Document:

Execution Copy

                                                                    Exhibit 10.9

                         COMMON STOCK PURCHASE AGREEMENT

                                 by and between

                           KINGSBRIDGE CAPITAL LIMITED

                                       and

                          CELLEGY PHARMACEUTICALS, INC.

                          dated as of January 16, 2004

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ARTICLE I             DEFINITIONS.......................................................................2

         Section 1.01.     "Articles"...................................................................2

         Section 1.02.     "Blackout Amount"............................................................2

         Section 1.03.     "Blackout Shares"............................................................2

         Section 1.04.     "Closing Date"...............................................................2

         Section 1.05.     "Commission".................................................................2

         Section 1.06.     "Commission Documents".......................................................2

         Section 1.07.     "Commitment Period"..........................................................2

         Section 1.08.     "Common Stock"...............................................................2

         Section 1.09.     "Condition Satisfaction Date"................................................2

         Section 1.10.     "Damages"....................................................................2

         Section 1.11.     "Draw Down"..................................................................2

         Section 1.12.     "Draw Down Amount"...........................................................2

         Section 1.13.     "Draw Down Discount Price"...................................................2

         Section 1.14.     "Draw Down Notice"...........................................................3

         Section 1.15.     "Draw Down Pricing Period"...................................................3

         Section 1.16.     "Effective Date".............................................................3

         Section 1.17.     "Exchange Act"...............................................................3

         Section 1.18.     "Knowledge"..................................................................3

         Section 1.19.     "Legend".....................................................................3

         Section 1.20.     "Make Whole Amount"..........................................................3

         Section 1.21.     "Market Capitalization"......................................................3

         Section 1.22.     "Market Cap Increase Quotient"...............................................3

         Section 1.23.     "Material Adverse Effect"....................................................3

         Section 1.24.     "Maximum Commitment Amount"..................................................3

         Section 1.25.     "Maximum Draw Down Amount"...................................................3

         Section 1.26.     "NASD".......................................................................3

         Section 1.27.     "New Market Cap".............................................................4

         Section 1.28.     "Other Financing"............................................................4

         Section 1.29.     "Old Market Cap".............................................................4

         Section 1.30.     "Permitted Transaction"......................................................4

         Section 1.31.     "Person".....................................................................4

         Section 1.32.     "Principal Market"...........................................................4
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         Section 1.33.     "Prohibited Transaction".....................................................4

         Section 1.34.     "Prospectus".................................................................4

         Section 1.35.     "Registrable Securities".....................................................4

         Section 1.36.     "Registration Rights Agreement"..............................................4

         Section 1.37.     "Registration Statement".....................................................4

         Section 1.38.     "Regulation D"...............................................................5

         Section 1.39.     "Section 4(2)"...............................................................5

         Section 1.40.     "Securities Act".............................................................5

         Section 1.41.     "Settlement Date"............................................................5

         Section 1.42.     "Shares".....................................................................5

         Section 1.43.     "Threshold Price"............................................................5

         Section 1.44.     "Trading Day"................................................................5

         Section 1.45.     "Underwriter"................................................................5

         Section 1.46.     "VWAP".......................................................................5

         Section 1.47.     "Warrant"....................................................................5

         Section 1.48.     "Warrant Shares".............................................................5

ARTICLE II            PURCHASE AND SALE OF COMMON STOCK.................................................5

         Section 2.01.     Purchase and Sale of Stock...................................................5

         Section 2.02.     Closing......................................................................5

         Section 2.03.     Registration Statement and Prospectus........................................6

         Section 2.04.     Warrant......................................................................6

         Section 2.05.     Blackout Shares..............................................................6

ARTICLE III           DRAW DOWN TERMS...................................................................6

         Section 3.01.     Draw Down Notice.............................................................6

         Section 3.02.     Number of Shares.............................................................6

         Section 3.03.     Limitation on Draw Downs.....................................................6

         Section 3.04.     Trading Cushion..............................................................7

         Section 3.05.     Expiration of Draw Downs.....................................................7

         Section 3.06.     Settlement...................................................................7

         Section 3.07.     Delivery of Shares; Payment of Draw Down Amount..............................7

         Section 3.08.     Threshold Price..............................................................7

         Section 3.09.     Other Issuances..............................................................7
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         Section 3.10.     Failure to Deliver Shares....................................................7

ARTICLE IV            REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................................8

         Section 4.01.     Organization, Good Standing and Power........................................8

         Section 4.02.     Authorization; Enforcement...................................................8

         Section 4.03.     Capitalization...............................................................9

         Section 4.04.     Issuance of Shares...........................................................9

         Section 4.05.     No Conflicts.................................................................9

         Section 4.06.     Commission Documents, Financial Statements..................................10

         Section 4.07.     No Material Adverse Change..................................................11

         Section 4.08.     No Undisclosed Liabilities..................................................11

         Section 4.09.     No Undisclosed Events or Circumstances......................................11

         Section 4.10.     Actions Pending.............................................................11

         Section 4.11.     Compliance with Law.........................................................11

         Section 4.12.     Certain Fees................................................................11

         Section 4.13.     Disclosure..................................................................11

         Section 4.14.     Material Non-Public Information.............................................12

         Section 4.15.     Exemption from Registration; Valid Issuances................................12

         Section 4.16.     No General Solicitation or Advertising in
                             Regard to this Transaction................................................12

         Section 4.17.     No Integrated Offering......................................................12

         Section 4.18.     Acknowledgment Regarding Investor's Purchase of Shares......................12

ARTICLE V             REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR........................13

         Section 5.01.     Organization and Standing of the Investor...................................13

         Section 5.02.     Authorization and Power.....................................................13

         Section 5.03.     No Conflicts................................................................13

         Section 5.05.     Information.................................................................14

         Section 5.06.     Selling Restrictions........................................................14

         Section 5.07.     Statutory Underwriter Status................................................14

ARTICLE VI            COVENANTS OF THE COMPANY.........................................................14

         Section 6.01.     Securities..................................................................14

         Section 6.02.     Reservation of Common Stock.................................................14

         Section 6.03.     Registration and Listing....................................................15
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         Section 6.04.     Registration Statement......................................................15

         Section 6.05.     Compliance with Laws........................................................15

         Section 6.06.     Reporting Requirements......................................................15

         Section 6.07.     Other Financing.............................................................15

         Section 6.08.     Prohibited Transactions.....................................................16

         Section 6.09.     Corporate Existence.........................................................16

         Section 6.10.     Non-Disclosure of Non-Public Information....................................16

         Section 6.11.     Notice of Certain Events Affecting Registration;
                             Suspension of Right to Request a Draw Down................................16

         Section 6.12.     Amendments to the Registration Statement....................................16

         Section 6.13.     Prospectus Delivery.........................................................17

         Section 6.14.     Expectations Regarding Draw Downs...........................................17

ARTICLE VII           CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN...............17

         Section 7.01.     Accuracy of the Company's Representations and Warranties....................17

         Section 7.02.     Performance by the Company..................................................17

         Section 7.03.     Compliance with Law.........................................................18

         Section 7.04.     Effective Registration Statement............................................18

         Section 7.05.     No Knowledge................................................................18

         Section 7.06.     No Suspension...............................................................18

         Section 7.07.     No Injunction...............................................................18

         Section 7.08.     No Proceedings or Litigation................................................18

         Section 7.09.     Section 16 Limitation.......................................................18

         Section 7.10.     Sufficient Shares Registered for Resale.....................................19

         Section 7.11.     Warrant.....................................................................19

         Section 7.12.     Opinion of Counsel..........................................................19

ARTICLE VIII          LEGENDS..........................................................................19

         Section 8.01.     Legends.....................................................................19

         Section 8.02.     No Other Legend or Stock Transfer Restrictions..............................20

ARTICLE IX            TERMINATION......................................................................20

         Section 9.01.     Term........................................................................20

         Section 9.02.     Other Termination...........................................................20

         Section 9.03.     Effect of Termination.......................................................21
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ARTICLE X             INDEMNIFICATION..................................................................22

         Section 10.01.    Indemnification.............................................................22

         Section 10.02.    Notification of Claims for Indemnification..................................23

         Section 10.03.    Dispute Resolution..........................................................24

ARTICLE XI            MISCELLANEOUS....................................................................25

         Section 11.01.    Fees and Expenses...........................................................25

         Section 11.02.    Reporting Entity for the Common Stock.......................................25

         Section 11.03.    Brokerage...................................................................25

         Section 11.04.    Notices.....................................................................25

         Section 11.05.    Assignment..................................................................26

         Section 11.06.    Amendment; No Waiver........................................................27

         Section 11.07.    Entire Agreement............................................................27

         Section 11.08.    Severability................................................................27

         Section 11.09.    Title and Subtitles.........................................................27

         Section 11.10.    Counterparts................................................................27

         Section 11.11.    Choice of Law...............................................................27

         Section 11.12.    Specific Enforcement, Consent to Jurisdiction...............................27

         Section 11.13.    Survival....................................................................28

         Section 11.14.    Publicity...................................................................28

         Section 11.15.    Further Assurances..........................................................28
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                         COMMON STOCK PURCHASE AGREEMENT

                                 by and between

                           KINGSBRIDGE CAPITAL LIMITED

                                       and

                          CELLEGY PHARMACEUTICALS, INC.

                          dated as of January 16, 2004

         This COMMON STOCK PURCHASE AGREEMENT is entered into as of the 16th day
of January, 2004 (this "Agreement"), by and between Kingsbridge Capital Limited,
an company  organized and existing  under the laws of the British Virgin Islands
(the "Investor") and CELLEGY PHARMACEUTICALS,  INC., a corporation organized and
existing under the laws of the State of California (the "Company").

                  WHEREAS,  the parties desire that,  upon the terms and subject
to the  conditions  set  forth  herein,  the  Company  may issue and sell to the
Investor,  from time to time as provided herein, and the Investor shall purchase
from the Company, up to 3,740,000 shares of Common Stock (as defined below); and

                  WHEREAS,  such  investments  will be made in reliance upon the
provisions of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of
the  United  States  Securities  Act of  1933,  as  amended  and the  rules  and
regulations  promulgated  thereunder (the  "Securities  Act"),  and/or upon such
other exemption from the registration  requirements of the Securities Act as may
be available with respect to any or all of the investments in Common Stock to be
made hereunder; and

                  WHEREAS,  the parties hereto are concurrently  entering into a
Registration Rights Agreement in the form of Exhibit A hereto (the "Registration
Rights Agreement") pursuant to which the Company shall register the Common Stock
issued and sold to the Investor  under this  Agreement and under the Warrant (as
defined below),  upon the terms and subject to the conditions set forth therein;
and

                  WHEREAS,  in  consideration  for the Investor's  execution and
delivery of, and its performance of its obligations  under, this Agreement,  the
Company is concurrently issuing to the Investor a Warrant in the form of Exhibit
B hereto (the  "Warrant")  pursuant to which the Investor may purchase  from the
Company up to 260,000 shares of Common Stock,  upon the terms and subject to the
conditions set forth therein;

         NOW, THEREFORE, the parties hereto agree as follows:

<PAGE>

                                   ARTICLE I

                                   DEFINITIONS

         Section 1.01 "Articles" shall have the meaning assigned to such term in
Section 4.03 hereof.

         Section 1.02 "Blackout  Amount" shall have the meaning assigned to such
term in the Registration Rights Agreement.

         Section 1.03 "Blackout  Shares" shall have the meaning assigned to such
term in the Registration Rights Agreement.

         Section 1.04 "Closing  Date" means the date on which this  Agreement is
executed and delivered by the Company and the Investor.

         Section 1.05 "Commission"  means the United States Securities  Exchange
Commission.

         Section 1.06 "Commission  Documents" shall have the meaning assigned to
such term in Section 4.06 hereof.

         Section 1.07  "Commitment  Period"  means the period  commencing on the
Effective  Date and  expiring on the  earliest to occur of (x) the date on which
the Investor  shall have  purchased  Shares  pursuant to this  Agreement  for an
aggregate  purchase price equal to the Maximum  Commitment  Amount, (y) the date
this  Agreement is  terminated  pursuant to Article IX hereof,  and (z) the date
occurring 24 months from the Effective Date.

         Section 1.08 "Common  Stock" means the common stock of the Company,  no
par value.

         Section  1.09  "Condition  Satisfaction  Date"  shall have the  meaning
assigned to such term in Article VII hereof.

         Section 1.10 "Damages" means any loss, claim, damage, liability,  costs
and expenses  (including,  without  limitation,  reasonable  attorneys' fees and
expenses   and  costs  and   reasonable   expenses  of  expert   witnesses   and
investigation).

         Section  1.11 "Draw Down" shall have the meaning  assigned to such term
in Section 3.01 hereof.

         Section 1.12 "Draw Down Amount"  means the actual amount of a Draw Down
paid to the Company.

         Section  1.13 "Draw Down  Discount  Price" means (i) 88% of the VWAP on
any Trading Day during the Draw Down  Pricing  Period when the VWAP equals to or
exceeds  $1.25 but is less  than or equal to $2.50,  (ii) 90% of the VWAP on any
Trading Day during the Draw Down Pricing  Period when the VWAP exceeds $2.50 but
is less than or equal to $7.00,  and  (iii) 92% of the VWAP on any  Trading  Day
during the Draw Down Pricing Period when the VWAP exceeds $7.00.

