CYBERGUARD CORP, DEF 14A, 1997-11-05

CYBERGUARD CORP
DEF 14A, 1997-11-05
ELECTRONIC COMPUTERS

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SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e) (2))

CYBERGUARD CORPORATION
(Name of Registrant as Specified in Its Charter)

(Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[x] No fee required.
[ ] Fee computed on the table below per Exchange Act Rules 14a-6(i)(1) and
0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.

(1) Amount previously paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:

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[GRAPHIC OMITTED]

November 5, 1997

Dear CyberGuard Corporation Shareholder:

You are cordially invited to attend the 1997 Annual Meeting of
Shareholders to be held on December 4, 1997, at 10:00 a.m., at the Doubletree
Guest Suites, 555 N.W. 62nd Street, Fort Lauderdale, Florida, 33309.

The Annual Meeting will begin with a report on Company operations,
followed by discussion and voting on the matters described in the accompanying
Notice of Annual Meeting and Proxy Statement.

Whether or not you plan to attend, you can ensure that your shares are
represented at the Annual Meeting by promptly completing, signing, dating and
returning the enclosed proxy card in the envelope provided.

Sincerely,

/s/ Robert L. Carberry
----------------------------
Robert L. Carberry
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER

<PAGE>

CYBERGUARD CORPORATION
2000 WEST COMMERCIAL BOULEVARD
SUITE 200
FORT LAUDERDALE, FLORIDA 33309

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

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 4, 1997

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

The Annual Meeting of Shareholders (the "Annual Meeting") of CyberGuard
Corporation, a Florida corporation (the "Company"), will be held on December 4,
1997, at 10:00 a.m., local time, at Doubletree Guest Suites, 555 N.W. 62nd
Street, Fort Lauderdale, Florida, 33309, for the following purposes:

1. To elect two directors to serve for a term of three years and until
their respective successors are duly elected and qualified;

2. To consider and vote upon an amendment to the CyberGuard Stock Incentive
Plan to increase the number of shares of Common Stock authorized for
issuance thereunder to from 2,025,000 to 2,400,000 shares of common stock
and to change the number of the annual grant to directors;

3. To ratify the appointment of KPMG Peat Marwick LLP, independent
certified public accountants, to audit the books and accounts of the
Company for the year ending June 30, 1998; and

4. To transact such other business as may properly come before the Annual
Meeting and any adjournments and postponements thereof.

The enclosed proxy is solicited by the Board of Directors of the Company.
Reference is made to the accompanying Proxy Statement for further information
with respect to the business to be transacted at the Annual Meeting.

A complete list of the shareholders entitled to vote at the Annual Meeting
will be available during ordinary business hours for examination by any
shareholder, for any purpose germane to the Annual Meeting, for a period of at
least ten days prior to the Annual Meeting, at the Company's corporate offices,
2000 West Commercial Boulevard, Suite 200, Fort Lauderdale, Florida 33309.

The Board of Directors urges you to complete, sign, date and return the
enclosed proxy card promptly. You are cordially invited to attend the Annual
Meeting in person. The return of the enclosed proxy card will not affect your
right to revoke your proxy or to vote in person if you do attend the Annual
Meeting.

By order of the Board of Directors,

BRIAN FOREMNY
SECRETARY AND GENERAL COUNSEL

Fort Lauderdale, Florida
November 5, 1997

YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY SHARES YOU OWNED ON THE RECORD
DATE. PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE
AND SIGN IT, AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR
YOUR CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER
TO AVOID THE ADDITIONAL EXPENSE TO THE COMPANY OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN MAILING YOUR PROXY PROMPTLY.

<PAGE>

CYBERGUARD CORPORATION
2000 WEST COMMERCIAL BOULEVARD
SUITE 200
FORT LAUDERDALE, FLORIDA 33309

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

PROXY STATEMENT

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

GENERAL INFORMATION

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of CyberGuard Corporation, a Florida
corporation ("CyberGuard" or the "Company"), for use at the Company's 1997
Annual Meeting of Shareholders (together with any and all adjournments and
postponements thereof, the "Annual Meeting") to be held on December 4, 1997, at
10:00 a.m., local time, at the Doubletree Guest Suites, 555 N.W. 62nd Street,
Fort Lauderdale, Florida, 33309, for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders. This Proxy Statement, together with
the foregoing Notice and the enclosed proxy card, are first being sent to
shareholders on or about November 5, 1997.

The Board of Directors has fixed the close of business on October 22, 1997
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting. On the record date, there were 8,025,557
shares of Common Stock of the Company, par value $.01 per share ("Common
Stock"), outstanding and entitled to vote. Each share of Common Stock is
entitled to one vote per share on each matter properly brought before the
Annual Meeting. Shares can be voted at the Annual Meeting only if the
shareholder is present in person or is represented by proxy. The presence, in
person or by proxy, at the Annual Meeting of shares of Common Stock
representing at least a majority of the total number of shares of Common Stock
outstanding on the record date will constitute a quorum for purposes of the
Annual Meeting.

The Board of Directors knows of no matters that are to be brought before
the Annual Meeting other than those set forth in the accompanying Notice of
Annual Meeting of Shareholders. If any other matters properly come before the
Annual Meeting, the persons named in the enclosed proxy card, or their duly
appointed substitutes acting at the Annual Meeting, will be authorized to vote
or otherwise act thereon in accordance with their judgment on such matters. If
the enclosed proxy card is properly executed and returned before voting at the
Annual Meeting, the shares represented thereby will be voted in accordance with
the instructions marked thereon. In the absence of instructions, shares
represented by executed proxies will be voted as recommended by the Board of
Directors.

Any proxy may be revoked at any time prior to its exercise by attending
the Annual Meeting and voting in person, by notifying the Secretary of the
Company of such revocation in writing or by delivering a duly executed proxy
bearing a later date, provided that such notice or proxy is actually received
by the Company prior to the taking of any vote at the Annual Meeting.

The cost of solicitation of proxies for use at the Annual Meeting will be
borne by the Company. Solicitations will be made primarily by mail or by
facsimile, but regular employees of the Company may solicit proxies personally
or by telephone.

Brokers, banks and other nominee holders will be requested to obtain
voting instructions of beneficial owners of stock registered in their names.
Shares represented by a duly completed proxy submitted by a nominee holder on
behalf of beneficial owners will be counted for quorum purposes, and will be
voted to the extent instructed by the holder on the proxy card. The rules
applicable to a nominee holder may preclude it from voting the shares that it
holds on certain kinds of proposals unless it receives voting instructions from
the beneficial owners of the shares (sometimes referred to as "broker
non-votes").

<PAGE>

Abstentions will be counted for purposes of determining the presence or
absence of a quorum, but will not be counted for a proposal as to which a
beneficial owner abstains.

ELECTION OF DIRECTORS

The Amended and Restated Articles of Incorporation and the By-laws of the
Company provide that the number of directors (which is to be not less than
three) is to be determined from time to time by resolution of the Board of
Directors. The Board is currently comprised of six persons.

Pursuant to the Company's Amended and Restated Articles of Incorporation,
the members of the Board of Directors are divided into three classes. Each
class is to consist, as nearly as may be possible, of one-third of the whole
number of members of the Board. The terms of two of the Company's directors
expire at the Annual Meeting. The terms of the remaining classes of directors
will expire at the 1998 and 1999 annual meetings of Shareholders, respectively.
At each annual meeting, the directors elected to succeed those whose terms
expire are of the same class as the directors they succeed and are elected for
a term to expire at the third annual meeting of Shareholders after their
election and until their successors are duly elected and qualified. A director
elected to fill a vacancy is elected to the same class as the director he
succeeds, and a director elected to fill a newly created directorship holds
office until the next election of the class to which such director is elected.

