CYBERGUARD CORP, DEF 14A, 1999-10-28

CYBERGUARD CORP
DEF 14A, 1999-10-28
ELECTRONIC COMPUTERS

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<PAGE> 1

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:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>

CyberGuard Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

CyberGuard Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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:

[ ] Fee paid previously with preliminary materials:

[ ] 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:
<PAGE> 2

[CYBERGUARD LETTERHEAD]

November 5, 1999

Dear CyberGuard Corporation Shareholder:

You are cordially invited to attend the 1999 Annual Meeting of
Shareholders to be held on December 8, 1999, at 10:00 a.m., at the Courtyard by
Marriott at Cypress Creek, 2440 W. Cypress Creek Road, 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/ DAVID R. PROCTOR
-----------------------------------------------
David R. Proctor
Chairman, President and Chief Executive Officer

<PAGE> 3

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

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

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 8, 1999

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

The Annual Meeting of Shareholders (the "Annual Meeting") of
CyberGuard Corporation, a Florida corporation (the "Company"), will be held on
December 8, 1999, at 10:00 a.m., local time, at the Courtyard by Marriott at
Cypress Creek, 2440 W. Cypress Creek Road, Fort Lauderdale, Florida, 33309, for
the following purposes:

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

2. To consider and vote upon an amendment to CyberGuard's Amended
and Restated Articles of Incorporation to increase the number of
shares of Common Stock authorized for issuance from 20,000,000 to
50,000,000 shares of Common Stock; and

3. To ratify the appointment of Grant Thornton LLP as the Company's
indepdendent public accountants for the fiscal year ending June
30, 2000.

4. To transact such other business as may properly come before the
Annual Meeting and any and all 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,

TERRENCE A. ZIELINSKI
Chief Financial Officer

Fort Lauderdale, Florida
November 5, 1999

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> 4
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 1999
Annual Meeting of Shareholders (together with any and all adjournments and
postponements thereof, the "Annual Meeting") to be held on December 8, 1999, at
10:00 a.m., local time, at the Courtyard by Marriott at Cypress Creek, 2440 W.
Cypress Creek Road, 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, 1999.

The Board of Directors has fixed the close of business on October 25,
1999 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
9,134,235 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 nominee 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> 5
PROPOSAL NUMBER 1
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 composed 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 four of the Company's
directors expire at the Annual Meeting. The term of the remaining class of
directors will expire at the 2000 Annual Meeting of Shareholders.

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.
Because there was no Annual Meeting in connection with the Company's fiscal year
ended June 30, 1998, at this year's Annual Meeting, two of the directors will be
elected for a two-year term. 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.

Three directors are nominees for election this year. Two directors, Mr.
Proctor and Mr. Manning, are nominees for a two-year term expiring at the 2001
Annual Meeting of Shareholders, and one director, Mr. Scott, is a nominee for a
three-year term expiring at the 2002 Annual Meeting of Shareholders. Leland R.
Reiswig, Jr. has advised the Company that he will retire from the Board
effective on the date of the Annual Meeting, and the Board may fill that vacancy
at a later time. Directors will be elected by a plurality of the votes cast by
the shares of Common Stock represented in person or by proxy at the Annual
Meeting. The proxies named in the proxy card intend to vote for the election of
the four 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 nominees. 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 with regard to 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-(TERM EXPIRING AT THE 2001 ANNUAL MEETING OF SHAREHOLDERS)

DAVID L. MANNING. Age 49. Director since September 1999. Mr. Manning
was Commissioner of Finance and Administration for the State of Tennessee from
1987 to 1995 where he managed the State's finances and information technology
services. In 1995, he joined Columbia/HCA Healthcare Corporation and became
Senior Vice President during 1997 with responsibilities for healthcare data
analysis and the company's relationships with state governments. After leaving
that position in early 1998, Mr. Manning was a consultant in the healthcare
industry. He currently serves as Director of Finance for the Metropolitan
Government of Nashville and Davidson County. Mr. Manning was appointed to the
CyberGuard Board of Directors in September 1999 on the recommendation of
Fernwood Partners II, LLC, upon completion of the "Fernwood Financing" (as
defined below).

DAVID R. PROCTOR. Age 59. Director since 1997. Mr. Proctor was
appointed Chairman of the Board of Directors and Chief Executive Officer of the
Company in March 1999. He previously served as President and Chief Operating
Officer of Platinum Software Corporation from May 1994 to December 1995; as Vice
President of the Personal Software Products Division of IBM from April 1993 to
May 1994; as President and Chief Operating Officer of Ashton-Tate from April
1991 to November 1991; and as Executive Vice President of Development for
Ashton-Tate from May 1990 to April 1991. He was a business and technical
consultant for a number of companies from November 1991 to April 1993 and from
January 1996 to December 1998. Prior to 1991, Mr. Proctor spent 23 years with
IBM in several executive capacities.

NOMINEE-(TERM EXPIRING AT THE 2002 ANNUAL MEETING OF SHAREHOLDERS)

WILLIAM G. SCOTT. Age 48. Director since September 1999. Mr. Scott is
a C.P.A., who is currently a business and tax consultant. From April 1997 until
April 1999, Mr. Scott was Vice President of Strategic Resource Solutions, a
division of Carolina Power and Light Corporation, and served as Chief Operating
Officer of their Lighting Division. From December 1991 until April 1997, Mr.
Scott was Chief Financial Officer and later President and member of the board or
directors of Markay Plastics, Inc. Mr. Scott was appointed to the CyberGuard
Board of Directors in September 1999 on the recommendation of Fernwood Partners
II, LLC, upon completion of the Fernwood Financing.

2
<PAGE> 6
CONTINUING DIRECTORS

C. SHELTON JAMES. Age 60. Director since 1994. Mr. James is Chairman
and Chief Executive Officer of Elcotel, Inc., and has served in various
executive capacities for Elcotel since 1991. Elcotel is 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. Mr. James is a member of the Board of
Directors of Elcotel, Inc., Concurrent Computer Corporation, CSPI, Inc.,
Technisource, Inc., DRS Technologies, Inc. and SK Technologies, Inc.

