CYBERGUARD CORP, DEF 14A, 2000-10-27

CYBERGUARD CORP
DEF 14A, 2000-10-27
ELECTRONIC COMPUTERS

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<PAGE> 1
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
[ ] 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-12

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

-------------------------------------------------------------------------------
(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:

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[CYBERGUARD LETTERHEAD]

November 3, 2000

Dear CyberGuard Corporation Shareholder:

You are cordially invited to attend the 2000 Annual Meeting of
Shareholders to be held on December 6, 2000, 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 postage-paid envelope provided.

We look forward to seeing you at the meeting.

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 6, 2000

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

The Annual Meeting of Shareholders (the "Annual Meeting") of CyberGuard
Corporation, a Florida corporation (the "Company"), will be held on December 6,
2000, 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 three years and
until their respective successors are duly elected and qualified;
and

2. To ratify the appointment of Grant Thornton LLP as the Company's
independent public accountants for the fiscal year ending June 30,
2001; and

3. To approve the CyberGuard Corporation 2000 Employee Stock Purchase
Plan; and

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 principal executive
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,

/s/ TERRENCE A. ZIELINSKI
-----------------------------------
TERRENCE A. ZIELINSKI
Chief Financial Officer

Fort Lauderdale, Florida
November 3, 2000

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 2000
Annual Meeting of Shareholders (together with any and all adjournments and
postponements thereof, the "Annual Meeting") to be held on December 6, 2000, 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 3, 2000.

The Board of Directors has fixed the close of business on October 25,
2000 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 9,885,162
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. Abstentions
and broker non-votes will be counted as shares present in the determination of
whether shares of the Company's Common Stock represented at the Annual Meeting
constitute a quorum.

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 the
shareholder 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 five 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 the two nominee directors
will expire at the 2003 Annual Meeting. The terms of another two of the
Company's directors will expire at the 2001 Annual Meeting. The term of the
remaining class of directors, currently consisting of one director, will expire
at the 2002 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. At this
Annual Meeting, two of the directors will be elected for a three-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.

Two directors are nominees for election this year for a three-year term
expiring at the 2003 Annual Meeting of Shareholders. 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. Since only a plurality is required for
the election of directors, abstentions and broker non-votes will have no effect
on the election of directors (except for purposes of determining whether a
quorum is present at the Annual Meeting.) 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 with regard to each of the
nominees for election at the Annual Meeting and each continuing director.

NOMINEES--(TERM EXPIRING AT THE 2003 ANNUAL MEETING OF SHAREHOLDERS)

JOHN V. TIBERI, JR. Age 57. Director since August 2000. Mr. Tiberi is
currently President and Chief Executive Officer of Tech Highway, LLC, a venture
catalyst company, and President of ETec Business Management Consultants, a
partnership providing consulting services in the technology industry. From 1969
until 1998, Mr. Tiberi worked at Xerox Corporation in several senior executive
positions. Mr. Tiberi currently serves on the board of directors of
Zenographics, Inc. and Cycle 23, Inc. In the past, he served on the boards of
directors of Spectra Diode Labs, Inc. and TracePoint Technologies, Inc.

DAVID T. VANDEWATER. Age 50. Director since August 2000. From June 1999
to August 2000, Mr. Vandewater was President and Chief Executive Officer of USP
International, a privately-held company that owns and operates hospitals and
related healthcare businesses in Europe. Mr. Vandewater currently serves as a
consultant to USP International. From August 1997 to June 1999, Mr. Vandewater
was a private investor. From 1995 to August 1997, Mr. Vandewater was President
and Chief Operating Officer of Columbia/HCA Corporation. Mr. Vandewater
previously served on CyberGuard's Board of Directors from April 1999 to July
1999.

CONTINUING DIRECTORS--(TERM EXPIRING AT THE 2001 ANNUAL MEETING OF SHAREHOLDERS)

DAVID L. MANNING. Age 50. 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

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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 60. 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.

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

WILLIAM G. SCOTT. Age 49. 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.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION
OF EACH OF THE NOMINATED DIRECTORS.

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PROPOSAL NUMBER 2
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 2001. 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 2001 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; however, there can be no assurance that the Board
would ultimately determine to appoint different independent public accountants.
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

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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. Broker non-votes will have no effect on the outcome of the voting of
this 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.

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PROPOSAL NUMBER 3
APPROVAL OF THE CYBERGUARD CORPORATION 2000 EMPLOYEE STOCK
PURCHASE PLAN

The Board of Directors recommends a vote "FOR" the Cyberguard
Corporation 2000 Employee Stock Purchase Plan (the "Stock Purchase Plan"). The
full text of the Stock Purchase Plan is attached to this Proxy Statement as
Appendix A, and you are urged to refer to it for a complete description of the
Stock Purchase Plan. The summary of the principal features of the Stock Purchase
Plan, which follows, is qualified by reference to Appendix A.

The purpose of the Stock Purchase Plan is to provide eligible employees
of the Company and its designated subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. The Board of
Directors adopted the Stock Purchase Plan in December 1999. In order for the
Company's employees to receive the tax treatment described under "Certain
Federal Income Tax Effects," the federal income tax rules require that the Stock
Purchase Plan be approved by the Company's shareholders within twelve months of
its adoption by the Board of Directors. If the shareholders do not approve the
Stock Purchase Plan at the Annual Meeting, the Board of Directors intends to
terminate the Stock Purchase Plan as soon as practicable following the Annual
Meeting.

The Company has reserved 2,500,000 shares of Common Stock to be issued
pursuant to the Stock Purchase Plan.

PRINCIPAL FEATURES OF THE STOCK PURCHASE PLAN

ADMINISTRATION

The Stock Purchase Plan is administered by the Board of Directors of
the Company or a committee of members of the Board appointed by the Board. The
Board or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Stock Purchase Plan, to determine
eligibility and to adjudicate all disputed claims filed under the Stock Purchase
Plan. Every finding, decision and determination made by the Board or its
committee shall, to the full extent permitted by law, be final and binding upon
all parties. The Company will pay all expenses incurred in the administration of
the Stock Purchase Plan.

SECURITIES SUBJECT TO THE STOCK PURCHASE PLAN

The Stock Purchase Plan covers 2,500,000 shares of the Company's Common
Stock, subject to adjustment as discussed below. If the total number of shares
that would otherwise be subject to purchase on an Exercise Date (as defined
below) exceeds the number of shares then available under the Stock Purchase
Plan, the Board will make a pro rata allocation of the shares remaining
available.