Two directors are nominees for election this year for a three-year term
expiring at the 2000 annual meeting of Shareholders. In the election, the two
persons who receive the highest number of votes actually cast will be elected.
If a proxy card is specifically marked as abstaining from voting as to any
nominee, the shares represented thereby will not be counted as having been
voted for or against such nominee. Broker non-votes will be treated as votes
cast. The proxies named in the proxy card intend to vote for the election of
the two nominees listed below unless otherwise instructed. If a holder does not
wish his or her shares to be voted for a particular nominee, the holder must
identify the exception in the appropriate space provided on the proxy card, in
which event the shares will be voted for the other listed nominee. If any
nominee becomes unable to serve, the proxies may vote for another person
designated by the Board of Directors or the Board may reduce the number of
directors. The Company has no reason to believe that any nominee will be unable
to serve. Set forth below is certain information about each of the nominees for
election at the Annual Meeting and each continuing director.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE NOMINEES FOR
DIRECTOR LISTED BELOW.

NOMINEES

C. SHELTON JAMES./dagger//double dagger/ Age 58. Since May 1991, Mr.
James has served as Chief Executive Officer of Elcotel, Inc., a public company
that manufactures telecommunications equipment. Mr. James is President of
Fundamental Management Corporation, an investment management firm specializing
in active investment in small capitalization companies, where he was Executive
Vice President from 1990 to April 1993. Before 1990, Mr. James was Executive
Vice President of Gould, Inc., a diversified electronics company, and President
of Gould's Computer Systems Division. Mr. James is Chairman of the Board of
Directors of Elcotel, Inc. and serves on the boards of directors of CSPI, NAI
Technologies, Inc., Fundamental Management Corporation and SK Technologies,
Inc.

RICHARD P. RIFENBURGH./dagger/ Age 65. Mr. Rifenburgh joined the Company's
Board of Directors in June 1996 following the sale of the Company's real-time
computer business. Mr. Rifenburgh is Chairman of the Board of Moval Management
Corporation, a privately held company specializing in restoring companies in
financial distress. He is, or in the past five years has been, a member of the
Board of Directors of the following public companies: Concurrent Computer
Corporation since 1991; Tristar Corporation (formerly known as Ross Cosmetics
Distribution Centers, Inc.) since June 1992 and Chairman since August 1992; and
Library Bureau (manufacturer of library furniture) from 1976 to 1995.

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<PAGE>

CONTINUING DIRECTORS

ROBERT L. CARBERRY. Age 54. Mr. Carberry was appointed Chairman,
President and Chief Executive Officer of CyberGuard Corporation in June 1996,
having joined the Company in March 1996 as President of the Company's Trusted
Systems Division. Before joining the Company, Mr. Carberry served as Vice
President, New Technology for Blockbuster/Viacom Group and Vice President,
Managing Executive for Blockbuster Technology Holding Corporation. Prior to
Blockbuster, Mr. Carberry's 20-year career with IBM included positions of
President of Multimedia Investment Organization, a division of IBM; Vice
President Technology/Business Development for the Personal Computer Division;
Director of the Large Systems Programming Laboratory; and IBM Corporate
Director of Technology Mr. Carberry's term expires at the 1998 annual meeting
of the Company's Shareholders.

MICHAEL F. MAGUIRE./dagger//double dagger/ Age 71. Since 1984, Mr.
Maguire has served as President, director and sole shareholder of Maguire
Investment Management, Inc., a management consulting company. For more than 13
years, Mr. Maguire served as an executive at Harris Corporation, most recently
as Senior Vice President from 1979 to 1986. Mr. Maguire serves on the board of
directors of Paravant Computer Corp., as well as several non-profit
corporations. Mr. Maguire's term expires at the 1999 annual meeting of the
Company's Shareholders.

DAVID R. PROCTOR. Age 57. David Proctor was appointed a director of the
Company in April 1997. Mr. Proctor has been President and Chief Operating
Officer of Platinum Software Corporation, a supplier of financial software
application programs, from May 1994 to December 1995. Prior to joining Platinum
Software, Mr. Proctor was Vice President of software products for the Personal
Software Products Division of IBM from April 1993 to May 1994. From October
1991 to April 1993, Mr. Proctor was a private consultant providing executive
management services to technology companies. From May 1990 to October 1991, Mr.
Proctor was with Ashton-Tate Corporation, a supplier of business applications
software products, and served as both the Vice President of the Database
Division and as President and Chief Operating Officer. Prior to joining
Ashton-Tate, Mr. Proctor spent 23 years with IBM in several executive
capacities. Mr. Proctor presently serves on the Board of Directors of MTI
Technology Corp. Mr. Proctor's term expires at the 1998 annual meeting of the
Company's shareholders.

LELAND R. REISWIG, JR./double dagger/ Age 51. Mr. Reiswig, who joined the
Company's Board of Directors in October 1996, held numerous positions during
his 30-year career at IBM. He was the General Manager, Technical Strategy for
the IBM Software Group before his retirement in July 1, 1996. While General
Manager of IBM's Personal Software Products Division from 1990 to 1995, he was
responsible for worldwide development, marketing, sales, and support for OS/2,
PC-DOS, OS/2 LAN Server and several other PC-based software offerings. His
years at IBM also included services as ESD Vice President of Programming; ESD
Austin Lab Director; System Manager, ESD Communications and Date Management
Systems Software; and Product Manager of Business and Personal Information
Products. Mr. Reiswig's term expires at the 1999 annual meeting of the
Company's Shareholders.

/dagger/ Member of the Audit Committee (Mr. James, Chairman)
/double dagger/ Member of the Compensation and Stock Option Committee (Mr.
James, Chairman)

AMENDMENT TO STOCK INCENTIVE PLAN

The Company has adopted, and the shareholders have approved, the
CyberGuard Stock Incentive Plan, as amended (the "Stock Incentive Plan"). The
Stock Incentive Plan provides for the issuance of an aggregate of 2,025,000
shares of Common Stock, including restricted stock and stock issued upon the
exercise of stock options.

On October 28, 1997, the Company's Board of directors approved a second
amendment to the Stock Incentive Plan (the "Stock Incentive Plan Amendment")
(1) to increase by 375,000 to 2,400,000

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<PAGE>

the maximum number of shares of Common Stock that may be issued in the form of
restricted stock or pursuant to the exercise of options granted pursuant to the
Stock Incentive Plan and (2) to increase the annual grant of options to the
Company's non-employee directors from 1,500 options to 3,000 options. The
Company's shareholders are being requested to consider and approve the Stock
Incentive Plan Amendment.

Approval of the Stock Incentive Plan Amendment requires the affirmative
vote of the holders of a majority of the shares present in person or
represented by proxy at the Annual Meeting. If a proxy card is specifically
marked as abstaining from voting on the proposal, the shares represented
thereby will not be counted as having been voted for or against the proposal.
Broker non-votes will not be treated as votes cast.

Unless authority to so vote is withheld, the persons named in the proxy
card intend to vote shares as to which proxies are received in favor of the
Stock Incentive Plan Amendment.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE CYBERGUARD
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE STOCK INCENTIVE PLAN AMENDMENT.

PURPOSE. The Company's Board of Directors believes that awards under the
Stock Incentive Plan serve to attract, retain and motivate key employees and
enhance the incentive of employees to perform at the highest level. Awards
under the Stock Incentive Plan contribute significantly to the Company's
success by tying employees' compensation to performance and by aligning
employees' interests closely to the long-term interests of the Company and its
shareholders. The availability of awards under the Stock Incentive Plan also
serves to encourage qualified persons to seek and accept employment with the
Company. The Company's Board of Directors believes that the proposed Stock
Incentive Plan Amendment, by ensuring that a sufficient number of shares are
available to be granted or issued upon the exercise of options to eligible
present and future participants, furthers these objectives.

Prior to the approval of the Stock Incentive Plan Amendment by the
Company's Board of Directors, the Stock Incentive Plan provided for up to
2,025,000 shares of Common Stock to be available for issuance. Of this amount,
the Company has issued options to purchase shares of Common Stock and shares of
Common Stock subject to restrictions in an aggregate amount of 1,951,205 shares
(after giving effect to options that have been forfeited by employees who leave
before their options vest). A total of 73,795 shares remain available for
issuance. Assuming approval of the Stock Incentive Plan Amendment by the
Company shareholders, a total of 448,795 shares of Common Stock will remain
available for future grants.