RICHARD P. RIFENBURGH. Age 67. Director since 1996. Mr. Rifenburgh is
Chairman of the Board of Directors of Moval Management Corporation, a privately
held company specializing in restoring companies in financial distress. He is
also a member of the board of directors of Concurrent Computer Corporation and
Chairman of the board of directors of Tristar Corporation (formerly known as
Ross Cosmetics Distribution Centers, Inc.).

3
<PAGE> 7

GENERAL INFORMATION RELATING
TO THE BOARD OF DIRECTORS

The Company's Board of Directors met ten times during fiscal year
ended June 30, 1999.

COMMITTEES OF THE BOARD

The Company's Board of Directors has a Compensation and Stock Option
Committee, an Audit Committee, and an Executive Committee. The Company's
Compensation and Stock Option Committee generally consists of Directors who are
not executive officers of the Company; however, during the fiscal year 1999, Mr.
James, Chairman of the Compensation and Stock Option Committee, served on an
interim basis from August 24, 1998 until March 14, 1999 as Chief Executive
Officer and Chairman of the Board. 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 grants of awards under
the Company's Stock Incentive Plan. During the fiscal year ended June 30, 1999,
the Compensation and Stock Option Committee consisted of C. Shelton James and
Leland R. Reiswig, Jr. The Compensation and Stock Option Committee held two
meetings during the fiscal year ended June 30, 1999.

The Company's Audit Committee generally consists of Directors who are
not executive officers of the Company; however, during the fiscal year 1999, Mr.
James, Chairman of the Audit Committee, served on an interim basis from August
24, 1998 until March 14, 1999 as Chief Executive Officer and Chairman of the
Board. The Audit Committee of the Board of Directors recommends to the Board of
Directors the independent accountants to be engaged by the Company, reviews the
scope of the accountants' engagement, including the remuneration to be paid, and
reviews the independence of the accountants. 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, if necessary, 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, 1999, the members of the Audit Committee were C. Shelton James, David
R. Proctor (until March 15, 1999), and Richard P. Rifenburgh. The Audit
Committee held eleven meetings during the 1999 fiscal year.

In August 1998, concerns arose regarding the Company's financial
reporting. In response, the Board of Directors formed an Executive Committee
composed entirely, at the time of formation, of non-employee directors to
exercise the full powers of the Company's Board of Directors. During the fiscal
year ended June 30, 1999, the members of the Executive Committee were C. Shelton
James (Chairman), Richard P. Rifenburgh, Leland R. Reiswig, Jr., and David R.
Proctor. During the fiscal year ended June 30, 1999, the Executive Committee met
nine times and acted once by unanimous written consent.

As of June 30, 1999, the Company did not have a standing nominating
committee of the Board of Directors nor a committee performing similar
functions.

4
<PAGE> 8

EXECUTIVE OFFICERS

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

Name Age Position
---- --- --------
<S> <C> <C>
David R. Proctor(1) 59 President, Chief Executive Officer and Chairman of
the Board of Directors
Terrence A. Zielinski 57 Chief Financial Officer and Vice President Finance
Frederick O. Hawkes 53 Vice President Worldwide Marketing
Robert E. Gelinas 39 Vice President Sales
Michael G. Wittig 35 Vice President Software Development and Chief Technical Officer

</TABLE>

- --------------
(1) For biographical information on Mr. Proctor, see "Election of
Directors--Nominees."

TERRENCE A. ZIELINSKI, C.P.A. Prior to joining the Company in 1998,
Mr. Zielinski was managing director of Zielinski & Co., P.A., C.P.A., from 1989
through 1998. During his 29 years' experience as a practicing accountant, Mr.
Zielinski has served as chief financial officer and in other executive
capacities for several public companies.

FREDERICK O. HAWKES. Prior to joining the Company in December 1998,
Mr. Hawkes worked as a management consultant from 1997 to 1998. Mr. Hawkes
worked at Elcotel, Inc. from 1993 to 1996 as Vice President of Engineering and
Development and from 1996 to 1997 as Vice President of Marketing and Business
Development.

ROBERT E. GELINAS. Prior to joining the Company in August 1999, Mr.
Gelinas served as Business Development Manager at Global Integrity, an SAIC
Company, from October 1998 until August 1999, Regional Sales Manager at AXENT
Technologies from February 1998 until October 1998, Director of Sales at
CyberSafe Corporation from January 1997 until February 1998, and Business Unit
Director at STK/Network Systems Corporation from 1994 until 1996.

MICHAEL G. WITTIG. Mr. Wittig was appointed the Company's Vice
President of Development in February 1998. In February 1999, Mr. Wittig was also
appointed the Company's Chief Technical Officer. Since joining the Company in
1992, Mr. Wittig has served as Director of Software Development, as Manager of
Software Development, and in various other software development positions.

5
<PAGE> 9

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 years ended
June 30, 1999, June 30, 1998, and June 30, 1997.

Long Term
Compensation
----------------------
Annual Compensation Awards
- --------------------------------------------------------------------- ----------------------
Other Restricted
Annual Stock All Other
Fiscal Salary Bonus($) Compensation Award(s) Options Compensation
Name and Principal Position Year ($) (1) ($) ($) (#) (2)($)
- --------------------------- -------- ---------- ---------- ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DAVID R. PROCTOR(7) 1999 62,700 -- -- -- 475,000 3,310
Chairman, President and
Chief Executive Officer
(Became CEO on March 15,
1999)

C. SHELTON JAMES(7) 1999 209,000 -- -- -- 225,000 --
Interim Chief Executive
Officer (Served as
Interim CEO from August
24, 1998 until March 14,
1999)

ROBERT L. CARBERRY(3) 1999 105,769 -- -- -- -- 103,889
Chairman, President and 1998 235,594 -- -- -- -- 7,031
Chief Executive Officer 1997 192,300 103,125 -- -- 100,000 9,500
(Served as CEO until
August 24, 1998)