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         Section 1.14 "Draw Down Notice" shall have the meaning assigned to such
term in Section 3.01 hereof.

         Section 1.15 "Draw Down  Pricing  Period"  shall mean,  with respect to
each Draw Down, a period of fifteen (15)  consecutive  Trading Days beginning on
the first Trading Day specified in a Draw Down Notice.

         Section 1.16  "Effective  Date" means the first Trading Day immediately
following the date on which the Registration  Statement is declared effective by
the Commission.

         Section 1.17 "Exchange Act" means the U.S.  Securities  Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.

         Section  1.18  "Knowledge"  means  the  actual  knowledge  of the Chief
Executive Officer,  Chief Financial Officer or any Senior Vice President or Vice
President of the Company.

         Section 1.19 "Legend" shall have the meaning specified in Section 8.1.

         Section 1.20 "Make Whole  Amount"  shall have the meaning  specified in
Section 3.10.

         Section 1.21 "Market  Capitalization" means, as of any Trading Day, the
product of (i) the closing sale price of the Company's  Common Stock as reported
by Bloomberg  L.P.  using the AQR  function  and (ii) the number of  outstanding
shares of Common  Stock of the Company as reported by Bloomberg  L.P.  using the
DES function.

         Section 1.22 "Market Cap Increase  Quotient"  means the quotient of (x)
the New Market Cap divided by (y) the Old Market Cap.

         Section  1.23  "Material  Adverse  Effect"  means  any  effect  on  the
business,  operations,  properties or financial condition of the Company and its
consolidated  subsidiaries  that is material and adverse to the Company and such
subsidiaries, taken as a whole, and/or any condition, circumstance, or situation
that would  prohibit or otherwise  interfere  with the ability of the Company to
perform any of its obligations  under this Agreement,  the  Registration  Rights
Agreement or the Warrant in any  material  respect;  provided,  that none of the
following  shall  constitute  a "Material  Adverse  Effect":  (i) the effects of
conditions  or events that are generally  applicable to the capital,  financial,
banking or  currency  markets,  (ii) any changes or effects  resulting  from the
announcement or consummation of the transactions contemplated by this Agreement,
including,  without  limitation,  any  changes  or effects  associated  with any
particular  Draw Down,  and (iii)  changes in the market price of the  Company's
Common Stock.

         Section 1.24 "Maximum Commitment Amount" means $15 million in aggregate
Draw Down Amounts; provided,  however, that in the event that the New Market Cap
is  higher  than  the Old  Market  Cap as of the  date  the  Company  files  the
Registration  Statement with the Commission,  "Maximum  Commitment Amount" shall
mean the product of (i) $15 million  multiplied  by (ii) the Market Cap Increase
Quotient.

         Section 1.25  "Maximum  Draw Down Amount"  means 2.5% of the  Company's
Market Capitalization at the time of the Draw Down; provided, however, that such
amount shall not exceed $5 million in respect of any Draw Down.

         Section  1.26  "NASD"  means the  National  Association  of  Securities
Dealers, Inc.

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         Section 1.27 "New Market Cap" means the Company's Market Capitalization
as of the end of the Trading  Day  immediately  preceding  the date on which the
Company files the Registration Statement with the Commission

         Section 1.28 "Other  Financing" shall have the meaning assigned to such
term in Section 6.07 hereof.

         Section 1.29 "Old Market Cap" means the Company's Market Capitalization
as of the date hereof

         Section 1.30 "Permitted Transaction" shall have the meaning assigned to
such term in Section 6.07 hereof.

         Section 1.31 "Person" means any individual,  corporation,  partnership,
limited liability company,  association,  trust or other entity or organization,
including   any   government   or   political   subdivision   or  an  agency  or
instrumentality thereof.

         Section 1.32 "Principal  Market" means the Nasdaq National Market,  the
Nasdaq  SmallCap  Market,  the  American  Stock  Exchange  or the New York Stock
Exchange,  whichever is at the time the principal trading exchange or market for
the Common Stock.

         Section 1.33 "Prohibited  Transaction"  shall have the meaning assigned
to such term in Section 6.08 hereof.

         Section  1.34   "Prospectus"  as  used  in  this  Agreement  means  the
prospectus in the form included in the Registration  Statement,  as supplemented
from time to time pursuant to Rule 424(b) of the Securities Act.

         Section 1.35 "Registrable  Securities"  means (i) the Shares,  (ii) the
Warrant Shares,  and (iii) any securities issued or issuable with respect to any
of the  foregoing  by way of  exchange,  stock  dividend  or  stock  split or in
connection with a combination of shares, recapitalization, merger, consolidation
or  other  reorganization  or  otherwise.   As  to  any  particular  Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (w) the Registration  Statement has been declared  effective by the SEC and
such  Registrable  Securities have been disposed of pursuant to the Registration
Statement,  (x) such Registrable  Securities have been sold under  circumstances
under  which  all of the  applicable  conditions  of Rule  144  (or any  similar
provision then in force) under the Securities Act ("Rule 144") are met, (y) such
time as such Registrable  Securities have been otherwise  transferred to holders
who may trade such shares without  restriction under the Securities Act, and the
Company has delivered a new  certificate or other evidence of ownership for such
securities not bearing a restrictive  legend or (z) in the opinion of counsel to
the Company such  Registrable  Securities may be sold without  registration  and
without any time, volume or manner  limitations  pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.

         Section 1.36 "Registration Rights Agreement" shall have the meaning set
forth in the recitals of this Agreement.

         Section 1.37  "Registration  Statement" shall have the meaning assigned
to such term in the Registration Rights Agreement.

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         Section  1.38  "Regulation  D" shall have the  meaning set forth in the
recitals of this Agreement.

         Section  1.39  "Section  4(2)"  shall have the meaning set forth in the
recitals of this Agreement.

         Section 1.40  "Securities  Act" shall have the meaning set forth in the
recitals of this Agreement.

         Section 1.41 "Settlement  Date" shall have the meaning assigned to such
term in Section 3.06 hereof.

         Section 1.42  "Shares"  means the shares of Common Stock of the Company
that are and/or may be purchased hereunder.

         Section 1.43  "Threshold  Price"  means the lowest "Draw Down  Discount
Price" (as  specified  in a Draw Down Notice) at which the Company will agree to
sell Shares during the applicable  Draw Down Pricing  Period,  which price shall
not be less than $1.25 per share.

         Section  1.44  "Trading  Day" means any day other than a Saturday  or a
Sunday on which the Principal  Market is open for trading in equity  securities.

         Section 1.45  "Underwriter"  shall mean any underwriter (other than the
Investor,   to  the  extent  it  is  deemed  to  be  a  statutory   underwriter)
participating in any disposition of the Registrable  Securities on behalf of the
Investor pursuant to the Registration Statement.

         Section  1.46  "VWAP"  means the  volume  weighted  average  price (the
aggregate  sales price of all trades of Common  Stock  during  each  Trading Day
divided by the total number of shares of Common Stock traded during such Trading
Day) of the Common Stock during any Trading Day as reported by  Bloomberg,  L.P.
using the AQR function.

         Section 1.47 "Warrant" shall have the meaning set forth in the recitals
of this Agreement.

         Section 1.48 "Warrant Shares" means the shares of Common Stock issuable
to the Investor upon exercise of the Warrant.

                                   ARTICLE II

                        PURCHASE AND SALE OF COMMON STOCK

         Section 2.01 Purchase and Sale of Stock.  Upon the terms and subject to
the conditions set forth in this Agreement,  the Company shall issue and sell to
the Investor and the Investor  shall  purchase from the Company Common Stock for
an  aggregate  (in Draw Down  Amounts) of up to the Maximum  Commitment  Amount,
consisting  of  purchases  based on Draw Downs in  accordance  with  Article III
hereof.

         Section 2.02 Closing.  In consideration of and in express reliance upon
the  representations,  warranties,  covenants,  terms  and  conditions  of  this
Agreement,  the  Company  agrees  to  issue  and sell to the  Investor,  and the
Investor  agrees to purchase  from the Company,  that number of the Shares to be
issued in  connection  with each Draw Down.  The  closing of the

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execution and delivery of this Agreement (the "Closing") shall take place at the
offices of Clifford  Chance US LLP, 200 Park Avenue,  New York, NY 10166 at 4:00
p.m.  local time on January  15th,  2004,  or at such other time and place or on
such date as the Investor and the Company may agree upon (the  "Closing  Date").
Each party shall deliver all documents,  instruments and writings required to be
delivered by such party pursuant to this Agreement at or prior to the Closing.

         Section 2.03 Registration Statement and Prospectus.  Promptly after the
Closing, the Company shall prepare and file with the Commission the Registration
Statement  (including the  Prospectus) in accordance  with the provisions of the
Securities Act and the Registration Rights Agreement.

         Section 2.04 Warrant.  On the Closing Date, the Company shall issue and
deliver the Warrant to the Investor.

         Section 2.05 Blackout  Shares.  The Company shall issue and deliver any
Blackout Shares,  if any, to the Investor in accordance with Section 1(e) of the
Registration Rights Agreement.

                                  ARTICLE III

                                 DRAW DOWN TERMS

         Subject to the satisfaction of the conditions  hereinafter set forth in
this Agreement, the parties agree as follows:

         Section  3.01  Draw  Down  Notice.  The  Company,   may,  in  its  sole
discretion,  issue a Draw Down Notice  with  respect to a Draw Down up to a Draw
Down Amount equal to the Maximum Draw Down Amount  (each,  a "Draw Down") during
the Commitment Period, which Draw Down the Investor will be obligated to accept.
The Company shall inform the Investor via facsimile transmission, with a copy to
the  Investor's  counsel,  as to the Draw  Down  Amount  the  Company  wishes to
exercise  before  commencement  of trading on the first  Trading Day of any Draw
Down  Pricing  Period  (the "Draw Down  Notice").  In  addition to the Draw Down
Amount,  each Draw Down Notice shall specify the  Threshold  Price in respect of
the applicable  Draw Down and shall  designate the first Trading Day of the Draw
Down Pricing  Period.  In no event shall any Draw Down Amount exceed the Maximum
Draw Down Amount.  Each Draw Down Notice shall be  accompanied by a certificate,
signed by the Chief Executive  Officer or Chief  Financial  Officer dated, as of
the date of such Draw Down Notice, in the form of Exhibit C hereof.

         Section  3.02  Number of  Shares.  The number of Shares to be issued in
connection  with each Draw Down shall be equal to the sum of the quotients  (for
each  Trading  Day of the Draw  Down  Pricing  Period  for  which  the Draw Down
Discount Price equals or exceeds the Threshold Price) of one fifteenth  (1/15th)
of the Draw Down Amount divided by the applicable Draw Down Discount Price.

         Section  3.03  Limitation  on Draw  Downs.  Only one Draw Down shall be
permitted for each Draw Down Pricing Period.

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         Section  3.04  Trading  Cushion.  Unless the  parties  agree in writing
otherwise,  there  shall be a minimum  of three (3)  Trading  Days  between  the
expiration  of any  Draw  Down  Pricing  Period  and the  beginning  of the next
succeeding Draw Down Pricing Period.

         Section 3.05  Expiration  of Draw Downs.  Each Draw Down will expire on
the last Trading Day of each Draw Down Pricing Period.

         Section 3.06 Settlement. The number of Shares purchased by the Investor
with  respect to each Draw Down shall be  determined  and  settled on a periodic
basis in respect of the  applicable  Draw Down  Pricing  Period.  Settlement  in
respect of each determination  shall be made no later than the third Trading Day
after  the  fifth,  tenth and  fifteenth  Trading  Day of the Draw Down  Pricing
Period.  Each date on which settlement of the purchase and sale of Shares occurs
hereunder  being referred to as a "Settlement  Date." The Investor shall provide
the  Company  with  delivery  instructions  for the  Shares to be issued at each
Settlement  Date at least two Trading  Days in advance of such  Settlement  Date
(except to the extent previously provided). The number of Shares actually issued
shall be rounded to the nearest whole number of Shares.

         Section 3.07 Delivery of Shares;  Payment of Draw Down Amount.  On each
Settlement  Date, the Company shall deliver the Shares purchased by the Investor
to the Investor or its designees via  book-entry  through the  Depositary  Trust
Company  to an  account  designated  by the  Investor,  and upon  receipt of the
Shares,  the Investor  shall cause payment  therefor to be made to the Company's
designated  account by wire  transfer of  immediately  available  funds,  if the
Shares are received by the Investor no later than 1:00 p.m.  (Eastern  Time), or
next day available funds, if the Shares are received thereafter.

         Section 3.08 Threshold  Price.  For each Trading Day during a Draw Down
Pricing  Period  that the Draw Down  Discount  Price is less than the  Threshold
Price,  no Shares  shall be  purchased or sold on such Trading Day and the total
amount of the Draw Down Amount in respect of such Draw Down Pricing Period shall
be reduced by one fifteenth  (1/15th).  At no time shall the Threshold  Price be
set below $1.25.  If trading in the Company's  Common Stock is suspended for any
reason for more than three (3) consecutive or  non-consecutive  hours during any
Trading Day during a Draw Down  Pricing  Period,  the Draw Down  Discount  Price
shall be deemed to be less than the Threshold Price for that Trading Day.