ELIGIBILITY. All salaried employees and non-employee directors of the
Company and its affiliates are eligible to participate in the Stock Incentive
Plan. An eligible employee may receive an award under the Plan, however, only
if selected by the Compensation Committee.

ADMINISTRATION. The Stock Incentive Plan is administered by the
Compensation Committee, none of the members of which may be an employee of the
Company. The Compensation Committee may in turn delegate some or all of its
authority and responsibility under the Stock Incentive Plan with respect to
awards to participants who are not subject to Section 16(b) of the Exchange Act
to the Chief Executive Officer of the Company. The Compensation Committee has
the authority to select employees to whom awards are granted, to determine the
types of awards and the number of shares subject thereto, and to set the terms,
conditions and provisions of such awards. Certain specified awards that apply
to non-employee directors of the Company are not subject to the discretion of
the Compensation Committee. The Compensation Committee is authorized to
interpret the Stock Incentive Plan, to establish, amend and rescind any rules
and regulations relating to the Stock Incentive Plan, to determine the terms
and provisions of any agreements entered into under the Stock Incentive Plan,
and to make all other determinations which may be necessary or advisable for
the administration of the Stock Incentive Plan. In addition to the Compensation
Committee, the Board of Directors also has the discretion to issue awards under
the Stock Incentive Plan (including stock options and restricted stock

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awards), and referenced in this Proxy Statement to the "Compensation Committee"
taking action with respect to the Plan should be considered as also referring
to the Board of Directors, where appropriate.

AWARDS UNDER THE STOCK INCENTIVE PLAN. The Stock Incentive Plan permits
the granting of any or all of the following types of awards: (1) stock options,
including incentive stock options ("ISOs'), (2) stock appreciation rights
("SARs"), (3) performance shares conditioned upon meeting performance criteria,
(4) restricted stock, in tandem with stock options or freestanding, and (5)
other awards valued in whole or in part by reference to, or otherwise based on,
Common Stock. In connection with any award, payment representing dividends or
interest or their equivalent may be made to Stock Incentive Plan participants.
In addition, the Stock Incentive Plan provides for the automatic grant of stock
options to directors of the Company who are not employees of the Company or its
affiliates ("Outside Directors").

STOCK OPTIONS. Stock options may be granted, from time to time, to such
salaried employees of the Company and its affiliates as may be selected by the
Compensation Committee. The purchase price per share of Common Stock
purchasable under any stock option granted to an employee is determined by the
Board of Directors, but may not be less than 100% of the fair market value of a
share of Common Stock on the date of grant and, in the case of ISOs, 110% of
the fair market value of a share of Common Stock on the date of the grant. The
term of each such option, and the time or times when it may be exercised, is
fixed by the Compensation Committee (up to 10 years from the date of the
grant). All terms and conditions relating to the options are the subject of
separate stock option agreements between the Company and the grantees. The
grant and the terms of ISOs is restricted to the extent required by the Code.
Options may be exercised by payment of the purchase price, either in cash or,
at the discretion of the Company's Board of Directors, in Common Stock having a
fair market value on the date the option is exercised equal to the option
price. The Stock Incentive Plan provides for SARs relating to any option to be
automatically canceled to the extent of the number of shares of the exercise.
Participants have no shareholder rights with respect to any options granted
until shares have been issued upon the proper exercise of the option.

STOCK APPRECIATION RIGHTS. The Compensation Committee may grant SARs,
from time to time, to salaried employees. An SAR may be granted in connection
with an option or independent of an option. Upon exercise of an SAR, the holder
thereof is entitled to receive the excess of the fair market value of the
shares for which the right may be exercised over the grant price of the SAR.
The grant price (which may not be less than 100% of the fair market value of
the shares on the date of grant) and other terms of the SAR may be determined
by the Board of Directors. In the event the SAR is granted in connection with
an option, the fixed price from which appreciation shall be computed shall be
the option price. SARs granted in connection with options may be exercised only
to the extent the related options are exercisable; the related options will be
canceled upon exercise of such SAR. Payment by the Company upon such exercise
will be in cash in the amount of the fair market value of the SAR over the
fixed price, or the option price, as the case may be. SARs granted under the
Stock Incentive Plan may not be transferred except by will or by the laws of
descent and distribution and must be exercised during the lifetime of the
grantee. To date, no SARs have been granted pursuant to the Stock Incentive
Plan; any future grant of a SAR will be the subject of a separate Stock
Appreciation Rights Agreement between the Company and the grantee containing
the terms of the SAR and such other conditions as the Compensation Committee
may determine.

PERFORMANCE AWARDS. From time to time, the Company's Board of Directors
may select a period during which performance criteria determined by the
Company's Board of Directors are measured for the purpose of determining the
extent to which a performance award has been earned. Any performance awards
granted pursuant to the Stock Incentive Plan will be in the form of Common
Stock. Recipients of performance awards, who must be salaried employees of the
Company, need not be required to provide consideration other than the rendering
of services. Shares awarded may be subject to a restriction period during which
time the shares may not be transferred; shares granted are held by the Company
during the restricted period. Recipients of performance awards will have, with
respect to the performance shares (and even during a restricted period), all of
the rights of a shareholder of the

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Company, including the right to vote the shares and to receive any cash
dividends to the extent permitted by applicable law, unless the Company's Board
of Directors determines otherwise.

RESTRICTED STOCK. Awards of shares of Common Stock subject to certain
restrictions may be made from time to time to salaried employees of the
Company. The Company's Board of Directors may select the recipients of
restricted stock. Restricted stock may not be disposed of by the recipient
until the lapse of certain restrictions established by the Company's Board of
Directors. Recipients of restricted stock will not be required to provide
consideration other than the rendering of services. Recipients will have, with
respect to restricted stock, all of the rights of a shareholder of the Company
including the right to vote the shares and to receive any cash dividends to the
extent permitted by applicable law, unless the Company's Board of Directors
determines otherwise. Upon termination of employment during the restriction
period, all restricted stock not then vested will be forfeited, subject to such
exceptions, if any, authorized by the Company's Board of Directors.

OTHER STOCK-BASED AWARDS. In order to enable the Company to respond
quickly to significant legislative and regulatory developments and to trends in
executive compensation practices, the Company's Board of Directors will also be
authorized to grant to salaried employees, either alone or in addition to other
awards granted under the Stock Incentive Plan, awards of stock and other awards
that are valued in whole or in part by reference to, or are otherwise based on,
Common Stock ("other stock-based awards"). Other stock-based awards may be paid
in Common Stock or other securities, cash or any other form of property as
determined by the Company's Board of Directors.

The Company's Board of Directors may determine the employees to whom other
stock-based awards are to be made, the times at which such awards are to be
made, the number of shares to be granted pursuant to such awards and all other
conditions of such awards. The provisions of such awards need not be the same
with respect to each recipient. Securities granted pursuant to other
stock-based awards may be issued for no cash consideration or for such minimum
consideration as may be required by applicable law. If purchase rights are
granted pursuant to other stock-based awards the Company's Board of Directors
will determine the purchase price of stock, which price will not be less than
the fair market value of such stock on the date of grant. All awards shall be
fully vested and payable immediately upon a change of control of the Company.

DIRECTORS' OPTIONS. Under the Stock Incentive Plan, as currently in
effect, Outside Directors receive options to purchase 6,000 shares of Common
Stock upon joining the Company's Board of Directors. In addition, on the date
of each annual meeting of shareholders thereafter, each director who was not an
employee of the Company is automatically granted an option to purchase 1,500
shares of Common Stock. If the Stock Incentive Plan Amendment is approved, each
director will automatically be granted an option to purchase 3,000 shares of
Common Stock on date of the annual meeting of shareholders or December 31 of
each year, whichever comes first. The Company's shareholders have previously
approved an amendment providing for non-employee directors serving as of
February 4, 1996 each to be granted an option to purchase 15,000 shares of
Common Stock at $5.50 per share, the closing price of Common Stock on the date
of the grant. All such options are non-statutory stock options and priced at
100% of the fair market value on the date of grant. Neither the Company's Board
of Directors nor any committee of the Company's Board of Directors has any
discretion with respect to options granted to Outside Directors pursuant to the
Stock Incentive Plan.

