CELLEGY PHARMACEUTICALS INC, DEF 14A, 2000-04-12

CELLEGY PHARMACEUTICALS INC
DEF 14A, 2000-04-12
PHARMACEUTICAL PREPARATIONS

Previous: BEACON INVESTMENT CO, 13F-HR, 2000-04-12

Next: UNITEDGLOBALCOM INC, 424B3, 2000-04-12

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 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)(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 31, 2000

To the Shareholders:

The Annual Meeting of Shareholders of Cellegy Pharmaceuticals, Inc.
("Cellegy") will be held at 349 Oyster Point Boulevard, Suite 200, South San
Francisco, California on May 31, 2000, at 8:30 a.m., P.D.T., for the following
purposes:

1. To elect seven members of the Board of Directors to serve until the
next annual meeting of shareholders;

2. To approve an amendment to Cellegy's 1995 Equity Incentive Plan (the
"Plan") to increase by 1,000,000 shares, to 3,450,000, the number of
shares of Cellegy common stock available for issuance pursuant to the
Plan;

3. To approve an amendment to Cellegy's 1995 Directors' Stock Option Plan
(the "Directors' Plan") to increase by 100,000 shares, to 250,000, the
number of shares of Cellegy common stock available for issuance
pursuant to the Directors' Plan.

4. To ratify the appointment of Ernst & Young LLP as Cellegy's
independent auditors for the 2000 fiscal year; and

5. 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 10, 2000 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 14, 2000

- --------------------------------------------------------------------------------
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 14, 2000

To the Shareholders:

The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of Cellegy Pharmaceuticals, Inc., a California corporation ("Cellegy"),
for use at Cellegy'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 31,
2000, at 349 Oyster Point Boulevard, Suite 200, South San Francisco, California.
Only shareholders of record on the close of business on April 10, 2000 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. On
the Record Date, 12,078,118 shares of common stock, no par value ("common
stock"), were 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, our Annual Report to Shareholders, and the
accompanying form of proxy were first mailed to shareholders on or about April
14, 2000.

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
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. Proposals Nos. 2, 3 and 4 require
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

<PAGE>

number of affirmative votes required to approve the proposal, (ii) the total
number of shares cast "for" Proposal Nos. 2, 3 and 4 or returning a properly
signed proxy but giving no instructions will be counted for purposes of
determining whether sufficient affirmative votes have been cast, (iii)
abstentions will be treated as shares that are present and entitled to vote on
the proposal and will have the same effect as a vote against the proposal, and
(iv) broker non-votes will not be counted as present or voting with respect to
such proposals.

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.

We will bear 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. Following the original mailing of the proxies and other soliciting
materials, Cellegy 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, upon the request of the record holders,
Cellegy 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 Cellegy.

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 Cellegy at the 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.

<PAGE>

PROPOSAL NO. 1

ELECTION OF DIRECTORS

Nominees

Seven 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 Cellegy. 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.

The names of the nominees and certain information about them are set forth
below:

<TABLE>
<CAPTION>
Principal Director
Name Age Occupation Since
- -------------------------------------- ----- -------------------------------------- ----------
<S> <C> <C> <C>
K. Michael Forrest .................. 56 President, Chief Executive Officer, 1996
and Director of Cellegy

Carl R. Thornfeldt, M.D. ............ 48 Medical Director and Chairman of 1989
the Board of Cellegy

Jack L. Bowman(2) .................. 67 Former Group Chairman, Johnson & 1996
Johnson

Tobi B. Klar, M.D. .................. 45 Dermatologist and Associate Clinical 1995
Professor in Dermatology, Albert
Einstein Medical Center

Ronald J. Saldarini, Ph.D.(3) ...... 60 Former President, Wyeth Lederle 1999
Vaccines

Alan A. Steigrod(2) ............... 62 Managing Director, Newport 1996
HealthCare Ventures

Larry J. Wells(3) .................. 57 President, Wells Investment Group 1989
<FN>
- ------------

(2) Member of the Compensation Committee.

(3) 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. Executive
officers are chosen by and serve at the discretion of the Board of Directors,
subject to any written employment agreements with Cellegy.

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 for Cellegy. 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 currently a director of AlphaGene Inc., a private
functional genomics company, and INEX Pharmaceuticals, a public company
developing anti-cancer products.

Carl R. Thornfeldt, M.D. Dr. Thornfeldt is a co-founder of Cellegy, as
well as a physician, board certified in dermatology. He has been Cellegy's
Medical Director since our inception and has been Chairman of the Board since
1994. Dr. Thornfeldt also served as acting CEO from July 1996 to December 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. He currently is also a consultant to Cellegy. Dr.
Thornfeldt received his M.D. from the University of Oregon Health Sciences
Center. He completed his dermatology residency at the University of California,
San Diego.

<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 Cellegy 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.

Ronald J. Saldarini, Ph.D. Dr. Saldarini became a director in July 1999,
after retiring from American Home Products. From 1994 until July 1999, he was
President of Wyeth Lederle Vaccines. He was also President of the Lederle-Praxis
Biologics Division from 1989 to 1994, and Vice President, Lederle Laboratories,
both part of American Cyanamid Company, prior to its acquisition by American
Home Products in 1994. Dr. Saldarini has been a member of the National Vaccine
Advisory Committee, the National Advisory Commission on Childhood Vaccines, and
was a National Institutes of Health postdoctoral fellow at UCLA's Brain Research
Institute. He received his Ph.D. in Physiology and Biochemistry from the
University of Kansas, and a B.A. in Biochemistry and Zoology from Drew
University.

Alan A. Steigrod. Mr. Steigrod became a director in July 1996. Since
January 1996 he has been Managing Director 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. Prior to Glaxo, Mr. Steigrod held a
number of senior management positions with Boehringer Ingelheim, Ltd. and Eli
Lilly & Co. He is currently a director of Sepracor Inc. and NeoRx Corporation.

Larry J. Wells. Mr. Wells became a director of Cellegy in 1989. For the
past seventeen 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, Isonics Corp., Wings America and Legacy Brands.

Board of Directors Meetings and Committees

During the fiscal year ended December 31, 1999 ("fiscal 1999"), the Board
held eight meetings, including telephone conference meetings. Each nominee who
was a director during fiscal 1999 attended at least 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 1999, during the time such person
was a director.