         Section 3.09 Other  Issuances.  If during any Draw Down Pricing  Period
the Company shall (with the consent of the Investor  pursuant to Section 6.07 or
6.08 hereof, if applicable) issue any shares of Common Stock to any Person other
than the Investor (other than shares of Common Stock issued in connection with a
Permitted  Transaction),  that the  applicable  Draw Down Notice shall be deemed
null and void and the Investor shall promptly  return to the Company any and all
Shares  transferred to the Investor in respect of any Settlement  Date(s) during
such Draw Down Pricing Period and the Company shall  promptly  thereafter pay to
the  Investor by wire  transfer  of  immediately  available  funds to an account
designated by the Investor that portion of the applicable  Draw Down Amount paid
to the Company in respect of such Settlement Date(s).

         Section 3.10 Failure to Deliver Shares.  If on any Settlement Date, the
Company  fails to deliver the Shares to be purchased by the  Investor,  and such
failure is not cured within ten (10) Trading  Days  following  the date on which
the Investor  delivered  payment for such Shares,  the Company  shall pay to the
Investor on demand in cash by wire transfer of immediately available funds to an
account designated by the Investor the "Make Whole Amount;"  provided,  however,
that in the event  that the  Company  is  prevented  from  delivering  Shares in
respect  of  any  such  Settlement  Date  in a  timely  manner  by any  fact  or
circumstance that is reasonably within the

                                       7
<PAGE>

control  of, or  directly  attributable  to,  the  Investor,  then such ten (10)
Trading Day period shall be automatically  extended until such time as such fact
or  circumstance  is cured.  As used  herein,  the Make Whole Amount shall be an
amount  equal  to the sum of (i)  the  Draw  Down  Amount  actually  paid by the
Investor in respect of such Shares plus (ii) an amount  equal to the actual loss
suffered by the Investor in respect of sales to subsequent purchasers,  pursuant
to transactions entered into before the Settlement Date, of the Shares that were
required to be delivered by the Company, which shall be based upon documentation
reasonably  satisfactory to the Company demonstrating the difference (if greater
than zero) between (A) the price per share paid by the Investor to purchase such
number of shares of Common  Stock  necessary  for the Investor to meet its share
delivery  obligations to such subsequent  purchasers  minus (B) the average Draw
Down Discount Price during the applicable Draw Down Pricing Period. In the event
that the Make Whole Amount is not paid within two (2) Trading  Days  following a
demand  therefor from the Investor,  the Make Whole Amount shall accrue interest
compounded  daily at a rate of five percent  (5%) per annum up to and  including
the date on which  the Make  Whole  Amount  is  actually  paid.  Notwithstanding
anything  to the  contrary  set forth in this  Agreement,  in the event that the
Company pays the Make Whole Amount (plus interest,  if applicable) in respect of
any Settlement  Date in accordance with this Section 3.10, such payment shall be
the Investor's sole remedy in respect of the Company's failure to deliver Shares
in respect of such  Settlement  Date,  and the Company shall not be obligated to
deliver such Shares.

                                   ARTICLE IV

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company hereby makes the following  representations  and warranties
to the Investor:

         Section 4.01  Organization,  Good Standing and Power.  The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of  California  and has all  requisite  power and authority to own,
lease and  operate  its  properties  and to carry on its  business  as now being
conducted.  Except as set forth in the Commission  Documents (as defined below),
the  Company  does not own more  than  fifty  percent  (50%) of the  outstanding
capital  stock  of  or  control  any  other  business  entity,  other  than  any
wholly-owned  subsidiary  that  is  not  "significant"  within  the  meaning  of
Regulation S-X promulgated by the Commission. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary,  other than those in which the failure so to qualify or
be in good standing would not have a Material Adverse Effect.

         Section  4.02  Authorization;  Enforcement.  (i)  The  Company  has the
requisite   corporate  power  and  authority  to  enter  into  and  perform  its
obligations  under this Agreement,  the  Registration  Rights  Agreement and the
Warrant  and to issue the  Shares,  the  Warrant,  the  Warrant  Shares  and any
Blackout  Shares  (except  to the  extent  that the  number of  Blackout  Shares
required to be issued  exceeds the number of  authorized  shares of Common Stock
under the  Articles);  (ii) the execution and delivery of this Agreement and the
Registration Rights Agreement,  and the execution,  issuance and delivery of the
Warrant,  by  the  Company  and  the  consummation  by  it of  the  transactions
contemplated  hereby and  thereby  have been duly  authorized  by all  necessary
corporate  action and no further consent or  authorization of the Company or its
Board of Directors or  stockholders  is required  (other than as contemplated by
Section  6.05);  and (iii) each of this  Agreement and the  Registration  Rights
Agreement  has been duly executed and  delivered,  and the Warrant has been duly
executed,  issued and  delivered,  by the Company and  constitute  the valid and
binding obligations of the Company enforceable against the Company in accordance
with

                                       8
<PAGE>

their  respective  terms,  except  as  such  enforceability  may be  limited  by
applicable  bankruptcy,  insolvency,  or similar laws  relating to, or affecting
generally  the  enforcement  of,  creditors'  rights  and  remedies  or by other
equitable principles of general application.

         Section  4.03  Capitalization.  The  authorized  capital  stock  of the
Company and the shares  thereof  issued and  outstanding as of December 31, 2003
are set forth on a Schedule  previously  delivered to the  Investor.  All of the
outstanding shares of the Common Stock have been duly and validly authorized and
issued,  and are  fully  paid and  non-assessable.  Except  as set forth in this
Agreement or as previously  disclosed to the Investor in writing, as of the date
hereof  no  shares  of  Common  Stock  are  entitled  to  preemptive  rights  or
registration  rights  and there are no  outstanding  options,  warrants,  scrip,
rights to subscribe to, call or commitments of any character whatsoever relating
to, or securities or rights  convertible  into or exchangeable for or giving any
right to subscribe  for, any shares of capital  stock of the Company.  Except as
set forth in this  Agreement  or as  previously  disclosed  to the  Investor  in
writing,  as  of  the  date  hereof,   there  are  no  contracts,   commitments,
understandings,  or  arrangements by which the Company is or may become bound to
issue  additional  shares  of the  capital  stock  of the  Company  or  options,
securities or rights convertible into or exchangeable for or giving any right to
subscribe for any shares of capital  stock of the Company.  Except as previously
disclosed to the Investor in writing, as of the date hereof the Company is not a
party to any agreement granting  registration  rights to any Person with respect
to any of its equity or debt securities.  Except as previously  disclosed to the
Investor in writing, as of the date hereof the Company is not a party to, and it
has no Knowledge  of, any  agreement  restricting  the voting or transfer of any
shares of the capital  stock of the  Company.  The offer and sale of all capital
stock,  convertible  securities,  rights,  warrants,  or options of the  Company
issued  during the  twenty-four  month period  immediately  prior to the Closing
complied  with  all  applicable  federal  and  state  securities  laws,  and  no
stockholder has a right of rescission or damages with respect thereto that could
reasonably  be  expected  to have a Material  Adverse  Effect.  The  Company has
furnished  or made  available  to the  Investor  true and correct  copies of the
Company's  Amended and  Restated  Articles of  Incorporation,  as amended and in
effect on the date hereof (the "Articles"), and the Company's Bylaws, as amended
and in effect on the date hereof (the "Bylaws").

         Section  4.04  Issuance  of Shares.  The  Shares,  the  Warrant and the
Warrant  Shares have been, and any Blackout  Shares will be, duly  authorized by
all necessary corporate action (except to the extent that the number of Blackout
Shares  required to be issued exceeds the number of authorized  shares of Common
Stock under the Articles)  and, when issued and paid for in accordance  with the
terms of this Agreement,  the Registration Rights Agreement and the Warrant, the
Shares and the Warrant  Shares shall be validly  issued and  outstanding,  fully
paid and  non-assessable,  and the  Investor  shall be  entitled  to all  rights
accorded to a holder of shares of Common Stock.

         Section 4.05 No Conflicts.  The execution,  delivery and performance of
this Agreement,  the Registration  Rights  Agreement,  the Warrant and any other
document or instrument  contemplated  hereby or thereby,  by the Company and the
consummation by the Company of the transactions  contemplated hereby and thereby
do not: (i) violate any provision of the Articles or Bylaws, (ii) conflict with,
or  constitute a default (or an event which with notice or lapse of time or both
would  become a default)  under,  or give to others  any rights of  termination,
amendment,  acceleration or cancellation of, any material  agreement,  mortgage,
deed of trust,  indenture,  note, bond, license, lease agreement,  instrument or
obligation  to which  the  Company  is a party,  (iii)  create or impose a lien,
charge or  encumbrance on any property of the Company under any agreement or any
commitment  to which the  Company is a party or by which the Company is bound or
by which any of its respective properties or assets are bound, or \

                                       9
<PAGE>

(iv) result in a violation  of any  federal,  state,  local or foreign  statute,
rule,  regulation,  order,  judgment  or  decree  (including  federal  and state
securities  laws  and  regulations)  applicable  to  the  Company  or any of its
subsidiaries  or by which any  property  or asset of the  Company  or any of its
subsidiaries  are bound or affected,  except,  in all cases, for such conflicts,
defaults, terminations, amendments, accelerations,  cancellations and violations
as would not, individually or in the aggregate,  have a Material Adverse Effect.
The  Company  is not  required  under  federal,  state  or  local  law,  rule or
regulation to obtain any consent,  authorization or order of, or make any filing
or  registration  with,  any  court or  governmental  agency  in order for it to
execute,  deliver or perform any of its obligations  under this  Agreement,  the
Registration  Rights Agreement or the Warrant, or issue and sell the Shares, the
Warrant  Shares or the Blackout  Shares (except to the extent that the number of
Blackout Shares required to be issued exceeds the number of authorized shares of
Common Stock under the Articles) in accordance with the terms hereof and thereof
(other than any filings  that may be required to be made by the Company with the
Commission,  the NASD/Nasdaq or state securities  commissions  subsequent to the
Closing, and, any registration  statement (including any amendment or supplement
thereto) which may be filed pursuant hereto); provided that, for purposes of the
representation  made in this sentence,  the Company is assuming and relying upon
the  accuracy of the relevant  representations  and  agreements  of the Investor
herein.

         Section 4.06 Commission  Documents,  Financial  Statements.  The Common
Stock is  registered  pursuant to Section 12(b) or 12(g) of the Exchange Act and
the Company has timely filed all reports, schedules, forms, statements and other
documents  required  to be  filed  by it with  the  Commission  pursuant  to the
reporting requirements of the Exchange Act, including material filed pursuant to
Section  13(a) or 15(d) of the  Exchange  Act (all of the  foregoing,  including
filings  incorporated  by  reference  therein,  being  referred to herein as the
"Commission  Documents").  Except as  previously  disclosed  to the  Investor in
writing,  the Company has maintained all requirements for the continued  listing
or quotation of its Common Stock,  and such Common Stock is currently  listed or
quoted on the Nasdaq  National  Market.  The Company has made  available  to the
Investor true and complete  copies of the  Commission  Documents  filed with the
Commission  since  December 31, 2002 and prior to the Closing Date.  The Company
has not provided to the Investor any information which,  according to applicable
law, rule or regulation,  should have been disclosed publicly by the Company but
which has not been so  disclosed,  other than with  respect to the  transactions
contemplated by this Agreement.  As of its date, the Company's Form 10-K for the
year  ended  December  31,  2002  complied  in all  material  respects  with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated  thereunder applicable to such document,  and, as of its date, after
giving  effect  to the  information  disclosed  and  incorporated  by  reference
therein,  such Form 10-K did not contain any untrue statement of a material fact
or omit to state a material fact  required to be stated  therein or necessary in
order to make the statements  therein, in light of the circumstances under which
they were made, not  misleading.  As of their  respective  dates,  the financial
statements of the Company  included in the Commission  Documents  filed with the
Commission  since  December  31, 2002  complied as to form and  substance in all
material  respects with  applicable  accounting  requirements  and the published
rules  and  regulations  of  the  Commission  or  other   applicable  rules  and
regulations with respect thereto.  Such financial  statements have been prepared
in accordance with generally accepted accounting  principles ("GAAP") applied on
a consistent  basis during the periods  involved (except (i) as may be otherwise
indicated in such financial  statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be  condensed  or summary  statements),  and fairly  present in all material
respects the financial  position of the Company and its  subsidiaries  as of the
dates thereof and the results of operations  and cash flows for the periods then
ended (subject,  in the case of unaudited  statements,  to normal year-end audit
adjustments).

                                       10
<PAGE>

         Section  4.07 No Material  Adverse  Change.  Except as disclosed in the
Commission  Documents,  since December 31, 2002 no event or series of events has
or have occurred that would,  individually or in the aggregate,  have a Material
Adverse Effect on the Company.