NONASSIGNABILITY OF AWARDS. The Stock Incentive Plan provides that no
award granted under the Stock Incentive Plan may be sold, assigned,
transferred, pledged or otherwise encumbered by a participant, otherwise than
by will or by the laws of descent and distribution. Each award is exercisable,
during the participant's lifetime, only by the participant, or if permissible
under applicable law, by the participant's agent, guardian or attorney-in-fact.

ADJUSTMENTS. The Stock Incentive Plan provides that, in the event of any
change affecting the shares of Common Stock by reason of any stock dividend or
split, recapitalization, reorganization, merger, consolidation, spin-off,
combination or exchange of shares, spin-out or any distribution to

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shareholders other than cash dividends, the Company's Board of Directors will
make such substitution or adjustment in the aggregate number or class of shares
which may be distributed under the Stock Incentive Plan and in the number,
class and option price or other price of shares subject to the outstanding
awards granted under the Stock Incentive Plan as it deems to be appropriate in
order to maintain the purpose of the original grant.

The Company's Board of Directors is authorized to make adjustments in
performance award criteria or in the terms and conditions of other awards in
recognition of unusual or non-recurring events affecting the Company or its
financial statements or changes in applicable laws, regulations or accounting
principles, provided no such adjustment shall impair the rights of any
participant without his consent. The Company's Board of Directors may correct
any defect, supply any omission or reconcile any inconsistency in the Stock
Incentive Plan or any award in the manner and to the extent it shall deem
desirable to carry it into effect.

CHANGE OF CONTROL. In order to maintain all of the participants' rights
in the event of a change of control of the Company, all outstanding awards will
become exercisable immediately prior to the occurrence of the change of
control, in such manner and in such amounts as determined by the Company's
Board of Directors, as constituted before such change of control, in its sole
discretion. A change in control is deemed to occur if any person or entity
acquires 20% or more of the outstanding shares of the Company or if as a result
of any tender or exchange offer, merger or other business combination, sale of
assets or contested election, there is a change of a majority of the directors.

FEDERAL INCOME TAX ASPECTS OF THE STOCK INCENTIVE PLAN. The following is
a summary of the federal tax consequences generally arising with respect to
awards to be granted under the Stock Incentive Plan. The grant of an ISO has no
tax consequences to the Company or to the participant. In addition, the
participant recognizes no taxable income at the time of exercise of an ISO.
However, upon exercise, the difference between the fair market value of the
underlying share of Common Stock and the exercise price of the ISO is
includable in the participant's income for alternative minimum tax purposes. If
the participant holds the shares acquired upon exercise of an ISO for at least
two years from the date of the grant of the ISO and at least one year from the
date of exercise, he will recognize taxable capital gain or capital loss upon a
subsequent sale of the shares at a price different from the option exercise
price. In either of these events, no deduction would be allowed to the Company
for federal income tax purposes.

If the participant disposes of the shares acquired upon exercise of an ISO
within either of the holding periods described above (i) the participant will
recognize taxable ordinary income in the year of such disposition in an amount
equal to the fair market value of the shares on the exercise date minus the
exercise price of the ISO; provided that if the disposition is a sale or
exchange with an unrelated party, then the ordinary income will be limited to
the excess of the amount realized upon the sale or exchange of the shares over
the exercise price; (ii) the Company will be entitled to a deduction for such
year equal to the amount of taxable ordinary income recognized by the
participant; and (iii) the participant will recognize capital gain or loss,
short-term or long-term, as the case may be, in an amount equal to the
difference between (a) the amount realized by him upon such sale or exchange of
the shares and (b) the option exercise price paid by him increased by the
amount of ordinary income, if any, recognized by him upon such disposition.

The grant of a non-statutory stock option has no tax consequences to the
Company or to the participant. Upon exercise of a non-statutory stock option,
however, the participant will recognize taxable ordinary income in the amount
of the excess of the fair market value on the date of exercise of the shares of
Common Stock acquired over the exercise price of the non-statutory stock
option, and such amount will be deductible for federal income tax purposes by
the Company. The holder of such shares will, upon a subsequent disposition of
the shares, recognize short-term or long-term capital gain or loss, depending
on the holding period of the shares.

In general, a grant of restricted stock has no tax consequence to the
Company or the participant. Except as discussed below, the then fair market
value of the shares of Common Stock issued as

7
<PAGE>

restricted stock will be taxed as ordinary income to the grantee as the
restrictions on the stock lapse. The Company will receive a corresponding tax
deduction at the same times. Dividends received by the participant during the
restriction period are treated as compensation income and therefore are taxed
as ordinary income to the participant and are deductible by the Company. If the
participant holds the stock for more than one year after the restrictions
lapse, any gain realized upon a taxable sale or exchange of the stock will be
long-term capital gain. The Company receives no additional deduction at the
time of disposition of the stock by the participant.

The participant may, under Section 83(b) of the Code, elect to report the
current fair market value of restricted stock as ordinary income in the year
the award is made, even though the stock is subject to restrictions. In such a
case, the Company will receive an immediate tax deduction for such fair market
value of the shares in the year of grant, but will receive no deduction for any
subsequent appreciation during or after the restriction period. In addition,
dividends paid during or after the restriction period would be treated as
dividends to the participant and therefore would not be deductible by the
Company. If a Section 83(b) election is made, any appreciation in the value of
the stock after the date of grant will not be recognized as capital gain by the
participant until such time as the participant disposes of the stock in a
taxable transaction. Any capital gain then realized will be long-term capital
gain if the participant has held the stock for at least one year from the date
of grant. If the participant forfeits the stock (i.e., because he has not met
the requirements for lapse of restrictions), the participant will receive no
refund or deduction on account of taxes paid in the year of grant as a result
of the Section 83(b) election.

The grant of an SAR has no tax consequences to the Company or the
participant. To the extent that an SAR is exercised, the amount paid to the
participant will be taxed to him as ordinary income, and the Company will
receive a corresponding deduction at the same time.

With respect to other awards granted under the Stock Incentive Plan that
are settled either in cash or in stock or other property that is either
transferable or not subject to substantial risk of forfeiture, the participant
must recognize ordinary income equal to the cash or the fair market value of
shares or other property received; the Company will be entitled to a deduction
for the same amount. With respect to awards that are settled in stock or other
property that is restricted as to transferability and subject to substantial
risk of forfeiture, the participant must recognize ordinary income equal to the
fair market value of the shares or other property received at the first time
the shares or other property become transferable or not subject to substantial
risk of forfeiture, whichever occurs earlier. The Company will be entitled to a
deduction for the same amount. A participant who makes an election under
Section 83(b) of the Code will be taxed on the excess of the fair market value
at exercise over the purchase price. Special tax rules may apply to officers
and directors who are not employees of the Company who are subject to Section
16 of the Exchange Act.

GENERAL INFORMATION RELATING
TO THE BOARD OF DIRECTORS

The Company's Board of Directors met ten times during fiscal year ended
June 30, 1997 and acted three times by unanimous written consent.

COMMITTEES OF THE BOARD

The Company's Board of Directors has a Compensation and Stock Option
Committee and an Audit Committee. The Company's Compensation and Stock Option
Committee consists exclusively of directors of the Company who are not
executive officers of the Company. The Compensation and Stock Option Committee
is responsible for setting and approving the salaries, bonuses and other
compensation for the Company's executive officers, establishing compensation
programs, and determining the amounts and conditions of all grants of awards
under the Company's Stock Incentive

8
<PAGE>

Plan. During the fiscal year ended June 30, 1997, the Compensation and Stock
Option Committee consisted of Mr. James (Chairman), Mr. Maquire and Mr.
Reiswig. The Compensation and Stock Option Committee held three meetings during
the fiscal year ended June 30, 1997 and acted twice by unanimous written
consent.

