November 20, 1996 K. Michael Forrest 1065 E. Hillsdale Blvd. #418 Foster City, CA 94404 Re: Your Employment With Cellegy Pharmaceuticals, Inc. Dear Mike, This letter will set forth the binding agreement of employment ("the Agreement"), effective as of...

                                                 November 20, 1996
X. Xxxxxxx Xxxxxxx
0000 X. Xxxxxxxxx Xxxx. #000
Xxxxxx Xxxx, XX  00000

                     Re:      Your Employment With Cellegy Pharmaceuticals, Inc.


Dear Xxxx,

         This letter will set forth the binding  agreement of  employment  ("the
Agreement"),  effective as of December 1, 1996 ("the Effective  Date"),  between
you and Cellegy  Pharmaceuticals,  Inc., a California  corporation ("Cellegy" or
the "Company").


1.       EMPLOYMENT AND DUTIES


         (a)  Employment.  During the  Employment  Term (as defined in Section 3
below),  the Company  agrees to employ you, and subject to Section 3 below,  you
agree to serve,  as President and Chief Executive  Officer of Cellegy.  You will
have such duties and authority as are customary for, and commensurate with, such
position,  including general  management and direction of the Company,  and such
other reasonable  duties and authority as the Board of Directors of Cellegy (the
"Board")  prescribes  from time to time. You will also be nominated for election
as a director of Cellegy at the next Board  meeting,  scheduled  for December 5,
1996.


         (b) Exclusive Service.  Except for your current  consulting  assignment
with Alphagene, Inc., which will be completed on January 31, 1997 or sooner, you
agree to devote your full time and efforts to this employment and apply all your
skill and  experience  to the  performance  of your  duties  and  advancing  the
Company's  interests in accordance with your experience and skills. In addition,
during  the  Employment  Term  you  will  not act as a  member  of the  Board of
Directors for any other  corporation or engage in any other consulting  activity
without the prior  written  approval  of Company  (which  approval  shall not be
withheld unreasonably) unless so directed by the Company, and you will otherwise
do nothing inconsistent with the performance of your duties hereunder.

2.       COMPENSATION

         (a) Salary. For your services under this Agreement, Xxxxxxx will pay as
salary to you the  amount of  $22,083.33  per  month  (an  annualized  salary of
$265,000.00)  during  each of the  calendar  years of the  Employment  Term,  as
defined in Section 3 below, pro rated for any year in 



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November 20, 1996
Page 2


which this Agreement is in effect for only a portion of the calendar year.  Your
salary will be paid in conformity  with  Xxxxxxx's  normal payroll  period.  The
Board (or the compensation  committee thereof) shall, in its discretion,  review
your salary and other  compensation at least  annually.  From the Effective Date
through the end of your current consulting assignment,  your Cellegy salary will
be adjusted  based on the number of business days spent  pro-rata on non-Cellegy
activities.

         (b) Signing Bonus.  You will receive a signing bonus of $50,000 payable
60 days after the Effective  Date. You will repay such bonus if your  employment
with Cellegy is terminated during a one-year period after the Effective Date for
any reason (including without limitation your voluntary  termination) other than
termination Without Cause or termination due to death or disability.

         (c) Other Benefits.  You will be entitled to participate in and receive
benefits under Cellegy's  standard company benefits plans as in effect from time
to time which  currently  includes:  medical,  dental and  health  insurance,  a
SEP-IRA (or 401K) savings plan (subject to current contribution restrictions), a
long-term  disability  plan currently  available to Cellegy  employees  (maximum
coverage  $150,000  annually),  life  insurance  (maximum  coverage of one times
salary  up to  $250,000),  two  weeks  per year of  vacation  time  (subject  to
applicable  company  "carry  over"  policies).  You  will  also be  entitled  to
participate in the Company's  employee stock option and equity  incentive  plans
which are generally available to executive employees.