         Section 4.08 No Undisclosed Liabilities. Neither the Company nor any of
its  subsidiaries has any  liabilities,  obligations,  claims or losses (whether
liquidated or unliquidated,  secured or unsecured, absolute, accrued, contingent
or  otherwise)  that would be required to be disclosed on a balance sheet of the
Company or any subsidiary  (including the notes thereto) in conformity with GAAP
and are not disclosed in the Commission Documents,  other than those incurred in
the ordinary course of the Company's or its subsidiaries  respective  businesses
since December 31, 2002 and which,  individually or in the aggregate,  do not or
would not have a Material Adverse Effect on the Company.

         Section  4.09 No  Undisclosed  Events  or  Circumstances.  No  event or
circumstance  has  occurred  or  exists  with  respect  to  the  Company  or its
subsidiaries or their respective businesses, properties, operations or financial
condition,  which,  under  applicable  law, rule or regulation,  requires public
disclosure  or  announcement  by the  Company but which has not been so publicly
announced or disclosed and which,  individually  or in the aggregate,  do not or
would not have a Material Adverse Effect on the Company.

         Section  4.10  Actions  Pending.  There  is  no  action,  suit,  claim,
investigation  or  proceeding  pending  or,  to the  Knowledge  of the  Company,
threatened against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken  pursuant  hereto or  thereto.  Except  as set forth in the  Commission
Documents or on Schedule 4.10, there is no action, suit, claim, investigation or
proceeding pending or, to the Knowledge of the Company,  threatened,  against or
involving the Company,  any subsidiary or any of their respective  properties or
assets that could be reasonably  expected to have a Material  Adverse  Effect on
the  Company.  Except as set forth in the  Commission  Documents  or on Schedule
4.10, no judgment, order, writ, injunction or decree or award has been issued by
or, so far as is known by the  Company,  requested of any court,  arbitrator  or
governmental agency which might result in a Material Adverse Effect.

         Section 4.11 Compliance with Law. The businesses of the Company and its
subsidiaries  have been and are presently being conducted in accordance with all
applicable  federal,  state and local governmental laws, rules,  regulations and
ordinances,  except as set forth in the Commission  Documents or such that would
not  reasonably be expected to cause a Material  Adverse  Effect.  Except as set
forth in the Commission Documents, the Company and each of its subsidiaries have
all franchises, permits, licenses, consents and other governmental or regulatory
authorizations  and  approvals  necessary for the conduct of its business as now
being conducted by it, except for such franchises,  permits, licenses,  consents
and other governmental or regulatory  authorizations and approvals,  the failure
to possess  which,  individually  or in the  aggregate,  could not reasonably be
expected to have a Material Adverse Effect.

         Section  4.12  Certain  Fees.  Except  as  expressly  set forth in this
Agreement, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any of its subsidiaries in respect of the transactions
contemplated by this Agreement.

         Section  4.13  Disclosure.  To the  best  of the  Company's  Knowledge,
neither  this  Agreement  nor the  Schedules  hereto  nor any  other  documents,
certificates  or  instruments  furnished  to the Investor by or on behalf of the
Company or any subsidiary in connection  with the  transactions  contemplated by
this Agreement  contain any untrue statement of a material fact or

                                       11
<PAGE>

omit to state a material  fact  necessary in order to make the  statements  made
herein or therein,  in the light of the circumstances under which they were made
herein or therein, not misleading.

         Section 4.14 Material Non-Public Information. Except for this Agreement
and the  transactions  contemplated  hereby,  neither the Company nor its agents
have  disclosed to the  Investor,  any  material  non-public  information  that,
according to applicable  law,  rule or  regulation,  should have been  disclosed
publicly  by the  Company  prior to the date  hereof  but  which has not been so
disclosed.

         Section 4.15 Exemption from Registration; Valid Issuances. The issuance
and sale of the Shares, the Warrant,  the Warrant Shares and any Blackout Shares
in  accordance  with  the  terms  and on the  bases of the  representations  and
warranties  set  forth  in this  Agreement,  may and  shall be  properly  issued
pursuant to Section 4(2),  Regulation D and/or any other applicable  federal and
state securities laws. Neither the sales of the Shares, the Warrant, the Warrant
Shares or any Blackout Shares pursuant to, nor the Company's  performance of its
obligations  under, this Agreement,  the Registration  Rights Agreement,  or the
Warrant shall (i) result in the creation or  imposition  of any liens,  charges,
claims or other  encumbrances upon the Shares,  the Warrant Shares, any Blackout
Shares  or any of the  assets  of the  Company,  or (ii)  except  as  previously
disclosed  to the  Investor in writing,  entitle the holders of any  outstanding
shares  of  capital  stock of the  Company  to  preemptive  or other  rights  to
subscribe  to or acquire the shares of Common Stock or other  securities  of the
Company.  The  Shares,  the Warrant  Shares and any  Blackout  Shares  shall not
subject the Investor to personal liability by reason of the ownership thereof.

         Section 4.16 No General  Solicitation  or Advertising in Regard to this
Transaction.  Neither the Company nor any of its affiliates or any person acting
on its or their behalf (i) has conducted any general  solicitation (as that term
is used in Rule 502(c) of Regulation D) or general  advertising  with respect to
any of the Shares,  the Warrant,  the Warrant  Shares or any Blackout  Shares or
(ii) has made any offers or sales of any security or solicited any offers to buy
any security  under any  circumstances  that would require  registration  of the
Shares under the Securities Act.

         Section 4.17 No Integrated  Offering.  Neither the Company,  nor any of
its  affiliates,  nor any person acting on its or their behalf has,  directly or
indirectly,  made any offers or sales of any security or solicited any offers to
buy any  security,  other than pursuant to this  Agreement and employee  benefit
plans, under circumstances that would require  registration under the Securities
Act of shares of the Common Stock  issuable  hereunder  with any other offers or
sales of securities of the Company.

         Section 4.18  Acknowledgment  Regarding  Investor's Purchase of Shares.
The Company  acknowledges  and agrees that the Investor is acting  solely in the
capacity of an arm's  length  Investor  with respect to this  Agreement  and the
transactions  contemplated hereunder.  The Company further acknowledges that the
Investor is not acting as a financial advisor or fiduciary of the Company (or in
any  similar  capacity)  with  respect to this  Agreement  and the  transactions
contemplated  hereunder  and any  advice  given  by the  Investor  or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated  hereunder is merely  incidental to the Investor's  purchase of the
Shares.

                                       12
<PAGE>

                                   ARTICLE V

            REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR

         The Investor hereby makes the following representations, warranties and
covenants to the Company:

         Section 5.01 Organization and Standing of the Investor. The Investor is
a company duly organized,  validly  existing and in good standing under the laws
of the British Virgin Islands.

         Section 5.02  Authorization  and Power.  The Investor has the requisite
power and  authority  to enter  into and  perform  its  obligations  under  this
Agreement, the Registration Rights Agreement and the Warrant and to purchase the
Shares  in  accordance  with the  terms  hereof.  The  execution,  delivery  and
performance  of this  Agreement  by Investor and the  consummation  by it of the
transactions  contemplated  hereby have been duly  authorized  by all  necessary
corporate action,  and no further consent or authorization of the Investor,  its
Board of Directors or  stockholders  is required.  This  Agreement has been duly
executed  and  delivered by the  Investor  and  constitutes  a valid and binding
obligation of the Investor  enforceable  against the Investor in accordance with
its  terms,   except  as  such  enforceability  may  be  limited  by  applicable
bankruptcy,     insolvency,     reorganization,     moratorium,     liquidation,
conservatorship,  receivership,  or  similar  laws  relating  to,  or  affecting
generally  the  enforcement  of  creditor's  rights  and  remedies  or by  other
equitable principles of general application.

         Section 5.03 No Conflicts.  The execution,  delivery and performance of
this Agreement,  the Registration  Rights  Agreement,  the Warrant and any other
document or instrument contemplated hereby, by the Investor and the consummation
of the transactions contemplated thereby do not (i) violate any provision of the
Investor's  charter  documents or bylaws,  (ii)  conflict  with, or constitute a
default (or an event  which with notice or lapse of time or both would  become a
default)  under,  or  give to  others  any  rights  of  termination,  amendment,
acceleration  or  cancellation  of, any material  agreement,  mortgage,  deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the  Investor  is a party,  (iii)  create  or impose a lien,  charge or
encumbrance  on  any  property  of  the  Investor  under  any  agreement  or any
commitment to which the Investor is a party or by which the Investor is bound or
by which any of its respective  properties or assets are bound or (iv) result in
a violation of any federal,  state, local or foreign statute,  rule, regulation,
order,  judgment  or decree  (including  federal and state  securities  laws and
regulations) applicable to the Investor or by which any property or asset of the
Investor  are  bound or  affected,  except  in all  cases,  for such  conflicts,
defaults, terminations, amendments, accelerations,  cancellations and violations
as would not, individually or in the aggregate,  prohibit or otherwise interfere
with the ability of the Investor to enter into and perform its obligations under
this  Agreement in any  material  respect.  The  Investor is not required  under
federal,  state  or  local  law,  rule or  regulation  to  obtain  any  consent,
authorization or order of, or make any filing or registration with, any court or
governmental  agency in order for it to  execute,  deliver or perform any of its
obligations  under this  Agreement or to purchase the Shares in accordance  with
the terms hereof, provided that, for purposes of the representation made in this
sentence, the Investor is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.

         Section  5.04  Financial  Capability  The  Investor  has the  financial
capability to perform all of its obligations under this Agreement, including the
capability  to purchase  the Shares in  accordance  with the terms  hereof.  The
Investor is an "accredited investor" as defined in Regulation D.

                                       13
<PAGE>

         Section 5.05 Information.  The Investor and its advisors,  if any, have
been  furnished  with all  materials  relating  to the  business,  finances  and
operations  of the Company and  materials  relating to the offer and sale of the
Shares which have been requested by the Investor. The Investor and its advisors,
if any, have been afforded the opportunity to ask questions of the Company.  The
Investor has sought such  accounting,  legal and tax advice as it has considered
necessary  to  make  an  informed   investment  decision  with  respect  to  its
acquisition  of the  Shares.  The  Investor  understands  that it  (and  not the
Company) shall be responsible  for its own tax  liabilities  that may arise as a
result of this investment or the transactions contemplated by this Agreement.

         Section 5.06 Selling  Restrictions.  The Investor covenants that during
the  Commitment  Period,  neither the Investor nor any of its affiliates nor any
entity managed by the Investor will ever (i) be in a short position with respect
to shares of the Common Stock in any accounts directly or indirectly  managed by
the  Investor or any  affiliate  of the  Investor  or any entity  managed by the
Investor or (ii) engage in any transaction  intended to reduce the economic risk
of ownership  of shares of Common  Stock  (including,  without  limitation,  the
purchase of any option or contract to sell) that would,  directly or indirectly,
have an effect  substantially  equivalent to selling short such shares of Common
Stock that are subject to,  underlie or may be  deliverable in  satisfaction  of
such  transaction or otherwise may be reasonably be expected to adversely affect
the  market  price of the  Common  Stock.  Notwithstanding  the  foregoing,  the
Investor shall have the right during any Draw Down Pricing Period to sell shares
of the  Company's  Common Stock equal in number to the  aggregate  number of the
Shares to be purchased pursuant to the applicable Draw Down Notice.

         Section 5.07 Statutory  Underwriter  Status. The Investor  acknowledges
and agrees that,  pursuant to the Commission's  current  interpretations  of the
Securities  Act, the Investor will be disclosed as an  "underwriter"  within the
meaning of the Securities  Act in the  Registration  Statement  (and  amendments
thereto)  and in any  Prospectus  contained  therein to the extent  required  by
applicable law.

                                   ARTICLE VI

                            COVENANTS OF THE COMPANY

         The Company covenants with the Investor as follows, which covenants are
for the benefit of the Investor and its permitted assignees (as defined herein):

         Section 6.01  Securities.  The Company shall notify the  Commission and
the Principal Market,  if and as applicable,  in accordance with their rules and
regulations,  of the transactions  contemplated by this Agreement, and shall use
commercially   reasonable  efforts  to  take  all  other  necessary  action  and
proceedings  as may be  required  and  permitted  by  applicable  law,  rule and
regulation,  for the legal and valid issuance of the Shares,  the Warrant Shares
and the Blackout Shares, if any, to the Investor.

         Section 6.02  Reservation of Common Stock.  As of the date hereof,  the
Company has available  and the Company  shall reserve and keep  available at all
times,  free of  preemptive  rights  and  other  similar  contractual  rights of
stockholders,  shares of Common Stock for the purpose of enabling the Company to
satisfy any  obligation  to issue the Shares in  connection  with all Draw Downs
contemplated  hereunder and the Warrant Shares. The number of shares so reserved
from time to time, as theretofore  increased or reduced as hereinafter provided,
may be reduced by the number of shares actually delivered hereunder.