The Company's Audit Committee consists exclusively of members of the Board
of Directors who are not executive officers of the Company. The Audit Committee
of the Board of Directors recommends to the Board of Directors the independent
accountants to be nominated for selection by the Company's shareholders,
reviews the scope of the accountants' engagement, including the remuneration to
be paid, and reviews the independence of the accountants on a periodic basis.
The Audit Committee, with the assistance of the Company's Chief Financial
Officer and other appropriate personnel, reviews the Company's annual financial
statements and the independent auditor's report, including significant
reporting or operational issues; corporate policies and procedures as they
relate to accounting and financial reporting and financial controls; litigation
in which the Company is a party; and use by the Company's executive officers of
expense accounts and other non-monetary perquisites, if any. The Audit
Committee may direct the Company's legal counsel, independent auditors and
internal audit staff to inquire into and report to it on any matter having to
do with the Company's accounting or financial procedures or reporting. During
the fiscal year ended June 30, 1997, the members of the Audit Committee were
Mr. James (Chairman), Mr. Maguire and Mr. Rifenburgh. The Audit Committee held
one meeting during the 1997 fiscal year and two more shortly after the
completion of the 1997 fiscal year-end audit to receive the audit report and
review with the Company's independent accountants the results of the audit and
certain other related matters.

As of June 30, 1997, the Company did not have a standing nominating
committee of the Board of Directors or a committee performing similar
functions.

EXECUTIVE OFFICERS

Certain biographical information concerning the Company's executive
officers is presented below.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
Robert L. Carberry(1) ...... 54 Chairman of the Board of Directors, President, and
Chief Executive Officer
Patrick O. Wheeler ......... 38 Vice President North American Sales, acting Chief
Financial Officer
Katherine K. Hutchison ...... 39 Vice President and General Manager, TradeWave
Corporation
Robert Lawten ............... 50 Vice President Marketing
Bradley C. Lesher ............ 61 Vice President International Operations
Thomas Patterson(2) ......... 37 Corporate Vice President and Senior Vice President
TradeWave Corporation
Robert F. Perks ............ 53 Vice President North American Operations
Rick A. Siebenaler ......... 34 Vice President Software Development
</TABLE>
- ----------
(1) For biographical information on Mr.Carberry, see "Election of
Directors-Continuing Directors."
(2) Mr. Patterson joined the Company following the fiscal year ended June 30,
1997.

PATRICK O. WHEELER. Mr. Wheeler was appointed Vice President North
American Sales in July 1997. Prior, he was Chief Financial Officer and Vice
President Finance since April 1996 and he remains the Company's acting Chief
Financial Officer. Mr. Wheeler previously held various financial and sales
positions of increasing responsibility with the Company including Midwest
Regional Sales Manager, Director of Accounting and Senior Account Manager.
Prior to joining the Company in 1984, Mr. Wheeler was employed by Price
Waterhouse L.L.P.

9
<PAGE>

KATHERINE K. HUTCHISON. Ms. Hutchison was appointed Executive Vice
President and General Manager of TradeWave Corporation, CyberGuard's electronic
commerce subsidiary, in April 1997. Prior to this, Ms. Hutchison held various
positions of increasing responsibility with the Company, including Vice
President of Business Development and Director of Marketing. Ms. Hutchison
joined the Company in 1993 from Texas Instruments where she spent 11 years in
various management positions in the Information Technology Group. She also
served as an engineer with the Optical Technology Division of Perkin-Elmer
Corporation.

ROBERT LAWTEN. Mr. Lawten joined CyberGuard Corporation as Vice President
Marketing in April 1997. He was formerly the Director of Entertainment on
Demand Market Development for Viacom's Blockbuster Entertainment Group. Prior
to this, Mr. Lawten served as vice president and managing director of a
semiconductor unit of Western Digital Corporation. He was previously employed
with IBM for 23 years, primarily in marketing and sales management positions.

BRADLEY C. LESHER. Mr. Lesher joined CyberGuard in July 1994 from IBM
where he had served as General Manager of the Latin American Caribbean
operations since November 1991. From 1988 to 1991 Mr. Lesher served as Director
of General Business Systems in IBM's Latin American Headquarters Operation. In
this capacity, Mr. Lesher was responsible for developing and supporting a
distribution channel network of over 200 dealer and agent organizations. He
joined IBM in 1957 and has over 30 years of diverse international management
experience including 19 years of living abroad.

THOMAS PATTERSON. Mr. Patterson joined CyberGuard Corporation in July
1997 as Corporate Vice President and Senior Vice President of TradeWave
Corporation. He was formerly the chief strategist for electronic commerce at
IBM. Prior to joining IBM, Mr. Patterson was Information Security Director for
MicroElectronics and Computer Technology Corp. (MCC), leading the development
of secure web products and the first certificate authority. Prior to MCC, he
led the development and marketing of a line of PC and network security products
for Centel Corp. With over 15 years of experience in information security and
electronic commerce, Mr. Patterson has advised the White House, U.S. Congress,
National Information Infrastructure Committee, Departments of Defense,
Treasury, Energy and Commerce, and scores of large businesses and organizations
around the world on electronic commerce issues.

ROBERT F. PERKS. Mr. Perks was appointed Vice President North American
Operations for CyberGuard in July 1996, and is responsible for worldwide
customer support, government program sales and integration, and manufacturing.
In the prior year, he served as Director of North American Sales for the
Company. Mr. Perks was employed by Computer Products' Real Time Products
Corporation from 1992 to 1995 as Director, Customer Service. He was employed by
Harris Corporation from 1977 to 1992.

RICK A. SIEBENALER. Mr. Siebenaler was appointed Vice President of
Software Development for CyberGuard Corporation in April 1996. He also serves
as CyberGuard's Chief Security Technologist. From 1994 to 1996, Mr. Siebenaler
served as Director of Software Development for the Company, and from 1991 to
1994, he served as Chief Engineer. Mr. Siebenaler was previously employed by
the National Security Agency (NSA), an agency within the US Department of
Defense, as chief scientist for the Division of Standards and Guidelines.

10
<PAGE>

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth certain information with respect to the
annual and long-term compensation of the Company's Chief Executive Officer and
certain of the Company's other executive officers for the fiscal year ended
June 30, 1997, the nine months ended June 30, 1996, and the fiscal year ended
September 30, 1995. In July 1996, the Company's Board of Directors voted to
change the Company's fiscal year end from September 30 to June 30. Accordingly,
the table below sets forth with respect to fiscal year 1996 only such
compensation as was received by the executive officers named during the nine
months ended June 30, 1996.

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
- -------------------------------------------------------------------------------- ----------------------
OTHER ALL OTHER
ANNUAL RESTRICTED COMPEN-
FISCAL COMPEN- STOCK OPTIONS SATION(2)
NAME AND PRINCIPAL POSITION YEAR(1) SALARY($) BONUS($) SATION ($) AWARD(S)($) (#) ($)
- ------------------------------- --------- ----------- ---------- --------------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Carberry ......... 1997 192,300 103,125 -- -- 100,000 9,500
Chairman, President 1996 39,229 -- -- -- 339,000 --
and Chief Executive
Officer
Patrick O. Wheeler ......... 1997 120,687 47,000 -- -- -- 7,653
Vice President North 1996 94,128 -- -- -- 75,000 5,676
American Sales 1995 120,016 10,000 -- -- 3,000 7,132
Katherine K. Hutchison ...... 1997 91,667 38,250 -- -- 15,000 7,094
Vice President and 1996 87,617 -- -- -- 60,000 5,257
General Manager, Trade 1995 75,000 -- -- -- 12,600 4,492
Wave Corporation
Bradley C. Lesher ............ 1997 111,060 111,250 -- -- -- 9,750
Vice President 1996 88,628 25,000 -- -- 39,000 5,318
International Operations 1995 110,001 12,500 -- -- 60,000 1,015
Robert F. Perks ............ 1997 90,000 38,250 34,961(3) -- -- 5,400
Vice President North 1996 81,499 -- -- -- 60,000 4,890
American Operations
Rick A. Siebenaler ......... 1997 88,177 30,600 -- -- -- 5,400
Vice President Software 1996 86,687 -- -- -- 60,600 5,400
Development 1995 75,302 -- -- -- 10,701 4,518
</TABLE>
- ----------
(1) For the fiscal year ended June 30, 1997, the nine months ended June 30,
1996 and the fiscal year ended September 30, 1995. Bonuses for the fiscal
year ended June 30, 1997 and the nine months ended June 30, 1996 were
accrued during such periods but were paid in August 1997 and 1996,
respectively.
(2) Amounts reported represent contributions to the Company's Retirement Plan.
(3) Represents sales commissions