TERRENCE A. ZIELINSKI 1999 126,923 52,500 -- -- 150,000 3,812
Vice President Finance and
Chief Financial Officer

MICHAEL G. WITTIG(4) 1999 139,269 37,500 -- -- 94,400 9,743
Vice President Software 1998 91,811 21,667 -- -- -- 6,418
Development & Chief
Technical Officer

FREDERICK O. HAWKES 1999 64,615 12,000 -- -- 50,000 2,872
Vice President Marketing

TOMMY D. STEELE(5) 1999 195,923 25,000 3,450 -- 300,000 54,650
President & Chief 1998 123,077 25,000 42,251 32,400 -- 7,379
Operating Officer
(Served until
May 17, 1999)

THOMAS W. PATTERSON(6) 1999 126,305 20,000 -- -- 100,000 10,190
Vice President 1998 115,386 24,000 -- 18,500 -- 7,315
Electronic Commerce
(Served until
April 23, 1999)
</TABLE>

- -------------------
(1) The following amounts of bonuses for the fiscal year ended June 30, 1999
were accrued during such period but were paid in July 1999: Mr.
Zielinski--$30,000; Mr. Wittig--$37,000; and Mr. Hawkes--$12,000. The
following amounts of bonuses for fiscal year ended June 30, 1998 were
accrued during such period but were paid in fiscal year ended June 30,
1999: Mr. Steele--$25,000 and Mr. Patterson--$24,000. The bonus of
$103,125 to Mr. Carberry was accrued during the fiscal year ended June 30,
1997 but was paid in August 1997.
(2) Amounts reported represent contributions to the Company's Retirement Plan
and term life insurance premiums paid by the Company. In addition, the
amounts reported in the fiscal year ended June 30, 1999 include severance
payments paid by the Company to the following individuals, in the following
amounts: Mr. Carberry -- $100,000 and Mr. Steele -- $37,115.
(3) Mr. Carberry's salary for fiscal year ended June 30, 1999 reflects
payments made by the Company until he was suspended on August 24, 1998 and
thereafter until his separation from the Company on December 8, 1999.

6
<PAGE> 10
(4) The options issued during the fiscal year ended June 30, 1999 include an
option for 50,000 shares and an exchanged option for 44,400 shares. The
exchange option replaced five old options which were issued to Mr.
Wittig on various dates from 1996 through 1998. See 10-Year Option
Repricings.
(5) The options issued during the fiscal year ended June 30, 1999 include an
option for 125,000 shares and an exchanged option for 175,000 shares. The
exchange option replaced an old option which was issued to Mr. Steele on
November 10, 1997. See 10-Year Option Repricings.
(6) The option issued during the fiscal year ended June 30, 1999 includes an
exchanged option for 100,000 shares. This exchange option replaced an old
option which was issued to Mr. Patterson on July 21, 1997. See 10-Year
Option Repricings.
(7) Salary amounts do not include amounts received by the named executives
for services performed by non-employee directors. These amounts for fiscal
year 1999 were: Mr. Proctor -- $18,584 and Mr. James -- $3,250.

OPTION GRANTS IN THE FISCAL YEAR ENDED JUNE 30, 1999

The following table shows all grants during the fiscal year ended June
30, 1999 and thereafter of stock options under the Company's Stock Incentive
Plan (the "Stock Incentive Plan") and Employee Stock Option Plan ("Stock Option
Plan") to the executive officers named in the Summary Compensation Table.

<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------------------
Percent of Potential Realizable
Total Value At Assumed
Number of Options Annual Rates of Stock
Securities Granted to Price Appreciation for
Underlying Employees in Exercise or Option Term(1)
Option Fiscal Year Base Price ------------------------
Name Granted (#) (%)(2) ($/Sh) Expiration Date 5%($) 10%($)
- ---------------------------- -------------- -------------- --------------- ----------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
David R. Proctor(5) 375,000 13.20 1.25 3/9/04 129,507 286,177
100,000 3.52 1.00 5/2/04 27,628 61,051

C. Shelton James(5) 225,000 7.92 1.31 9/7/03 81,434 179,948

Terrence A. Zielinski 150,000 5.28 1.31 9/7/03 54,289 119,965

Michael G. Wittig 50,000 1.76 1.31 9/7/03 18,096 39,988
15,000 * 1.125 2/02/01 4,662 10,302
400 * 1.125 1/01/02 79 167
4,000 * 1.125 6/30/02 919 1,969
25,000 * 1.125 3/09/03 6,922 15,102
Frederick O. Hawkes 50,000 1.76 2.09 12/30/03 28,871 63,798

Tommy D. Steele(3) 125,000 4.40 1.31 5/17/01 22,944 47,809
175,000 6.16 1.125 5/17/01 27,706 57,746

Thomas W. Patterson(4) 100,000 3.52 1.125 4/23/00 9,329 18,944

</TABLE>
- ------------------
* Less than 1.0%
(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 Securities and Exchange
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.
(2) The amount of total options granted to employees during the fiscal year
ended June 30, 1999 (2,840,443 shares) includes all options issued in
connection with the Company's options exchange program, but excludes
options issued to or exchanged for the members of the Company's Board of
Directors.
(3) In connection with Mr. Steele's separation from the Company, the
expiration dates of Mr. Steele's five-year options were set at May 17,
2001.

(4) In connection with Mr. Patterson's separation from the Company, the total
amount of Mr. Patterson's exercisable shares was set at 65,000, and
the expiration dates of Mr. Patterson's five-year options were set at
April 23, 2000.

(5) Does not include options that the executives were granted during fiscal
year 1999 in their capacity as non-employee directors. These grants
totaled 3,000 shares for Mr. Proctor and 3,000 shares for Mr. James.

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, 1999, based on a closing sale price of $1.25 on
June 30, 1999. None of the named executive officers exercised any options
during the fiscal year ended June 30, 1999.