                                       14
<PAGE>

         Section 6.03  Registration and Listing.  During the Commitment  Period,
the Company shall use commercially  reasonable  efforts:  (i) to take all action
necessary to cause its Common Stock to continue to be  registered  under Section
12(b) or 12(g) of the  Exchange  Act,  (ii) to comply in all  respects  with its
reporting and filing  obligations  under the Exchange Act,  (iii) to prevent the
termination or suspension such registration, or the termination or suspension of
its reporting and filing  obligations  under the Exchange Act or Securities  Act
(except as  expressly  permitted  herein).  The Company  shall use  commercially
reasonable  efforts  necessary to maintain the listing and trading of its Common
Stock and the  listing of the Shares  purchased  by  Investor  hereunder  on the
Principal Market  (including,  without  limitation,  maintaining  sufficient net
tangible  assets) and will comply in all material  respects  with the  Company's
reporting,  filing and other  obligations  under the bylaws or rules of the NASD
and the Principal Market.

         Section 6.04 Registration Statement.  Without the prior written consent
of the Investor,  the Registration  Statement shall be used solely in connection
with the transactions between the Company and the Investor contemplated hereby.

         Section 6.05 Compliance with Laws.

                  (a) The Company  shall  comply,  and cause each  subsidiary to
comply, with all applicable laws, rules,  regulations and orders,  noncompliance
with which could reasonably be expected to have a Material Adverse Effect.

                  (b) Without the consent of its stockholders in accordance with
NASD rules,  the Company will not be obligated to issue,  and the Investor  will
not be  obligated  to  purchase,  any Shares  which would result in the issuance
under this Agreement of Shares representing more than the applicable  percentage
under the rules of the NASD  that  would  require  stockholder  approval  of the
issuance thereof.

         Section 6.06 Reporting Requirements. Upon reasonable written request of
the Investor during the Commitment  Period,  the Company shall furnish copies of
the following to the Investor within three Trading Days of such request (but not
sooner than filed with or submitted to the Commission):

                  (a) Quarterly Reports on Form 10-Q ;

                  (b) Annual Reports on Form 10-K;

                  (c) Periodic Reports on Form 8-K; and

                  (d) any other documents publicly furnished or submitted to the
                      Commission.

         Section  6.07 Other  Financing.  The  Company  may,  without  the prior
written  consent of the Investor,  (i) establish  stock option or award plans or
agreements (for directors,  employees,  consultants and/or advisors),  and issue
securities thereunder, and amend such plans or agreements,  including increasing
the  number  of shares  available  thereunder,  (ii) use  equity  securities  to
finance,  or otherwise in connection  with, the acquisition of one or more other
companies,  equipment,  technologies or lines of business, (iii) issue shares of
Common Stock and/or  Preferred Stock in connection with the Company's  option or
award plans, stock purchase plans, rights plans, warrants or options, (iv) issue
shares of Common Stock and/or Preferred Stock in connection with the acquisition
of products,  licenses,  equipment or other assets and strategic partnerships or
joint  ventures (the primary  purpose of which is not to raise equity

                                       15
<PAGE>

capital);  (v) issue  shares of Common  and/or  Preferred  Stock to  consultants
and/or  advisors as  consideration  for services  rendered,  (vi) issue and sell
equity or debt securities in a public offering,  (vii) issue and sell and equity
or debt  securities in a private  placement  (other than in connection  with any
Prohibited  Transaction,  (viii) issue equity  securities to equipment  lessors,
equipment  vendors,  banks or similar  lending  institutions  in connection with
leases or  loans,  or in  connection  with  strategic  commercial  or  licensing
transactions,  (ix) issue  securities in connection with any stock split,  stock
dividend,  recapitalization,  reclassification  or similar event by the Company,
and (x) issue shares of Common Stock to the Investor  under any other  agreement
entered  into   between  the  Investor  and  the  Company   (each  a  "Permitted
Transaction").  The Company shall use commercially  reasonable efforts to notify
the Investor in writing  prior to the  consummation  of any  material  Permitted
transaction described in clauses (vi), (vii) or (ix) above.

         Section  6.08  Prohibited   Transactions.   During  the  term  of  this
Agreement,  the Company shall not enter into any Prohibited  Transaction without
the prior written consent of the Investor,  which consent may be withheld at the
sole discretion of the Investor.  For the purposes of this  Agreement,  the term
"Prohibited  Transaction"  shall  refer to the  issuance  by the  Company of any
"future priced securities," which shall be deemed to mean the issuance of shares
of Common Stock or  securities of any type  whatsoever  that are, or may become,
convertible  or  exchangeable  into shares of Common  Stock where the  purchase,
conversion  or exchange  price for such  Common  Stock is  determined  using any
floating or otherwise  adjustable  discount to the market price of Common Stock,
including,  without  limitation,  pursuant to any equity line or other financing
that  is  substantially  similar  to  the  financing  provided  for  under  this
Agreement.

         Section  6.09  Corporate  Existence.  The Company  shall take all steps
necessary  to preserve  and  continue  the  corporate  existence of the Company;
provided,  however,  that nothing in this Agreement  shall be deemed to prohibit
the  Company  from  engaging  in  any  merger,  consolidation,  sale  of  all or
substantially  all of its  assets or similar  transaction  with  another  Person
pursuant to which such other Person is the surviving entity in the transaction.

         Section 6.10  Non-Disclosure  of  Non-Public  Information.  None of the
Company, its officers,  directors,  employees nor agents shall disclose material
non-public information to the Investor, its advisors or representatives.

         Section  6.11  Notice  of  Certain   Events   Affecting   Registration;
Suspension of Right to Request a Draw Down.  Notwithstanding  the  provisions of
Section  6.10,  the  Company  shall  immediately  notify the  Investor  upon the
occurrence  of  any of the  following  events  in  respect  of the  Registration
Statement  or the  Prospectus  related  to the offer,  issuance  and sale of the
Shares  and the  Warrant  Shares  hereunder:  (i)  receipt  of any  request  for
additional  information  by  the  Commission  or  any  other  federal  or  state
governmental  authority  during the period of  effectiveness of the Registration
Statement for  amendments or supplements  to the  Registration  Statement or the
Prospectus;  (ii) the issuance by the  Commission  or any other federal or state
governmental  authority of any stop order  suspending the  effectiveness  of the
Registration  Statement or the initiation of any  proceedings  for that purpose;
and (iii)  receipt of any  notification  with respect to the  suspension  of the
qualification  or  exemption  from  qualification  of  any  of  the  Registrable
Securities for sale in any  jurisdiction or the initiation or threatening of any
proceeding  for such  purpose.  The Company shall not request a Draw Down during
the continuation of any of the foregoing events.

         Section  6.12  Amendments  to  the  Registration  Statement.  When  the
Registration  Statement  is declared  effective by the  Commission,  the Company
shall  not (i) file any  amendment  to the  Registration  Statement  or make any
amendment  or  supplement  to the  Prospectus  of which

                                       16
<PAGE>

the  Investor  shall not  previously  have been advised or to which the Investor
shall  reasonably  object  after  being so  advised  or (ii) so long as,  in the
reasonable  opinion of counsel for the Investor,  a Prospectus is required to be
delivered  in  connection  with  sales of the Shares by the  Investor,  file any
information,   documents  or  reports  pursuant  to  the  Exchange  Act  without
delivering  a copy of such  information,  documents  or reports to the  Investor
promptly following such filing.

         Section 6.13 Prospectus Delivery.  From time to time for such period as
in the  opinion of counsel  for the  Investor a  prospectus  is  required by the
Securities  Act to be delivered in connection  with sales by the  Investor,  the
Company will  expeditiously  deliver to the Investor,  without  charge,  as many
copies of the  Prospectus  (and of any amendment or  supplement  thereto) as the
Investor  may  reasonably  request.  The  Company  consents  to  the  use of the
Prospectus  (and of any amendment or supplement  thereto) in accordance with the
provisions of the Securities Act and state  securities  laws in connection  with
the offering  and sale of the Shares and the Warrant  Shares and for such period
of time  thereafter as the  Prospectus is required by the  Securities  Act to be
delivered in connection with sales of the Shares and the Warrant Shares.

         Section  6.14  Expectations  Regarding  Draw  Downs.  Within  ten  (10)
calendar  days  after  the  commencement  of  each  calendar  quarter  occurring
subsequent  to the date hereof,  the Company shall notify the Investor as to its
reasonable  expectations as to the dollar amount it intends to raise during such
calendar  quarter,  if any,  through  the  issuance of Draw Down  Notices.  Such
notification  shall  constitute  only the  Company's  good faith  estimate  with
respect to such  calendar  quarter and shall in no way  obligate  the Company to
raise such amount during such calendar quarter or otherwise limit its ability to
deliver  Draw Down  Notices  during such  calendar  quarter.  The failure by the
Company to comply with this  provision can be cured by the  Company's  notifying
the Investor at any time as to its reasonable  expectations  with respect to the
current calendar quarter.

                                  ARTICLE VII

       CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN

The  obligation  of the  Investor  hereunder to accept a Draw Down Notice and to
acquire  and pay for the  Shares  in  accordance  therewith  is  subject  to the
satisfaction  or waiver,  at each  Condition  Satisfaction  Date, of each of the
conditions set forth below.  The conditions are for the Investor's  sole benefit
and may be waived by the Investor at any time in its sole discretion. As used in
this Agreement,  the term "Condition Satisfaction Date" shall mean, with respect
to each  Draw  Down,  the date on which  the  applicable  Draw  Down  Notice  is
delivered to the Investor and each  Settlement Date in respect of the applicable
Draw Down Pricing Period.

         Section 7.01 Accuracy of the Company's  Representations and Warranties.
Each of the  representations  and  warranties  of the Company  shall be true and
correct in all material respects as of the date when made as though made at that
time except for  representations  and warranties that are expressly made as of a
particular date.

         Section  7.02  Performance  by the  Company.  The  Company  shall  have
performed,  satisfied and complied in all material  respects with all covenants,
agreements and conditions  required by this Agreement,  the Registration  Rights
Agreement  and the Warrant to be  performed,  satisfied or complied  with by the
Company.

                                       17
<PAGE>

         Section 7.03  Compliance  with Law. The Company  shall have complied in
all material respects with all applicable federal,  state and local governmental
laws,  rules,  regulations  and  ordinances  in connection  with the  execution,
delivery  and  performance  of  this  Agreement  and  the  consummation  of  the
transactions contemplated hereby.

         Section  7.04  Effective  Registration  Statement.  Upon the  terms and
subject to the conditions as set forth in the Registration Rights Agreement, the
Registration  Statement shall have previously  become effective and shall remain
effective  and (i)  neither the Company  nor the  Investor  shall have  received
notice  that the  Commission  has  issued or  intends to issue a stop order with
respect to the  Registration  Statement  or that the  Commission  otherwise  has
suspended or withdrawn the effectiveness of the Registration  Statement,  either
temporarily  or  permanently,  or intends or has threatened to do so (unless the
Commission's  concerns  have  been  addressed  and the  Investor  is  reasonably
satisfied  that the  Commission no longer is considering or intends to take such
action),  and  (ii)  no  other  suspension  of  the  use  or  withdrawal  of the
effectiveness of the Registration Statement or the Prospectus shall exist.

         Section 7.05 No  Knowledge.  The Company shall have no Knowledge of any
event  more  likely  than not to have the  effect of  causing  the  Registration
Statement  with  respect  to the  resale of the  Registrable  Securities  by the
Investor to be suspended or  otherwise  ineffective  (which event is more likely
than not to occur within fifteen Trading Days following the Trading Day on which
a Draw Down Notice is delivered).

         Section 7.06 No Suspension. Trading in the Company's Common Stock shall
not have been suspended by the Commission,  the Principal Market or the NASD and
trading in securities  generally as reported on the  Principal  Market shall not
have been suspended or limited.

         Section 7.07 No Injunction.  No statute,  rule,  regulation,  executive
order,  decree,   ruling  or  injunction  shall  have  been  enacted,   entered,
promulgated  or endorsed by any court or  governmental  authority  of  competent
jurisdiction  which  prohibits  the  consummation  of any  of  the  transactions
contemplated by this Agreement.

         Section  7.08  No  Proceedings  or  Litigation.   No  action,  suit  or
proceeding  before any arbitrator or any governmental  authority shall have been
commenced,  and no investigation  by any governmental  authority shall have been
threatened,  against  the  Company or any  subsidiary,  or any of the  officers,
directors  or  affiliates  of the Company or any  subsidiary  seeking to enjoin,
prevent or change the transactions contemplated by this Agreement.

         Section 7.09 Section 16 Limitation. On each Settlement Date, the number
of Shares then to be purchased  by the  Investor  shall not exceed the number of
such shares that,  when aggregated  with all other  Registrable  Securities then
owned by the Investor beneficially or deemed beneficially owned by the Investor,
would result in the  Investor  owning more than 9.9% of all of such Common Stock
as would be  outstanding  on such  Settlement  Date, as determined in accordance
with Section 16 of the Exchange  Act. For purposes of this Section  7.09, in the
event that the amount of Common Stock  outstanding  as  determined in accordance
with Section 16 of the Exchange Act and the regulations  promulgated  thereunder
is greater on a Settlement Date than on the date upon which the Draw Down Notice
associated  with such  Settlement  Date is  given,  the  amount of Common  Stock
outstanding  on such  Settlement  Date shall govern for purposes of  determining
whether the  Investor,  when  aggregating  all  purchases  of Common  Stock made
pursuant to this  Agreement  and, if any,  Warrant  Shares and Blackout  Shares,
would own more than 9.9% of the Common Stock following such Settlement Date.