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.

Mr. Wells and Dr. Saldarini are the current members of the Audit
Committee. The Audit Committee met one time during 1999. The Audit Committee
reviews our accounting practices, internal control systems and meets with our
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 Compensation
Committee. The Compensation Committee met three times during 1999, including
telephonic meetings, and acted by written consent twice. The Compensation
Committee recommends compensation for officers and employees of Cellegy, and
grants options and stock awards under our employee benefit plans.

<PAGE>

Director Compensation

Directors employed by Cellegy did not receive any monetary fees for
services performed for Cellegy during 1999. 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 Cellegy 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 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 our 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 1999, Annual Options of 8,000
shares at an exercise price of $5.00 per share were granted to each of Jack L.
Bowman, Tobi B. Klar, M.D., Alan A. Steigrod and Larry J. Wells.

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

PROPOSAL NO. 2

APPROVAL OF AMENDMENTS TO 1995 EQUITY INCENTIVE PLAN

General

Shareholders are being asked to approve an amendment to Cellegy's 1995
Equity Incentive Plan (the "Plan") to increase the number of shares of common
stock reserved for issuance thereunder by 1,000,000 shares, from 2,450,000
shares to 3,450,000 shares. The Board of Directors approved the proposed
amendment on February 29, 2000. The Board believes that adding shares to the
Plan is in the best interests of Cellegy as it will permit Cellegy to attract
and retain key employees by providing them with appropriate equity incentives
and thereby help to align their interests with those of Cellegy's shareholders.
If a quorum is present, the affirmative vote of the holders of a majority of the
shares of common stock present or represented at the Annual Meeting is required
for approval of the amendment to the Plan.

The Plan was approved by the Board and Cellegy's shareholders effective
August 1995. The Board and the shareholders approved amendments to the Plan in
1997 and 1998 to increase the number of shares issuable under the Plan. The Plan
provides for awards of stock options, restricted stock, and stock bonuses. As of
March 31, 2000, Cellegy had thirty employees, all of whom were eligible to
receive and currently have awards under the Plan. During 1999, Cellegy issued
options to acquire a total of 905,100 shares under the Plan. As of March 31,
2000, 209,737 shares were available for future options and other awards under
the Plan. On March 31, 2000, the market price of the common stock was $7.06.
Employees and officers of Cellegy have an interest in the approval of the
proposed amendments to the Plan by virtue of their eligibility to receive awards
under the Plan. Cellegy will mail, without charge, to each person to whom a
proxy statement is delivered, upon request of such person and by first class
mail within one business day of receipt of such request, a copy of the Plan. Any
such request should be directed as follows: Secretary, Cellegy Pharmaceuticals,
Inc., 349 Oyster Point Boulevard, Suite 200, South San Francisco, California
94088; telephone number (650) 616-2200.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE PLAN.

<PAGE>

Summary of the Plan

Administration. The Plan is administered by the Board, and the Board has
delegated administration to the Compensation Committee (the "Administrator").
The Administrator acts as the manager of the Plan, and as such has the power,
subject to the terms and restrictions set forth in the Plan, to select the
persons ("Participants") to receive options granted pursuant to the Plan
("Options") or other awards under the Plan (collectively, "Awards"), to fix the
number of shares that each Participant may acquire, to set the terms and
conditions of each Award (including any vesting or exercisability provisions or
limitations regarding any Award and/or the shares of common stock relating
thereto, and the waiver, amendment, extension or acceleration of any such
provisions or limitations), to reduce the exercise price of any Award to the
then current fair market value if the fair market value of the common stock
covered by such Award shall have declined since the date the Award was granted,
and to determine all other matters relating to the Plan, subject to applicable
law. Determinations made by the Administrator are final and binding on all
parties. The Administrator may delegate non-discretionary administrative duties
to such employees of Cellegy as it deems proper. The Plan at present is
administered by the Compensation Committee of the Board.

Eligibility. Every person who at the date on which an Award was granted to
the person (the "Grant Date") is an employee of Cellegy or any Affiliate is
eligible to receive Awards, including options that are intended to be incentive
stock options ("ISOs") within the meaning of the Internal Revenue Code of 1986,
as amended (the "Code"). Every person who at the Grant Date is a consultant to
Cellegy or any Affiliate, or any person who is a director of Cellegy but not an
employee, is eligible to receive Awards, including non-qualified options
("NQOs"), but is not eligible to receive ISOs. The term "Affiliate" means a
"parent corporation" or a "subsidiary corporation" as defined in the applicable
provisions of the Code.

Securities Subject to the Plan. As proposed to be amended, the total number
of shares that are reserved and available for issuance pursuant to the exercise
of Awards under the Plan is 3,450,000 shares. If Proposal No. 2 amending the
Plan is approved, then a total of 1,209,737 shares will be available for future
issuance under the Plan. The shares covered by the portion of any grant that
expires unexercised under the Plan will become available again for grants under
the Plan. The number of shares reserved for issuance under the Plan is subject
to adjustment in accordance with the provisions for adjustment in the Plan.

Granting of Options. No Options may be granted under the Plan after 10
years from the date the Board initially adopted the Plan, unless an earlier
expiration date is specified by the Administrator at the Grant Date. Options
generally expire 10 years from its Grant Date, except that an ISO granted to any
ten percent shareholder expires five years from its Grant Date. The exercise
price of an ISO or an NQO shall be determined in accordance with the applicable
provisions of the Plan and the Code, and for ISOs is at least equal to the fair
market value of the stock covered by the ISO at the Grant Date (110% of the fair
market value for ISOs granted to a ten percent shareholder).

Each Award will be evidenced by a written agreement (in the case of
Options, referred to as the "Option Agreement," and in the case of other Awards,
referred to as the "Award Agreement"), in a form satisfactory to Cellegy,
executed by Cellegy and the Participant to whom the Award is granted. Provisions
of Award Agreements need not be the same for each Participant. Awards may, in
the sole discretion of the Administrator, be exercisable entirely at the Grant
Date or at such times and in such amounts as the Administrator may specify.

