SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. __)
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
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
CELLEGY PHARMACEUTICALS, INC.
----------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
CELLEGY PHARMACEUTICALS, INC.
349 Oyster Point Boulevard, Suite 200
South San Francisco, California 94080
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 20, 1999
To the Shareholders:
The Annual Meeting of Shareholders of Cellegy Pharmaceuticals, Inc.
(the "Company") will be held at 349 Oyster Point Boulevard, Suite 200, South San
Francisco, California on May 20, 1999, at 8:30 a.m., P.D.T., for the following
purposes:
1. To elect six members of the Board of Directors to serve until
the next annual meeting of shareholders;
2. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the 1999 fiscal year; and
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this notice.
Only shareholders of record at the close of business on April 2, 1999
are entitled to notice of, and to vote at, the meeting and any adjournments and
postponements thereof.
You are cordially invited to attend the meeting in person.
By Order of the Board of Directors
/s/ K. Michael Forrest
------------------------------------------
K. Michael Forrest
President and Chief Executive Officer
South San Francisco, California
April 15, 1999
- --------------------------------------------------------------------------------
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ACCOMPANYING PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE. THANK YOU FOR ACTING PROMPTLY.
- --------------------------------------------------------------------------------
<PAGE>
CELLEGY PHARMACEUTICALS, INC.
349 Oyster Point Boulevard, Suite 200
South San Francisco, California 94080
(650) 616-2200
---------------------
Annual Meeting of Shareholders
PROXY STATEMENT
---------------------
April 15, 1999
To the Shareholders:
The enclosed proxy is solicited on behalf of the Board of Directors
(the "Board") of Cellegy Pharmaceuticals, Inc., a California corporation (the
"Company"), for use at the Company's annual meeting of shareholders and any
adjournments and postponements (the "Annual Meeting") to be held at 8:30 a.m.,
P.D.T., on May 20, 1999, at 349 Oyster Point Boulevard, Suite 200, South San
Francisco, California. Only shareholders of record on the close of business on
April 2, 1998 (the "Record Date") are entitled to notice of, and to vote at, the
Annual Meeting. On the Record Date, the Company had 10,173,294 shares of Common
Stock, no par value ("Common Stock"), outstanding and entitled to vote. A
majority of the shares outstanding on the Record Date will constitute a quorum
for the transaction of business. This Proxy Statement, the Company's Annual
Report To Shareholders, and the accompanying form of proxy were first mailed to
shareholders on or about April 15, 1999.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Holders of Common Stock are entitled to one vote for each share of
Common Stock held, except that in the election of directors each shareholder has
cumulative voting rights as described below. The authorized number of directors
of the Company currently is seven. For the election of directors, any
shareholder may exercise cumulative voting rights, which enable the shareholder
to cast a number of votes equal to the number of shares held multiplied by the
number of directors to be elected by the class of stock held. All such votes may
be cast for a single nominee or may be distributed among any or all of the
nominees. Proxies cannot be voted for a greater number of persons than the
number of nominees named. In order to be entitled to cumulate votes, a
shareholder must give notice at the Annual Meeting, prior to voting, of the
shareholder's intention to do so. In addition, no shareholder will be entitled
to cumulate votes for a candidate unless that candidate's name has been placed
in nomination before the voting. If one shareholder gives such a notice, all
shareholders may cumulate their votes. In such an event, the proxy holder may
allocate among the Board of Directors' nominees the votes required by proxies in
the proxy holder's sole discretion. Shareholders are requested, by means of the
accompanying proxy, to grant discretionary authority to the proxy holders to
cumulate votes.
In the event that a broker indicates on a proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will be counted for purposes of determining the presence or absence
of a quorum for the transaction of business but will not be considered present
and voting with respect to that matter.
Directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on the election of directors. Proposal No. 2 requires for
approval the affirmative vote of the majority of shares of Common Stock present
in person or represented by proxy at the Annual Meeting and entitled to vote on
such proposals. For purposes of such Proposals, (i) the aggregate number of
votes entitled to be cast by all shareholders present in person or represented
by proxy at the Annual Meeting, whether those shareholders vote "for,"
"against," "abstain" or give no instructions, will be counted for purposes of
determining the minimum
1
<PAGE>
number of affirmative votes required to approve the Proposal, (ii) the total
number of shares cast "for" Proposal No. 2, or giving no instructions will be
counted for purposes of determining whether sufficient affirmative votes have
been cast, and (iii) an abstention from voting on a matter by a shareholder
present in person or represented by proxy at the Annual Meeting has the same
effect as a vote "against" the proposal.
In the event that sufficient votes in favor of the proposals are not
received by the date of the Annual Meeting, the persons named as proxies may
propose one or more adjournments of the Annual Meeting to permit further
solicitations of proxies. Any such adjournment would require the affirmative
vote of the majority of the outstanding shares present in person or represented
by proxy at the Annual Meeting.