The Stock Purchase Plan provides that, in the event of any increase,
reduction, or change or exchange of shares of Common Stock for a different
number or kind of shares or other securities of the Company by reason of
specified events, the Board will determine the appropriate adjustments, if any,
to be made under the Stock Purchase Plan, including without limitation
adjustments to the number of shares of Common Stock remaining for issuance under
the Stock Purchase Plan, as well as the price per share of Common Stock
scheduled to be purchased during the then current Offering Period under the
Stock Purchase Plan. In the event of the dissolution or liquidation of the
Company, the Offering Period will terminate immediately prior to the
consummation of such action, unless otherwise provided by the Board. In the
event of a sale of all or substantially all of the assets of the Company, or the
merger of the Company, each outstanding option shall be assumed or an equivalent
option substituted by the successor corporation or a parent or subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the option, the Offering Period will terminate prior to
the Company's sale or merger.

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ELIGIBILITY

An "Eligible Employee" is any person who is employed by the Company or
one of its designated subsidiaries on a given enrollment date and is regularly
scheduled to work at least 20 hours per week and at least 5 months per year. The
Company estimates that there are approximately 89 employees who are eligible to
participate in the Stock Purchase Plan, 4 of whom are executive officers of the
Company.

OFFERING PERIOD

An "Offering Period" is each period of approximately six months,
commencing on the first Trading Day (as defined below) on or after January 1 and
terminating on the last Trading Day occurring in the period ending the following
June 30, or commencing on the first Trading Day on or after July 1 and
terminating on the last Trading Day occurring in the period ending with the
following December 31. A "Trading Day" is a day on which national stock
exchanges and the Nasdaq System are open for trading. Notwithstanding the
foregoing, the first Offering Period commenced on the first Trading Day on or
after January 17, 2000 and terminates on the last Trading Day occurring in the
period ending November 17, 2000, and the second Offering Period shall commence
on the first Trading Day on or after November 18, 2000 and shall terminate on
the last Trading Day occurring in the period ending December 31, 2000.

ENROLLMENT

Each Eligible Employee is entitled to participate in the Stock Purchase
Plan as of the first day of the Offering Period following the date on which the
employee first becomes an Eligible Employee. On the first day of each Offering
Period, each participant in such Offering Period shall be granted an option to
purchase on the last day of the Offering Period up to a number of shares of the
Common Stock determined by dividing such participant's payroll deductions
accumulated during the Offering Period and retained in the participant's account
as of the last day of the Offering Period by the applicable purchase price. No
participant shall be granted an option under the Stock Purchase Plan (i) if,
immediately after the grant, the participant would own stock and/or hold
outstanding options to purchase stock possessing 5 percent or more of the total
combined voting power or value of all classes of stock of the Company or any
subsidiary of the Company, or (ii) which permits his or her rights to purchase
stock under all employee stock purchase plans of the Company and its
subsidiaries to accrue at a rate that exceeds $25,000 worth of stock for each
calendar year in which such option is outstanding at any time.

PAYROLL DEDUCTIONS

Except as otherwise provided below, a participant may, in accordance
with rules adopted by the Board, authorize a payroll deduction of any whole
percentage from one percent to ten percent of compensation (as defined below)
each pay period. "Compensation" means all base straight time gross earnings and
commissions, excluding payments for shift premium, overtime, incentive
compensation, incentive payments, bonuses and other compensation. All payroll
deductions made by a participant will be credited to the participant's account
under the Stock Purchase Plan. No interest shall accrue on the payroll
deductions credited to a participant's account. A participant may not make any
additional payments into the account.

PURCHASE OF STOCK

Unless a participant withdraws from the Stock Purchase Plan, the
participant's election to purchase shares will be exercised automatically on the
last business day of the applicable Offering Period (the "Exercise Date") and
the maximum number of full shares will be purchased for the participant at the
applicable purchase price with the accumulated payroll deductions in the
participant's account. The purchase price per share of the Common Stock subject
to an offering will be 85 percent of the fair market value of a share of Common
Stock on the first day of the Offering Period or the Exercise Date, whichever is
lower (the "Purchase Price"). Fair market value of a share, on a given date, is
the closing price per share reported on the applicable securities exchange or
quotation system.

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DIVIDENDS AND VOTING

Each participant will have the right to receive dividends and to vote
with respect to shares purchased as soon as practicable after the Exercise Date
for such shares.

WITHDRAWAL; TERMINATION OF EMPLOYMENT

A participant may withdraw all, but not less than all, the payroll
deductions credited to his or her account that have not been used to purchase
shares of Common Stock under the Stock Purchase Plan at any time by giving
written notice to the Company. All payroll deductions credited to the
participant's account will be paid to a participant promptly after receipt of
the participant's notice of withdrawal. In the event of such a withdrawal, the
participant's eligibility to participate in the Stock Purchase Plan for the
Offering Period in which the withdrawal occurs will be automatically terminated
and no further payroll deductions for the purchase of shares of Common Stock
will be made for the participant during such Offering Period.

Upon termination of a participant's employment with the Company or a
designated subsidiary during the Offering Period for any reason, including
voluntary termination, retirement or death, the payroll deductions credited to
the participant's account (that have not been used to purchase shares of Common
Stock) will be returned to the participant or, in the case of such participant's
death, to the person or persons entitled thereto. The participant's eligibility
to participate in the Stock Purchase Plan will be automatically terminated.

TRANSFERABILITY

Neither payroll deductions credited to a participant's account nor any
rights to purchase or to receive shares under the Stock Purchase Plan may be
assigned, transferred, pledged or otherwise disposed of by the participant in
any way (other than by will, the laws of descent and distribution). Any such
attempt at assignment, transfer, pledge or other disposition will be without
effect, except that the Company may treat such act as an election to withdraw
funds.

AMENDMENT; TERMINATION

Subject to the provisions of this section, the Stock Purchase Plan
shall remain in effect for a term of ten years after the earlier of the Stock
Purchase Plan's adoption by the Board or its approval by the shareholders of the
Company. The Board may terminate or amend the Stock Purchase Plan at any time,
except that the Company shall obtain shareholder approval in such manner and to
such a degree as is required in order to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law or regulation).
Termination or amendment of the Stock Purchase Plan will not adversely affect
purchase rights during the then current Offering Period without the written
consent of the affected participant.

CERTAIN FEDERAL INCOME TAX EFFECTS

The following is a brief summary of the principal federal income tax
consequences of participating in the Stock Purchase Plan under present laws and
regulations. THIS SUMMARY IS NOT INTENDED TO BE EXHAUSTIVE AND, AMONG OTHER
THINGS, DOES NOT DESCRIBE STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX
CONSEQUENCES. The Stock Purchase Plan is intended to be an "employee stock
purchase plan" as defined in Section 423 of the Code. Amounts deducted from a
participant's pay under the Stock Purchase Plan are included in the
participant's compensation subject to federal income and social security taxes.