         (d) Expenses.  During the term of your employment under this Agreement,
you will be  entitled  to receive  prompt  reimbursement  from  Cellegy  for all
reasonable  business-related  expenses  incurred  by  you,  in  accordance  with
Cellegy's policies and procedures as in effect from time to time,  provided that
such expenses are properly  documented and accounted for in accordance  with the
requirements of the Internal Revenue Service.

         (e) Deductions  and  Withholding.  All amounts  payable or which become
payable under any provisions of this Agreement will be subject to any deductions
authorized in writing by you and any  deductions  and  withholdings  required by
law.

3.       TERM OF EMPLOYMENT

         (a) Term.  This  Agreement  will continue in full force and effect from
and  including  the  Effective  Date through and  including  four years from the
Effective  Date unless  sooner  terminated  pursuant to the  provisions  of this
Agreement. Thereafter, the term of this Agreement shall automatically be renewed
for a maximum of two additional successive one-year terms on each anniversary of
the  Effective  Date (so that the maximum  term is six years from the  Effective
Date),  unless either party gives notice of the  non-renewal of such annual term
at least 30 days before  commencement  of the next annual term. The term of this
Agreement,  unless  terminated  or  extended  as  hereinafter  provided  will be
referred to as the "Employment Term."



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November 20, 1996
Page 3


         (b) Extension of Term.  The term of this Agreement may be extended by a
written amendment to this Agreement signed by both parties.

         (c) Termination  Without Cause. Your employment with Cellegy under this
Agreement may be terminated by Cellegy at any time during the Employment Term by
a majority vote of the Board, for any reason or for no reason,  such termination
to be  effective  upon  delivery  of written  notice by  Cellegy of  termination
Without Cause. For purposes of this Agreement, a termination Without Cause shall
not include  termination of your employment for "Cause" or termination by reason
of your death or disability or your voluntary  termination  of your  employment.
Termination  other  than for Cause  shall be deemed to  include  termination  by
reason of the non-renewal of the term of this Agreement.

         (d) Termination for Cause.  Your employment may be terminated for Cause
by a majority vote of the Board, immediately upon delivery of termination notice
thereof to you. For the purposes of this Agreement, "Cause" for your termination
will  exist at any time  after  the  happening  of one or more of the  following
events,  as  determined  by the  Company in its  reasonable  judgment:  (i) your
willful and deliberate  failure or a refusal (not resulting from your incapacity
due to physical or mental  illness) to comply in any  material  respect with the
legal, ethical and reasonable policies,  standards or regulations of the Company
of which you have or reasonably  should have had prior  knowledge,  and provided
that written notice,  in reasonable detail as to the alleged failure or refusal,
has been given to you by the Board and, if the  failure is capable of cure,  you
have had a reasonable  opportunity  to cure such failure;  (ii) your willful and
deliberate  failure or a refusal  (not  resulting  from your  incapacity  due to
physical or mental illness) in any material  respect,  faithfully or diligently,
to perform your legal, ethical and reasonable duties,  determined by the Company
in accordance with this Agreement or the customary  duties of your employment of
which you have or reasonably should have had prior knowledge,  and provided that
written notice, in reasonable  detail as to the alleged failure or refusal,  has
been given to you by the Board and, if the failure is capable of cure,  you have
had a  reasonable  opportunity  to cure  such  failure;  (iii)  your  deliberate
concealment  from the Board of any  action by the  Company in  violation  of any
legal,  ethical and reasonable  policy  standard or regulation set by the Board;
(iv) your  deliberate  failure to obtain  Board  approval  for any  Company  act
requiring  Board  approval;  (v) any  unprofessional,  unethical  or  fraudulent
conduct that is demonstrably  injurious and materially discredits the Company or
is  materially  detrimental  to the  reputation,  character  or  standing of the
Company;  (vi)  dishonest  conduct or a  deliberate  attempt to do injury to the
Company; (vii) your material breach of this Agreement; or (viii) your conviction
of a  felony  or  other  crime  involving  embezzlement,  fraud  or any  offense
involving  the money or property of the Company;  provided,  however,  that with
respect to clauses (i) and (ii) above, if your failure or refusal was the result
of a reasonable good faith objection by you, which you set forth to the Board of
Directors of the Company,  that such  compliance or performance  would not be in
the best  interests  of the Company  and its  shareholders  or would  violate an
applicable law or regulation or ethical duty,  then any such  termination by the
Board as a result of such failure or refusal shall be deemed to be a termination
other than for Cause.