11
<PAGE>

OPTION GRANTS IN THE FISCAL YEAR ENDED JUNE 30, 1997

The following table shows all grants during the fiscal year ended June 30,
1997 of stock options under the Company's Stock Incentive Plan (the "Stock
Incentive Plan") to the executive officers named

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM(1)
OPTION IN FISCAL PRICE EXPIRATION ----------------------
NAME GRANTED (#) YEAR (%) ($/SHARE) DATE 5%($) 10%($)
- ---------------------------- ------------- -------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Carberry ...... 100,000 24.76% $9.25 7/24/06 $581,728 $1,474,212
Katherine K. Hutchison ... 15,000 3.71% $9.375 4/08/02 $ 38,852 $ 85,853
</TABLE>
- ----------
(1) The potential realizable values set forth under these columns result from
calculations assuming 5% and 10% annualized stock price growth rates from
grant dates to expiration dates as set by the Commission and are not
intended to forecast future price appreciation of the Company's Common
Stock based upon growth at these prescribed rates. The Company is not
aware of any formula that will determine with reasonable accuracy a
present value based on future unknown factors. Actual gains, if any, on
stock option exercises are dependent on the future performance of the
Company. There can be no assurance that the amounts reflected in this
table will be achieved.

Following the fiscal year end, the Company issued options to purchase
Common Stock to the following executives in the following amounts (all such
options are exercisable at the fair market value on the date of the grant):
Patrick Wheeler--25,000; Robert Lawten--50,000; Bradley Lesher--25,000; and
Thomas Patterson--100,000.

OPTION EXERCISES AND PERIOD-END VALUES

The following table provides information as to the number and value of
unexercised options to purchase the Company's Common Stock held by the named
executive officers at June 30, 1997, based on a closing sale price of $8.875
per share on June 30, 1997. None of the named executive officers exercised any
options during the fiscal year ended June 30, 1997.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#) AT FISCAL YEAR-END
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ------------------------------- --------------------------- ------------------------------
<S> <C> <C>
Robert L. Carberry ......... 113,000/326,000 -- / --
Patrick O. Wheeler ......... 28,000/ 50,000 103,260/ 168,750
Katherine K. Hutchison ...... 32,600/ 55,000 146,139/ 135,000
Bradley C. Lesher ............ 79,000/ 45,000 448,935/ 67,500
Robert F. Perks ............ 20,000/ 40,000 67,500/ 135,000
Rick A. Siebenaler ......... 31,301/ 40,000 137,236/ 135,000
</TABLE>
- ----------
(1) Based on the difference between the closing price of the Company's common
stock on June 30, 1997 ($8.875) and the exercise price of the options. On
October 31, 1997, the closing price of the Company's common stock was
$8.25 per share.

12
<PAGE>

COMPENSATION PLANS

The Company and Mr. Carberry entered into an agreement dated as of March
5, 1996 (the "Carberry Employment Agreement"), effective as of April 12, 1996.
The Carberry Employment Agreement provides for the employment of Mr. Carberry
as Chairman of the Board, President and Chief Executive Officer of the Company
at an annual base salary of $200,000, $225,000 and $250,000 for the first,
second and third twelve-month periods, respectively, of the Carberry Employment
Agreement. The Carberry Employment Agreement provides, as of March 5, 1996, for
Mr. Carberry to be granted options to purchase 339,000 shares of the Company's
Common Stock at an exercise price of $10.67 per share and becoming exercisable
in three equal installments of 113,000 on each of March 5, 1997, 1998, and
1999. The Carberry Employment Agreement provides for Mr. Carberry to have a
target bonus for the achievement of certain performance objectives to be
established by the Company of 50% of his annual base salary.

The Company may terminate the Carberry Employment Agreement for "cause."
The Carberry Employment Agreement defines "cause" as willful acts against the
Company intended to enrich Mr. Carberry at the expense of the Company, the
conviction of Mr. Carberry for a felony involving moral turpitude, willful and
gross neglect by Mr. Carberry of his duties or the intentional failure of Mr.
Carberry to observe policies of the Company's Board of Directors that have or
will have a material adverse effect on the Company. If the Carberry Employment
Agreement is terminated by the Company (other than for "cause" or the death,
disability or normal retirement of Mr. Carberry) or by Mr. Carberry for "good
reason," Mr. Carberry will receive severance pay of two times his annual base
salary and two times his target bonus as in effect immediately prior to
termination, and all of Mr. Carberry's stock options and stock appreciation
rights will be exercisable at termination. If Mr. Carberry's employment with
the Company is terminated within one year following a "change in control" of
the Company (other than for "cause" or the death, disability or normal
retirement of Mr. Carberry) or by Mr. Carberry for "good reason," Mr. Carberry
will receive severance pay of three times his annual base salary and three
times his target bonus as in effect immediately prior to termination, and all
of Mr. Carberry's stock options and stock appreciation rights will become
exercisable at termination. If Mr. Carberry's employment is terminated at any
time by the Company for "cause" or by Mr. Carberry other than for "good
reason," the Carberry Employment Agreement prohibits Mr. Carberry from engaging
in any business competitive with the business of the Company for a one-year
period following the effective date of termination. If Mr. Carberry's
employment is terminated by the Company (other than for "cause" or the death,
disability or normal retirement of Mr. Carberry) or by Mr. Carberry for "good
reason," other than within one year of a "change in control," the Carberry
Employment Agreement prohibits Mr. Carberry from engaging in any business
competitive with the business of the Company for a two-year period following
the effective date of termination.

In addition to the Carberry Employment Agreement, the Company has
employment agreements with its other executive officers. Such employment
agreements, other than the Carberry Employment Agreement, are referred to
herein as the "Executive Employment Agreements." The base salaries under such
Employment Agreements are $125,000 for Mr. Wheeler, $115,000 for Ms. Hutchison,
$100,000 for Mr. Lawten, $115,000 for Mr. Lesher, $125,000 for Mr. Patterson,
$100,000 for Mr. Perks, and $100,000 for Mr. Siebenaler. Certain of the
Executive Employment Agreements also provide or are expected to provide, as the
case may be, for bonuses based on certain Company performance targets in
initial amounts based upon the following percentages of base salary: Mr.
Wheeler--50%; Ms. Hutchison--50%; Mr. Lawten--50%; Mr. Lesher--50%; Mr.
Patterson--40%; Mr. Perks--50%; and Mr. Siebenaler--40%.

13
<PAGE>

multiple of such employee's base salary, target bonus under the Company's bonus
program, and any performance award payable under the Stock Incentive Plan or
similar plan, as well as any other benefits which any such employee would be
entitled to where termination was without "cause" or with "good reason" by
employee.

The Executive Employment Agreements may be terminated by either the
Company or the respective executive officer at any time. In the event the
executive officer resigns without "good reason" or is terminated for "cause,"
compensation under the employment agreements will end. In the event any such
employment agreement is terminated by the Company without "cause" or the
executive officer resigns for "good reason," the terminated executive officer
will receive, among other things, severance compensation equal to a specified
multiple of such employee's annual base salary and target bonus under the
Company's bonus program. In addition, upon termination without "cause" or
resignation with "good reason," all non-statutory options and stock
appreciation rights of all such executive officers will be immediately
exercisable upon termination of employment and certain other awards previously
made under any of the Company's compensation plans or programs and previously
not paid will immediately vest on the date of such termination. Termination by
the Company or by the executive (except for such termination occurring within
three years after a change of control gives rise to certain noncompetition and
nonsolicitation provisions.