The cost of preparing, assembling, printing and mailing the Proxy
Statement, the Notice of Annual Meeting of Shareholders and the enclosed form of
proxy, as well as the cost of soliciting proxies relating to the Annual Meeting,
will be borne by the Company. Following the original mailing of the proxies and
other soliciting materials, the Company will request that the brokers,
custodians, nominees and other record holders forward copies of the proxy and
other soliciting materials to persons for whom they hold shares of Common Stock
and request authority for the exercise of proxies. In such cases, the Company,
upon the request of the record holders, will reimburse such holders for their
reasonable expenses. The original solicitation of proxies by mail may be
supplemented by telephone, telegram and personal solicitation by directors,
officers and employees of the Company.
REVOCABILITY OF PROXIES
Any shareholder giving a proxy in the form accompanying this Proxy
Statement has the power to revoke the proxy before its use. A proxy can be
revoked (i) by an instrument of revocation delivered before the Annual Meeting
to the Secretary of the Company at the Company's principal executive offices,
(ii) by a duly executed proxy bearing a later date or time than the date or time
of the proxy being revoked, or (iii) by voting in person at the Annual Meeting.
Please note, however, that if a shareholder's shares are held of record by a
broker, bank or other nominee and that shareholder wishes to vote at the Annual
Meeting, the shareholder must bring to the Annual Meeting a letter from the
broker, bank or other nominee confirming that shareholder's beneficial ownership
of the shares. Attendance at the Annual Meeting will not by itself revoke a
proxy.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees
Six directors are to be elected to the Board at the Annual Meeting to
serve until the next annual meeting and until their respective successors are
elected and qualified or until the death, resignation, or removal of the
director. Each of the nominees is currently a director of the Company. If any
nominee is unable or unwilling to serve as a director, the proxies may be voted
for such substitute nominee as the proxy holder may determine. The Board has no
reason to believe that any of the persons named below will be unable or
unwilling to serve as a director if elected. Proxies received will be voted
"FOR" the election of the nominees named below unless the proxy is marked in
such a manner as to withhold authority so to vote.
<TABLE>
The names of the nominees and certain information about them are set
forth below:
<CAPTION>
Principal Director
Name Age Occupation Since
---- --- ---------- -----
<S> <C> <C> <C>
K. Michael Forrest ................ 55 President, Chief Executive Officer, 1996
and Director of the Company
Carl R. Thornfeldt, M.D. .......... 47 Medical Director and Chairman of 1989
the Board of the Company
Jack L. Bowman(1) ................. 66 Consultant to the pharmaceutical and 1996
biotechnology industry
Tobi B. Klar, M.D. ................ 44 Practicing Dermatologist and Associate 1995
Clinical Professor in Dermatology,
Albert Einstein Medical Center,
New York City
Alan A. Steigrod(1)(2) ............ 61 Consultant to the biotechnology 1996
industry
Larry J. Wells(2) ................. 56 President, Wells Investment Group 1989
<FN>
- ------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
</FN>
</TABLE>
Directors hold office until the next annual meeting of shareholders and
until their respective successors have been elected and qualified. The currently
authorized number of directors is seven. The company intends to name an
additional director in the next several months. Executive officers are chosen by
and serve at the discretion of the Board of Directors, subject to any written
employment agreements with the Company.
K. Michael Forrest. Mr. Forrest became President, CEO, and a director
in December 1996. From January 1996 to November 1996, he served as a
biotechnology consultant. From November 1994 to December 1995, he served as
President and CEO of Mercator Genetics, a public biotechnology company. From
March 1991 to June 1994, he served as President and CEO of Transkaryotic
Therapies, Inc., a public biotechnology company. From 1968 to 1991, Mr. Forrest
held a series of positions with Pfizer, Inc. and senior management positions
with American Cyanamid, including Vice President of Lederle U.S. and Lederle
International. He is a director of AlphaGene Inc., a private functional genomics
company, and INEX Pharmaceuticals.
Carl R. Thornfeldt, M.D. Dr. Thornfeldt is the Chairman of the Board of
Directors and a co-founder of the Company, as well as a physician, board
certified in dermatology. He has been Medical Director of the Company since its
inception. Dr. Thornfeldt served as acting CEO from July 1996 to December 1996.
In addition, Dr. Thornfeldt served as Vice President, Research and Development
from October 1994 until May 1996. Since 1983, Dr. Thornfeldt has maintained a
private dermatology practice and is an Assistant Clinical Professor in
Dermatology at the University of Oregon Health Sciences Center. Dr. Thornfeldt
received his M.D. from the University of Oregon.