Corporate Transactions. The Plan provides that if Cellegy is merged into or
consolidated with another corporation under circumstances where Cellegy is not
the surviving corporation, is liquidated or dissolved, is the surviving
corporation of a merger after which the shareholders of Cellegy cease to own
their shares or other equity interests in Cellegy, sells or otherwise disposes
of substantially all its assets to another corporation, or completes any other
transaction which qualifies as a "corporate transaction" under Section 424(a) of
the Code wherein the shareholders of Cellegy give up all of their equity
interest in Cellegy, the successor corporation may assume, convert or replace
any outstanding awards. In the alternative, the successor corporation may
substitute any outstanding awards with substantially equivalent awards or
provide substantially similar consideration to participants as was provided to
shareholders, after

<PAGE>

taking into consideration the existing provisions of the Awards. The successor
corporation may also issue, in place of outstanding shares of Cellegy held by a
Participant, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. If the successor
corporation refuses to assume or substitute outstanding options, such options
will expire on such transaction on such conditions as the Board determines.

Payment of Exercise Price. Except as described below, payment in full, in
cash, generally must be made for all stock purchased at the time a written
notice of exercise is given to Cellegy. Proceeds of any such payment will
constitute general funds of Cellegy. The exercise price of options granted under
the Plan may be paid as approved by the Administrator at the time of grant: (a)
in cash (by check); (b) by cancellation of indebtedness of Cellegy to the
Participant; (c) by surrender of shares of Cellegy common stock owned by the
Participant for at least six months and having a fair market value on the date
of surrender equal to the aggregate exercise price of the option; (d) by tender
of a full recourse promissory note; (e) by waiver of compensation due to or
accrued by the Participant for services rendered; (f) by a "same-day sale"
commitment from the Participant and a National Association of Securities
Dealers, Inc. ("NASD") broker; (g) by a "margin" commitment from the Participant
and a NASD broker; or (h) by any combination of the foregoing.

Termination of Employment. Any Award or portion thereof that has not vested
on or before the date on which a Participant ceases, for any reason, with or
without cause, to be an employee or director of, or a consultant to, Cellegy or
an Affiliate ("Employment Termination"), expires upon the date of Employment
Termination. An Award or portion thereof that has vested as of the date of
Employment Termination, to the extent the Award has not then expired or been
exercised, is exercisable for a period of 90 days after the date of Employment
Termination or such shorter or longer time period not exceeding five years as
the Administrator may determine. If, however, Employment Termination is due to
the disability or death of the Participant, then the Participant or the
Participant's representative may, within 12 months after the date of Employment
Termination or such shorter or longer time period not exceeding five years as
the Administrator may determine, exercise such Award rights to the extent they
were exercisable on the date of Employment Termination.

Restricted Stock and Bonus Stock. Participants awarded Restricted Stock
must, within certain time periods specified in the Plan, pay to Cellegy, if
required by applicable law, an amount equal to the par value of the Stock
subject to the Award. Subject to the provisions of the Plan and the Award
Agreement, during a period set by the Administrator, commencing with, and not
exceeding 10 years from, the date of such award (the "Restriction Period"), the
Participant may not sell, assign, transfer, pledge or otherwise encumber shares
of Restricted Stock. Within these limits, the Administrator may in its
discretion provide for the lapse of such restrictions in installments and may
accelerate or waive such restrictions, in whole or in part, based on service,
performance or such other factors or criteria as the Administrator may
determine. Except to the extent otherwise provided in the Award Agreement, upon
a Participant's Employment Termination during the Restriction Period, all shares
still subject to restriction will be forfeited by the Participant. The Plan also
allows the Administrator to make awards of Bonus Stock to a Participant.

Amendment, Suspension or Termination of the Plan. The Board may at any time
amend, alter, suspend or discontinue the Plan without shareholder approval,
except as required by applicable law; provided, however, that no amendment,
alteration, suspension or discontinuation shall be made that would impair the
rights of any Participant under any Award previously granted, without the
Participant's consent, except to conform the Plan and Awards granted under the
Plan to the requirements of federal or other tax laws or the requirements of
Rule 16b-3.

ERISA, Internal Revenue Code. The Plan is not subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") and is not qualified under
Section 401(a) of the Code.

Summary of Federal Income Tax Consequences

The following description of federal income tax consequences associated
with participation in the Plan is based on current provisions of the Code and
administrative and judicial interpretations thereof. It

<PAGE>

does not describe applicable state, local, or foreign tax considerations, nor
does it discuss any estate or gift tax considerations. The applicable rules are
complex and may vary depending upon a participant's individual circumstances.
The following description is thus necessarily general and does not address all
of the potential federal and other income tax consequences to every participant
of the Plan or in connection with transactions thereunder. Moreover,
comprehensive Treasury regulations covering certain of the issues described
below have been proposed but have not yet been adopted.

Incentive Stock Options

Option, Exercise, Alternative Minimum Tax. A Participant will not have
taxable income upon the grant or exercise of an ISO. However, upon exercise, the
"Option Spread" (the amount by which the fair market value of the common stock
acquired upon exercise of the Option (the "Option Shares") on the relevant
measurement date exceeds the exercise price) is included on the Participant's
"alternative minimum taxable income" in determining the Participant's liability
for the "alternative minimum tax." "Alternative minimum tax" is imposed to the
extent it exceeds a Participant's regular tax liability. The maximum alternative
minimum tax rate applicable to individuals is now 28%. The Option Spread
generally is measured for this purpose on the day the Option is exercised;
however, if both (i) the Option Shares are subject to a "substantial risk of
forfeiture" (including a right of repurchase in favor of Cellegy and perhaps, in
the case of certain officers, limitations on the resale of such shares imposed
by Section 16(b) of the Exchange Act) and (ii) the Participant does not make an
election under Section 83(b) of the Code with respect to such shares within 30
days after the purchase date (a "Section 83(b) Election"), then the Option
Spread should be measured, and should be included in alternative minimum taxable
income, on the date the risk of forfeiture lapses. (For purposes of the
alternative minimum tax, the fair market value of Option Shares acquired under
an ISO is determined by ignoring any restriction which by its terms may some day
lapse.) Cellegy receives no income tax deduction upon grant or exercise of an
ISO but is entitled to a deduction equal to the ordinary income taxable to the
Participant upon a Disqualifying Disposition.