A participant will not recognize any additional income at the time he
or she elects to participate in the Stock Purchase Plan or purchases shares of
Common Stock under the Stock Purchase Plan.

If shares of Common Stock are sold after the expiration of two years or
more from the first day of the Offering Period in which such shares were
purchased under the Stock Purchase Plan and one year or more from the Exercise
Date, any profit up to 15 percent of the market value of the shares at the
beginning of the Offering Period is taxable as ordinary income, and any further
profit is taxable as long-term capital gain and any loss is treated as long-term
capital loss. Shares of Common Stock sold or otherwise disposed of, including by

8
<PAGE> 12

way of gifts, before the expiration of two years from the first day of the
Offering Period in which such shares were purchased under the Stock Purchase
Plan and one year or more from the Exercise Date are considered disqualifying
dispositions.

If the participant disposes of shares of Common Stock prior to the
expiration of two years from the date of grant (first day of the Offering
Period) and prior to the expiration of one year from the Exercise Date, the
difference between the price paid by the participant and the market value of the
shares at the date of purchase (last day of the Offering Period in which the
shares were purchased) is taxable as ordinary income and the difference between
the amount received by the participant on the disposition of such shares and the
market value of the shares at the date of purchase is treated as short-term
capital gain or loss (or long-term capital gain or loss if the shares have been
held more than one year). In addition, the Company will be entitled to a tax
deduction for the difference between the price paid by the participant and the
market value of the shares at the date of purchase (last day of the Offering
Period in which the shares were purchased). Therefore, if the participant
disposes of any shares received under the Stock Purchase Plan within the time
frame described above, the participant must notify the Company of the
disposition by forwarding the sale information to the Company. It is important
that the Company track such dispositions for its own tax filings. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to the sale or early disposition of
shares by the participant.

NEW PLAN BENEFITS

Because levels of participation, rates of deferral and the eventual
purchase price are not presently known, the future benefits to be distributed
under the Stock Purchase Plan are not determinable at this time.

9
<PAGE> 13
VOTES REQUIRED AND BOARD RECOMMENDATION

The Stock Purchase Plan provides employees of the Company and its
subsidiaries with an opportunity to purchase shares of Common Stock through
payroll deductions. The Board of Directors believes that ownership of Common
Stock by its employees will provide incentives for the employees to contribute
materially to the continued success of the Company. Approval of the Stock
Purchase Plan by the shareholders will require that the votes cast in favor of
the proposal at the Annual Meeting exceed the votes against the proposal.
Accordingly, abstentions and broker non-votes will have no effect on the results
of the vote. The proxies named in the proxy card intend to vote "for" the
approval of the Stock Purchase Plan unless otherwise instructed on the proxy
card.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
CYBERGUARD CORPORATION 2000 EMPLOYEE STOCK PURCHASE PLAN.

10
<PAGE> 14

GENERAL INFORMATION RELATING TO THE BOARD OF DIRECTORS

BOARD OF DIRECTORS

During fiscal year ended June 30, 2000, the Company's Board of
Directors met 4 times and acted once by unanimous written consent. No director
attended fewer than 75% of the aggregate of the total number of meetings of the
Board of Directors held during the period for which he was a director and the
total number of meetings held by all committees of the Board of Directors on
which such director served that were held during the period that he served,
except Richard P. Rifenburgh, who attended one-third of such meetings. Mr.
Rifenburgh resigned from the Board of Directors on May 2, 2000.

The Board's committees include an Audit Committee, a Compensation and
Stock Option Committee and an Executive Committee.

COMMITTEES OF THE BOARD

AUDIT COMMITTEE. The Audit Committee of the Board of Directors ("Audit
Committee") generally consists of directors who are not executive officers of
the Company. The Audit Committee 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, 2000, the members of the
Audit Committee were C. Shelton James (until March 29, 2000), Richard P.
Rifenburgh (until May 2, 2000), William G. Scott and David L. Manning. After the
end of fiscal year 2000, John V. Tiberi, Jr. was appointed to the Audit
Committee. The Audit Committee held 7 meetings during the fiscal year ended June
30, 2000.

COMPENSATION AND STOCK OPTION COMMITTEE. The Company's Compensation and
Stock Option Committee generally consists of directors 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 grants of awards under
the Company's Stock Incentive Plan. During the fiscal year ended June 30, 2000,
the Compensation and Stock Option Committee consisted of C. Shelton James (until
March 29, 2000), Leland R. Reiswig, Jr. (until December 7, 1999), David L.
Manning and William G. Scott. After the end of fiscal year 2000, David T.
Vandewater was appointed to the Compensation and Stock Option Committee. During
the fiscal year ended June 30, 2000, the Compensation and Stock Option Committee
held 1 meeting and acted 3 times by unanimous written consent.

EXECUTIVE COMMITTEE. 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, 2000, the members of the Executive
Committee were C. Shelton James (until March 29, 2000), Richard P. Rifenburgh
(until May 2, 2000), Leland R. Reiswig, Jr. (until December 7, 1999) and David
R. Proctor. The Executive Committee did not hold a meeting during the fiscal
year ended June 30, 2000.

As of June 30, 2000, the Company did not have a standing nominating
committee of the Board of Directors nor a committee performing similar
functions.

11
<PAGE> 15

EXECUTIVE OFFICERS

Certain biographical information concerning the Company's executive
officers is presented below.
<TABLE>
<CAPTION>

NAME AGE POSITION
---- --- --------
<S> <C> <C>
David R. Proctor(1) 60 President, Chief Executive Officer and Chairman of the Board
of Directors
Terrence A. Zielinski 58 Chief Financial Officer and Vice President Finance
Michael G. Wittig 36 Vice President Software Development and Chief Technical Officer
Karen E. Bowling 45 Vice President Marketing
Adriana Kovalovska 31 Vice President Legal Affairs, Corporate Counsel and Secretary
</TABLE>

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

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.

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.

KAREN E. BOWLING. Ms. Bowling joined the Company as Vice President of
Marketing in January 2000, coming from The Health Network, a cable television
and Internet company operated by FOX Networks (part of FOX Entertainment Group),
where she served as Vice President of Marketing from January 1998 through
December 1999. Ms. Bowling started her career as a television news anchor before
moving to healthcare marketing. From 1983 through 1997, Ms. Bowling served in a
marketing management position at Columbia/HCA Healthcare Corporation.