7
<PAGE> 11
<TABLE>
<CAPTION>

Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options At Fiscal
At Fiscal Year-End (#) Year-End ($)
Name Exercisable/unexercisable Exercisable/Unexercisable (1)
------------------------------------ -------------------------------- ----------------------------------
<S> <C> <C>
David R. Proctor 229,375 / 287,500 4,859 / 25,000
C. Shelton James 141,000 / 112,500 3,188 / 0
Terrence A. Zielinski 75,000 / 75,000 0 / 0
Michael G. Wittig 25,066 / 69,334 3,133 / 2,417
Frederick O. Hawkes 0 / 50,000 0 / 0
Tommy D. Steele 300,000 / 0 21,875 / 0
Robert L. Carberry 235,490 / 0 0 / 0
Thomas W. Patterson 65,000 / 0 8,125 / 0
</TABLE>

- ------------------
(1) Based on the difference between the closing price of the Company's
common stock on June 30, 1999 ($1.25) and the exercise price of
the options. On October 25, 1999, the closing price of the
Company's common stock was $1.875 per share.

10-YEAR OPTION REPRICINGS

As part of the overall program to incentivize its personnel, during
September 1998 the Company offered its employees, officers and directors the
opportunity to exchange their existing stock options for new options, with an
exercise price equal to the market price per share on the date the Board of
Directors adopted the exchange program ($1.125 per share). The weighted-average
exercise price per share prior to this exchange offer was $7.58 per share. The
new options retained the replaced options' vesting schedules and expiration
dates. Employees who did not voluntarily terminate their employment with the
Company before May 6, 1999 were eligible for the Company's offer. Option
holders holding options on 1,140,007 shares of Company Common Stock accepted
this offer.

The following table shows the options exchanged by the executive
officers named in the Summary Compensation Table during the fiscal year ended
June 30, 1999.

Number of Market Price Exercise Length of Original
Securities of Stock At Price At Option Term
Underlying Time of Time of New Remaining At Date
Options/Repriced Repricing or Repricing or Exercise of Repricing or
Name Date or Amended (#) Amendment($) Amendment($) Price ($) Amendment
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DAVID R. PROCTOR 9/04/98 3,000 1.125 4.625 1.125 1/28/08
Chairman, President and 9/04/98 15,000 1.125 10.50 1.125 3/17/07
Chief Executive Officer 9/04/98 14,875 1.125 10.50 1.125 3/17/07
(Became CEO on March 15, 9/04/98 6,000 1.125 8.825 1.125 3/27/07
1999)

C. SHELTON JAMES 9/04/98 3,000 1.125 4.625 1.125 1/27/08
Interim Chief Executive 9/04/98 15,000 1.125 5.50 1.125 2/01/06
Officer (Served as 9/04/98 1,500 1.125 11.75 1.125 12/02/06
Interim CEO from August 9/04/98 6,000 1.125 4.25 1.125 10/18/04
24, 1998 until March 14,
1999)

MICHAEL G. WITTIG 9/04/98 15,000 1.125 5.50 1.125 02/02/01
Vice President Software 9/04/98 400 1.125 2.50 1.125 01/01/02
Development & Chief 9/04/98 4,000 1.125 8.875 1.125 6/30/02
Technical Officer 9/04/98 15,000 1.125 7.75 1.125 3/09/03
9/04/98 10,000 1.125 7.75 1.125 3/09/03
TOMMY D. STEELE 9/04/98 175,000 1.125 7.375 1.125 11/09/02
President & Chief
Operating Officer
(Served until May 17,
1999)

THOMAS W. PATTERSON 9/04/98 100,000 1.125 9.25 1.125 7/21/02
Vice President Electronic
Commerce (Served until
April 23,1999)
</TABLE>

8
<PAGE> 12
In addition to the above, the following lists the option repricings
since the Company's inception.

ROBERT L. CARBERRY (1) 1/30/98 311,000 5.25 10.67 7.37 3/04/06
Chairman, President and 1/30/98 28,000 5.25 10.67 7.37 7/22/06
Chief Executive Officer 1/30/98 100,000 5.25 9.25 5.50 7/24/01
(Served as CEO until
August 24, 1998)

</TABLE>

- ------------------------
(1) In connection with Mr. Carberry's separation from the Company, the total
amount of Mr. Carberry's exercisable shares was agreed to be 235,490
shares and the expiration date of Mr. Carberry's options was set at
December 7, 2000.

COMPENSATION PLANS

Executive Employment Arrangements. The Company and Mr. Proctor entered
into an agreement effective as of March 15, 1999 and amended as of May 4, 1999
(the "Proctor Employment Agreement"). The Proctor Employment Agreement provides
for the employment of Mr. Proctor as Chairman of the Board, President and Chief
Executive Officer of the Company at an annual base salary of $260,000. The
Proctor Employment Agreement provides for Mr. Proctor to have a target bonus for
the achievement of certain performance objectives to be established by the
Company of 100% of his annual base salary.

The Company may terminate the Proctor Employment Agreement for "cause."
The Proctor Employment Agreement defines "cause" as acts of willful misconduct
or gross negligence by Mr. Proctor in performance of his material duties or
obligations to the Company, or conviction of Mr. Proctor of a felony involving
moral turpitude, or a material act of dishonesty or breach of trust by Mr.
Proctor, intended to enrich Mr. Proctor at the expense of the Company. If the
Proctor Employment Agreement is terminated by the Company other than for "cause"
or the death, disability or normal retirement of Mr. Proctor or by Mr. Proctor
for "good reason," Mr. Proctor will receive severance pay of two times his
annual base salary as in effect immediately prior to termination, and all of Mr.
Proctor's stock options and stock appreciation rights will become exercisable at
termination. If Mr. Proctor's employment is terminated at any time by the
Company or by Mr. Proctor, other than within one year of a "change in control,"
the Company may, at its sole discretion and upon certain conditions, prohibit
Mr. Proctor from engaging in any business competitive with the business of the
Company for a six-month period following the effective date of termination.