In general, an ISO must be exercised within 90 days of Employment
Termination to retain the federal income tax treatment described above. This
90-day period does not apply in the case of a Participant who dies while owning
an Option. In the case of a Participant who is permanently and totally disabled,
as defined in the Code, this 90-day period is extended to 12 months. The Plan
allows Cellegy to extend the period during which a Participant may exercise the
Option. Any such extension may be treated as the grant of a new Option to the
Participant, which must meet the requirements for ISO status on the date of the
agreement; in all events, if an Option is exercised more than three months after
Employment Termination, it will, except in the cases of a permanently and
totally disabled or deceased Participant, not qualify as an ISO.

Sale of Option Shares; Disqualifying Dispositions. A Participant generally
will be entitled to long-term capital gain treatment upon sale (other than to
Cellegy) or other disposition of Option Shares held longer than two years from
the grant date and one year from the date the Participant receives the shares.
If the Option Shares are sold or disposed of (including by gift, but not
including certain tax-free exchanges) before both of these holding periods have
expired (a "Disqualifying Disposition"), the Option Spread (but generally not
more than the amount of gain if the Disqualifying Disposition is a sale) is
taxable as ordinary income. For this purpose, the Option Spread is measured at
the Exercise Date unless the Option Shares were subject to a substantial risk of
forfeiture upon purchase and the Participant did not file a Section 83(b)
Election, in which event the Option Spread is measured at the date the
restriction lapsed. If gain on a Disqualifying Disposition exceeds the amount
treated as ordinary income, the excess is capital gain, which will be long-term
if the Option Shares were held for more than one year. The holding period for
Option Shares commences with the Option exercise date unless the shares are
subject to a substantial risk of forfeiture and no Section 83(b) Election is
filed, in which event the holding period commences with the date the risk
lapsed. A sale of common stock to Cellegy, including use of common stock to pay
withholding or withheld by Cellegy upon exercise of an ISO, will constitute a
redemption of such common stock and may be taxable as a dividend unless certain
tests in the Code are met.

<PAGE>

Non-Qualified Stock Options

Option; Exercise; Tax Consequences to Cellegy. A Participant does not have
taxable income upon the grant of an NQO. Federal income tax consequences upon
exercise will depend upon whether the Option Shares thereby acquired are subject
to a substantial risk of forfeiture, described above. If the Option Shares are
not subject to a substantial risk of forfeiture (or if they are subject to such
a risk and the Participant files a Section 83(b) Election with respect to the
shares), the Participant will have ordinary income at the time of exercise
measured by the Option Spread on the Exercise Date. The Participant's tax basis
in the Option Shares will be their fair market value on the date of exercise,
and the holding period for purposes of determining whether capital gain or loss
upon sale is long-term, mid-term or short-term also will begin with the day
after transfer. If the Option Shares are restricted and no Section 83(b)
Election is filed, the Participant will not be taxable upon exercise, but
instead will have ordinary income on the date the restrictions lapse, in an
amount equal to the Option Spread on the date of lapse. In such a case, the
Participant's holding period will also begin with the date of lapse.

In either case, the amount of ordinary income recognized by a Participant
who is an employee constitutes "supplemental wages" subject to withholding of
federal income and employment taxes by Cellegy, and Cellegy receives a
corresponding income tax deduction.

Sale of Option Shares. Upon sale other than to Cellegy of Option Shares
acquired under an NQO, a Participant generally will recognize capital gain or
loss to the extent of the difference between the sale price and the
Participant's tax basis in the shares, which will be "mid-term" gain or loss if
the shares are held more than one year and long-term if the shares are held for
more than 18 months. A sale of shares to Cellegy will constitute redemption of
such shares, which may be taxable as a dividend.

Tax Compensation Rights. Tax compensation rights will constitute ordinary
wage income, subject to income and employment tax withholding, when paid to the
Participant other than as proceeds of a loan.

PROPOSAL NO. 3

APPROVAL OF AMENDMENTS TO 1995 DIRECTORS' STOCK OPTION PLAN

General

Shareholders are being asked to approve an amendment to Cellegy's 1995
Directors' Stock Option Plan (the "Directors' Plan") to increase the number of
shares of common stock reserved for issuance thereunder 100,000 shares, from
150,000 shares to 250,000 shares. The Board of Directors of Cellegy approved the
proposed amendment on February 29, 2000. The Board believes that adding shares
to the Directors' Plan is in the best interest of Cellegy as it will permit
Cellegy to attract and retain key directors by providing them with appropriate
equity incentives. If a quorum is present, the affirmative vote of the holders
of a majority of the shares of common stock, present or represented at the
Annual Meeting is required for approval of the amendment to the Directors' Plan.

The Directors' Plan was approved by the Board and Cellegy's shareholders
effective August 1995. The Board and the shareholders approved amendments to the
Directors' Plan in 1997 and 1998 to increase the number if shares issuable under
the Directors' Plan and (in the case of the 1997 amendments) to make certain
other amendments. The Directors' Plan provides for awards of non-qualified stock
options ("NQOs"). As of March 31, 2000, Cellegy had seven directors, of whom all
non-employee directors were eligible to receive and have received awards under
the Directors' Plan. During 1999, Cellegy issued a total of 32,000 stock options
under the Directors' Plan. Pursuant to the Directors' Plan, 6,000 options were
granted to non-executive directors as a group during 1997. As of March 31, 2000,
16,083 shares were available for future options and other awards under the
Directors' Plan. On March 31, 2000, the market price of the common stock was
$7.06. Non-employee directors of Cellegy have an interest in the approval of the
proposed amendments to the Directors' Plan by virtue of their eligibility to
receive awards under the Directors' Plan. Cellegy will mail, without charge, to
each person to whom a proxy statement is delivered, upon request of such person
and by first class mail within one business day

<PAGE>

of receipt of such request, a copy of the Directors' Plan. Any such request
should be directed as follows: Secretary, Cellegy Pharmaceuticals, Inc., 349
Oyster Point Boulevard, Suite 200, South San Francisco, California 94088;
telephone number (650) 616-2200.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE DIRECTORS' PLAN.