The Executive Employment Agreements contain severance provisions that
apply if the executive officer's employment is terminated within three years
after the occurrence of a change of control. In the event that any such
employee is terminated by the Company within three years following the
occurrence of a change in control or by such employee for "good reason", such
employee will be entitled to receive on the date of such termination an amount
equal to, among other things, a specific multiple of such employee's base
salary, target bonus under the Company's bonus program, and any performance
award payable under the Stock Incentive Plan or similar plan, as well as any
other benefits which any such employee would be entitled to where termination
was without "cause" or with "good reason" by employee.

STOCK INCENTIVE PLAN. All salaried employees are eligible to participate
in the Stock Incentive Plan. The Stock incentive Plan is described in more
detail above under the heading "Amendment to the Stock Incentive Plan." At the
Annual Meeting, the Company's shareholders will consider and vote upon an
amendment to the Stock Incentive Plan to increase the number of shares
available for grant under the plan.

DIRECTOR COMPENSATION. Upon joining the Board of Directors, all
non-employee directors receive 6,000 options to purchase Common Stock of the
Company. In addition, on the date of each annual meeting of shareholders, each
director who is not an employee of the Company is automatically granted an
option to purchase 1,500 shares of common stock of the Company (this number
will be increased to 3,000 if the Stock Incentive Plan Amendment is approved).
All such options are non-statutory stock options and priced at 100% of the fair
market value on the date of grant. Neither the Board of Directors nor any
committee of the Board of Directors has any discretion with respect to options
granted to non-employee directors pursuant to the Stock Incentive Plan.

In addition to grants pursuant to the Stock Incentive Plan, non-employee
directors of the Company receive a $15,000 annual retainer payable upon
election as a director of the Company at an annual meeting of shareholders (and
a pro rata amount to any non-employee who becomes a director of the Company
thereafter, payable at the time of becoming a director) and $1,000 per Board of
Directors meeting attended. In addition, directors receive $750 ($1,000 for the
Chairman) for attendance at any meeting of a committee of the Board of
Directors, payable at any such meeting, except for committee meetings held on
the same day as Board of Directors meetings. Directors are also reimbursed for
travel and lodging expenses in connection with Board of Directors and committee
meetings.

14
<PAGE>

COMPENSATION AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION

During the fiscal year ended June 30, 1997, the Compensation and Stock
Option Committee of the Company's Board of Directors consisted of Mr. James,
Mr. Maguire and Mr. Reiswig, none of whom are executive officers of the
Company. The Compensation and Stock Option Committee is responsible for setting
and approving the salaries, bonuses and other compensation for the Company's
executive officers, establishing compensation programs, and determining the
amounts and conditions of all grants of awards under the Stock Incentive Plan.

The Compensation and Stock Option Committee Objectives. The Company's
compensation programs are designed by the Compensation Committee to achieve
four fundamental objectives: (1) to provide competitive salary levels and
compensation incentives that attract and retain qualified executives; (2) to
motivate executives to achieve specific strategic short-term and long-term
objectives of the Company; (3) to recognize individual performances and
achievements as well as the performance of the Company relative to its peers;
and (4) to link the interests of senior management with the long-term interests
of the Company's stockholders through compensation opportunities in the form of
stock ownership. At present, these objectives are met through a program
comprised of salary, annual cash bonus, which is directly tied to the Company's
operating performance, stock price or similar criteria, and long-term incentive
opportunities in the form of stock options and performance stock.

EXECUTIVE SALARIES. Base salaries for management employees are determined
initially by evaluating the responsibilities of the position, the experience of
the individual, internal comparability considerations, as appropriate, the
competition in the marketplace for management talent, and the compensation
practices among industry competitors and for public companies of the size of
the Company. Salary adjustments are determined and normally made at 12-month
intervals. During the fiscal year ended June 30, 1997, the Company engaged an
independent consultant to advise the Company as to whether its executives'
salaries were comparable to competing employers. Based on the consultant's
report, the Company increased the salaries of Messrs. Lawten, Perks and
Siebenaler by $10,000 each to align these officers' compensation with industry
standards.

ANNUAL BONUSES. The Company offers a bonus program for executives
designed to provide year-end incentive bonuses to executives who contributed
materially to the Company's success during the most recently completed fiscal
year. The bonus program is intended to enable the Company executives to
participate in the Company's success as well as to provide incentives for
future performance. In determining amounts to be awarded as bonuses, the
Compensation and Stock Option Committee takes into account a number of factors,
including the Company's gross revenue, net income, cash flow, the successful
development and marketing of new products and individual performance and
achievement.

During the fiscal year ended June 30, 1997, the Company approved a bonus
for Mr. Carberry in the amount of 50% of his annual salary and the granting of
options to purchase 100,000 shares of common stock of the Company. The bonus
and stock option grant were based on Mr. Carberry's meeting the Company's
revenue, income and production targets and in providing the organization and
strategy for enhancing shareholder value in the future.

LONG TERM INCENTIVES. Under the Stock Incentive Plan, the Compensation
and Stock Option Committee may grant to certain employees of the Company a
variety of long-term incentives, including non-qualified stock options,
incentive stock options, stock appreciation rights, exercise payment rights,
grants of stock or performance awards.

15
<PAGE>

During the fiscal year ended June 30, 1997, the Company Compensation
Committee approved grants of stock options that had an exercise price of not
less than the fair market value of the underlying stock on the date of the
grant. The stock options become exercisable in equal annual installments over
three years. Such stock options were granted following the end of the fiscal
year.

Submitted by the Compensation and Stock Option Committee:
C. SHELTON JAMES, CHAIRMAN
MICHAEL F. MAQUIRE
LELAND R. REISWIG, JR.

Compensation Committee Interlocks and Insider Participation

During the fiscal year ended June 30, 1997, Robert L. Carberry, the
Company's Chairman, President and Chief Executive Officer, participated in
deliberations of the Compensation and Stock Option Committee, as requested by
such Committee, concerning executive officer compensation.

OTHER INFORMATION REGARDING THE BOARD OF DIRECTORS

Brian Foremny, who until June 1997 was a member of the Board of Directors
and serves as the Company's General Counsel, was until November 1996 a partner
at the law firm of Holland & Knight LLP, which serves as the Company's outside
legal counsel.

David Proctor, who serves as a member of the Board of Directors of the
Company, also performs certain consulting services for the Company. As
compensation for such services, during the fiscal year ended June 30, 1997, Mr.
Proctor received (in addition to a daily rate for services performed) an option
to purchase 15,000 shares of Common Stock at a price of $8.875 per share.

16
<PAGE>

COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following sets forth, as of November 3, 1997 information with respect
to the beneficial ownership of the Company's Common Stock by (i) each of the
Company's named executive officers; (ii) each director of the Company; and
(iii) all directors and executive officers as a group. Unless otherwise
indicated, each of the shareholders named in this table: (a) has sole voting
and investment power with respect to all shares of Common Stock beneficially
owned and (b) has the same address as the Company. The Company is not aware of
any person who beneficially owns more than 5% of the outstanding shares of the
Company's Common Stock.

<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME/ADDRESS SHARES OF CLASS
- ----------------------------------------------------------- ----------- ----------
<S> <C> <C>
Robert L. Carberry(1)(2) ................................. 115,500 1.42%
Patrick O. Wheeler(2) .................................... 28,000 *
Katherine K. Hutchinson(2) .............................. 32,900 * *
Bradley C. Lesher(2) .................................... 80,596 1.00%
Robert F. Perks(2) ....................................... 20,000 *
Rick A. Siebenaler(2) .................................... 31,301 *
C. Shelton James(2)(3) .................................... 22,500 *
Michael F. Maguire(2) .................................... 22,500 *
David R. Proctor(2) ....................................... 21,000 *
Leland R. Reiswig, Jr.(2) ................................. 8,500 *
Richard P. Rifenburgh(2) ................................. 7,500 *
All directors and officers as a group (13 persons) ...... 394,297 4.48%
</TABLE>
- ----------
* Less than 1%
(1) Does not include options that are not currently exercisable to purchase an
additional 326,000 shares of Common Stock
(2) Includes options that are currently exercisable to purchase Common Stock in
the following amounts: Mr. Carberry--113,000 shares; Mr. Wheeler--28,000
shares; Ms. Hutchison--32,600 shares; Mr. Lesher--79,000 shares; Mr.
Perks--20,000 shares; Mr. Siebenaler--31,301 shares; Mr. James--22,500
shares; and Mr. Maguire--22,500 shares; Mr. Proctor--21,000 shares; Mr.
Reiswig--7,500 shares; and Mr. Rifenburgh--7,500 shares.
(3) Does not include 139,100 shares that are deemed beneficially owned by Mr.
James as a result of his serving as an executive officer and director of
various investment limited partnerships.