3
<PAGE>
Jack L. Bowman. Mr. Bowman became a director in December 1996. He is
currently a consultant to various pharmaceutical and biotechnology industry
groups. From August 1987 to January 1994, he was Company Group Chairman at
Johnson & Johnson, where he managed much of its global diagnostic and
pharmaceutical businesses. Before then, Mr. Bowman held executive positions with
CIBA-Geigy and American Cyanamid, where he had responsibility for worldwide
pharmaceutical, medical device, and consumer product divisions. He is currently
a director of NeoRx Corp., CytRx Corp., Cell Therapeutics, Inc., Targeted
Genetics, Inc. and Osiris Therapeutics.
Tobi B. Klar, M.D. Dr. Klar became a director of the Company in June
1995. She is a physician, board certified in dermatology. Since 1986, Dr. Klar
has maintained a private dermatology practice and has served as Co-Chairperson
of the Department of Dermatology at New Rochelle Hospital Medical Center, New
Rochelle, New York, and Associate Clinical Professor in dermatology at Albert
Einstein Medical Center in New York City. Dr. Klar holds a M.D. from the State
University of New York.
Alan A. Steigrod. Mr. Steigrod became a director in July 1996. Since
January 1996 he has been President and Chief Executive Officer of Newport
HealthCare Ventures, which invests in and advises biopharmaceutical companies.
From March 1993 to November 1995, he served as President and CEO of Cortex
Pharmaceuticals, Inc. From February 1991 to February 1993, he worked as a
biotechnology consultant. From March 1981 through February 1991, Mr. Steigrod
held a series of executive positions with Glaxo, Inc., serving as Chairman of
Glaxo's operating committee, as well as on its board of directors. As Executive
Vice President, he managed five divisions, including Glaxo Pharmaceuticals and
Glaxo Dermatology Products. Prior to Glaxo, Mr. Steigrod held a number of senior
management positions with Boehringer Ingelheim, Ltd. and Eli Lilly & Co. He is a
director of Sepracor Inc. and NeoRx Corp.
Larry J. Wells. Mr. Wells became a director of the Company in 1989. For
the past five years, he has been a venture capitalist. He is the President of
Wells Investment Group, the General Partner of Daystar Partners and the founder
of Sundance Venture Partners, L.P., a venture capital fund. Mr. Wells is a
director of Identix, Inc., Novamed, Isonics Corp., Wings America and Legacy
Brands.
Board of Directors Meetings and Committees
During the fiscal year ended December 31, 1998 ("fiscal 1998"), the
Board held six meetings, including telephone conference meetings. Each nominee
who was a director during fiscal 1998 attended more than 75% of the number of
Board meetings and the total number of meetings held by all committees on which
such director served that were held during fiscal 1998 during the time such
person was a director, except Tobi B. Klar, M.D.
Standing committees of the Board include an Audit Committee and a
Compensation Committee. The Board does not have a nominating committee or a
committee performing similar functions.
Messrs. Wells and Steigrod are the current members of the Company's
Audit Committee. The Audit Committee met one time during 1998. The Audit
Committee reviews the Company's accounting practices, internal control systems
and meets with the Company's outside auditors concerning the scope and terms of
their engagement and the results of their audits.
Messrs. Bowman and Steigrod are the current members of the Company's
Compensation Committee. The Compensation Committee met four times during 1998,
including telephonic meetings, and acted by written consent thirteen times. The
Compensation Committee recommends compensation for officers and employees of the
Company, grants options and stock awards under the Company's employee benefit
plans.
Director Compensation
Directors employed by the Company did not receive any monetary fees for
services performed for the Company during 1998. Outside directors are reimbursed
for their travel expenses related to Board meetings. In addition, they receive a
fee of $1,250 for each Board meeting attended in person. Also, outside directors
receive $500 for each committee meeting attended in person.
Non-employee directors of the Company are eligible to participate in
the 1995 Directors' Stock Option Plan (the "Directors' Plan"). A total of
150,000 shares of Common Stock are reserved for issuance
4
<PAGE>
to eligible directors pursuant to the Directors' Plan. The Directors' Plan is
currently administered by the Compensation Committee of the Board. On the date
on which an eligible director is elected, the director is granted a
non-qualified stock option (normally with a term of ten years) (an "Initial
Option") to acquire 30,000 shares. Thereafter, on the first business day after
the Company's annual meeting of shareholders, an eligible director will be
granted a ten year option (an "Annual Option") to acquire 8,000 shares. The
exercise price of all such options is the fair market value of the shares on the
grant date. Initial Options generally are exercisable immediately with respect
to 25% of the shares subject to the option, and become exercisable with respect
to the remaining shares subject to the option upon the first, second, third and
fourth anniversaries of the grant date. Annual Options become exercisable with
respect to 33.3% of the shares on each of the first, second and third
anniversary of the grant date. During fiscal 1998, Annual Options of 8,000
shares at an exercise price of $5.50 were granted to each of Jack L. Bowman,
Tobi B. Klar, M.D., Alan A. Steigrod, Denis R. Burger, Ph.D. and Larry J. Wells.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ELECTION OF EACH OF THE NOMINATED DIRECTORS.