ADRIANA KOVALOVSKA. Ms. Kovalovska, an attorney, was appointed the
Company's Vice President of Legal Affairs in July 2000. Since joining the
Company in January 1998, she has served as Associate Counsel and from February
2000 as the Company's Corporate Counsel and Secretary. Ms. Kovalovska is
responsible for administering legal, regulatory and compliance activities for
the Company. In 1996, Ms. Kovalovska completed an internship with the U.S.
Securities and Exchange Commission, Division of Enforcement.

12
<PAGE> 16

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 (collectively, the "named
executive officers") for the fiscal years ended June 30, 2000, June 30, 1999,
and June 30, 1998.
<TABLE>
<CAPTION>

LONG TERM
COMPENSATION
-----------------
ALL OTHER
COMPENSATION
ANNUAL COMPENSATION AWARDS ($)(3)
---------------------------------------- ----------------- -------------------
OTHER ANNUAL
FISCAL SALARY BONUS($) COMPENSATION OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) (1) ($)(2) (#)
------------------------------ --------- ------------ ------------ -------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
DAVID R. PROCTOR(4) 2000 260,000 81,250 25,580 50,000 13,925
Chairman, President and 1999 62,700 -- -- 475,000 3,310
Chief Executive Officer
(BECAME CEO ON MARCH 15,
1999)

TERRENCE A. ZIELINSKI 2000 150,000 37,500 -- 25,000 8,032
Vice President Finance 1999 126,923 52,500 -- 150,000 3,812
and Chief Financial
Officer

MICHAEL G. WITTIG(5) 2000 150,000 37,500 -- 55,600 7,973
Vice President Software 1999 139,269 37,500 -- 94,400 9,743
Development & Chief 1998 91,811 21,667 -- -- 6,418
Technical Officer

KAREN E. BOWLING 2000 62,313 15,188 37,344 100,000 4,881
Vice President Marketing
(Became VP Marketing on
January 3, 2000)

ROBERT E. GELINAS(6) 2000 175,638 -- 59,596 125,000 14,357
Vice President Sales
(Served until May 26, 2000)

</TABLE>

(1) The following amounts of bonuses for the fiscal year ended June 30, 2000
were accrued during such period but were paid in August 2000: Mr.
Zielinski--$15,000; Mr. Wittig--$22,500; and Ms. Bowling--$6,750. 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 and Mr. Wittig--$37,500.

(2) Amounts reported represent the following expenses paid by Company: car,
airline and hotel expenses for Mr. Proctor--$25,580; and relocation
expenses: Ms. Bowling--$37,344 and Mr. Gelinas--$59,596.

(3) 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, 2000 include severance
payments in the amount of $8,898 paid by the Company to Mr. Gelinas.

(4) Mr. Proctor's salary amount in fiscal year 1999 does not include amounts
received by Mr. Proctor for services performed as non-employee director
which amount was $18,584. Mr. Proctor's options do not include the options
granted to Mr. Proctor in his capacity as non-employee director during
fiscal years ended June 30, 1998 and 1999.

13
<PAGE> 17

(5) 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 5 old options which were issued to Mr. Wittig on
various dates from 1996 through 1998.

(6) The salary amount includes sales commissions paid to Mr. Gelinas in the
amount of $77,524.

OPTION GRANTS IN THE FISCAL YEAR ENDED JUNE 30, 2000

The following table shows all grants during the fiscal year ended June
30, 2000 of stock options under the Company's Stock Incentive Plan (the "Stock
Incentive Plan") and Employee Stock Option Plan ("Stock Option Plan") to the
named executive officers.
<TABLE>
<CAPTION>

INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------------- ------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS VALUE AT ASSUMED
UNDERLYING GRANTED TO ANNUAL RATES OF STOCK
OPTION EMPLOYEES IN EXERCISE OR PRICE APPRECIATION FOR
GRANTED FISCAL YEAR BASE PRICE OPTION TERM(3)
NAME (#)(1) (%)(2) ($/SH) EXPIRATION DATE 5%($) 10%($)
----------------------------- ------------- -------------- --------------- ----------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
David R. Proctor(4) 50,000 4.68 6.500 4/25/05 89,792 198,416

Terrence A. Zielinski(5) 25,000 2.34 6.500 4/25/05 44,896 99,208
Michael G. Wittig 25,000 2.34 6.500 4/25/05 44,896 99,208
5,000 * 4.250 12/7/04 5,871 12,973
25,600 2.39 1.500 9/27/04 10,609 23,444

Karen E. Bowling 90,000 8.43 3.500 12/26/04 87,029 192,311
10,000 * 6.500 4/25/05 17,958 39,683

Robert E. Gelinas(6) 100,000 9.37 1.375 8/22/04 37,989 83,945
25,000 2.34 4.250 12/7/04 29,355 64,867
</TABLE>

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

* Less than 1.0%

(1) The options vest in 3 equal annual increments and expire in 5 years from
the date of grant, unless noted otherwise herein.

(2) The amount of total options granted to employees during the fiscal year
ended June 30, 2000 (1,067,498 shares) excludes options issued to the
members of the Company's Board of Directors.

(3) 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.

(4) The option vests in 3 equal annual increments as long as Mr. Proctor
remains a member of the Company's Board of Directors.

(5) The option vests as follows: 66.66% in 12 months from the date of grant and
100% in 18 months from the grant date.

(6) The options were terminated as of May 26, 2000 in connection with Mr.
Gelinas' separation from the Company and no shares under the options were
exercisable.

AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED JUNE 30, 2000 AND FISCAL
YEAR-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, 2000, based on a closing sale price of $6.25 on
June 30, 2000. None of the named executive officers exercised any options during
the fiscal year ended June 30, 2000.

14
<PAGE> 18

NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT FISCAL VALUE OF UNEXERCISED IN-THE-MONEY
YEAR-END (#) OPTIONS AT FISCAL YEAR-END ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
---------------------------------- ------------------------------------- --------------------------------------
<S> <C> <C>
David R. Proctor 450,208 / 116,667 2,270,046 / 366,668
Terrence A. Zielinski 150,000 / 25,000 741,000 / 0
Michael G. Wittig 79,598 / 70,402 393,367 / 212,783
Karen E. Bowling 0 / 100,000 0 / 247,500
</TABLE>

-----------------
(1) Based on the difference between the closing price of the Company's common
stock on June 30, 2000 ($6.25) and the exercise price of the options. On
October 25, 2000, the closing price of the Company's common stock was $2.75
per share.

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
and April 26, 2000 (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 for fiscal year 2000. The Proctor Employment Agreement provides for Mr.
Proctor to receive a target bonus equal to 100% of his annual base salary upon
the achievement of certain performance objectives to be established by the
Company.