                                       18
<PAGE>

         Section 7.10 Sufficient Shares Registered for Resale. The Company shall
have sufficient  Shares,  calculated using the closing trade price of the Common
Stock as of the  Trading  Day  immediately  preceding  such  Draw  Down  Notice,
registered  under the  Registration  Statement  to issue and sell such Shares in
accordance with such Draw Down Notice.

         Section  7.11  Warrant.  The  Warrant  shall  have been duly  executed,
delivered and issued to the Investor, and the Company shall not be in default in
any material  respect  under any of the  provisions  thereof,  provided that any
refusal by or failure of the  Company  to issue and  deliver  Warrant  Shares in
respect  of any  exercise  (in whole or in part)  thereof  shall be deemed to be
material for the purposes of this Section 7.11.

         Section 7.12 Opinion of Counsel.  The Investor  shall have  received an
opinion of counsel to the Company,  dated as of the Effective  Date, in form and
substance reasonably satisfactory to the Investor and its counsel.

                                  ARTICLE VIII

                                     LEGENDS

Section  8.01      Legends.  Unless otherwise  provided below,  each certificate
representing   Registrable  Securities  will  bear  the  following  legend  (the
"Legend"):

         THE  SECURITIES  EVIDENCED  BY THIS  CERTIFICATE  HAVE NOT BEEN
         REGISTERED  UNDER THE U.S.  SECURITIES  ACT OF 1933, AS AMENDED
         (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS
         AND HAVE BEEN ISSUED IN  RELIANCE  UPON AN  EXEMPTION  FROM THE
         REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
         SECURITIES  LAWS.  NEITHER  THIS  SECURITY  NOR ANY INTEREST OR
         PARTICIPATION   HEREIN  MAY  BE  REOFFERED,   SOLD,   ASSIGNED,
         TRANSFERRED,  PLEDGED,  ENCUMBERED,  HYPOTHECATED  OR OTHERWISE
         DISPOSED  OF,  EXCEPT  PURSUANT  TO AN  EFFECTIVE  REGISTRATION
         STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION
         THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.  THE
         HOLDER  OF  THIS  CERTIFICATE  IS THE  BENEFICIARY  OF  CERTAIN
         OBLIGATIONS OF THE COMPANY SET FORTH IN A COMMON STOCK PURCHASE
         AGREEMENT BETWEEN CELLEGY PHARMACEUTICALS, INC. AND KINGSBRIDGE
         CAPITAL  LIMITED  DATED AS OF JANUARY 16,  2004.  A COPY OF THE
         PORTION OF THE AFORESAID AGREEMENT  EVIDENCING SUCH OBLIGATIONS
         MAY BE OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES.

As soon as practicable after the execution and delivery hereof, but in any event
within five (5) Trading Days hereafter,  the Company shall issue to the transfer
agent for its Common Stock (and to any substitute or replacement  transfer agent
for its Common Stock upon the Company's  appointment  of any such  substitute or
replacement  transfer  agent)  instructions,  with a copy to the Investor.  Such
instructions  shall be irrevocable by the Company from and after the date hereof
or from and after the issuance  thereof to any such  substitute  or  replacement
transfer  agent, as the case may be, except as otherwise  expressly  provided in
the  Registration  Rights  Agreement.  It is the  intent  and  purpose  of  such
instructions,  as provided therein, to require the transfer agent for the Common
Stock from time to time upon transfer of Registrable  Securities by the Investor
to

                                       19
<PAGE>

issue  certificates  evidencing such  Registrable  Securities free of the Legend
during the following  periods and under the following  circumstances and without
consultation  by the transfer  agent with the Company or its counsel and without
the need for any further advice or instruction or  documentation to the transfer
agent by or from the Company or its counsel or the  Investor,  unless an opinion
of  Investor's  counsel is  reasonably  required  by the  transfer  agent or the
Company:

                  (a) At  any  time  after  the  Effective  Date  to the  extent
accompanied  by a notice  requesting  the issuance of  certificates  free of the
Legend;  provided  that (i) the  Company  is  reasonably  able to confirm to the
transfer agent that the Registration  Statement shall then be effective and (ii)
if  reasonably  requested  by the transfer  agent the  Investor  confirms to the
transfer  agent that the  Investor  has complied  with the  prospectus  delivery
requirement under the Securities Act.

                  (b) At any time upon any surrender of one or more certificates
evidencing   Registrable   Securities  that  bear  the  Legend,  to  the  extent
accompanied by a notice  requesting the issuance of new certificates free of the
Legend to replace those surrendered and containing  representations that (i) the
Investor  is  permitted  to  dispose  of  such  Registrable  Securities  without
limitation  as to amount or manner of sale  pursuant  to Rule  144(k)  under the
Securities  Act and  there is no  requirement  for the  Investor  to  deliver  a
prospectus or (ii) the Investor has sold,  pledged or otherwise  transferred  or
agreed to sell,  pledge or otherwise  transfer such Registrable  Securities in a
manner  other  than  pursuant  to  an  effective  registration  statement,  to a
transferee  who shall  upon  such  transfer  be  entitled  to  freely  tradeable
securities.

         Section 8.02 No Other Legend or Stock Transfer Restrictions.  No legend
other than the one  specified in Section 8.01 has been or shall be placed on the
share  certificates  representing the Common Stock issued to the Investor and no
instructions or "stop transfer orders," so called "stock transfer restrictions,"
or other  restrictions  have  been or shall be given to the  Company's  transfer
agent with respect  thereto  other than as  expressly  set forth in this Article
VIII.

                                   ARTICLE IX

                                   TERMINATION

         Section 9.01 Term.  Unless  otherwise  terminated  in  accordance  with
Section 9.02 below,  this Agreement  shall  terminate upon the expiration of the
Commitment Period.

         Section 9.02 Other Termination.

                  (a) The Investor may terminate this Agreement upon (x) one (1)
day's notice if the Company enters into any Prohibited  Transaction as set forth
in Section 6.08 without the  Investor's  prior written  consent,  or (y) one (1)
day's notice  within ten (10) Trading  Days after the  Investor  obtains  actual
knowledge  that an event  resulting in a Material  Adverse  Effect has occurred;
provided,  however,  that the  Investor  shall be deemed to possess  such actual
knowledge  within  five (5)  Trading  Days after  such  event has been  publicly
disclosed by the Company in accordance with its periodic reporting  requirements
under the Exchange Act.

                  (b) The Investor may  terminate  this  Agreement  upon one (1)
day's  notice  to the  Company  at any time in the event  that the  Registration
Statement is not declared  effective in accordance with the Registration  Rights
Agreement.

                                       20
<PAGE>

                  (c) The  Company may  terminate  this  Agreement  upon one (1)
day's notice;  provided,  however,  that the Company  shall not  terminate  this
Agreement  pursuant to this Section 9.02(c) during any Draw Down Pricing Period;
provided further; that, in the event of any termination of this Agreement by the
Company  hereunder,  so long as the  Investor  owns Shares  purchased  hereunder
and/or Warrant  Shares,  unless all of such shares of Common Stock may be resold
by the  Investor  without  registration  and without any time,  volume or manner
limitations  pursuant to Rule 144(k) (or any similar  provision  then in effect)
under the  Securities  Act,  the  Company  shall not  suspend  or  withdraw  the
Registration  Statement or otherwise cause the Registration  Statement to become
ineffective,  or voluntarily  delist the Common Stock from, the Principal Market
without listing the Common Stock on another Principal Market.

                  (d) Each of the parties  hereto may terminate  this  Agreement
upon  one  (1)  day's  notice  if  the  other  party  has  breached  a  material
representation,  warranty or covenant to this  Agreement  and such breach is not
remedied  within ten (10)  Trading Days after notice of such breach is delivered
to the breaching party.

                  (e) The  obligation  of the  Investor  to  purchase  shares of
Common Stock shall terminate permanently in the event that there shall occur any
stop order or suspension of effectiveness  of the Registration  Statement for an
aggregate of thirty (30) calendar days during the Commitment Period.

         Section 9.03 Effect of Termination.

         (a) In the event of termination by the Company or the Investor, written
notice thereof shall forthwith be given to the other party and the  transactions
contemplated  by this Agreement  shall be terminated  without  further action by
either  party.  If this  Agreement is  terminated as provided in Section 9.01 or
9.02  herein,  this  Agreement  shall  become  void and of no further  force and
effect,  except as provided in Section 11.13. Nothing in this Section 9.03 shall
be deemed to release  the Company or the  Investor  from any  liability  for any
breach  under this  Agreement,  or to impair the rights of the  Company  and the
Investor to compel  specific  performance by the other party of its  obligations
under this Agreement.

         (b) In the event that the Company  fails to issue and sell Common Stock
to the Investor for an amount (in aggregate Draw Down Amounts) at least equal to
$2.5 million under this  Agreement  during the Commitment  Period,  on the first
Trading Day following the expiration of the Commitment Period, the Company shall
pay to Investor by wire transfer of  immediately  available  funds to an account
designated by the Investor an amount equal to $250,000;  provided, however, that
in the event that the New Market Cap is higher than the Old Market Cap as of the
date the Company files the Registration  Statement with the Commission,  each of
the $2.5 million and $250,000  amounts  specified  above shall be increased by a
multiple  equal  to  the  Market  Cap  Increase  Quotient.  The  parties  hereto
acknowledge  and agree that the sum payable  under this  Section  9.03(b)  shall
represent  liquidated damages and not a penalty. The parties further acknowledge
that such amount (i) bears a reasonable  relation to the commitment fee that the
Investor  would  have,  in  light  of its  reasonable  investment  expectations,
otherwise charged the Company in consideration for the Investor's  commitment to
purchase   Common   Stock   hereunder   and  (ii)  is  not  plainly  or  grossly
disproportionate  to the probable  loss likely to be incurred by the Investor in
connection with the failure by the Company to issue and sell Common Stock to the
Investor for an amount (in  aggregate  Draw Down  Amounts) at least equal to the
amount specified above under this Agreement during the Commitment Period.

                                       21
<PAGE>

                                   ARTICLE X

                                 INDEMNIFICATION

         Section 10.01 Indemnification.

                  (a) Except as  otherwise  provided  in this  Article X, unless
disputed as set forth in Section 10.02, the Company agrees to indemnify,  defend
and hold harmless the Investor and its affiliates and their respective officers,
directors,  agents, employees,  subsidiaries,  partners, members and controlling
persons (each, an "Investor Indemnified Party"), to the fullest extent permitted
by law from and against any and all Damages directly  resulting from or directly
arising  out of any  breach  of any  representation  or  warranty,  covenant  or
agreement by the Company in this Agreement, the Registration Rights Agreement or
the Warrant; provided,  however, that the Company shall not be liable under this
Article X to an  Investor  Indemnified  Party to the  extent  that such  Damages
resulted  or arose  from the  breach  by an  Investor  Indemnified  Party of any
representation, warranty, covenant or agreement of an Investor Indemnified Party
contained in this Agreement, the Registration Rights Agreement or the Warrant or
the  gross  negligence,  recklessness,  willful  misconduct  or bad  faith of an
Investor  Indemnified  Party.  The parties  intend  that any Damages  subject to
indemnification  pursuant to this  Article X will be net of  insurance  proceeds
(which the  Investor  Indemnified  Party agrees to use  commercially  reasonable
efforts to  recover).  Accordingly,  the amount which the Company is required to
pay to any Investor  Indemnified Party hereunder (a "Company Indemnity Payment")
will be reduced by any insurance  proceeds actually recovered by or on behalf of
any Investor Indemnified Party in reduction of the related Damages. In addition,
if an Investor  Indemnified  Party receives a Company Indemnity Payment required
by this Article X in respect of any Damages and  subsequently  receives any such
insurance proceeds,  then the Investor Indemnified Party will pay to the Company
an amount equal to the Company Indemnity Payment received less the amount of the
Company Indemnity Payment that would have been due if the insurance proceeds had
been received,  realized or recovered before the Company  Indemnity  Payment was
made.