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November 20, 1996
Page 4


         (e) Termination Due to Death or Disability.  Your employment under this
Agreement will terminate  immediately upon your death. In the event that for any
reason of injury,  illness or to the physical or mental  impairment  you are (i)
completely  unable to perform your services  under this  Agreement for more than
two  consecutive  months,  or (ii)  unable  in the good  faith  judgment  of the
majority of the Board to perform your  services  under this  Agreement for fifty
percent or more of the normal  working day during each day of three  consecutive
months,  then Cellegy may  terminate  your  employment  under this  Agreement by
delivery to you of written notice of such termination.

4.       PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT.

         (a) Upon  termination  of this  Agreement  under  Section  3(d) of this
Agreement ("Termination for Cause"),  Section 3(e) ("Termination Due to Death or
Disability") or your voluntary termination of employment,  all salary,  benefits
and stock option  vesting  under this  Agreement  will cease  immediately.  Upon
termination  pursuant to Section 3(c) of this  Agreement  ("Termination  Without
Cause") after the Effective Date,  including without  limitation  termination of
employment  other  than for Cause  upon or after the  occurrence  of a merger or
acquisition of the business of Cellegy by another person or entity (whether such
transaction  is  structured  as a merger,  third  party  purchase of equity from
Cellegy or from its  shareholders,  or a sale by Cellegy of all or substantially
all of its  assets  or  otherwise  in which  Cellegy  is not the  continuing  or
surviving corporation), you will be paid severance pay by Xxxxxxx in the form of
a continuation  of your salary for a period of twelve (12) months from and after
the date of such  termination  even if you have secured  other  employment  (pro
rated  for the  first  and  last  month  of  such  twelve-month  period  if your
employment is terminated  other than at the end of a calendar month and less any
applicable amounts required to be withheld).  At your option, six months of this
severance pay may be taken in one lump sum upon  termination  with the remainder
being paid monthly in equal increments over the severance  period.  In addition,
during the period that you are receiving  severance  payments and as long as you
have not  secured  full-time  employment  with  another  employer  (such  period
referred to as the "Eligibility  Period"), to the extent permitted by applicable
Company  plans and  policies  and unless  prohibited  by law,  your  medical and
dental,  disability,  and life insurance benefits will be continued. If any such
benefit cannot be continued,  the Company will pay you the equivalent  amount of
premiums for such benefit, and shall also pay you an additional sum to cover any
federal or state income or employment tax due on such amounts.  Your SEP-IRA (or
401K) and vacation accrual will cease on the termination date. During the period
of payment of severance pay you will cooperate with Cellegy in providing for the
orderly transition of your duties and responsibilities to other individuals,  as
reasonably requested by Xxxxxxx.

         (b) Moreover,  during the period you are receiving  severance  payments
even if you have  secured  other  employment,  the period  during  which you may
exercise the Option will (to the extent the Option is otherwise  exercisable  as
provided  herein) be extended until thae  termination  of the severance  period.
Except as provided  herein,  vesting of Option Shares shall cease as of the date
of employment termination. For the 150,000 Option Shares described under 




X. Xxxxxxx Xxxxxxx
November 20, 1996
Page 5

Section  5(iv)  below,  in the event of a  termination  other than for Cause,  a
number of additional  Option Shares shall become  exercisable in an amount equal
to 1/48 of such  150,000  Option  Shares per month (based on the grant date) for
each month from the last annual option vesting date (or, if such  termination is
within one year of the grant date of the Option, then from the grant date of the
Option) until (and  including)  the full month in which  employment  termination
occurs.  In addition,  if the termination other than for Cause occurs within the
first six months after the grant date of the Option, then a number of the 25,000
additional Option Shares referred to in Section 5(i) shall become exercisable in
an amount  equal to 1/6 of such  25,000  Option  Shares per month for each month
from the grant date until (and including) the full month in which the employment
termination occurs.