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 be exercisable at
termination. If Mr. Proctor's employment with the Company is terminated within
one year following a "change in control" of the Company (other than as
consequence of death, disability or normal retirement of Mr. Proctor) by the
Company for any reason whatsoever 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." Under such Executive Employment
Agreements, for fiscal year 2000 the annual base salaries were $150,000 for Mr.
Zielinski and $150,000 for Mr. Wittig and the target bonuses were 40% for Mr.
Zielinski and 40% for Mr. Wittig of annual base salary, based on achievement of
certain Company performance targets.

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.

15
<PAGE> 19

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 Ms. Bowling, by
which her annual base salary for fiscal year 2000 was $135,000 and her target
bonus for achievement of certain performance objectives was 40% of her annual
base salary. In addition, the Company also had an employment arrangement with
Mr. Gelinas, by which his annual base salary for fiscal year 2000 was $125,000,
his target bonus was 20% of annual base salary and his target commission was
$125,000.

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. An eligible employee may receive
an award under the Plan, however, only if selected by the Compensation Committee
or Board of Directors. The Company's Board of Directors adopted the Employee
Stock Option Plan on September 4, 1998. The maximum number of shares of Common
Stock that may be issued under the Employee Stock Purchase Plan is 2,500,000.

EMPLOYEE STOCK PURCHASE PLAN. All salaried employees are eligible to
participate in the Company's Employee Stock Purchase Plan under which salaried
employees can purchase the Company's Common Stock at 85% of the fair market
value through payroll deductions of up to 10 percent of the employee's base
salary. The Company's Board of Directors adopted the Employee Stock Option Plan
on December 8, 1999. The maximum number of shares of Common Stock that may be
issued under the Employee Stock Purchase Plan is 2,500,000.

DIRECTOR COMPENSATION. Upon joining the Board of Directors, all
non-employee directors receive options to purchase 10,000 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 5,000 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.

In addition to grants pursuant to the Stock Incentive 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.

16
<PAGE> 20

COMPENSATION AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION

During the fiscal year ended June 30, 2000, the Compensation and Stock
Option Committee of the Company's Board of Directors consisted of C. Shelton
James (until March 29, 2000), Leland R. Reiswig, Jr. (until December 7, 1999),
David L. Manning and William G. Scott, none of whom was an executive officer of
the Company during fiscal year 2000. 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 option plans.

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. David R. Proctor became the
Company's Chief Executive Officer in March 1999. During the fiscal year ended
June 30, 2000, Mr. Proctor's annual base salary was $260,000, which amount was
initially set by the Board of Directors by taking into account his prior
experience and competitive factors. Mr. Proctor was paid a bonus in the total
amount of $81,250 during fiscal year 2000 in relation to his attainment of the
set goals and objectives. In April 2000, Mr. Proctor was issued a nonqualified
option to purchase 50,000 shares at an exercise price of $6.50 per share. This
option vests over 3 years, as long as Mr. Proctor remains a member of the
Company's Board of Directors. Mr. Proctor received this option in recognition of
his performance over the year and to incentivize his future performance.

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.

This report has been executed by each person who served as a member of
the Company's Compensation and Stock Option Committee during fiscal year 2000
and was serving as a member of the Company's Board of Directors as of the end of
fiscal year 2000.

SUBMITTED BY THE COMPENSATION AND STOCK OPTION
COMMITTEE:

DAVID L. MANNING, CHAIRMAN
WILLIAM G. SCOTT, MEMBER

17
<PAGE> 21

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the Compensation Committee, consisting of
directors Messrs. Manning, Scott, James (served until March 29, 2000) and
Reiswig (served until December 7, 1999), was at any time during the fiscal year
ended June 30, 2000 an officer or employee of the Company. 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 from August 24, 1998
until March 14, 1999. No executive officer of the Company served during the
fiscal year ended June 30, 2000 or serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving on the Company's Board of Directors or Compensation Committee. After the
end of fiscal year 2000, David T. Vandewater was appointed a member of the
Compensation Committee. Mr. Vandewater is not an officer or employee of the
Company.

18
<PAGE> 22

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 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, 2000. Total shareholder return assumes
dividend reinvestment. The stock performance shown on the following graph is not
indicative of future price performance.

The Peer Group is composed of RSA Security, Inc. (formerly known as
Security Dynamics Technologies), Secure Computing Corporation, Networks
Associates, Inc., and Axent Technologies, Inc. These companies' shares were
first publicly traded as follows: RSA Security, Inc. on December 14, 1994;
Secure Computing Corporation on November 17, 1995; Networks Associates
Incorporated on October 10, 1994; and Axent Technologies Incorporated on April
24, 1996.

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

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CYBERGUARD CORPORATION, THE S & P 500 INDEX AND A PEER GROUP

[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>

CYBERGUARD CORPORATION Cumulative Total Return
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6/95 6/96 6/97 6/98 6/99 6/00

CYBERGUARD CORPORATION 100.00 376.36 193.64 210.00 45.68 118.65
S & P 500 100.00 126.00 169.73 220.92 271.19 290.85
PEER GROUP 100.00 364.49 508.83 510.18 204.24 415.54
</TABLE>

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

* $100 INVESTED ON 6/30/95 IN STOCK OR INDEX

19
<PAGE> 23

COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following sets forth, as of October 25, 2000 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 current 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.
<TABLE>
<CAPTION>

NAME/ADDRESS NUMBER OF SHARES PERCENT OF CLASS
----------------------------------------------- -------------------- -------------------
<S> <C> <C>
David R. Proctor(1).............................. 789,061 7.39
Terrence A. Zielinski(3)......................... 209,493 2.07
Michael G. Wittig(3)............................. 164,745 1.64
John V. Tiberi, Jr.(3) .......................... 10,000 *
David T. Vandewater(2)........................... 358,229 3.50
David L. Manning(3).............................. 34,022 *
William G. Scott(3).............................. 223,229 2.21
Fernwood Partners II, LLC(3)..................... 7,769,770 44.01
100 First Stamford Place, Suite 625,
Stamford, Connecticut 06902
All directors and officers as a group
(9 persons).................................. 1,799,598 15.40
</TABLE>

----------------
* Less than 1%
(1) Includes: (a) 450,208 shares in options that are currently exercisable
by Mr. Proctor to purchase Common Stock; (b) 150,000 shares for warrant
and 165,344 shares for convertible note issued by the Company in
connection with the Fernwood Financing in August 1999; (c) 20,000
shares of Common Stock owned by Mr. Proctor and his wife; and (d) 3,509
shares of Common Stock owned by Mr. Proctor under the Company's 401(k)
plan.