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company has engaged Ernst & Young LLP as its principal independent
public accountants to perform the audit of the Company's financial statements
for fiscal 1999. Ernst & Young LLP has audited the Company's financial
statements since 1989. The Board of Directors expects that representatives of
Ernst & Young LLP will be present at the Annual Meeting, will be given an
opportunity to make a statement at the meeting if they desire to do so, and will
be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth, as of March 31, 1999, certain
information known to the Company regarding the ownership of shares of Common
Stock by (i) each person known to the Company to be a beneficial owner of more
that 5% of the outstanding shares of Common Stock; (ii) each director; (iii)
each Named Officer (see "Executive Compensation"); and (iv) all directors and
executive officers as a group.
<CAPTION>
Shares Beneficially
Owned(1)
--------------------
Name Number Percent
---- ------ -------
<S> <C> <C>
The Thomas J. Tisch 1999 Annuity Trust I(2) ............................ 578,100 5.4%
c/o Mr. Barry Bloom
667 Madison Avenue
New York, New York 10021
The Daniel R. Tisch 1999 Annuity Trust I(2) ............................ 578,100 5.4%
c/o Mr. Barry Bloom
667 Madison Avenue
New York, NY 10021
The James S. Tisch 1999 Annuity Trust I(2) ............................. 578,100 5.4%
c/o Thomas J. Tisch
667 Madison Avenue
New York, NY 10021
The Andrew H. Tisch 1999 Annuity Trust I(2) ............................ 578,100 5.4%
c/o Mr. Barry Bloom
667 Madison Avenue
New York, NY 10021
Fidelity Management & Research Corp. ................................... 603,600 5.6%
82 Devonshire Street
Boston, MA 02109
K. Michael Forrest(3) .................................................. 661,827 6.1%
349 Oyster Point Blvd., Suite 200
South San Francisco, CA 94080
Larry J. Wells(4) ...................................................... 428,556 4.0%
100 Clock Tower Place, Suite 130
Carmel, California 93923
Carl R. Thornfeldt, M.D.(5) ............................................ 508,217 4.8%
349 Oyster Point Blvd., Suite 200
South San Francisco, CA 94080
A. Richard Juelis(6) ................................................... 92,034 *
Michael L. Francoeur, Ph.D.(7) ......................................... 41,907 *
Denis R. Burger, Ph.D.(8) .............................................. 23,917 *
Alan A. Steigrod(9) .................................................... 26,334 *
John J. Chandler(10) ................................................... 41,750 *
Jack L. Bowman(11) ..................................................... 25,584 *
Tobi B. Klar, M.D.(12) ................................................. 20,974 *
Daniel L. Azarnoff, M.D.(13) ........................................... 12,500 *
All directors and executive officers as a group(14) (11 persons) ....... 1,883,600 15.6%
<FN>
* less than 1%
- ------------
(1) Based upon information supplied by officers, directors and principal
shareholders. Beneficial ownership is determined in accordance with rules
of the Securities and Exchange Commission that deem
6
<PAGE>
shares to be beneficially owned by any person who has or shares voting or
investment power with respect to such shares. Unless otherwise indicated,
the persons named in this table have sole voting and sole investing power
with respect to all shares shown as beneficially owned, subject to
community property laws where applicable. Shares of Common Stock subject to
an option that is currently exercisable or exercisable within 60 days of
March 31, 1999 are deemed to be outstanding and to be beneficially owned by
the person holding such option for the purpose of computing the percentage
ownership of such person but are not treated as outstanding for the purpose
of computing the percentage ownership of any other person.
(2) Based on information in a Schedule 13D and a Form 3 filed in March 1999 by
Thomas J. Tisch, Daniel R. Tisch, James S. Tisch, Andrew H. Tisch,
Four-Fourteen Partner ("4-14 LP"), LLC, A Delaware limited liability
company, The Thomas J. Tisch 1999 Annuity Trust I, The Daniel R. Tisch 1999
Annuity Trust I, The James S. Tisch 1999 Annuity Trust I and the Andrew H.
Tisch 1999 Annuity Trust I, reflects the distribution in March 1999 by Four
Partners, a general partnership, of 2,312,400 shares of Common Stock, in a
series of transfers to the trusts named in the above table. In addition to
the above shares, in the Form 3 filing, James S. Tisch reported indirect
beneficial ownership of 19,200 shares of Common Stock as custodian for
certain accounts of his children and 4-14 LP reported beneficial ownership
of an additional 47,700 shares of Common Stock.
(3) Includes 125,000 shares subject to stock options exercisable before May 31,
1999.
(4) Includes 399,816 shares held by Sundance Venture Partners, L.P., of which
Mr. Wells may be deemed a beneficial owner. Includes 4,736 shares issuable
upon exercise of presently exercisable Common Stock purchase warrants.
