to do so. In
the event that such registration ceases to be effective, you will not be able to
transfer the Option unless exemptions from registration under federal and state
securities laws are available; such exemptions from registration are very
limited and might be unavailable. By accepting this Option, you hereby
acknowledge that you have read and understand Section 15.3 of the Plan.

                                      -2-


     Limitation on Rights; No Right to Future Grants; Extraordinary Item of
Compensation: By entering into this Agreement and accepting the grant of the
Option evidenced hereby, you acknowledge: (a) that the Plan is discretionary in
nature and may be suspended or terminated by the Company at any time; (b) that
the grant of this Option is a one-time benefit which does not create any
contractual or other right to receive future grants of options, or benefits in
lieu of options; (c) that all determinations with respect to any such future
grants, including, but not limited to, the times when options will be granted,
the number of shares subject to each option, the option price, and the time or
times when each option will be exercisable, will be at the sole discretion of
the Company; (d) that your participation in the Plan is voluntary; (e) that the
value of this Option is an extraordinary item of compensation which is outside
the scope of your employment contract, if any; (f) that this Option is not part
of normal or expected compensation for purposes of calculating any severance,
resignation, redundancy, end of service payments, bonuses, long-service awards,
pension or retirement benefits or similar payments; (g) that the vesting of this
Option ceases upon termination of employment or service relationship with the
Company for any reason except as may otherwise be explicitly provided in the
Plan or this Agreement or otherwise permitted by the Plan Administrator; (h)
that the future value of the underlying Option Shares is unknown and cannot be
predicted with certainty; and (i) that if the underlying Option Shares do not
increase in value, this Option will have no value.

     Please execute the following Acceptance and Acknowledgment and return it to
the undersigned.

                                  Very truly yours,

                                  WATCHGUARD TECHNOLOGIES, INC.



                                  By ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
                                    Its President and Chief Executive Officer

                                      -3-


                         ACCEPTANCE AND ACKNOWLEDGMENT

     I, ((name)), a resident of the State of ___________________, accept the
stock option described in this Agreement and in the Plan, and acknowledge
receipt of a copy of this Agreement, the Plan Summary and a copy of the Plan. I
have read and understand the Plan, including the provisions of Section 15.3.

Dated:
       ---------------------------     -----------------------------------------
                                                        ((name))
                                       Address
                                               ---------------------------------

----------------------------------     -----------------------------------------
Taxpayer I.D. Number
                                       -----------------------------------------


                      NOTICE OF EXERCISE OF STOCK OPTION


To:  WatchGuard Technologies, Inc.

     I, ((name)), a resident of the State of ___________________, hereby
exercise my Incentive Stock Option granted by WatchGuard Technologies, Inc. (the
"Company") on ((grantdate)), subject to all the terms and provisions thereof and
of the 1996 Stock Incentive Compensation Plan referred to therein, and notify
the Company of my desire to purchase ________ shares of Common Stock of the
Company at the exercise price of $((price)) per share which were offered to me
pursuant to said option.

     I hereby represent and warrant that I have been furnished with a copy of
the Plan and the Plan Summary.

Dated:
       ---------------------------     -----------------------------------------
                                                        ((name))
                                       Address
                                               ---------------------------------

----------------------------------     -----------------------------------------
Taxpayer I.D. Number
                                       -----------------------------------------


                                    RECEIPT

     _________________________ hereby acknowledges receipt from ((name)) in
payment for ______________ shares of Common Stock of WatchGuard Technologies,
Inc., a Delaware corporation, of $_____________ in the form of

[ ]  Cash
[ ]  Check (personal, cashier's or bank certified)
     [ ]  __________ shares of the Company's Common Stock, fair market
          value $_______ per share held by the Optionee for a period of at least
          six months
[ ]  Copy of irrevocable instructions to Broker

Date:
      ----------------------------     -----------------------------------------
FMV on such date:  $                   For:  WatchGuard Technologies, Inc.
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