In addition to the Proctor Employment Agreement, the Company has
employment agreements with Mr. Zielinski and Mr. Wittig. Such employment
agreements, other than the Proctor Employment Agreement, are referred to herein
as the "Executive Employment Agreements." The initial base salaries under such

9
<PAGE> 13
Employment Agreements are $150,000 for Mr. Zielinski and $150,000 for Mr.
Wittig. The Executive Employment Agreements also provide for bonuses based on
certain Company performance targets in initial amounts based upon the following
percentages of base salary: Mr. Zielinski--40% and Mr. Wittig--40%.

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, 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.

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

The Company also has an employment arrangement with Mr. Hawkes,
by which his annual base salary is $144,000 and his target bonus for achievement
of certain performance objectives is 40% of his annual base salary.

In addition to the information stated above, each of the named
executive contracts or arrangements provides for the executive to receive
options to acquire shares of the Company's Common Stock. The amounts and certain
terms of the options are described elsewhere in this Proxy Statement. In
general, the options become immediately exercisable upon a change in control of
the Company.

Stock Incentive Plan. All salaried employees and non-employee directors
of the Company 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 or Board of Directors. The maximum number of
shares of Common Stock that may be issued under the Stock Incentive Plan is
2,400,000.

Employee Stock Option Plan. All salaried employees are eligible to
participate in the Employee Stock Option Plan. The Company's Board of Directors
adopted the Employee Stock Option Plan on September 4, 1998. On August 10,
1999, the Board of Directors increased the number of shares available for grant
under the Plan from 1,400,000 to 2,500,000 shares of Common Stock.

Director Compensation. Upon joining the Board of Directors, all
non-employee directors receive options to purchase 6,000 shares of 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 3,000 shares of Common Stock of the Company. All such options
are non-statutory stock options, immediately exercisable, 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.
During September 1998, options of then current directors were exchanged in
connection with the option exchange program offered by the Company.

In addition to grants pursuant to the Stock Incentive Plan or Stock
Option Plan, non-employee directors of the Company receive a $15,000 annual
retainer and $1,000 per Board of Directors meeting attended. In addition,
directors receive $1,000 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, in which case no such fee
will be payable. Directors are also reimbursed for travel and lodging expenses
in connection with Board of Directors and committee meetings.

10
<PAGE> 14

COMPENSATION AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION

During the fiscal year ended June 30, 1999, the Compensation and Stock
Option Committee of the Company's Board of Directors consisted of Mr. James and
Mr. Reiswig, neither of whom are executive officers of the Company although Mr.
James served as Interim Chief Executive Officer during the period from August
1998 to March 1999. 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 and Stock Option
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 interest of the Company's stockholders through compensation
opportunities in the form of stock ownership. At present, these objectives are
met through a program composed of salary, annual cash bonus, and long-term
incentive opportunities in the form of stock options and performance stock.

Chief Executive Officer Compensation. During the fiscal year ended June
30, 1999, the Company had three Chief Executive Officers. The Compensation
Committee's deliberations regarding compensation of each of these three Chief
Executive Officers were as follows: With respect to Mr. Carberry, there were no
deliberations as to his performance, since he served as CEO for only the first
eight weeks of the 1999 fiscal year and his base salary remained the same as the
prior year. Mr. James was then asked to serve as Interim Chief Executive Officer
until such time as full-time Chief Executive Officer could be hired. The
Committee set Mr. James' compensation based upon competitive factors. Mr.
Proctor was hired as Chief Executive Officer during March 1999. The Committee's
deliberations regarding his compensation took into account his prior experience
and competitive factors. Given the brief period of time during fiscal year 1999
that Mr. Proctor served as CEO, he was not paid a bonus during fiscal year 1999.

Other 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.

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, individual performance and
achievement, and competitive factors.

Long Term Incentives. Under the Company's stock plans, 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. In granting these incentives to
executives, the Committee considers those factors described above in this
Committee Report regarding compensation decisions.

11
<PAGE> 15

Option Repricing. As part of the overall program to incentivize its
personnel, during September 1998, the Company offered its employees, officers
and directors the opportunity to exchange their existing stock options for new
options, with an exercise price equal to the market price per share on the date
the Board of Directors adopted the exchange program ($1.125 per share). The
weighted-average exercise price per share prior to this exchange offer was $7.58
per share. Employees, officers and directors who did not voluntarily terminate
their relationship with the Company before May 6, 1999 were eligible for the
Company's offer. Option holders holding options on 1,140,007 shares of Company
common stock accepted this offer.

SUBMITTED BY THE COMPENSATION AND STOCK OPTION
COMMITTEE:

C. SHELTON JAMES, CHAIRMAN
LELAND R. REISWIG, JR.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the fiscal year ended June 30, 1999, C. Shelton James, while
serving as Chairman of the Company's Compensation and Stock Option Committee,
was the Company's Interim Chief Executive Officer and Interim Chairman of the
Board.

12
<PAGE> 16

RELATED TRANSACTIONS

In August 1999, the Company entered into a financing transaction with
Fernwood Partners II, LLC ("Fernwood") and certain officers, directors and
employees of the Company, through which the Company obtained a total amount of
$4,313,484 (the "Fernwood Financing"). In the Fernwood Financing, Fernwood
provided $3,699,484, Mr. Scott provided $100,000 and Mr. Proctor agreed to
provide $150,000. The remaining $364,000 was provided by certain other
directors, executive officers and employees of the Company. All of the financing
consisted of promissory notes convertible into the Company's Common Stock at $1
per share and warrants to purchase an equivalent number of shares of the
Company's Common Stock at $2.00 per share. The Fernwood Financing bears interest
at a rate of 11.5% per annum and is secured by a lien on all of the Company's
assets. The officers, directors and employees of the Company participating in
the Fernwood Financing have granted to Fernwood the right to act as their agent
for purposes of enforcing their rights in the event that the Company should
default on its obligations. Part of the proceeds from this financing was used to
repay a $1,125,000 loan and accrued interest to Fernwood Partners, LLC, a
limited liability company that provided financing to the Company in December
1998. At the time the Fernwood Financing was undertaken, Mr. Proctor funded
$50,000 of the $150,000 to be lent by him to the Company. Mr. Proctor has agreed
to fund the remaining amount by contributing his salary payments to the Company
until the full amount is funded. This obligation is evidenced by a promissory
note to the Company in the principal amount of $100,000. Mr. Proctor's note
bears no interest, but if Mr. Proctor chooses to receive interest under the
Company's note to him, then Mr. Proctor will pay interest at the rate of 11.5%
on the amount remaining to be funded. As of October 29, 1999, approximately
$79,000 remains to be funded.