Includes 24,004 shares subject to stock options exercisable before May 31,
1999.
(5) Excludes 34,823 and 34,726 shares, respectively, held in trust for two
relatives of Dr. Thornfeldt. Includes 190,463 shares held by Dr.
Thornfeldt's spouse. Includes 121,090 shares subject to stock options
exercisable before May 31, 1999.
(6) Includes 92,034 shares subject to stock options exercisable before May 31,
1999.
(7) Includes 41,907 shares subject to stock options exercisable before May 31,
1999.
(8) Includes 23,917 shares subject to stock options exercisable before May 31,
1999.
(9) Includes 22,334 shares subject to stock options exercisable before May 31,
1999.
(10) Includes 33,750 shares subject to stock options exercisable before May 31,
1999.
(11) Includes 21,084 shares subject to stock options exercisable before May 31,
1999.
(12) Includes 20,274 shares subject to stock options exercisable before May 31,
1999.
(13) Includes 12,500 shares subject to stock options exercisable before May 31,
1999.
(14) Includes 399,816 shares held by Sundance Venture Partners, L.P., of which
Mr. Wells may be deemed a beneficial owner. Includes 4,736 shares issuable
upon exercise of presently exercisable Common Stock purchase warrants.
Includes 24,004 shares subject to stock options exercisable before May 31,
1999.
</FN>
</TABLE>
Executive Compensation
The following table sets forth all compensation awarded, earned or paid
for services rendered in all capacities to the Company during fiscal years 1998,
1997 and 1996 to (i) each person who served as the Company's chief executive
officer during 1998, and (ii) the four most highly compensated officers other
than the chief executive officer who were serving as executive officers at the
end of 1998 and whose total annual salary and bonus in such year exceeded
$100,000.
7
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Annual Compensation Compensation
--------------------------------------- Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options Compensation
-------- ---- ------ ----- ------------ ------- ------------
($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
K. Michael Forrest .............................. 1998 281,853 -- -- 155,000 --
President and Chief 1997 261,943 -- -- -- --
Executive Officer 1996 23,103 50,000(1) -- 245,000 --
Carl R. Thornfeldt, M.D. ........................ 1998 139,500 -- -- 75,000 --
Medical Director and 1997 108,000 -- -- -- --
Chairman of the Board 1996 107,962 -- -- 54,000 --
Daniel L. Azarnoff, M.D. ........................ 1998 115,000 -- -- 10,000 --
VP, Clinical and 1997 44,747 -- -- 50,000 --
Regulatory Affairs 1996 -- -- -- -- --
Michael L. Francoeur, Ph.D. ..................... 1998 183,441 -- -- -- --
VP, Research and 1997 150,000 -- -- 89,000 --
Development(2) 1996 147,042 -- -- 81,000 --
A. Richard Juelis ............................... 1998 168,438 -- -- -- --
VP, Finance and 1997 150,000 -- -- 16,000 --
Chief Financial Officer 1996 131,830 -- -- 28,500 --
<FN>
- ------------
(1) Consists of a bonus paid on January 31, 1997, in accordance with his
employment agreement. The bonus was expensed during the period starting
December 1, 1996, and ending December 31, 1997.
(2) No longer an executive officer or employee.
</FN>
</TABLE>
The following table sets forth information regarding individual grants
of options to acquire the Company's Common Stock during fiscal 1998 to each
Named Officer.
<TABLE>
Option Grants In Last Fiscal Year
<CAPTION>
Individual Grants
-------------------------------------------------------------------------------------
Number of
Securities % of Total Options Potential Realizable Value at
Underlying Granted to Exercise or Assumed Rates of Stock Price
Options Employees Base Price Expiration Appreciation for Option Term(2)
Name Granted(#) In Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- ---------- -------------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. Azarnoff, M.D. ............... 10,000 1.9% $ 4.38 2008 275,456 698,059
K. Michael Forrest(1) .................. 155,000 28.7% $ 7.00 2008 6,823,507 17,292,106
Carl R. Thornfeldt, M.D.(1) ............ 75,000 13.9% $ 7.00 2008 3,301,697 8,367,148
<FN>
- ------------
(1) The exercise price of all the option shares shown in the table are at the
fair market value of the common stock on the grant date. The shares subject
to these options become exercisable annually over three years from the
grant date.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of share price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of future share prices.
</FN>
</TABLE>
8
<PAGE>
The following table sets forth information with respect to the options
exercised by the Named Officers during fiscal 1998.
<TABLE>
Aggregated Option/SAR Exercises In Last Fiscal Year And
FY-End Option/SAR Values
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Shares Options/SARs at Options at
Acquired on Value December 31, 1998 (#) December 31, 1998 ($)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
---- ------------ ------------ ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Daniel L. Azarnoff, M.D. -- -- 12,500/ 47,500 *
K. Michael Forrest -- -- 125,000/275,000 *
Michael L. Francoeur, Ph.D. -- -- 39,407/ 70,593 *
A. Richard Juelis -- -- 80,222/ 19,780 68,477/ 9,781
Carl R. Thornfeldt, M.D. -- -- 101,143/103,200 74,072/20,949
<FN>
- ------------
(1) Based on the difference between the fair market value of the Common Stock
at December 31, 1998 ($3.50 per share) and the exercise price of options
shown in the table.