Summary of the Directors' Plan

Administration. The Directors' Plan is administered by the Board, and the
Board has delegated administration to the Compensation Committee (the
"Administrator"). The Administrator acts as the manager of the Directors' Plan,
and as such has the power, subject to the terms and restrictions set forth in
the Directors' Plan, to interpret the Directors' Plan and to determine all other
matters relating to the Directors' Plan, subject to applicable law.
Determinations made by the Administrator are final and binding on all parties.
The Administrator may delegate non-discretionary administrative duties to such
employees of Cellegy as it deems proper. The Directors' Plan at present is
administered by the Compensation Committee of the Board.

Eligibility. Every person who at the date on which an Award was granted to
the person (the "Grant Date") who is a member of the Board of Directors of
Cellegy (the "Board"), who is not also an employee of Cellegy or any parent,
subsidiary or affiliate of Cellegy ("Outside Directors") is eligible to receive
Awards which shall be NQOs, other than those Board members who are granted a
Board seat pursuant to a financing or strategic partnering arrangement (as
interpreted by the Compensation Committee in its sole discretion.) The term
"Affiliate" means a "parent corporation" or a "subsidiary corporation" as
defined in the applicable provisions of the Code.

Securities Subject to the Directors' Plan. As proposed to be amended, the
total number of shares that are reserved and available for issuance pursuant to
the exercise of Awards under the Directors' Plan is 250,000 shares. A total of
16,083 shares are available for future issuance under the Directors' Plan. The
shares covered by the portion of any grant that expires unexercised under the
Directors' Plan will become available again for grants under the Directors'
Plan. The number of shares reserved for issuance under the Directors' Plan is
subject to adjustment in accordance with the provisions for adjustment in the
Directors' Plan.

Granting of Options. No Options may be granted under the Directors' Plan
after 10 years from the date the Board initially adopted the Directors' Plan,
unless an earlier expiration date is specified by the Administrator. Each
eligible person who becomes a member of the Board is granted an option for
30,000 shares of Cellegy common stock on the first business day after the date
such person is first elected to the Board (the "Initial Grant"). On the first
business day after Cellegy's Annual Meeting of shareholders, if an Outside
Director is still a member of the Board and has served continuously as a member
of the Board for at least one year, he or she is granted an option for 8,000
shares of Cellegy common stock (the "Annual Grant"). Options generally expire 10
years from the Grant Date. The exercise price of the NQOs shall be determined in
accordance with the applicable provisions of the Code. The Annual Grant
generally vests in increments of one third per year at the end of each
consecutive three-year period following the grant date.

Each Award will be evidenced by a written agreement referred to as the
"Award Agreement," in a form satisfactory to Cellegy, executed by Cellegy and
the Participant to whom the Award is granted.

Corporate Transactions. The Directors' Plan provides that in the event of a
dissolution or liquidation of Cellegy, a merger in which Cellegy is not the
surviving corporation, a merger in which Cellegy is the surviving corporation
but after which the shareholders of Cellegy cease to own their shares or other
equity interests in Cellegy, the sale of all or substantially all of the assets
of Cellegy or any other transaction which qualifies as a "corporate transaction"
under Section 424 of Internal Revenue Code of 1986, as amended (the "Code")
wherein the shareholders of Cellegy give up all of their equity interest in
Cellegy, the vesting of the options will accelerate to become exercisable in
full. Accelerated options which are not exercised prior to the close of the
corporate transaction shall terminate.

<PAGE>

Payment of Exercise Price. Payment for the Shares purchased upon exercise
of an Option may be made (a) in cash or by check; (b) by surrender of shares of
common stock of Cellegy that have been owned by the Optionee for more than six
(6) months (and which have been paid for within the meaning of Securities and
Exchange Commission ("SEC") Rule 144 and, if such shares were purchased from
Cellegy by use of a promissory note, such note has been fully paid with respect
to such shares) or were obtained by the Optionee in the open public market,
having a Fair Market Value equal to the exercise price of the Option; (c) by
waiver of compensation due or accrued to the Optionee for services rendered; (d)
provided that a public market for Cellegy stock exists, through a "same day
sale" commitment from the Optionee and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD Dealer") whereby the
Optionee irrevocably elects to exercise the Option and to sell a portion of the
Shares so purchased to pay for the exercise price and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to Cellegy; (e) provided that a public market for Cellegy's stock
exists, through a "margin" commitment from the Optionee and a NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to pledge the
Shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price, and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to Cellegy; or (f) by any combination of the foregoing.

Withholding Taxes. Prior to issuance of the Shares upon exercise of an
Option, the Optionee shall pay or make adequate provision for any federal or
state withholding obligations of Cellegy, if applicable.

Termination. In general, Options expire ten (10) years after the date of
grant (the "Expiration Date"). The Option shall cease to vest if the Optionee
ceases to be a member of the Board. The date on which the Optionee ceases to be
a member of the Board shall be referred to as the "Termination Date". If the
Optionee ceases to be a member of the Board for any reason except death or
disability, then each Option that has not expired or been exercised and has
vested on the Termination Date, may be exercised by the Optionee within three
(3) months after the Termination Date, but in no event later than the Expiration
Date. If the Optionee ceases to be a member of the Board because of death or
disability, then each Option that has not expired or been exercised and has
vested on the Termination Date, may be exercised by the Optionee (or the
Optionee's legal representative) within twelve (12) months after the Termination
Date, but in no event later than the Expiration Date.

Amendment or Termination of Directors' Plan. The Compensation Committee may
at any time terminate or amend this Directors' Plan (but may not terminate or
amend the terms of any outstanding option without the consent of the Optionee);
provided, however, that the Compensation Committee shall not, without the
approval of the shareholders of Cellegy, increase the total number of Shares
available under this Directors' Plan or change the class of persons eligible to
receive Options. Further, the provisions regarding eligibility and terms and
conditions of option grants shall not be amended more than once every six (6)
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act or the rules thereunder. In any case, no amendment of this
Directors' Plan may adversely affect any then outstanding Options or any
unexercised portions thereof without the written consent of the Optionee.

ERISA, Internal Revenue Code. The Directors' Plan is not subject to the
Employee Retirement Income Security Act of 1974 ("ERISA") and is not qualified
under Section 401(a) of the Code.