Mr. William G. Scott, a member of the Company's Board of Directors, is
the brother of Mr. Richard Scott, who, with his wife, is a major equity holder
of Fernwood. Mr. Richard Scott is also a major equity holder of Fernwood
Partners, LLC.

13
<PAGE> 17

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 Old Peer Group (defined below) and New Peer Group
(defined below) over the period from October 14, 1994, the first day that the
Company's shares were traded publicly, and the end of the fiscal year ended
June 30, 1999. Total shareholder return assumes dividend reinvestment. The
stock performance shown on the following graph is not indicative of future
price performance.

The Old Peer Group is composed of Security Dynamics Technologies and
Secure Computing Corporation. The New Peer Group is composed of Security
Dynamics Technologies, Secure Computing Corporation, Networks Associates
Incorporated, and Axent Technologies Incorporated. These companies' shares were
first publicly traded as follows: Security Dynamics Technologies on December
14, 1994; Secure Computing Corporation on November 17, 1995; Networks
Associates Incorporated on October 10, 1994; and Axent Technologies
Incorporated on April 2, 1996.

During the fiscal year 1996, the Company changed its fiscal year end
from September 30 to June 30.

COMPARISON OF 56 MONTH CUMULATIVE TOTAL RETURN*
AMONG CYBERGUARD CORPORATIONK, THE S&P 500 INDEX,
A NEW PEER GROUP AND AN OLD PEER GROUP

Research Data Group Peer Group Total Return Worksheet

CYBERGUARD CORP
Cumulative Total Return
-------------------------------------------------------------
10/10/94 9/30/95 6/30/96 6/30/97 6/30/98 6/30/99
<S> <C> <C> <C> <C> <C> <C>
CYBERGUARD CORPORATION 100 218 669 344 373 39
NEW PEER GROUP 100 432 935 1,633 1,858 593
OLD PEER GROUP 100 292 892 842 377 494
S&P 500 100 121 152 205 267 328
</TABLE>

14
<PAGE> 18

PROPOSAL NUMBER 2
INCREASE IN THE NUMBER OF
SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE
FROM 20,000,000 TO 50,000,000

The Board of Directors has adopted a resolution to submit to a vote of
the shareholders at the Annual Meeting a proposal to amend the Company's
Amended and Restated Articles of Incorporation to increase the number of shares
of Common Stock which the Company is authorized to issue from 20,000,000 to
50,000,000.

If the proposed amendment is approved by the Company's shareholders,
the additional 30,000,000 shares of Common Stock will have voting and other
rights and privileges identical to those of the currently authorized shares of
Common Stock. However, because shareholders have no preemptive rights to
purchase any additional shares of Common Stock which may be issued, the
issuance of additional shares will reduce the percentage interest of current
shareholders in the total outstanding shares. The proposed amendment will not
increase the number of shares of preferred stock authorized. The relative
rights and limitations of the Common Stock and preferred stock would remain
unchanged under the proposed amendment. The proposed amendment to the Amended
and Restated Articles of Incorporation is attached hereto as Exhibit A.

The Board of Directors recommends the proposed amendment and believes
it is in the best interests of the Company to increase the authorized number of
shares of Common Stock to enable the Company to satisfy its anticipated
obligations and to have shares available for other corporate purposes. In August
1999, the Company entered into the Fernwood Financing transaction for
approximately $4.3 million. The lenders in the Fernwood Financing received
promissory notes convertible into the Company's Common Stock at a rate of $1 of
loan principal for each share, and warrants to purchase approximately 4.3
million shares of the Company's Common Stock at $2.00 per share. In the event
the lenders in the Fernwood Financing converted their notes in full into Common
Stock and exercised their warrants in full, an aggregate of 8,626,968 additional
shares of the Company's Common Stock would be issued. The Company currently has
available for issuance only 6,871,266 shares of Common Stock (taking into
account issued and outstanding shares and shares reserved for issuance under
existing warrants and stock option plans.) Thus, an additional 1,755,702 shares
of Common Stock would be required. The Company is requesting shareholder
approval of this proposal to ensure that there will be a sufficient supply of
shares for potential conversion of the Fernwood Financing notes and warrants,
and for other corporate matters. At this time, the Company has no plans or
proposals to use any portion of the additional shares of Common Stock to be
authorized for issuance under this proposal other than to comply with its
contractual obligations in connection with the Fernwood Financing.

If this proposal is approved, the Board of Directors does not intend to
seek further shareholder approval prior to the issuance of any additional shares
of authorized Common Stock in future transactions unless required by law, the
Company's Bylaws, the Amended and Restated Articles of Incorporation or the
rules of any stock exchange on which the Common Stock may be listed.

The issuance of additional shares of Common Stock may, among other
things, have a dilutive effect on earnings per share and on shareholders'
equity and voting rights. The issuance of additional shares, or the perception
that additional shares may be issued, may also adversely affect the market
price of the Common Stock. The increase in the number of authorized shares of
Common Stock also could have the effect of rendering more difficult or
discouraging an attempt to obtain control of the Company. The Company is not
aware of any efforts to obtain control of the Company.

The Amendment to the Company's Amended and Restated Articles of
Incorporation to increase capitalization will be approved by the shareholders if
the number of votes cast in favor of the proposal exceeds the number of votes
cast against 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. Broker non-votes will not be
treated as votes cast. Unless contrary instructions are given, the persons named
in the proxy card intend to vote shares as to which proxies are received in
favor of the Amendment to the Amended and Restated Articles of Incorporation.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
THE PROPOSAL TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE.