* Exercise price exceeds the fair market value of the common stock at
December 31, 1998.
</FN>
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the Commission initial
reports of ownership and reports of changes in ownership of the Company's Common
Stock and other equity securities of the Company. Officers, directors and
greater than ten percent shareholders are required by the Commission's
regulations to furnish the Company with copies of all Section 16(a) forms they
filed. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, during the last fiscal year all Section 16(a)
filing requirements applicable to the Company's officers, directors, and greater
than ten percent beneficial owners were timely filed, except that Form 4's were
filed late with respect to (i) purchases of the Company's stock by directors
Carl Thornfeldt, M.D. and Jack Bowman on April 24, 1998 and April 30, 1998
respectively and (ii) net exercise of a Company Common Stock Warrant by director
Larry Wells on December 18, 1998.
Compensation Committee Interlocks And Insider Participation
The Compensation Committee of the Board (the "Committee") makes all
decisions involving the compensation of executive officers of the Company,
approves all stock option grants and provides guidance on all other compensation
and benefit related issues.
REPORT OF THE COMPENSATION COMMITTEE
This Report of the Compensation Committee is required by the SEC and
shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act, or under the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed soliciting material or filed under such acts.
Final decisions regarding executive compensation and stock option
grants to executives are made by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee is composed of two independent
non-employee directors, none of whom have any interlocking relationships as
defined by the SEC.
General Compensation Policy
The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. Subject to
provisions of any applicable employment agreements, the Committee typically
reviews base salary levels and target bonuses for the Chairman, Chief
9
<PAGE>
Executive Officer ("CEO") and other executive officers and employees of the
Company prior to the beginning of each fiscal year. The Committee administers
the Company's incentive and equity plans, including the 1995 Equity Incentive
Plan (the "Plan"). The Committee's philosophy in compensating executive
officers, including the Chairman and CEO, is to relate compensation to corporate
performance. Consistent with this philosophy, the incentive component of the
compensation of the executive officers of the Company is contingent on the
achievement of corporate goals and objectives. Long-term equity incentives for
executive officers include the granting of stock options under the Plan. Stock
options generally have value for the executive only if the price of the
Company's stock increases above the fair market value on the grant date and the
executive remains in the Company's employ for the period required for the shares
to vest or, where vesting of options is subject to the attainment of certain
performance objectives, if the specified performance objectives are attained.
The base salaries, incentive compensation and stock option grants of the
executive officers are determined in part by the Committee informally reviewing
data on prevailing compensation practices of biopharmaceutical companies with
whom the Company competes for executive talent and by their evaluating such
information in connection with the Company's corporate goals and objectives. To
this end, the Committee attempted to compare the compensation of the Company's
executive officers with the compensation practices of comparable companies to
determine base salary, possible bonuses and total cash compensation. In addition
to their base salaries, the Company's executive officers, including the CEO, are
entitled to participate in the Plan. In preparing the performance graph for this
Proxy Statement, the Company used The NASDAQ (U.S. only) Stock Market Index and
The NASDAQ Pharmaceutical Stocks Index as its published line of business
indices. The compensation practices of most of the companies in these indices
were not reviewed by the Company when the Committee reviewed the compensation
information described above because such companies were determined not to be
competitive with the Company for executive talent.
Fiscal 1998 Executive Compensation
Base Compensation. The Committee reviewed the recommendations and
performance and market data outlined above and established a base salary level
for each executive officer, including the Chairman and CEO, subject to
provisions of any employment agreements.
Incentive Compensation. Cash bonuses are typically awarded only if the
Company meets predetermined corporate goals and objectives set by the Board
early in the year. For fiscal 1998, the objectives used by the Company as the
basis for incentive compensation for the Chairman, CEO and the other executives
were based primarily on research and clinical development of its products. The
target amount of bonus and the actual amount of bonus are determined by the
Committee, in its discretion. No cash bonuses were paid for 1998.
Stock Options. In fiscal 1998, stock options were granted to two
executive officers in addition to the Chairman and CEO: Dr. Azarnoff was awarded
10,000 stock options and Mr. Chandler was awarded 90,000 stock options. Stock
options typically have been granted to executive officers when the executive
first joins the Company, in connection with a significant change in
responsibilities and, occasionally, to achieve equity within a peer group. The
Committee may, however, grant additional stock options to executives for other
reasons. The number of shares subject to each stock option granted is within the
discretion of the Committee and is based on anticipated future contribution and
ability to impact corporate and/or business unit results, past performance or
consistency within the executive's peer group. In fiscal 1998, the Committee
considered these factors, as well as the number of unvested options held by such
executive officers as of the date of grant. In the discretion of the Committee,
executive officers may also be granted stock options under the Plan to provide
greater incentives to continue their employment with the Company and to strive
to increase the value of the Common Stock. The stock options generally become
exercisable over a four-year period and, in certain instances, sooner based on
the attainment of certain objectives and are granted at a price that is equal to
the fair market value of the Common Stock on the date of grant.