(2) Includes (a) 10,000 shares in options that are currently exercisable by
Mr. Vandewater to purchase Common Stock; (b) 100,000 shares for
warrants and 110,229 shares for convertible note issued by the Company
in connection with the Fernwood Financing in August 1999; (c) 69,832
shares of Common Stock owned by Mr. Vandewater; and (d) 34,084 shares
of Common Stock owned by David T. Vandewater Trust I and 34,084 shares
of Common Stock owned by David T. Vandewater Trust II.

(3) Includes (a) options that are currently exercisable to purchase Common
Stock in the following amounts: Mr. Zielinski--150,000; Mr.
Wittig--79,598; Mr. Manning--13,000 shares; Mr. Scott--13,000; and Mr.
Tiberi--10,000; (b) shares of Common Stock for warrants issued by the
Company in connection with the Fernwood Financing in August 1999, in
the following amounts: Mr. Zielinski--25,000; Mr. Wittig--37,000; Mr.
Manning--10,000; Mr. Scott--100,000; and Fernwood Partners II,
LLC--3,699,484; (c) shares of Common Stock for convertible notes issued
by the Company in connection with the Fernwood Financing in August
1999, in the following amounts: Mr. Zielinski--27,557; Mr.
Wittig--40,784; Mr. Manning--11,022; Mr. Scott--110,229; and Fernwood
Partners II, LLC--4,070,286; (d) shares of Common Stock under the
Company's 401(k) plan: Mr. Zielinski--936; and Mr. Wittig--7,363; and
(e) 6,000 shares of Common Stock owned by Mr. Zielinski's immediate
family member; however, Mr. Zielinski disclaims beneficial ownership of
those shares.

20
<PAGE> 24

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, William G. Scott provided $100,000, David T. Vandewater
provided $100,000, and David R. Proctor agreed to provide $150,000. The
remaining $264,000 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 agreed to fund the remaining amount by
contributing his salary payments to the Company until the full amount was
funded. This obligation was evidenced by a promissory note to the Company in the
principal amount of $100,000. Mr. Proctor paid an 11.5% annual interest on the
note. The note was fully paid by Mr. Proctor as of March 3, 2000.

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.

21
<PAGE> 25

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,
executive officers and each beneficial owner of more than 10% of the Common
Stock were satisfied in full for the fiscal year ended June 30, 2000. 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.

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 2001 Annual Meeting, shareholder proposals must
be received by the Company no later than July 6, 2001 and must otherwise comply
with the requirements of Rule 14a-8.

COPY OF ANNUAL REPORT ON FORM 10-K

Shareholders may obtain a copy (without exhibits) of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2000 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.

<PAGE> 26
APPENDIX A

CYBERGUARD CORPORATION

2000 EMPLOYEE STOCK PURCHASE PLAN

1. PURPOSE. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company that the Plan qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986,
as amended (the "Code"). The provisions of the Plan shall be construed
so as to extend and limit participation in a manner consistent with the
requirements of Section 423 of the Code.

2. DEFINITIONS.

(a) "Board" shall mean the Board of Directors of the Company.

(b) "Common Stock" shall mean the common stock of the Company, par
value $.01 per share.

(d) "Compensation" shall mean all base straight time gross
earnings and commissions, exclusive of payments for overtime,
shift premium, incentive compensation, incentive payments,
bonuses and other compensation.

(e) "Designated Subsidiary" shall mean any subsidiary that has
been designated by the Board from time to time in its sole
discretion as eligible to participate in the Plan.

(f) "Employee" shall mean any individual (i) who is an employee of
the Company for federal income tax withholding purposes, and
(ii) whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in
any calendar year. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved
by the Company. Where the period of leave exceeds 90 days and
the individual's right to re-employment is not guaranteed
either by statute or by contract, the employment relationship
shall be deemed to have terminated on the 91st day of such
leave.

(g) "Enrollment Date" shall mean the first day of each Offering
Period.

(h) "Exercise Date" shall mean the last day of each Offering
Period.

A-1
<PAGE> 27

(i) "Fair Market Value" shall mean the value of the Common Stock.
If the Common Stock is listed on any established stock
exchange, or a national market system or other quotation
system, including without limitation the National Quotation
Bureau's "Pink Sheets", and the OTC Bulletin Board, Small Cap
and National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System
("Nasdaq"), the Fair Market Value of a share of Common Stock
shall be the closing sales price for a share of Common Stock
(or the closing bid, if no sales were reported), as quoted on
such system or exchange (or the exchange with the greater
volume of trading in Common Stock) on the day of such
determination as reported in the WALL STREET JOURNAL or such
other source as the Board deems reliable. In the absence of an
established market for the Common Stock, the Fair Market Value
of a share of Common Stock shall be determined in good faith
by the Board.

(j) "Offering Period" shall mean, except as otherwise
provided herein, a period of approximately six (6) months,
commencing on the first Trading Day on or after January 1 and
terminating on the last Trading Day occurring in the period
ending the following June 30, or commencing on the first
Trading Day on or after July 1 and terminating on the last
Trading Day occurring in the period ending with the following
December 31. Notwithstanding anything herein to the contrary,
the first Offering Period shall commence on the first Trading
Day on or after January 17, 2000 and shall terminate on the
last Trading Day occurring in the period ending November 17,
2000, and the second Offering Period shall commence on the
first Trading Day on or after November 18, 2000 and shall
terminate on the last Trading Day occurring in the period
ending December 31, 2000. The duration of Offering Periods may
be changed pursuant to Section 4 of the Plan.

(k) "Plan" shall mean the CyberGuard Corporation 2000 Employee
Stock Purchase Plan, as set forth herein and as amended from
time to time.

(l) "Purchase Price" shall mean an amount equal to eighty-five
percent (85%) of the Fair Market Value of a share of Common
Stock on the Enrollment Date or on the Exercise Date,
whichever is lower.

(m) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan that have not yet been
exercised and the number of shares of Common Stock that have
been authorized for issuance under the Plan but not yet placed
under option.

(n) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50 percent of the voting shares are held
by the Company or a Subsidiary, whether or not such
corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.

A-2
<PAGE> 28

(o) "Trading Day" shall mean a day on which national stock
exchanges and Nasdaq are open for trading.

3. ELIGIBILITY.

(a) INITIAL ELIGIBILITY. Any Employee who shall be employed by the
Company on the date his or her participation in the Plan is to
become effective shall be eligible to participate in offerings
under the Plan that commence on or after such Employee becomes
a participant in the Plan.