15
<PAGE> 19

PROPOSAL NUMBER 3
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors has appointed Grant Thornton LLP to serve as the
Company's independent public accountants for the fiscal year 2000. At the Annual
Meeting, the shareholders are being asked to ratify this appointment. In the
event the appointment of Grant Thornton LLP for fiscal year 2000 is ratified, it
is expected that Grant Thornton LLP will audit the consolidated financial
statements of the Company at the close of its current fiscal year. If the
appointment of Grant Thornton LLP is not ratified, the Board of Directors will
reconsider its selection. A representative of Grant Thornton LLP is expected to
be present at the Annual Meeting and will have the opportunity to make a
statement, if such person desires to do so, and will be available to respond to
appropriate questions.

On October 11, 1999, the Company appointed the accounting firm of Grant
Thornton LLP as the Company's independent accountants for fiscal year 2000 and
dismissed PricewaterhouseCoopers LLP effective with such appointment. The
decision to dismiss PricewaterhouseCoopers LLP and appoint Grant Thornton LLP
was approved by the Audit Committee of the Company's Board of Directors.
PricewaterhouseCoopers LLP's reports on the financial statements for the past
two fiscal years did not contain an adverse opinion or a disclaimer of opinion,
and were not qualified or modified as to uncertainty, audit scope or accounting
principles. In connection with its audits for the two most recent fiscal years
and through October 11, 1999, there have been no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or accounting scope or procedure, which
disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers
LLP, would have caused them to make reference thereto in their report on the
financial statements for such years. During the course of performing services
regarding the two most recent fiscal years, PricewaterhouseCoopers LLP advised
the Company and its Audit Committee that the internal controls necessary for the
Company to develop reliable financial statements did not exist. No disagreements
arose regarding these matters. Upon the deficiencies in accounting controls
being identified, the Company's Chief Financial Officer began addressing and
correcting these deficiencies. The Company has authorized PricewaterhouseCoopers
LLP to respond fully to the inquiries of Grant Thornton LLP concerning this
subject matter and any other matters relating to the Company or its financial
reporting. A representative of PricewaterhouseCoopers LLP is not expected to be
present at the Annual Meeting.

Prior to engaging PricewaterhouseCoopers LLP in October 1998, the
Company's independent public accountant was the accounting firm of KPMG Peat
Marwick LLP ("KPMG").

On August 21, 1998, KPMG, the Company's independent public accounting
firm, resigned effective immediately. In KPMG's letter of resignation, KPMG
stated that it had "a disagreement with management of the Company regarding the
methodology used for software revenue recognition." In its letter of
resignation, KPMG also advised the Company that it concluded that it could no
longer rely on management's representations and that it was unwilling to be
associated with the financial statements prepared by management.

On August 19, 1998, two days before KPMG's resignation, the Company's
Audit Committee met with KPMG to discuss the Company's software revenue
recognition policies and KPMG's concerns about the quality of the financial
information which had been presented by management to the Audit Committee and to
KPMG. During that meeting, the Audit Committee advised KPMG that the Audit
Committee (and not management) had the exclusive decision-making authority and
duties with respect to the Company's financial statements. The Audit Committee
advised KPMG that it agreed with KPMG as to KPMG's preliminary assessment of
these matters and discussed the steps that should be implemented to resolve
these issues, including a restatement of the Company's interim financial
statements.

The Company is not aware of any other disagreements with KPMG on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure between June 30, 1996 and the date of KPMG's
resignation, which disagreements, if not resolved to the satisfaction of KPMG,
would have caused KPMG to make a reference thereto in its reports. KPMG's
reports on the financial statements for the Company for the prior two years did
not contain any adverse opinion or disclaimer of opinion and such reports were
not qualified or modified as to uncertainty, audit scope or accounting
principles. KPMG's resignation was not recommended or approved by the Company's
Board of Directors or any committee thereof. The Company has authorized KPMG to
respond fully to the inquiries of any successor accountant concerning the
subject matter of the foregoing.

The proposal to ratify the appointment of Grant Thornton LLP will be
approved by the shareholders if the number of votes cast in favor of the
proposal exceeds the number of votes cast against 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 contrary instructions are given, the persons named in the proxy
card intend to vote shares as to which proxies are received in favor of the
Ratification of Appointment of Grant Thornton LLP as Independent Public
Accountants.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.

16
<PAGE> 20

COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following sets forth, as of October 25, 1999 information with
respect to the beneficial ownership of the Company's Common Stock by: (i) each
person known by the Company to beneficially own more than 5% of the outstanding
shares of the Company's Common Stock; (ii) each director of the Company; (iii)
each of the Company's named executive officers; and (iv) 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.

Name/Address Number of Shares Percent of Class
------------ -------------------- -------------------
<S> <C> <C>
David R. Proctor(1)................................................ 539,375 5.59

C. Shelton James(2)................................................ 273,500 2.91
Robert L. Carberry(3).............................................. 235,490 2.52
6494 N.W. 32nd Way,
Boca Raton, FL 33496
Terrence A. Zielinski(3)........................................... 200,000 2.15
Michael G. Wittig(3)............................................... 117,039 1.27
Frederick O. Hawkes(3)............................................. 30,000 *
Tommy D. Steele(3)................................................. 300,000 3.18
Thomas W. Patterson(3)............................................. 65,000 *
Leland R. Reiswig, Jr.(3).......................................... 34,500 *
Richard P. Rifenburgh(3)........................................... 43,500 *
David L. Manning(3)................................................ 26,000 *
William G. Scott(3)................................................ 206,000 2.21
Fernwood Partners II, LLC(3)....................................... 7,398,968 44.78
100 First Stamford Place, Suite 625,
Stamford, Connecticut 06902
All directors and officers as a group (12) persons................. 2,070,404 18.51
* Less than 1%
</TABLE>
- -------------------