Company Performance and Chairman and CEO Compensation. Because Dr.
Thornfeldt and Mr. Forrest were responsible for the Company obtaining a
significant portion of its objectives for fiscal 1998, the Committee exercised
its discretion and recommended, during the third quarter of fiscal 1998, that
Dr.
10
<PAGE>
Thornfeldt and Mr. Forrest should be granted stock options to purchase 75,000
and 155,000 shares of Common Stock, respectively. These objectives included
satisfactorily managing the Company's overall strategic plan, increasing the
Company's long-term shareholder valuation by achieving corporate and new product
development goals, and maintaining a strong financial position. In granting
stock options to Mr. Forrest, the Committee reviewed Mr. Forrest's prior
outstanding option grants and the number of options that remained unexercisable.
For Dr. Thornfeldt's compensation, the Committee considered his contributions in
the clinical development and commercialization of the cosmeceutical product line
and in strengthening and expanding Cellegy's intellectual property position and
patents. The Committee believes that these grants were appropriate because they
gave proper incentives to Dr. Thornfeldt and Mr. Forrest for fiscal 1998 and
future years. The Committee also reviewed the compensation practices of the
comparable companies in recommending these executive grants.
Compliance with Section 162(m) of the Internal Revenue Code of 1986.
The Company intends to comply with the requirements of Section 162(m) of the
Internal Revenue Code of 1986 for fiscal 1999. The Plan is already in compliance
with Section 162(m). The Company does not expect cash compensation for any
employee in 1999 to be in excess of $1,000,000 or consequently affected by the
requirements of Section 162(m).
COMPENSATION COMMITTEE
Jack L. Bowman
Alan A. Steigrod
11
<PAGE>
COMPANY STOCK PRICE PERFORMANCE
<TABLE>
The stock price performance graph below is required by the SEC and
shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act, or under the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed soliciting material or filed under such acts. The graph below compares
the cumulative total stockholder return on the Common Stock of the Company from
August 14, 1995, the effective date of the Company's initial public offering to
December 31, 1998 with the cumulative total return of The Nasdaq (US only) Stock
Market Index and the NASDAQ Pharmaceutical Stocks Index (assuming the investment
of $100 in the Company's Common Stock and in each of the indices on August 14,
1995, and reinvestment of all dividends). Unless otherwise specified, all dates
refer to the last day of each year presented.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
<CAPTION>
Comparison of Cumulative Total Return
8/14/95 12/31/95 12/31/96 12/31/97 12/31/98
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cellegy Index $ 100 $ 85 $ 75 $ 140 $ 58
Nasdaq Index (U.S. Only) $ 100 $ 104 $ 128 $ 157 $ 221
Nasdaq Pharmaceutical Index $ 100 $ 122 $ 123 $ 127 $ 162
</TABLE>
Certain Relationships and Related Transactions
Mr. Forrest, President and Chief Executive Officer and the Company
entered into an employment agreement dated November 20, 1996. The agreement
provides for a base compensation of $265,000 per year. Mr. Forrest's salary was
increased to $280,000 per year as of January 1, 1998. Either the Company or Mr.
Forrest may terminate the agreement at any time upon notice to the other party.
The agreement provides that, upon termination without cause, Mr. Forrest will be
paid twelve months severance and continuation of benefits during the period
severance payments are made. The agreement provides for granting of 245,000
stock options, 25,000 of which are fully vested at grant, and 25,000 of which
are vested six months after the grant date. An additional 45,000 shares subject
to the option will vest at the earlier of the accomplishment of certain
milestones or after five years from date of grant. The remaining 150,000 vest
annually over four years from the grant date if there has been no Employment
Termination.
12
<PAGE>
Dr. Thornfeldt and the Company entered into an employment agreement
dated January 22, 1996. The agreement provided for payments of $9,000 per month
as long as Dr. Thornfeldt is devoting at least five business days per month to
the affairs of the Company. The agreement provides for the assignment to the
Company, subject to certain exclusions, of inventions of Dr. Thornfeldt during
the term of the agreement. Under the Agreement, he may not engage in any
activity that is competitive with the business of the Company, including without
limitation acting as a consultant to any business that competes, directly or
indirectly, with the business of the Company. The agreement may be terminated
before expiration of its term upon certain events, including Dr. Thornfeldt's
death, a material breach of the agreement by the other party, or by either party
upon prior notice. Dr. Thornfeldt's salary was increased to $10,250 per month as
of January 1, 1998. His salary was reduced to $6,500 per month as of March 1,
1999.
