June 4, 2001

Jim Cady
10442 SW Mount Adams Drive
Beaverton, OR  97087


Dear Jim:

          On behalf of WatchGuard Technologies, Inc. (the "Company"), I am
pleased to confirm the terms regarding your position as Company President and
Chief Operating Officer ("COO"). You will report directly to the Company's Chief
Executive Officer. You will also serve as a member on the Company's Board of
Directors (the "Board"), subject to nomination by the Board and election by the
Company's shareholders. Any capitalized terms used in this letter that are not
otherwise defined are intended to have the meaning indicated in the Company's
1996 Stock Incentive Compensation Plan (the "Plan").

          Your annual base compensation will be $300,000 subject to annual
increases approved by the Compensation Committee of the Board ("Base Salary").
You are also eligible to receive an annual target bonus of up to $100,000
("Target Bonus") based on achievement of performance objectives (both MBO and
financial) that will be set by the Company after consulting with you. Any bonus
that you earn will be paid on a quarterly basis. Your Base Salary and any bonus
will be subject to payroll deductions and all required withholdings. You will be
paid in accordance with the Company's normal payroll procedures. You will be
eligible for the Company's standard executive officer/director benefits,
including an indemnification as an officer/director and coverage under the
Company's officer and director insurance program. You will also be entitled to
reimbursement of expenses related to relocation and temporary housing for 90
days as determined by the Company in its sole discretion. If you resign for any
reason (except for Good Reason) or your employment is terminated by the Company
for Cause (excluding termination for death or Disability) within one year of
your employment start date, you must repay such relocation and housing
reimbursements to the Company with the refundable amount prorated for the
portion of time worked for the Company.

          You will also receive from the Company a full recourse loan of
$150,000 bearing interest at 6% per annum with interest paid annually and the
principal due at the earlier of four years from your start of employment or 90
days following termination for any reason.

          Subject to Board approval, the Company will grant you a stock option
to purchase 600,000 shares of Company common stock with an exercise price equal
to the fair market value of a common share on the date of grant. You will also
need to execute the Company's standard stock option agreement and any policies
applicable to employees and officers of the company. This option will be subject
to vesting on the following terms: Assuming that you remain employed by the
Company, 400,000 shares will vest over 4 years with cliff vesting of 25% after
one full year, then monthly vesting for the remaining 3 years,
<PAGE>

Jim Cady
June 4, 2001
Page 2


and 200,000 shares will vest over 5 years with cliff vesting of 20% after one
full year then monthly vesting for the remaining 4 years.

          If your employment is terminated by the Company for Cause (which
includes termination for death or Disability) or if you resign for any reason
(except for Good Reason) you will not be entitled to any pro-rata bonus or
severance or any other payments from the Company (other than Base Salary and
unused vacation earned through the date of termination).

          If, within 2 years after your employment start date, your employment
is terminated by the Company without Cause or by you for Good Reason, you will
be paid $500,000 (payable in a cash lump sum payment within 10 days of
termination of employment or in quarterly installments, at the Company's
discretion) minus the fair market value of the vested shares subject to your
stock options, including the fair market value of any previously exercised
shares (whether you had already sold such exercised shares or not), as of the
date of your termination (i.e., the fair market value as of the date of your
termination of the vested but unexercised shares and previously exercised shares
less the aggregate option exercise price). For example, if such aggregate fair
market value is $500,000 or more, you will not be entitled to any cash
severance. The benefits described in this paragraph will be provided only if you
execute a severance agreement including a release of all claims in a form
agreeable to the Company.

          In the event the Company is involved in a Corporate Transaction other
than a Related Party Transaction, 50% of your unvested stock options shall
accelerate and vest upon the effective date of the Corporate Transaction and the
remaining unvested options shall continue to vest in accordance with their
original vesting schedule. Additionally, if your employment is terminated
without Cause, or you leave voluntarily for Good Reason within 24 months after a
Corporate Transaction other than a Related Party Transaction, then you will
receive (1) full accelerated vesting on all of your unvested stock options, (2)
a cash severance payment equal to the Base Salary and any bonuses you were paid
over the 12 months immediately prior to such termination of employment within 10
days of such termination of employment and (3) continuation of your health and
medical benefits as of such termination of employment for 12 months following
such termination of employment. Again, the benefits described in this paragraph
will be provided to you only if you execute a severance agreement including a
release of all claims in a form agreeable to the Company.

          For purposes of this Agreement, Cause shall have the meaning indicated
in the Plan, except that the determination as to whether "Cause" has occurred
shall be made by the Board, and Cause shall include termination for death or
Disability. A termination of your employment by the Company for any other reason
will be a termination without Cause.

          As a Company employee, you will be expected to abide by Company rules
and regulations and sign and comply with a Proprietary Information, Invention,
and Non-Competition Agreement (attached hereto). Additionally, you will be
expected to sign and comply with all Company policies that are applicable to
you, including the Company Policy Regarding Insider Trading, the Company Policy
Regarding Special Trading Procedures, the
<PAGE>

Jim Cady
June 4, 2001
Page 3


International Business Activities Policy and the Procedures and Guidelines for
Public Disclosures and Communications with Analysts, and any revisions to such
policies. You will be a full-time employee, which means that you may not accept
employment or consulting assignments of any nature with any other employer or
enterprise, without the prior written consent of the Board; provided, however,
that you shall be permitted to devote reasonable periods of time to serving on
the Board of Directors of other corporations, if such corporations do not
directly or indirectly compete with the Company.

          You should be aware that your employment with the Company is for no
specified period and constitutes "at-will" employment. As such, you may
terminate your employment with the Company at any time and for any reason
whatsoever. Likewise, the Company may terminate your employment at any time for
any reason whatsoever. The employment terms in this letter supersede any other
agreements or promises made to you by anyone, whether oral or written.

          The Effective Date of this Agreement is July 1st, 2001.

          All disputes under this Agreement will first be mediated and then
arbitrated in Seattle, Washington before a single arbitrator appointed by the
American Arbitration Association pursuant to its Rules for Commercial
Arbitration. You and the Company will each bear one half of the costs of the
arbitrator. This Agreement will be governed by the laws of the State of
Washington, without regard to its conflict of laws provisions.

          To indicate acceptance of the Company's offer under the terms
described above, please sign and date this letter in the space below. This offer
of employment shall expire and be revoked if not signed and dated by June 8,
2001.

                                      Sincerely,

                                      /s/ Christopher G. Slatt

                                      Christopher G. Slatt
                                      Chairman and CEO
                                      WatchGuard Technologies, Inc.

ACCEPTED this 8th day of June 2001:


By:       /s/ Jim Cady
    -------------------------
             Jim Cady

Source: OneCLE Business Contracts.