(b) RESTRICTIONS ON PARTICIPATION. Notwithstanding any provisions
of the Plan to the contrary, no Employee shall be granted an
option under the Plan:

(i) if, immediately after the grant, such Employee (or
any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company, and/or hold
outstanding options to purchase such stock,
possessing five percent (5%) or more of the total
combined voting power or value of all classes of the
capital stock of the Company or of any Subsidiary; or

(ii) that permits his or her rights to purchase stock
under all employee stock purchase plans of the
Company and its Subsidiaries to accrue at a rate that
exceeds twenty-five thousand dollars ($25,000) in
fair market value of stock (determined at the time
such option is granted) for each calendar year in
which such option is outstanding.

(c) COMMENCEMENT OF PARTICIPATION. An eligible Employee may become
a participant by completing an authorization for payroll
deduction on the form provided by the Company and filing with
the Chief Financial Officer of the Company on or before the
date set therefor by the Board, which date shall be prior to
the Enrollment Date for the Offering Period. Payroll
deductions for a participant shall commence on the applicable
Enrollment Date when his or her authorization for a payroll
deduction becomes effective and shall end on the Exercise Date
of the Offering Period to which such authorization is
applicable unless sooner terminated by the participant as
provided in Section 8(a) of the Plan.

4. OFFERING PERIODS. Except as otherwise provided herein, the Plan shall
be implemented by consecutive six (6) month Offering Periods. The first
Offering Period, however, shall be for more than six (6) months; it
shall commence on the first Trading Day on or after January 17, 2000,
and shall terminate on the last Trading Day occurring in the period
ending November 17, 2000, and the second Offering Period shall be for
less than six (6) months, it shall commence on the first Trading Day
on or after November 18, 2000 and shall terminate on the last Trading
Day occurring in the period ending December 31, 2000. Thereafter,
except as otherwise provided

A-3
<PAGE> 29

herein, each Offering Period shall commence on the first Trading Day on
or after January 1 and terminate on the last Trading Day occurring in
the period ending the following June 30, or commence on the first
Trading Day on or after July 1 and terminate on the last Trading Day
occurring in the period ending the following December 31. The Board
shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future
Offering Periods without stockholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of
the first Offering Period to be affected thereafter.

5. PAYROLL DEDUCTIONS.

(a) AMOUNT OF DEDUCTION. At the time a participant files his or
her subscription agreement, he or she shall elect to have
payroll deductions made on each pay day during the time he or
she is a participant in an Offering Period in an amount not to
exceed ten percent (10%) of the Compensation that he or she
receives on each pay day during the Offering Period.

(b) PARTICIPANT'S ACCOUNT. All payroll deductions made for a
participant shall be credited to his or her account under the
Plan and shall be made in whole percentages of Compensation
only. A participant may not make any additional payments into
his or her account.

(c) CHANGES IN PAYROLL DEDUCTION. A participant may discontinue
his or her participation in the Plan as provided in Section
8(a) of the Plan, or may increase or decrease the rate of his
or her payroll deductions during the Offering Period by
completing or filing with the Company a new subscription
agreement authorizing a change in the payroll deduction rate.
The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The
change in rate shall be effective with the first full payroll
period following five (5) business days after the Company's
receipt of the new subscription agreement unless the Company
elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain
in effect for successive Offering Periods unless terminated as
provided in Section 8 hereof.

6. GRANT OF OPTION. On the Enrollment Date of each Offering Period, a
participant shall be deemed to have received an option to purchase on
each Exercise Date during such Offering Period at the applicable
Purchase Price a maximum number of shares of Common Stock determined by

A-4
<PAGE> 30

dividing such participant's payroll deductions accumulated prior to
such Exercise Date and retained in the participant's account as of the
Exercise Date by the applicable Purchase Price.

7. EXERCISE OF OPTION.

(a) AUTOMATIC EXERCISE. Unless a participant withdraws all of the
payroll deductions credited to his or her account prior
thereto as provided in Section 8 of the Plan, his or her
option for the purchase of Common Stock with payroll
deductions made during an Offering Period shall be deemed to
have been exercised automatically on the Exercise Date
applicable to such Offering Period for the purchase of a
number of full shares of Common Stock that the accumulated
payroll deductions in his or her account at that time will
purchase at the applicable option price (but not in excess of
the number of shares for which options have been granted to
the participant under Section 6 of the Plan). No fractional
shares shall be purchased; any payroll deductions accumulated
in a participant's account that are not sufficient to purchase
a full share shall be retained in the participant's account
for the subsequent Offering Period, subject to earlier
withdrawal by the participant as provided in Section 8 of the
Plan. Any other monies left over in a participant's account
after the Exercise Date shall be returned to the participant.
During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.

(b) DELIVERY. As promptly as practicable after the Exercise Date
of each Offering Period, the Company shall arrange the
delivery to each participant, as appropriate, including, but
not limited to, direct deposit into a book entry account or
brokerage account, the shares purchased upon exercise of his
or her option.

8. WITHDRAWAL.

(a) GENERAL. A participant may withdraw all of the payroll
deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time during
an Offering Period by giving written notice to the Company in
the form of a notice of withdrawal provided by the Company.
Promptly after receipt of notice of withdrawal, all of the
participant's payroll deductions credited to his or her
account shall be paid to such participant, such participant's
option for the Offering Period shall be automatically
terminated, and no further payroll deductions for the purchase
of shares shall be made for such Offering Period.

A-5
<PAGE> 31

(b) EFFECT ON SUBSEQUENT PARTICIPATION. A participant's withdrawal
of the payroll deductions credited to his or her account shall
not have any effect upon his or her eligibility to participate
in any similar plan that may hereafter be adopted by the
Company or in succeeding Offering Periods that commence after
the termination of the Offering Period from which the
participant withdraws. If, however, a participant withdraws
the payroll deductions credited to his or her account during
an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the
participant delivers to the Company a new subscription
agreement prior to the commencement of such succeeding
Offering Period.

(c) TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be
an Employee, for any reason, he or she shall be deemed to have
elected to withdraw from the Plan and the payroll deductions
credited to such participant's account during the Offering
Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section
12 of the Plan, and such participant's option shall be
automatically terminated. Notwithstanding the preceding
sentence, a participant who receives payment in lieu of notice
of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of
employment during the period in which the participant is
subject to such payment in lieu of notice.

9. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.