Summary of Federal Income Tax Consequences

The following description of federal income tax consequences associated
with participation in the Directors' Plan is based on current provisions of the
Code and administrative and judicial interpretations thereof. It does not
describe applicable state, local, or foreign tax considerations, nor does it
discuss any estate or gift tax considerations. The applicable rules are complex
and may vary depending upon a participant's individual circumstances. The
following description is thus necessarily general and does not address all of
the potential federal and other income tax consequences to every participant of
the Directors' Plan or in connection with transactions thereunder.

<PAGE>

Non-Qualified Stock Options

Sale of Option Shares. Upon sale other than to Cellegy of Option Shares
acquired under an NQO, a Participant generally will recognize capital gain or
loss to the extent of the difference between the sale price and the
Participant's tax basis in the shares, which will be long-term gain or loss if
the shares are held more than one year. A sale of shares to Cellegy will
constitute a redemption of such shares, which may be taxable as a dividend.

Tax Compensation Rights. Tax compensation rights will constitute ordinary
wage income, subject to income and employment tax withholding, when paid to the
Participant other than as proceeds of a loan.

PROPOSAL NO. 4

RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS

Cellegy has engaged Ernst & Young LLP as its principal independent public
accountants to perform the audit of Cellegy's financial statements for fiscal
2000. Ernst & Young LLP has audited Cellegy'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.

<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

<TABLE>
The following table sets forth, as of March 31, 2000, certain information
known to Cellegy regarding the ownership of shares of common stock by (i) each
person known to Cellegy 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 4.6%
c/o Mr. Barry Bloom
667 Madison Avenue
New York, New York 10021

The Daniel R. Tisch 1999 Annuity Trust I(2) ........................... 578,100 4.6%
c/o Mr. Barry Bloom
667 Madison Avenue
New York, NY 10021

The James S. Tisch 1999 Annuity Trust I(2) ........................... 578,100 4.6%
c/o Mr. Barry Bloom
667 Madison Avenue
New York, NY 10021

The Andrew H. Tisch 1999 Annuity Trust I(2) ........................... 578,100 4.6%
c/o Mr. Barry Bloom
667 Madison Avenue
New York, NY 10021

Four Partners(2) ...................................................... 725,000 5.7%
c/o Mr. Barry Bloom
667 Madison Avenue
New York, NY 10021

Bouybreese & Company/Pebblebay & Co. ................................. 726,045 5.7%
(Janus Funds)
100 Fillmore Street
Denver, CO 80206

K. Michael Forrest(3) ................................................ 940,994 7.2%
349 Oyster Point Blvd., Suite 200
South San Francisco, CA 94080

Carl R. Thornfeldt, M.D.(4) .......................................... 564,786 4.5%
349 Oyster Point Blvd., Suite 200
South San Francisco, CA 94080

A. Richard Juelis(5) ................................................ 103,066 *

Larry J. Wells(6) ................................................... 92,948 *

John J. Chandler(7) ................................................... 70,500 *

Tobi B. Klar, M.D.(8) ................................................ 62,705 *

Jack L. Bowman(9) ................................................... 40,585 *

Daniel L. Azarnoff, M.D.(10) .......................................... 31,000 *

Alan A. Steigrod(11) ................................................ 39,960 *

John W. Dietrich, Ph.D.(12) .......................................... 17,000 *

Ronald J. Saldarini, Ph.D.(13) ....................................... 7,500 *

All directors and executive officers as a group(14) (11 persons) ...... 5,734,489 32.2%
<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 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

<PAGE>

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, 2000 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) In addition to the 3,037,400 shares of common stock above, Four-Fourteen
Partners ("4-14 Partners"), a Delaware limited liability company, has
beneficial ownership of 47,700 shares of common stock. Each of Andrew H.
Tisch, James R. Tisch, James S. Tisch and Thomas J. Tisch may be deemed (i)
to beneficially own shares owned by the respective trust listed above of
which he is trustee and (ii) to have shared beneficial ownership of shares
owned by Four Partners and 4-14 Partners. James S. Tisch also has indirect
beneficial ownership of 19,200 shares of common stock as custodian for
certain accounts of his children.

(3) Includes 314,167 shares subject to stock options exercisable before May 31,
2000.

(4) Excludes 34,823 and 34,726 shares, respectively, held in trust for two
relatives of Dr. Thornfeldt. Includes 170,463 shares held by Dr.
Thornfeldt's spouse. Includes 168,759 shares subject to stock options
exercisable before May 31, 2000.

(5) Includes 75,066 shares subject to stock options exercisable before May 31,
2000.

(6) Includes 52,707 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 35,505 shares subject to stock options exercisable before May 31,
2000.

(7) Includes 59,500 shares subject to stock options exercisable before May 31,
2000.

(8) Includes 35,505 shares subject to stock options exercisable before May 31,
2000.

(9) Includes 36,085 shares subject to stock options exercisable before May 31,
2000.

(10) Includes 31,000 shares subject to stock options exercisable before May 31,
2000.

(11) Includes 37,960 shares subject to stock options exercisable before May 31,
2000.

(12) Includes 15,000 shares subject to stock options exercisable before
May 31, 2000.

(13) Includes 7,500 shares subject to stock options exercisable before May 31,
2000.

(14) Includes 52,707 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 733,547 shares subject to stock options exercisable before May 31,
2000.
</FN>
</TABLE>
14

<PAGE>

Executive Compensation

<TABLE>
The following table sets forth all compensation awarded, earned or paid for
services rendered in all capacities to Cellegy during fiscal years 1999, 1998
and 1997 to (i) each person who served as Cellegy's chief executive officer
during 1999, and (ii) the four most highly compensated officers other than the
chief executive officer who were serving as executive officers at the end of
1999 and whose total annual salary and bonus in such year exceeded $100,000
(collectively with the CEO, the "Named Officers").