(1) Includes: (a) 229,375 shares in options that are currently exercisable
by Mr. Proctor to purchase Common Stock; (b) 300,000 shares for
convertible note and warrant issued by the Company in connection with
the Fernwood Financing in August 1999; and (c) 10,000 shares of Common
Stock owned by Mr. Proctor.
(2) Includes: (a) 253,500 shares in options that are currently exercisable
by Mr. James to purchase Common Stock; and (b) 20,000 shares for
convertible note and warrant issued by the Company in connection with
the Fernwood Financing in August 1999 and held for the benefit of Mr.
James by C. Shelton James Defined Benefit Keogh Plan.
(3) Includes (a) options that are currently exercisable to purchase Common
Stock in the following amounts: Mr. Carberry--235,490; Mr.
Zielinski--150,000; Mr. Wittig--43,039; Mr. Steele--300,000; Mr.
Patterson--65,000; Mr. Reiswig--13,500 shares; Mr. Rifenburgh--13,500
shares; Mr. Manning--6,000 shares; and Mr. Scott--6,000 shares; and (b)
shares of Common Stock for convertible notes and warrants issued by the
Company in connection with the Fernwood Financing in August 1999, in
the following amounts: Mr. Zielinski--50,000; Mr. Wittig--74,000; Mr.
Hawkes--30,000; Mr. Reiswig--20,000 shares; Mr. Rifenburgh--30,000
shares; Mr. Manning--20,000 shares; Mr. Scott--200,000 shares; and
Fernwood Partners II, LLC--7,398,968.

17
<PAGE> 21

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 2000 Annual Meeting, shareholder proposals must
be received by the Company no later than August 4, 2000 and must otherwise
comply with the requirements of Rule 14a-8.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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 for the fiscal year ended June 30, 1999, with the
exception of Form 3 filings that were filed late for Terrence A. Zielinski,
Michael G. Wittig and Frederick O. Hawkes. 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, 1999 as filed
with the Securities and Exchange Commission without charge by writing to:
Dolores Hess, CyberGuard Corporation, 2000 West Commercial Boulevard, Fort
Lauderdale, Florida 33309.

18
<PAGE> 22

EXHIBIT A
AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION

ARTICLE V. CAPITAL STOCK

The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 55,000,000 shares, of which
50,000,000 shares of the par value of $0.01 per share shall be designated as
Common Stock and 5,000,000 shares of the par value of $0.01 per share shall be
designated as Preferred Stock. Shares of Preferred Stock may be issued in
series from time to time by the Board of Directors, and the Board of Directors
is expressly authorized to fix by resolution or resolutions the designations,
relative rights, preferences, and limitations of the shares of each series of
Preferred Stock, including without limitation the following:

(a) the distinctive designation of such series which shall distinguish
it from other series;

(b) the number of shares included in such series which number may be
increased or decreased from time to time by the Board of Directors unless
otherwise provided by the Board of Directors in the resolution or resolutions
providing for the issue of such series.

(c) the rate of dividends (or method of determining such dividends)
payable to the holders of the shares of such series, any conditions on the
payment of such dividends, and the date or dates (or method of determining the
date or dates) upon which such dividends shall be payable;

(d) whether dividends on the shares of such series shall be cumulative
and, in the case of shares of any series having cumulative dividend rights, the
date or dates (or method of determining date or dates) from which dividends on
the shares of such series shall be cumulative;

(e) the amount or amounts which shall be payable out of the assets of
the Corporation to the holders of the shares of such series upon voluntary or
involuntary liquidation, dissolution or winding up the Corporation;

(f) the price or prices (or method of determining such price or
prices) at which, the form of payment of such price or prices for which, the
period or periods within which, and the other terms and conditions upon which,
the shares of such series may be redeemed, in whole or in part, at the option
of the Corporation or at the option of the holder or holders thereof or upon
the happening of a specific event or events;

(g) the obligation, if any, of the Corporation to purchase or redeem
shares of such series pursuant to a sinking fund or otherwise and the price or
prices at which, the period or periods within which, and the other terms and
conditions upon which, the shares of such series shall be purchased or
redeemed, in whole or in part, pursuant to such obligation;

(h) provisions, if any, for the conversion or exchange of the shares of
such series, at any time or times at the option of the holder or holders thereof
or at the option of the Corporation or upon the happening of a specified event
or events, into shares of any other class or classes or any other series of the
same or any other class or classes of stock of the Corporation, and the price or
prices or rate or rates of exchange or conversion and any adjustments applicable
thereto;

(i) the voting rights, if any, of the holders of the shares of such
series, which may include multiple votes per share; and

(j) the manner in which any facts ascertainable outside the resolution
or resolutions providing for the issue of such series shall operate on the
relative rights, preferences, and limitations of the shares of each series of
Preferred Stock.

<PAGE> 23

CYBERGUARD CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING DECEMBER 8, 1999

PROXY

The undersigned stockholder hereby appoints David R. Proctor and
Terrence A. Zielinski, or either of them, attorneys and proxies for the
undersigned with power of substitution in each to act for and to vote, as
designated below, 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 Courtyard by Marriott at
Cypress Creek, 2440 W. Cypress Creek Road, Fort Lauderdale, Florida, 33309, at
10:00 a.m. on December 8, 1999 and at any adjournments thereof.

WHEN PROPERLY 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.

1. ELECTION OF DIRECTORS.

Nominees: David L. Manning
David R. Proctor
William G. Scott

[ ] FOR [ ] WITHHELD

----------------------------
For all nominees except as noted above

2. APPROVAL OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON
STOCK AUTHORIZED FOR ISSUANCE FROM 20,000,000 TO 50,000,000.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

3. RATIFICATION OF GRANT THORNTON LLP AS INDEPENDENT ACCOUNTANTS
FOR FISCAL YEAR 2000.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]

MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]

<S> <C>
Dated: ___________, 1999 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.
SIGNATURE
</TABLE>