                  (b) Except as  otherwise  provided  in this  Article X, unless
disputed as set forth in Section 10.02, the Investor agrees to indemnify, defend
and hold harmless the Company and its affiliates and their respective  officers,
directors,  agents, employees,  subsidiaries,  partners, members and controlling
persons (each, a "Company  Indemnified  Party"), to the fullest extent permitted
by law from and against any and all Damages directly  resulting from or directly
arising  out of any  breach  of any  representation  or  warranty,  covenant  or
agreement by the Investor in this Agreement, the Registration Right Agreement or
the Warrant; provided, however, that the Investor shall not be liable under this
Article  X to a  Company  Indemnified  Party to the  extent  that  such  Damages
resulted  or  arose  from  the  breach  by a  Company  Indemnified  Party of any
representation,  warranty,  covenant or agreement of a Company Indemnified Party
contained in this Agreement,  the Registration Right Agreement or the Warrant or
gross  negligence,  recklessness,  willful  misconduct or bad faith of a Company
Indemnified   Party.   The  parties   intend   that  any   Damages   subject  to
indemnification  pursuant to this  Article X will be net of  insurance  proceeds
(which the Company agrees to use  commercially  reasonable  efforts to recover).
Accordingly,  the amount  which the  Investor  is required to pay to any Company
Indemnified Party hereunder (an "Investor Indemnity Payment") will be reduced by
any insurance  proceeds  theretofore  actually  recovered by or on behalf of any
Company Indemnified Party in reduction of the related Damages. In addition, if a
Company Indemnified Party receives a Investor Indemnity Payment required by this
Article X in respect of any Damages and  subsequently  receives  insurance  such
proceeds,  then the Company Indemnified Party will pay to the Investor an amount
equal to the Investor Indemnity Payment received less the amount of the Investor
Indemnity

                                       22
<PAGE>

Payment that would have been due if the  insurance  proceeds had been  received,
realized or recovered before the Investor Indemnity Payment was made.

         Section 10.02  Notification of Claims for  Indemnification.  Each party
entitled to indemnification under this Article X (an "Indemnified Party") shall,
promptly  after the receipt of notice of the  commencement  of any claim against
such  Indemnified  Party in respect of which  indemnity  may be sought  from the
party  obligated to indemnify such  Indemnified  Party under this Article X (the
"Indemnifying  Party"),   notify  the  Indemnifying  Party  in  writing  of  the
commencement  thereof.  Any such notice shall  describe the claim in  reasonable
detail. The failure of any Indemnified Party to so notify the Indemnifying Party
of any such action shall not relieve the  Indemnifying  Party from any liability
which it may have to such  Indemnified  Party (a) other  than  pursuant  to this
Article X or (b) under this Article X unless,  and only to the extent that, such
failure results in the Indemnifying  Party's forfeiture of substantive rights or
defenses or the  Indemnifying  Party is prejudiced by such delay. The procedures
listed below shall  govern the  procedures  for the handling of  indemnification
claims.

                  (a) Any  claim for  indemnification  for  Damages  that do not
result from a Third Party Claim as defined in the following paragraph,  shall be
asserted by written notice given by the  Indemnified  Party to the  Indemnifying
Party. Such Indemnifying Party shall have a period of thirty (30) days after the
receipt of such notice  within which to respond  thereto.  If such  Indemnifying
Party does not respond  within such  thirty (30) day period,  such  Indemnifying
Party shall be deemed to have refused to accept  responsibility  to make payment
as set forth in Section  10.01.  If such  Indemnifying  Party  does not  respond
within such  thirty  (30) day period or rejects  such claim in whole or in part,
the Indemnified Party shall be free to pursue such remedies as specified in this
Agreement,  including  the dispute  resolution  provisions  set forth in Section
10.03 below.

                  (b) If an Indemnified  Party shall receive notice or otherwise
learn of the  assertion  by a person or entity not a party to this  Agreement of
any threatened legal action or claim (collectively a "Third Party Claim"),  with
respect  to  which  an   Indemnifying   Party  may  be   obligated   to  provide
indemnification,  the  Indemnified  Party  shall  give such  Indemnifying  Party
written  notice  thereof  within twenty (20) days after  becoming  aware of such
Third Party Claim.

                  (c) An Indemnifying Party may elect to defend (and, unless the
Indemnifying  Party has specified any  reservations  or  exceptions,  to seek to
settle or  compromise)  at such  Indemnifying  Party's  own  expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within thirty (30) days
after the receipt of notice from an  Indemnified  Party (or sooner if the nature
of such Third Party Claim so requires),  the Indemnifying Party shall notify the
Indemnified Party whether the Indemnifying Party will assume  responsibility for
defending such Third Party Claim,  which election shall specify any reservations
or exceptions.  If such  Indemnifying  Party does not respond within such thirty
(30) day period or rejects such claim in whole or in part, the Indemnified Party
shall be free to pursue such remedies as specified in this Agreement,  including
the dispute resolution  provisions set forth in Section 10.03 below. In case any
such Third Party Claim shall be brought  against any Indemnified  Party,  and it
shall  notify  the  Indemnifying   Party  of  the  commencement   thereof,   the
Indemnifying  Party shall be  entitled to assume the defense  thereof at its own
expense,  with counsel  satisfactory to such Indemnified Party in its reasonable
judgment; provided, however, that any Indemnified Party may, at its own expense,
retain  separate  counsel to  participate  in such  defense at its own  expense.
Notwithstanding  the  foregoing,  in any  Third  Party  Claim in which  both the
Indemnifying  Party,  on the one hand,  and an Indemnified  Party,  on the other
hand, are, or are reasonably  likely to become, a party,  such Indemnified Party
shall have the right to employ  separate  counsel and to

                                       23
<PAGE>

control its own defense of such claim if, in the  reasonable  opinion of counsel
to such  Indemnified  Party,  either (x) one or more  significant  defenses  are
available to the  Indemnified  Party that are not available to the  Indemnifying
Party or (y) a conflict or potential  conflict  exists between the  Indemnifying
Party,  on the one hand, and such  Indemnified  Party,  on the other hand,  that
would make such separate representation  advisable;  provided,  however, that in
such  circumstances the Indemnifying  Party (i) shall not be liable for the fees
and expenses of more than one counsel to all Indemnified  Parties and (ii) shall
reimburse the Indemnified  Parties for such reasonable fees and expenses of such
counsel  incurred in any such Third Party Claim,  as such expenses are incurred,
provided  that the  Indemnified  Parties  agree to repay  such  amounts if it is
ultimately  determined that the Indemnifying  Party was not obligated to provide
indemnification under this Article X. The Indemnifying Party agrees that it will
not,  without  the prior  written  consent  of the  Indemnified  Party,  settle,
compromise  or consent to the entry of any judgment in any pending or threatened
claim relating to the matters contemplated hereby (if any Indemnified Party is a
party thereto or has been actually threatened to be made a party thereto) unless
such settlement, compromise or consent includes an unconditional release of such
Indemnified  Party  from all  liability  arising  or that may  arise out of such
claim.  The  Indemnifying  Party shall not be liable for any  settlement  of any
claim effected  against an Indemnified  Party without the  Indemnifying  Party's
written consent, which consent shall not be unreasonably  withheld,  conditioned
or delayed.  The rights  accorded to an Indemnified  Party hereunder shall be in
addition  to any rights  that any  Indemnified  Party may have at common law, by
separate agreement or otherwise (subject,  however, to the provisions of Section
10.03 below); provided,  however, that notwithstanding the foregoing or anything
to the contrary  contained in this  Agreement,  nothing in this Article X (other
than  Section  10.03)  shall  restrict or limit any rights that any  Indemnified
Party may have to seek equitable relief.

         Section 10.03 Dispute Resolution. Any dispute under this Agreement, the
Registration  Rights  Agreement or the Warrant shall be submitted to arbitration
(including, without limitation, pursuant to this Article X) and shall be finally
and conclusively determined by the decision of a board of arbitration consisting
of three (3)  members  (the  "Board of  Arbitration")  selected  as  hereinafter
provided.  Each of the Indemnified Party and the Indemnifying Party shall select
one (1) member and the third member shall be selected by mutual agreement of the
other members, or if the other members fail to reach agreement on a third member
within  twenty  (20)  days  after  their  selection,  such  third  member  shall
thereafter be selected by the American Arbitration  Association upon application
made to it for such purpose by the Indemnified  Party.  The Board of Arbitration
shall meet on  consecutive  business days in San  Francisco,  California or such
other place as a majority of the members of the Board of Arbitration  determines
more appropriate, and shall reach and render a decision in writing (concurred in
by a majority of the members of the Board of  Arbitration)  with  respect to the
amount,  if  any,  which  the  Indemnifying  Party  is  required  to  pay to the
Indemnified  Party in  respect of a claim  filed by the  Indemnified  Party.  In
connection  with rendering its decisions,  the Board of Arbitration  shall adopt
and follow such rules and  procedures  as a majority of the members of the Board
of  Arbitration  deems  necessary  or  appropriate.  To  the  extent  practical,
decisions of the Board of Arbitration shall be rendered no more than thirty (30)
calendar days following  commencement of proceedings with respect  thereto.  The
Board of  Arbitration  shall cause its written  decision to be  delivered to the
Indemnified Party and the Indemnifying  Party. Any decision made by the Board of
Arbitration  (either  prior to or  after  the  expiration  of such  thirty  (30)
calendar day period) shall be final,  binding and conclusive on the  Indemnified
Party and the  Indemnifying  Party and  entitled  to be  enforced to the fullest
extent permitted by law and entered in any court of competent jurisdiction. Each
party  to any  arbitration  shall  bear its own  expense  in  relation  thereto,
including  but not limited to such  party's  attorneys'  fees,  if any,  and the
expenses and fees of the Board of Arbitration  shall be paid initially  one-half
by  each  of  the  Indemnifying  Party  and  the  Indemnified

                                       24
<PAGE>

Party, but then apportioned  between the Indemnifying  Party and the Indemnified
Party in the same  proportion as the portion of the related claim  determined by
the Board of  Arbitration  to be payable to the  Indemnified  Party bears to the
portion of such claim determined not to be so payable.

                                   ARTICLE XI

                                  MISCELLANEOUS

         Section  11.01  Fees  and   Expenses.   The  Company  shall  be  solely
responsible for (i) all reasonable  attorneys fees and expenses  incurred by the
Investor in connection with the preparation, negotiation, execution and delivery
of this Agreement,  the Registration Rights Agreement and the Warrant,  (ii) all
reasonable  fees and expenses  incurred by the Investor in  connection  with any
amendments, modifications or waivers of this Agreement or incurred in connection
with  the  Investor's   enforcement  of  this  Agreement,   including,   without
limitation, all reasonable attorneys fees and expenses, (iii) all reasonable due
diligence expenses incurred by the Investor during the term of this Agreement up
to aggregate maximum amount of $10,000 per calendar quarter,  and (iv) all stamp
or other similar taxes and duties, if any, levied in connection with issuance of
the  Shares  pursuant  hereto;  provided,  however,  that in  each of the  above
instances the Investor shall provide  customary  supporting  invoices or similar
documentation in reasonable detail describing such expenses.  The Investor shall
reimburse  all  reasonable  due  diligence  expenses  incurred by the Company in
connection with this transaction prior to the date of this Agreement.

         Section  11.02  Reporting  Entity for the Common  Stock.  The reporting
entity relied upon for the  determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this  Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
the  Investor  and the Company  shall be required to employ any other  reporting
entity.

         Section 11.03 Brokerage.  Each of the parties hereto represents that it
has had no  dealings  in  connection  with this  transaction  with any finder or
broker who will demand  payment of any fee or  commission  from the other party.
The  Company on the one hand,  and the  Investor,  on the other  hand,  agree to
indemnify  the  other  against  and hold  the  other  harmless  from any and all
liabilities to any Persons  claiming  brokerage  commissions or finder's fees on
account  of  services   purported  to  have  been  rendered  on  behalf  of  the
indemnifying  party  in  connection  with  this  Agreement  or the  transactions
contemplated hereby.

         Section  11.04  Notices.  All  notices,  demands,  requests,  consents,
approvals,  and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein,  shall be (i) personally served,
(ii) deposited in the mail,  registered or certified,  return receipt requested,
postage  prepaid,  (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other  address as such party shall have  specified
most  recently by written  notice given in  accordance  herewith.  Any notice or
other communication  required or permitted to be given hereunder shall be deemed
effective  (a) upon hand  delivery  or  delivery  by  facsimile,  with  accurate
confirmation  generated by the transmitting facsimile machine, at the address or
number  designated  below (if delivered on a business day during normal business
hours where such notice is to be received),  or the first business day following
such delivery (if delivered  other than on a business day during normal business
hours where such notice is to be  received)  or (b) on the second  business  day
following  the date of  mailing  by  express  courier  service,  fully

                                       25
<PAGE>

prepaid,  addressed to such  address,  or upon actual  receipt of such  mailing,
whichever shall first occur. The addresses for such communications shall be:

                  If to the Company:

                  Cellegy Pharmaceuticals, Inc.
                  349 Oyster Point Boulevard.
                  Suite 200
                  South San Francisco, California  94080
                  Telephone:  (650) 616-2200
                  Facsimile:  (650) 616-2222
                  Attention:  Chief Financial Officer

with a copy (which shall not constitute notice) to:

                  Weintraub Genshlea Chediak & Sproul
                  400 Capitol Mall, Eleventh Floor
                  Sacramento, CA  95814
                  Telephone:  (916)  558-6000
                  Facsimile:  (916)  446-1611
                  Attention:  C. Kevin Kelso, Esq.

if to the Investor:

                  Kingsbridge Capital Limited/ c/o Kingsbridge Corporate
                    Services Limited
                  Main Street
                  Kilcullen, County Kildare
                  Republic of Ireland
                  Telephone:  011-353-45-481-811
                  Facsimile:  011-353-45-482-003
                  Attention:  Adam Gurney, Director

with a copy (which shall not constitute notice) to:

                  Keith M. Andruschak, Esq.
                  Clifford Chance US LLP
                  200 Park Avenue
                  New York, NY  10166
                  Telephone: (212) 878-8000
                  Facsimile: (212) 878-8375

Either party hereto may from time to time change its address or facsimile number
for notices  under this Section by giving at least ten (10) days' prior  written
notice of such changed address or facsimile number to the other party hereto.