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> <C>
K. Michael Forrest 1999 288,400 -- -- 250,000 --
President and Chief 1998 281,853 -- -- 155,000 --
Executive Officer 1997 261,943 -- -- -- --

Daniel L. Azarnoff, M.D. 1999 120,000 -- -- 28,000 --
VP, Clinical and 1998 115,000 -- -- 10,000 --
Regulatory Affairs 1997 44,747 -- -- 50,000 --

John J. Chandler 1999 171,000 -- -- 46,500 --
VP, Corporate 1998 165,000 -- 80,000 (1) 90,000 --
Development 1997 -- -- -- -- --

A. Richard Juelis 1999 170,000 -- -- 46,500 --
VP, Finance and 1998 168,438 -- -- -- --
Chief Financial Officer 1997 150,000 -- -- 16,000 --

John W. Dietrich, Ph.D. 1999 132,500 -- 40,000 (1) 90,000 --
VP, Research and 1998 -- -- -- -- --
Development 1997 -- -- -- -- --
<FN>
- ------------

(1) Consists of relocation allowances paid in accordance with their employment
agreements. Relocation allowances were expensed during the period they were
incurred.
</FN>
</TABLE>

<TABLE>
The following table sets forth information regarding individual grants of
options to acquire Cellegy common stock during fiscal 1999 to each Named
Officer.

OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Individual Grants
---------------------------------------------------------------------------------------
Potential Realizable
Number of % of Total Value at Assumed Rates of
Securities Options Exercise Stock Price Appreciation
Underlying Granted to or for Option Term(2)
Options Employees Base Price Expiration -----------------------
Name Granted(#) In Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ------------------------------- ------------ ---------------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
K. Michael Forrest(1) ...... 75,000 9.4% $3.88 01/2009 182,773 463,181
K. Michael Forrest(1) ...... 175,000 21.9% $3.69 12/2009 406,109 1,029,159
Daniel L. Azarnoff, M.D. ... 10,500 1.3% $3.88 01/2009 25,588 64,845
Daniel L. Azarnoff, M.D. ... 17,500 2.2% $3.69 12/2009 40,611 102,916
John J. Chandler ............ 21,000 2.6% $3.88 01/2009 51,176 129,691
John J. Chandler ............ 25,000 3.1% $3.69 12/2009 58,016 147,023
A. Richard Juelis ............ 24,000 3.0% $3.88 01/2009 58,487 148,218
A. Richard Juelis ............ 22,500 2.8% $3.69 12/2009 52,214 132,320
John W. Dietrich, Ph.D. ...... 75,000 9.4% $5.13 06/2008 241,731 612,595
John W. Dietrich, Ph.D. ...... 15,000 1.9% $3.69 12/2009 34,809 88,214
<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.

<PAGE>

(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 Cellegy's estimate
or projection of future share prices.
</FN>
</TABLE>

The following table sets forth information with respect to the options
exercised by the Named Officers during fiscal 1999.

Aggregated Option/SAR Exercises In Last Fiscal Year
And FY-End Option/SAR Values

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Shares Options/SARs at Options at
Acquired on Value December 31, 1999 (#) December 31, 1999 ($)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
- --------------------------------- -------------- -------------- --------------------------- ------------------------------
<S> <C> <C> <C> <C>
K. Michael Forrest ............ -- -- 289,167/360,833 *
Daniel L. Azarnoff, M.D. ...... -- -- 27,500/ 60,500 *
John J. Chandler ............... -- -- 33,750/102,250 *
A. Richard Juelis ............... -- -- 97,066/ 49,436 71,320/*
John W. Dietrich, Ph.D. ...... -- -- 15,000/ 75,000 *
<FN>
- ------------

(1) Based on the difference between the fair market value of the common stock at
December 31, 1999 ($3.375 per share) and the exercise price of options shown
on the table.

* Exercise price is below the fair market value of the common stock at
December 31, 1999.
</FN>
</TABLE>

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires Cellegy's directors and
executive officers, and persons who own more than ten percent of a registered
class of Cellegy's equity securities, to file with the Commission initial
reports of ownership and reports of changes in ownership of Cellegy common stock
and other equity securities of Cellegy. Officers, directors and greater than ten
percent shareholders are required by the Commission's regulations to furnish
Cellegy with copies of all Section 16(a) forms they filed. To Cellegy's
knowledge, based solely on review of the copies of such reports furnished to
Cellegy, during the last fiscal year all Section 16(a) filing requirements
applicable to Cellegy's officers, directors, and greater than ten percent
beneficial owners were timely filed, except that a Form 4 was filed late in
March 2000 with respect to sales, which occured between December 29 and December
31, 1999, of a total of 31,600 shares of common stock by Sundance Venture
Partners, of which Larry Wells, a director, is general partner.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of the Board (the "Committee") makes all
decisions involving the compensation of executive officers of Cellegy, 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 Cellegy
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.

<PAGE>

General Compensation Policy

The Committee acts on behalf of the Board to establish the general
compensation policy of Cellegy for all employees of Cellegy. Subject to
provisions of any applicable employment agreements, the Committee typically
reviews base salary levels and target bonuses for the Chairman, Chief Executive
Officer ("CEO") and other executive officers and employees of Cellegy prior to
the beginning of each fiscal year. The Committee administers Cellegy'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 Cellegy 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 Cellegy's stock increases above the fair
market value on the grant date and the executive remains in Cellegy'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 Cellegy competes for executive talent and
by their evaluating such information in connection with Cellegy's corporate
goals and objectives. To this end, the Committee attempted to compare the
compensation of Cellegy's executive officers with the compensation practices of
comparable companies to determine base salary and total cash compensation. In
addition to their base salaries, Cellegy's executive officers, including the
CEO, are entitled to participate in the Plan. In preparing the performance graph
for this Proxy Statement, Cellegy used The NASDAQ (U.S. only) Stock Market Index
and The NASDAQ Pharmaceutical Stocks Index as its most comparable business
indices. The compensation practices of most of the companies in these indices
were not reviewed by Cellegy when the Committee reviewed the compensation
information described above because such companies were determined not to be
competitive with Cellegy for executive talent.

Fiscal 1999 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 may be awarded if Cellegy meets
predetermined corporate goals and objectives set by the Board early in the year.
For fiscal 1999, the objectives used by Cellegy 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 1999.

Stock Options. In fiscal 1999, stock options were granted to four executive
officers in addition to the Chairman and CEO: Dr. Azarnoff was awarded 28,000
stock options, Mr. Chandler was awarded 46,000 stock options. Dr. Dietrich was
awarded 90,000 stock options upon joining Cellegy and Mr. Juelis was awarded
46,500 stock options. Stock options typically have been granted to executive
officers when the executive first joins Cellegy, 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 1999, 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 Cellegy and to strive to increase the value of the common stock.
Initial stock options generally become exercisable over a four-year period and,
in certain instances, sooner based on the attainment of certain objectives.
Annual stock option grants generally became exercisable over a three-year
period. All options are granted at a price that is equal to the fair market
value of the common stock on the date of grant.