17
<PAGE>

PERFORMANCE GRAPH

The following graph shows the Company's cumulative total return to
shareholders, based on an initial investment of $100, compared to Standard &
Poor's 500 Index and the Self-determined Peer Group (defined below) over the
period from October 10, 1994, the first day that the Company was traded
publicly, and the end of the fiscal year ended June 30, 1997. Total shareholder
return assumes dividend reinvestment. The stock performance shown on the
following graph is not indicative of future price performance. The
Self-determined Peer Group is comprised of Digital Equipment Corporation,
Secure Computing Corporation, Raptor Systems, Inc. and Security Dynamics
Technology, Inc.

COMPARISON OF ONE-YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, S&P 500 AND PEER GROUP

[GRAPHIC OMITTED]

10/10/94 9/30/95 6/30/96(1) 6/30/97
- ----------------------------------------------------------------------
CyberGuard Corporation 100 218.02 668.6 343.99
Peer Group(2) 100 163.68 178.69 138.69
S & P 500 100 130.57 152.42 205.3

- ----------------
(1) During fiscal year 1995, the Company changed its fiscal year end to
September 30. During fiscal year 1996, the Company changed its fiscal year
end to June 30.
(2) Shares of Secure Computing Corporation were first publicly traded on
November 17, 1995. Shares of Raptor Systems, Inc. were first publicly
traded on February 2, 1996.

18
<PAGE>

APPROVAL OF
INDEPENDENT CERTIFIED ACCOUNTANTS

The Board of Directors has selected KPMG Peat Marwick LLP to serve as the
Company's principal accountants for the year ending June 30, 1997. In the event
the appointment of KPMG Peat Marwick LLP for 1997 is ratified, it is expected
that KPMG Peat Marwick LLP will also audit the books and accounts of the
Company's Tradewave Corporation subsidiary at the close of their current fiscal
years. A representative of KPMG Peat Marwick LLP will be present at the Annual
Meeting and will have the opportunity to make a statement, if such person
desires to do so, and to respond to appropriate questions.

The proposal to ratify the appointment of KPMG Peat Marwick LLP will be
approved by the shareholders if it receives the affirmative vote of a majority
of the votes cast by shareholders entitled to vote on the proposal. If a proxy
card is specifically marked as abstaining from voting on the proposal, the
shares represented thereby will not be counted as having been voted for or
against the proposal. Unless otherwise instructed, the persons named on the
proxy card intend to vote shares as to which a proxy is received in favor of
the proposal.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF
THE SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS.

CHANGE IN RIGHTS AGENT

The Company is party to a Rights Agreement dated September 29, 1994 with
KeyCorp Shareholder Services, Inc. (f/k/a Society National Bank) ("KeyCorp")
pursuant to which KeyCorp has agreed to act as Rights Agent with respect to the
Rights to purchase stock of the Company that are issuable under certain
circumstances as described in the Rights Agreement. KeyCorp formerly was the
transfer agent for the Company's Common Stock. The Company's current transfer
agent, American Stock Transfer & Trust Company ("AST"), has agreed to serve
also as the Rights Agent under the Rights Agreement. Accordingly, the Company
hereby gives notice that it intends to amend the Rights Agreement pursuant to
the amendment provisions set forth therein to substitute AST for KeyCorp as the
Rights Agent thereunder.

OTHER MATTERS

Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, shareholders may present proper proposals for inclusion in the
Company's proxy statement and for consideration at the next Annual Meeting of
Shareholders by submitting such proposals to the Company in a timely manner. In
order to be so included for the 1998 Annual Meeting, shareholder proposals must
be received by the Company no later than August 6, 1998 and must otherwise
comply with the requirements of Rule 14a-8.

Under federal securities laws, the Company's directors, certain officers,
and persons holding more than 10% of the Common Stock of the Company are
required to report, within specified monthly and annual due dates, their
initial ownership and all subsequent acquisitions, dispositions or other
transfers of interest in Common Stock, if and to the extent reportable events
occur which require reporting of such due dates. The Company is required to
describe in this Proxy Statement whether it has knowledge that any person
required to file such report may have failed to do so in a timely manner. To
the Company's knowledge, all such filing requirements of the Company's
directors, officers and each beneficial owner of more than 10% of the Common
Stock were satisfied in full during the fiscal year ended June 30, 1997. The
foregoing is based upon reports furnished to the Company and written
representations and information provided to the Company by the persons required
to make such filings.

Shareholders may obtain a copy (without exhibits) of the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997 as filed with the
Securities and Exchange Commission without charge by writing to: Investor
Relations, CyberGuard Corporation, 2000 West Commercial Boulevard, Suite 200,
Fort Lauderdale, Florida 33309.

19
<PAGE>

CYBERGUARD CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING DECEMBER 4, 1997
PROXY

The undersigned stockholder hereby appoints Robert L. Carberry, Patrick O.
Wheeler, and Brian Foremny, or any of them, attorneys and provides for the
undersigned with power of substitution in each to act for and to vote, as
designated on the reverse, with the same force and effect as the undersigned,
all shares of CyberGuard Corporation Common Stock standing in the name of the
undersigned at the Annual Meeting of Shareholders to be held at the Double Tree
Guest Suites, 555 N.W. 62nd Street, Fort Lauderdale, Florida at 10:00 a.m. on
December 4, 1997 and at any adjournments thereof.

WHEN PROPERTY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY
WILL GRANT AUTHORITY TO THE PROXY HOLDERS TO VOTE ON BEHALF OF THE UNDERSIGNED
SHAREHOLDER AND WILL BE VOTED "FOR" THE NOMINEES FOR DIRECTOR AND "FOR" THE
OTHER PROPOSALS.

IN THEIR DISCRETION, THE PROXY HOLDERS ARE AUTHORIZED TO VOTE ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF. THE
PROXY WILL BE VOTED IN ACCORDANCE WITH THE PROXY HOLDERS' BEST JUDGMENT AS TO
ANY OTHER MATTER.

(CONTINUED AND TO BE SIGNED ON OTHER SIDE.)
<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
[x] PLEASEMARKE YOUR VOTES AS IN THIS EXAMPLE

FOR WITHHELD FOR AGAINST ABSTAIN
1. ELECTION OF NOMINEES: C. SHELTON JAMES 2. APPROVAL OF AMENDMENT TO STOCK
DIRECTORS. [ ] [ ] RICHARD P. RIFENBURGH INCENTIVE PLAN [ ] [ ] [ ]

FOR ALL NOMINEES EXCEPT AS MARKED BELOW
3. RATIFY KPMG PEAT MARWICK LLP AS
INDEPENDENT AUDITORS FOR FISCAL
______________________________________ YEAR 1996 [ ] [ ] [ ]

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]

MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]

SIGNATURE _________________________ SIGNATURE ____________________________ DATED: _______, 1997

IMPORTANT: PLEASE MARK, DATE AND SIGN EXACTLY AS YOUR NAME APPEARS HEREON, JOINT OWNERS SHOULD EACH SIGN. IF THE SIGNER IS A
CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY A DULY AUTHORIZED OFFICER. EXECUTORS, ADMINISTRATORS, TRUSTEES ETC.
SHOULD GIVE FULL TITLE AS SUCH.
</TABLE>