Dr. Azarnoff became Vice President, Clinical and Regulatory Affairs in
October 1997 after consulting with the Company on a part-time basis since
January 1997. His agreement with the Company provides for a base compensation of
$115,000, and for certain stock option grants. Under the Agreement, Dr. Azarnoff
devotes 20 hours per week to the Company.
Mr. Chandler became Vice President, Corporate Development in May 1998.
His agreement with the company provides for a base compensation of $165,000, and
for certain stock options.
Mr. Juelis became Vice President, Finance, Chief Financial Officer and
Secretary in March 1996 after consulting with the Company on a part time basis
since November 1994. His agreement with the Company provides for a base
compensation of $160,000, and for certain stock option grants.
Dr. Francoeur became Vice President, Research and Development in May
1996. Dr. Francoeur resigned as an officer and employee of the Company effective
January 15, 1999. Dr. Francoeur and the Company entered into a severance
agreement providing for nine months of salary and selected benefit continuation.
A portion of the salary was paid in advance. The agreement also calls for
accelerated vesting of certain stock options and an extension of the termination
period for exercise of certain stock options.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Company's
Annual Meeting of shareholders following completion of the fiscal year ending
December 31, 1999, must be received in writing by the Secretary of the Company
at the Company's principal executive offices, no later than January 1, 2000.
OTHER MATTERS
The Board knows of no other matters that will be presented at the
Annual Meeting. If however, any matter is properly presented at the Annual
Meeting, the proxy solicited hereby will be voted in accordance with the
judgment of the proxy holders.
By Order of the Board of Directors,
/s/ K. Michael Forrest
--------------------------------------
K. Michael Forrest
President and Chief Executive Officer
South San Francisco, California
All shareholders are urged to complete, sign, date and return the accompanying
Proxy Card in the enclosed postage prepaid envelope. Thank you for your prompt
attention to this matter.
13
<PAGE>
Appendix A
PROXY CELLEGY PHARMACEUTICALS, INC. PROXY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
May 20, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CELLEGY
The undersigned hereby appoints K. Michael Forrest and Carl R.
Thornfeldt, M.D., or either of them, each with full power of substitution, to
represent the undersigned at the Annual Meeting of Shareholders of Cellegy
Pharmaceuticals, Inc. ("Cellegy") to be held at 8:30 a.m. P.D.T., on May 20,
1999, at 349 Oyster Point Blvd., Suite 200, South San Francisco, California, and
at any adjournments or postponements thereof, and to vote the number of shares
the undersigned would be entitled to vote if personally present at the meeting
on the following matters:
(Continued, and to be signed on the other side)
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^ FOLD AND DETACH HERE ^
ATTENTION: PLEASE NOTE THAT THIS BOX WILL NOT BE PRINTED. IT IS TO SHOW
THE TEXT POSITION ON THE FRONT OF THIS PROXY CARD
<PAGE>
[X] Please mark
your votes
as this
WITHHOLD
FOR FOR ALL
1. ELECTION OF DIRECTORS:
NOMINEES: K. Michael Forrest, [ ] [ ]
Carl R. Thornfeldt, M.D.,
Jack L. Bowman, Tobi B. Klar, M.D., Alan A. Steigrod,
and Larry J. Wells
INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name in the
space provided below.
__________________________________________
I PLAN TO ATTEND THE MEETING [ ]
FOR AGAINST ABSTAIN
2. To ratify the appointment of Ernst & Young
LLP as independent auditors of the Company [ ] [ ] [ ]
for the 1999 fiscal year.
3. The transaction of such other business as
may properly come before the meeting or [ ] [ ] [ ]
any adjournments or postponements of the
meeting.
The Board of Directors recommends
that you vote FOR the election of
all nominees and FOR Proposal No.
2.
THIS PROXY WILL BE VOTED AS
DIRECTED ABOVE. WHEN NO CHOICE IS
INDICATED, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF THE SEVEN
NOMINEES FOR ELECTION TO THE BOARD
OF DIRECTORS AND FOR PROPOSAL NO.
2.
In their discretion, the proxy
holders are authorized to vote upon
such other business as may properly
come before the meeting or any
adjournments or postponements
thereof to the extent authorized by
Rule 14a-4(c) promulgated under the
Securities Exchange Act of 1934, as
amended.
Signature(s) _______________________________________ Dated _______________, 1999
Please sign as name appears hereon. Joint owners should each sign. If shares are
held of record by a Corporation, the Proxy should be executed by the president,
vice president, secretary or assistant secretary. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
ATTENTION: PLEASE NOTE THAT THIS BOX WILL NOT BE PRINTED. IT IS TO SHOW
THE TEXT POSITION ON THE BACK OF THIS PROXY CARD