<PAGE>

Company Performance and Chairman and CEO Compensation. Because Dr.
Thornfeldt and Mr. Forrest were responsible for Cellegy obtaining a significant
portion of its objectives for fiscal 1999, the Committee exercised its
discretion and recommended, during the third quarter of fiscal 1999, that Mr.
Forrest and Dr. Thornfeldt should be granted stock options to purchase 175,000
and 15,000 shares of common stock, respectively. In granting stock options to
Mr. Forrest, the Committee reviewed Mr. Forrest's achievement of his objectives
including satisfactorily managing Cellegy's overall strategic plan, increasing
Cellegy's long-term shareholder valuation by achieving corporate and new product
development goals, and maintaining a strong financial position. For Dr.
Thornfeldt's compensation, the Committee considered his contributions in the
development 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 1999 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.
Cellegy intends to comply with the requirements of Section 162(m) of the
Internal Revenue Code of 1986 for fiscal 2000. The Plan is already in compliance
with Section 162(m). Cellegy does not expect cash compensation for any employee
in 2000 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

<PAGE>

COMPANY STOCK PRICE PERFORMANCE

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 Cellegy
specifically incorporates this information by reference, and shall not otherwise
be deemed soliciting material or filed under such acts. The chart below compares
the cumulative total stockholder return on the common stock of Cellegy from
August 14, 1995, the effective date of Cellegy's initial public offering to
December 31, 1999 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 Cellegy 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 graph below compares the cumulative total stockholder return on the
common stock of Cellegy from August 14, 1995, the effective date of Cellegy's
initial public offering to December 31, 1999 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 Cellegy 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]

Comparison of Cumulative Total Return

8/14/95 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
------- -------- -------- -------- -------- --------

Cellegy Index $100 $ 85 $ 75 $140 $ 58 $ 56

Nasdaq Index
(U.S. Only) $100 $104 $128 $157 $222 $411

Nasdaq Pharmaceutical
Index $100 $122 $123 $127 $161 $300

Certain Relationships and Related Transactions

Mr. Forrest, President and Chief Executive Officer and Cellegy entered into
an employment agreement dated November 20, 1996. The agreement provides for a
base compensation of $265,000 per year. Mr. Forrest's current annual salary is
$288,400. Either Cellegy 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 a grant of 245,000 stock options, 25,000 of which were fully vested
at grant, and 25,000 of which were 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. As of March 31, 2000, a total of 162,500 options
from his initial grant are vested.

<PAGE>

Dr. Thornfeldt and Cellegy entered into a consulting agreement dated
February 1, 2000. The agreement provided for payments of $6,000 per month as
long as Dr. Thornfeldt is devoting at least three business days per month to the
affairs of Cellegy. The agreement included a grant of 100,000 stock options. The
agreement provides for the assignment to Cellegy, 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 Cellegy, including without limitation acting as a consultant to any
business that competes, directly or indirectly, with the business of Cellegy.
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. Azarnoff became Senior Vice President in July 1999. He joined Cellegy
as Vice President of Clinical and Regulatory Affairs in October 1997 after
consulting with Cellegy on a part-time basis since January 1997. His agreement
with Cellegy provides for a base compensation of $120,000 and for certain stock
option grants. Under the Agreement, Dr. Azarnoff devotes 20 hours per week to
Cellegy.

Dr. Dietrich became Vice President, Research and Development in June 1999.
His agreement with Cellegy provides for a base compensation of $185,000 and for
certain stock option grants.

SHAREHOLDER PROPOSALS

Advance Notice Procedures for Next Year's Annual Meeting

Proposals of shareholders intended to be presented at Cellegy's Annual
Meeting of Shareholders to be held in 2001 must be received in writing by
Cellegy's Secretary, at its principal executive offices, no later than December
10, 2000. In addition, Cellegy hereby advises shareholders that, until further
notice, notice of a shareholder-sponsored proposal submitted outside of the
process of Rule 14a-8 under the Securities Exchange Act of 1934 (i.e., a
proposal to be presented at the next annual meeting of shareholders, but not
submitted for inclusion in Cellegy's Proxy Statement) will be considered
untimely under Cellegy's bylaws unless it is received in writing by the
Secretary no later than February 28, 2001.

In addition, if Cellegy is not notified of a shareholder proposal by
February 28, 2001, then the proxies held by management of Cellegy will provide
for discretionary authority to vote against such shareholder proposal, even
though such proposal is not discussed in the Proxy Statement.

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.

<PAGE>

1. ELECTION OF DIRECTORS:

[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as indicated to vote for all nominees
to the contrary below) listed below

NOMINEES: K. Michael Forrest, Carl R. Thornfeldt, M.D., Jack L. Bowman, Tobi B.
Klar, M.D., Ronald J. Saldarini, Ph.D., Alan A. Steigrod, and Larry J. Wells

INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below:

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

2. APPROVAL OF AMENDEMENT OT THE 1995 EMPLOYEE INCENTIVE PLAN TO INCREASE
THE NUMBER OF SHARES OF COMMON STOCK RESERVED AND AUTHORIZED FOR
ISSUANCE UNDER THE PLAN BY 1,000,000 SHARES, FROM 2,450,000 SHARES TO
3,450,000 SHARES.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

3. APPROVAL OF AMENDMENT TO THE 1995 DIRECTORS' STOCK OPTION PLAN TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK RESERVED AND AUTHORIZED
FOR ISSUANCE UNDER THE PLAN BY 100,000 SHARES, FROM 150,000 SHARES TO
250,000 SHARES.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

4. TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
OF THE COMPANY FOR THE 2000 FISCAL YEAR.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

5. 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 Nos. 2, 3 and 4.

<PAGE>

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 NOS. 2, 3 AND 4. 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.

I PLAN TO ATTEND THE MEETING [ ]

Dated: ________________, 2000

_____________________________ (Print Shareholder(s) name)

_____________________________ (Signature(s) of Shareholder or
Authorized Signatory)

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.