5.       OPTIONS.  As soon as  possible after  you become a full-time  employee,
Cellegy will recommend to the Board (or the Compensation Committee thereof) that
the Board  grant to you a stock  option  (the  "Option"),  under its 1995 Equity
Incentive  Plan  (the  "Plan"),  exercisable  for a total of  245,000  shares of
Cellegy  Common Stock.  The option will,  to the extent  permitted by applicable
Internal Revenue Service ("IRS") regulations,  be an incentive stock option. The
Option  will have an exercise  price  equal to 100% of the closing  price of the
Common  Stock on the date the option is granted,  as reported in the Wall Street
Journal (or similar  publication).  The Option will be exercisable (will "vest")
as follows:

         (i) Of the shares subject to the Option  ("Option  Shares"),  50,000 of
the Option Shares will be subject to vesting (according to the provisions of the
Plan and your Option relating to termination of employment), as follows:

         Shares                     Vesting
         25,000                     On Grant Date
         25,000                     6 months after Grant Date

         (ii) Under  applicable IRS rules and provisions of the Plan,  where the
value of Option Shares that first become  exercisable in a calendar year exceeds
$100,000,  the incremental shares will not be considered Incentive Stock Options
("ISOs") but will be considered Non-Qualified Stock Options ("NSOs").

         (iii) 45,000 of the Option Shares will vest if the Cellegy Common Stock
closing price is at or above $12.50 (taking into account any split of the Common
Stock) for ten consecutive trading days during the five year period beginning on
the Grant  Date of the Option  Shares.  Notwithstanding  the  above,  all 45,000
Option Shares (subject to the provisions of the Plan and your Option relating to
termination of employment) will vest five (5) years from the grant date.

         (iv)   150,000  of  the  Option   Shares  will  vest  in  equal  annual
installments over a period of four years from the grant date.

6.       OBLIGATIONS NOT TO COMPETE: NO SOLICITATION.



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Page 6


         (a)  Noncompetition.  You hereby  agree that while you are  employed by
Company,  you shall not engage in or provide  services to any  business  that is
directly  or  indirectly  competitive  with or  detrimental  to any  present  or
contemplated  business  of the  Company  known  to you.  Each  of the  following
activities  shall,  without  limitation,  be deemed to  constitute  engaging  in
business  within the meaning of this Section:  to engage in, work with,  have an
interest  or  concern  in,  advise,  lend  money  to,  guarantee  the  debts  or
obligations  of,  or  permit  one's  name  or any  part  thereof  to be  used in
connection with, an enterprise or endeavor, either individually, in partnership,
or in conjunction with any person or persons, firms, associations, companies, or
corporations,  whether as a principal,  agent, shareholder,  employee,  officer,
director,  partner,  consultant  or in any other  manner  whatsoever;  provided,
however,  that you shall  retain the right to invest in or have an  interest  in
entities traded on any public market or offered by any national brokerage house,
provided  that said  interest  does not exceed five  percent  (5%) of the voting
control  of said  entity.  In  addition,  you may make  passive  investments  in
privately held entities that are determined by the Board of Directors of Company
not to be  competitors  of  Company.  You also agree that if you are  terminated
Without  Cause,  for a period of one year after your  termination  you shall not
engage in,  work with,  provide  service  to,  have an  interest  or concern in,
advise,  lend money to,  guarantee the debts or obligations  of, or permit one's
name or any part thereof, to be used in conjunction with, three persons,  firms,
associations, companies, corporations, partnerships, or entities selected by the
Company prior to or  substantially  contemporaneously  with your termination and
directly or indirectly  competitive with the present or contemplated business of
the Company.