10. STOCK.

(a) MAXIMUM SHARES. The maximum number of shares of the Company's
Common Stock that shall be made available for sale under the
Plan shall be 2,500,000 shares, subject to adjustment upon
changes in capitalization of the Company as provided in
Section 16 of the Plan. If, on a given Exercise Date, the
number of shares with respect to which options are to be
exercised exceeds the number of shares available under the
Plan, the Company shall make a pro rata allocation of the
shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be
equitable, and the balance of payroll deductions credited to
the account of each participant shall be returned to him or
her as promptly as possible.

(b) PARTICIPANT'S INTEREST IN OPTION STOCK. The participant shall
have no interest or voting right in shares covered by his or
her option until such option has been exercised.

A-6
<PAGE> 32

(c) REGISTRATION OF STOCK. Shares to be delivered to a participant
under the Plan shall be registered in the name of the
participant or in the name of the participant and his or her
spouse as joint tenants with right of survivorship.

11. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or
its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine
eligibility and to adjudicate all disputed claims filed under the Plan.
Every finding, decision and determination made by the Board or its
committee shall, to the full extent permitted by law, be final and
binding upon all parties.

12. DESIGNATION OF BENEFICIARY. A participant may file a written
designation of a beneficiary who is to receive shares and cash, if any,
from the participant's account under the Plan in the event of such
participant's death subsequent to an Exercise Date on which the option
is exercised but prior to delivery to such participant of such shares
and cash. In addition, a participant may file a written designation of
a beneficiary who is to receive any cash from the participant's account
under the Plan in the event of such participant's death prior to
exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective. Such designation of beneficiary may
be changed by the participant at any time by written notice. In the
event of the death of the participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time
of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may
deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of such participant, or, if no spouse,
dependent or relative is known to the Company, then to such other
person as the Company may designate.

13. TRANSFERABILITY. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to
receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of
descent and distribution) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with Section 8 of
the Plan.

A-7
<PAGE> 33

14. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll
deductions.

15. REPORTS. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the
amounts of payroll deductions, the Purchase Price, the number of shares
purchased and the remaining cash balance, if any.

16. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION,
MERGER OR ASSET SALE.

(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, (i) the Reserves, (ii) the
maximum number of shares each participant may purchase during
each Offering Period, (iii) the Purchase Price per share, and
(iv) the number of shares of Common Stock covered by each
option under the Plan that has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected
without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common
Stock subject to an option.

(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period
then in progress shall be shortened by setting a new Exercise
Date (the "New Exercise Date"), and shall terminate
immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the
Board. The New Exercise Date shall be before the date of the
Company's proposed dissolution or liquidation. The Board shall
notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date
for the participant's option has been changed to the New

A-8
<PAGE> 34

Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless prior
to such date the participant has withdrawn the payroll
deductions credited to his or her account as provided in
Section 8 of the Plan.

(c) MERGER OR ASSET SALE. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, the
Company shall use its best efforts to have each outstanding
option assumed or an equivalent option substituted by the
successor corporation or a parent or Subsidiary of the
successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option,
the Company shall set a New Exercise Date and any Offering
Periods then in progress shall end on the New Exercise Date.
The New Exercise Date shall be the date immediately prior to
the date of the Company's proposed sale or merger. The Board
shall notify each participant in writing, at least five (5)
business days prior to the New Exercise Date, that the
Exercise Date for the participant's option has been changed to
the New Exercise Date and that the participant's option shall
be exercised automatically on the New Exercise Date, unless
prior to such date the participant has withdrawn the payroll
deductions credited to his or her account as provided in
Section 8 of the Plan.

17. AMENDMENT OR TERMINATION. The Board of Directors of the Company may at
any time and for any reason terminate or amend the Plan. Except as
provided in Section 16 of the Plan, no such termination can affect
options previously granted; provided, that an Offering Period may be
shortened by the Board of Directors to an earlier Exercise Date and the
Plan may be terminated immediately thereafter if the Board determines
that the termination of the Plan is in the best interests of the
Company and its shareholders. Except as provided in Section 16 of the
Plan, no amendment may make any change in any option theretofore
granted that adversely affects the rights of any participant. To the
extent necessary to comply with Section 423 of the Code (or any
successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval for
any amendment to the Plan in such a manner and to such a degree as
required. Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected,"
the Board (or its committee) shall be entitled to change Offering
Periods, limit the frequency and/or number of changes in the amount
withheld during an Offering Period, establish the exchange ratio
applicable to amounts designated by a participant in order to adjust
for delays or mistakes in the Company's processing of properly
completed withholding elections, establish reasonable waiting and
adjustment periods and/or accounting and crediting procedures to ensure

A-9
<PAGE> 35

that amounts applied toward purchase of Common Stock for each
participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole
discretion advisable that are consistent with the Plan.

18. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the
receipt thereof.

19. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with
all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
rules and regulations promulgated thereunder, and the requirements of
any stock exchange upon which the shares may be listed, and shall be
further subject to the approval of counsel for the Company with respect
to such compliance. As a condition to the exercise of an option, the
Company may require the person exercising such option to represent and
warrant at the time of any such exercise that the shares are being
purchased only for investment and without any present intention to sell
or distribute such shares if, in the opinion of counsel for the
Company, such a representation is required by any of the aforementioned
applicable provisions of law. The terms and conditions of options
granted under the Plan to, and the purchase of shares by, persons
subject to Section 16 of the Exchange Act shall comply with the
applicable provisions of Rule 16b-3 under the Exchange Act. This Plan
shall be deemed to contain, and such options shall contain, and the
shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3
under the Exchange Act to qualify for the maximum exemption from
Section 16 of the Exchange Act with respect to Plan transactions.

20. TAX WITHHOLDING. At the time the option is exercised, in whole or in
part, or at the time some or all of the Company's Common Stock issued
under the Plan is disposed of, the participant must make adequate
provision for the Company's federal, state or other tax withholding
obligations, if any, that arise upon the exercise of the option or the
disposition of the Common Stock. At any time, the Company may, but
shall not be obligated to, withhold from the participant's compensation
the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to
the Company any tax deductions attributable to sale or early
disposition of Common Stock by the Employee.

21. TERM OF PLAN. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of
ten (10) years unless terminated under Section 17 of the Plan.

A-10
<PAGE> 36

APPENDIX B

CYBERGUARD CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING DECEMBER 6, 2000

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 6, 2000 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: John V. Tiberi, Jr.
David T. Vandewater

[ ] FOR [ ] WITHHELD

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

2. RATIFICATION OF GRANT THORNTON LLP AS THE INDEPENDENT ACCOUNTANTS FOR
FISCAL YEAR 2001.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

3. APPROVAL OF THE CYBERGUARD CORPORATION 2000 EMPLOYEE STOCK PURCHASE
PLAN.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]

MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]

Dated: ___________, 2000 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