         (b)  Nonsolicitation.  You agree that as long as you are an employee of
the Company and for one year thereafter (the "Restricted Period"), (i) you shall
not  directly or  indirectly,  either for  yourself  or for any other  person or
entity,  directly  or  indirectly,  solicit,  induce or  attempt  to induce  any
employee of the Company to terminate his or her employment with the Company; and
(ii) you will not in any manner attempt to induce or assist others to attempt to
induce any customer or client of the Company to terminate his  association  with
the  Company,  nor do anything  directly or  indirectly  to  interfere  with the
relationship between the Company and any such persons or concerns.

7.       MISCELLANEOUS.  This Agreement  contains the entire  understanding  and
sole and entire  agreement  between us with respect to the subject matter of the
Agreement, supersedes any and all prior agreements, negotiations and discussions
between us with  respect to the subject  matter  covered  hereby and may only be
modified by an agreement in writing  signed by Xxxxxxx and you. If any provision
of the Agreement is held to be invalid or otherwise  unenforceable,  in whole or
in part,  the remainder of such  provision  and the remainder of this  Agreement
will  not be  affected  thereby  and  will be  enforced  to the  fullest  extent
permitted by law.  Neither this  Agreement nor the rights or  obligations  under
this  Agreement  will be assignable by you.  Cellegy may assign the Agreement to
any successor of Cellegy  without your consent.  This  Agreement will be binding
upon our respective  successors  and assigns and upon your heirs,  executors and
administrators.  This  Agreement will be governed by and  constructed  under the
laws of the State of California  without regard to conflict of laws. Any notice,
request, demand or other




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Page 7

communication  required or permitted  under this  Agreement will be deemed to be
properly given when personally  served in writing,  or two days after deposit in
the United States mail, postage pre-paid, or one business day after deposit with
a reputable national courier service for overnight delivery with confirmation of
receipt,  addressed to Cellegy at its principal  executive  office, or to you at
the  address  shown  at the  beginning  of this  letter,  or by  facsimile  upon
confirmation of receipt. Each of us may change our respective address for notice
purposes by written notice to the other in accordance with this Section.

8.       ARBITRATION.   Cellegy  and  you  shall  submit  to  mandatory  binding
arbitration  in any  controversy  or claim  arising out of, or relating to, this
Agreement or any breach hereof or your employment relationship with the Company;
provided,  however,  that both you and the  Company  retain the right to seek or
obtain, and shall not be prohibited, limited or in any other way restricted from
seeking or obtaining, equitable relief from a court having jurisdiction over the
parties. Such arbitration shall be conducted in San Francisco in accordance with
the  California  Code of Civil  Procedure  Section  1280,  et. seq., as amended,
including the rights of discovery under Code of Civil Procedure Section 1283.05,
and judgment upon the  determination  or award rendered by the arbitrator may be
entered in any court having  jurisdiction  thereof.  The parties  shall each pay
one-half of all fees and costs of the arbitration.

9.       ATTORNEY  FEES.  In any  action  arising  out of or  relating  to  this
Agreement,  the non-prevailing  party shall pay the reasonable attorney fees and
costs of the prevailing party.

10.      BOARD  COMPOSITION.   With   respect  to  the   Company's  next  annual
meeting of shareholders  (or, if you do not make a recommendation  in connection
with that meeting,  then at the next annual  meeting  thereafter),  you have the
right to recommend up to two new Board members in addition to yourself, provided
you and they together do not account for 50% of




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Page 8



membership  of the Board.  Your  selections  are subject to the  approval by the
Board and the shareholders at the annual meeting.


Sincerely,

CELLEGY PHARMACEUTICALS, INC.



By: /s/ Xx. Xxxx X. Xxxxxxxxxx
----------------------------
Xx. Xxxx X. Xxxxxxxxxx
Chairman of the Board
Cellegy Pharmaceuticals, Inc.


ACCEPTED AND AGREED:

/s/ X. Xxxxxxx Xxxxxxx
----------------------
X. Xxxxxxx Xxxxxxx