         Section 11.05 Assignment.  Neither this Agreement nor any rights of the
Investor or the Company  hereunder  may be assigned by either party to any other
Person.  Notwithstanding  the  foregoing,  (a) the  provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any private  transferee of
any of the Common Stock  purchased or acquired by the  Investor  hereunder  with
respect to the Common Stock held by such Person, (b) the Investor's  interest in
this  Agreement  may be assigned at any time,  in whole or in part, to any other
Person  or entity  (including  any  affiliate  of the  Investor)  upon the prior
written  consent of the  Company,  which  consent  shall not to be  unreasonably
withheld,  and  (c)  the  Company  may  assign  this  Agreement  at any  time in
connection  with a sale  or  acquisition  of the  Company,  whether  by  merger,
consolidation,  sale of all or  substantially  all of the Company's  assets,  or
similar  transaction,

                                       26
<PAGE>

without the consent of the Investor;  provided,  however,  that the successor or
acquiring  Person  agrees in writing to assume all of the  Company's  rights and
obligations under this Agreement.

         Section 11.06 Amendment;  No Waiver.  No party shall be liable or bound
to any other party in any manner by any warranties, representations or covenants
except  as  specifically  set  forth in this  Agreement  or  therein.  Except as
expressly provided in this Agreement, neither this Agreement nor any term hereof
may be  amended,  waived,  discharged  or  terminated  other  than by a  written
instrument  signed by both  parties  hereto.  The failure of the either party to
insist on strict  compliance  with this  Agreement,  or to exercise any right or
remedy  under  this  Agreement,  shall not  constitute  a waiver  of any  rights
provided under this Agreement,  nor estop the parties from thereafter  demanding
full and  complete  compliance  nor prevent the parties from  exercising  such a
right or remedy in the future.

         Section 11.07 Entire Agreement. This Agreement, the Registration Rights
Agreement and the Warrant set forth the entire  agreement and  understanding  of
the parties  relating to the subject  matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written, relating to the subject matter hereof.

         Section  11.08  Severability.  In the event that any  provision of this
Agreement  becomes or is declared  by a court of  competent  jurisdiction  to be
illegal,  unenforceable or void, this Agreement shall continue in full force and
effect  without  said  provision;  provided  that,  such  severability  shall be
ineffective if it materially  changes the economic  benefit of this Agreement to
any party.

         Section 11.09 Title and  Subtitles.  The titles and  subtitles  used in
this  Agreement  are used for the  convenience  of  reference  and are not to be
considered in construing or interpreting this Agreement.

         Section 11.10 Counterparts.  This Agreement may be executed in multiple
counterparts,  each of which may be executed by less than all of the parties and
shall be deemed to be an original  instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.

         Section 11.11 Choice of Law. This  Agreement  shall be construed  under
the laws of the State of New York.

         Section 11.12 Specific Enforcement, Consent to Jurisdiction.

                  (a) The Company and the  Investor  acknowledge  and agree that
irreparable  damage would occur in the event that any of the  provisions of this
Agreement  were not performed in accordance  with their  specific  terms or were
otherwise breached.  It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce  specifically  the terms and provisions  hereof or
thereof,  this being in addition to any other remedy to which any of them may be
entitled by law or equity.

                  (b)  Subject to Section  10.03,  each of the  Company  and the
Investor (i) hereby irrevocably submits to the jurisdiction of the United States
District Court and other courts of the United States sitting in the State of New
York for the  purposes  of any suit,  action  or  proceeding  arising  out of or
relating to this Agreement and (ii) hereby  waives,  and agrees not to assert in
any such suit, action or proceeding, any claim that it is not personally subject
to the

                                       27
<PAGE>

jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient  forum or that the  venue of the  suit,  action  or  proceeding  is
improper.  Each of the Company and the Investor consents to process being served
in any such suit,  action or  proceeding by mailing a copy thereof to such party
at the address in effect for notices to it under this  Agreement and agrees that
such service shall constitute good and sufficient  service of process and notice
thereof.  Nothing  in this  Section  shall  affect  or limit  any right to serve
process in any other manner permitted by law.

         Section  11.13  Survival.  The  representations  and  warranties of the
Company  and the  Investor  contained  in  Articles  IV and V and the  covenants
contained in Article V and Article VI shall  survive the  execution and delivery
hereof  and  the  Closing  until  the  termination  of this  Agreement,  and the
agreements and covenants set forth in Article IX and Article X of this Agreement
shall survive the execution and delivery hereof and the Closing hereunder.

         Section 11.14 Publicity.  Prior to the Closing, neither the Company nor
the  Investor  shall  issue any  press  release  or  otherwise  make any  public
statement or  announcement  with respect to this  Agreement or the  transactions
contemplated hereby or the existence of this Agreement. In the event the Company
is required by law, based upon an opinion of the Company's  counsel,  to issue a
press release or otherwise make a public statement or announcement  with respect
to this  Agreement  prior to the  Closing,  the Company  shall  consult with the
Investor on the form and  substance of such press  release.  Promptly  after the
Closing,  each  party  may  issue a press  release  or  otherwise  make a public
statement or  announcement  with respect to this  Agreement or the  transactions
contemplated hereby or the existence of this Agreement;  provided that, prior to
issuing  any  such  press   release,   making  any  such  public   statement  or
announcement,  the party wishing to make such release, statement or announcement
consults and cooperates in good faith with the other party in order to formulate
such press  release,  public  statement or  announcement  in form and  substance
reasonably acceptable to both parties.

         Section  11.15  Further  Assurances.  From and  after  the date of this
Agreement,  upon the request of the Investor or the Company, each of the Company
and the Investor shall execute and deliver such instruments, documents and other
writings as may be  reasonably  necessary  or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.

                [Remainder of this page intentionally left blank]

                                       28
<PAGE>

                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement to be duly executed by their respective  authorized  officer as of the
date first written.

                           KINGSBRIDGE CAPITAL LIMITED

                                            By:
                                               ---------------------------------
                                                Name:  Valentine O'Donoghue
                                                Title: Director

                          CELLEGY PHARMACEUTICALS, INC.

                                            By:
                                               ---------------------------------
                                                Name:
                                                Title:

                                       29
<PAGE>

                                  Schedule 4.10

                                   Litigation

<PAGE>

                                    Exhibit A
                      Form of Registration Rights Agreement

<PAGE>

                                    Exhibit B
                                 Form of Warrant

<PAGE>

                                    Exhibit C
                              Officer's Certificate

         I, [NAME OF OFFICER],  do hereby certify to Kingsbridge Capital Limited
(the "Investor"),  with respect to the common stock of Cellegy  Pharmaceuticlas,
Inc. (the  "Company")  issuable in connection  with the Draw Down Notice,  dated
_____________  (the "Notice")  attached hereto and delivered pursuant to Article
II of  the  Common  Stock  Purchase  Agreement,  dated  January  16,  2004  (the
"Agreement"), by and between the Company and the Investor, as follows:

         1.       I am the duly elected [OFFICER] of the Company.

         2.       The representations and warranties of the Company set forth in
Article IV of the  Agreement  are true and correct in all  material  respects as
though made on and as of the date hereof  (except for such  representations  and
warranties that are made as of a particular date).

         3.        The  Company  has  performed  in all  material  respects  all
covenants and  agreements to be performed by the Company on or prior to the date
hereof  related to the Notice and has  satisfied  each of the  conditions to the
obligation of the Investor set forth in Article VII of the Agreement.

         The undersigned has executed this Certificate this ____ day of _______,
         200[_].

                                      ------------------------------------------
                                      Name:
                                      Title:Exhibit 10.10
                          REGISTRATION RIGHTS AGREEMENT

         This  REGISTRATION  RIGHTS  AGREEMENT (this  "Agreement"),  dated as of
January  16,  2004,  is  by  and  between  CELLEGY  PHARMACEUTICALS,  INC.  (the
"Company") and KINGSBRIDGE CAPITAL LIMITED (the "Investor").

         WHEREAS,  the Company and the  Investor  have entered into that certain
Common  Stock  Purchase  Agreement,  dated as of the date hereof (the  "Purchase
Agreement"),  pursuant to which the Company may issue, from time to time, to the
Investor up to 3,740,000 shares of Common Stock;

         WHEREAS, pursuant to the terms of, and in partial consideration for the
Investor  entering into, the Purchase  Agreement,  the Company has issued to the
Investor  a  warrant,  exercisable  from  time to time  within  five  (5)  years
following the six-month  anniversary of the date of issuance (the "Warrant") for
the purchase of an aggregate of up to 260,000  shares of Common Stock at a price
specified in such Warrant;

         WHEREAS,  pursuant to the terms of, and in partial  consideration  for,
the Investor's  agreement to enter into the Purchase Agreement,  the Company has
agreed to provide the Investor with certain  registration rights with respect to
the Registrable  Securities (as defined in the Purchase  Agreement) as set forth
herein;

         NOW, THEREFORE,  in consideration of the premises, the representations,
warranties,  covenants and agreements  contained herein, in the Warrant,  and in
the  Purchase  Agreement,  and for other good and  valuable  consideration,  the
receipt and sufficiency of which is hereby acknowledged, intending to be legally
bound hereby, the parties hereto agree as follows (capitalized terms used herein
and not defined  herein shall have the respective  meanings  ascribed to them in
the Purchase Agreement):

                                    ARTICLE I
                               REGISTRATION RIGHTS

Section 1.1.      REGISTRATION STATEMENT.

                  (a) Filing of the Registration  Statement.  Upon the terms and
subject to the  conditions set forth in this  Agreement,  the Company shall file
with the Commission,  within five (5) days after the date by which the Company's
annual  report on Form 10-K with respect to the year ended  December 31, 2003 is
required to be filed with the Commission,  a registration  statement on Form S-1
under the Securities Act or such other form as deemed  appropriate by counsel to
the  Company  for  the  registration  for  the  resale  by the  Investor  of the
Registrable Securities (the "Registration Statement").

                  (b) Effectiveness of the Registration  Statement.  The Company
shall use commercially reasonable efforts (i) to have the Registration Statement
declared effective by the Commission as soon as reasonably  practicable,  but in
any event no later than  thirty-five (35) calendar days, or eighty (80) calendar
days in the  event  that the  Commission  reviews  the  Registration  Statement,
following the date that the  Registration  Statement is filed and (ii) to ensure
that the Registration  Statement  remains in effect  throughout the term of this
Agreement as set forth in Section 4.2,  subject to the terms and  conditions  of
this Agreement.

                  (c) Regulatory  Disapproval.  The contemplated  effective date
for the Registration  Statement as described in Section 1.1(b) shall be extended
without default or liquidated  damages hereunder or under the Purchase Agreement
in the event  that the  Company's  failure to obtain  the  effectiveness  of the
Registration  Statement on a timely basis results  solely from the  Commission's

<PAGE>

disapproval of the structure of the  transactions  contemplated  by the Purchase
Agreement.  In such event,  the parties  agree to cooperate  with one another in
good faith to arrive at a resolution acceptable to the Commission.

                  (d)  Failure  to  Maintain   Effectiveness   of   Registration
Statement.  In the event the Company fails to maintain the  effectiveness of the
Registration  Statement (or the  Prospectus)  throughout the period set forth in
Section 4.2, other than temporary  suspensions as set forth in Section 1.1(e) or
2.1(n), and the Investor holds any Registrable Securities at any time during the
period of such ineffectiveness (an "Ineffective  Period"), the Company shall pay
to the Investor in immediately available funds into an account designated by the
Investor an amount equal to the product of (x) the total  number of  Registrable
Securities issued to the Investor under the Purchase  Agreement and owned by the
Investor  at any time  during such  Ineffective  Period and (y) the  result,  if
greater  than  zero,  obtained  by  subtracting  the  VWAP  on the  Trading  Day
immediately  following the last day of such Ineffective  Period from the VWAP on
the  Trading Day  immediately  preceding  the day on which any such  Ineffective
Period began; provided,  however, that the foregoing payments shall not apply in
respect of  Registrable  Securities  that are otherwise  freely  tradable by the
Investor.

                  (e)  Deferral  or   Suspension   During  a  Blackout   Period.
Notwithstanding the provisions of Section 1.1 (d), if in the good faith judgment
of  the  Company,  following  consultation  with  legal  counsel,  it  would  be
detrimental to the Company or its stockholders for the Registration Statement to
be filed or for resales of  Registrable  Securities  to be made  pursuant to the
Registration  Statement  due to (i) the existence of a material  development  or
potential material  development  involving the Company that the Company would be
obligated to disclose in the Registration  Statement,  which disclosure would be
premature or otherwise inadvisable at such time or would have a Material Adverse
Effect  on  the   Company   or  its   stockholders,   or  (ii)  a  filing  of  a
Company-initiated  registration of any class of its equity securities, which, in
the good  faith  judgment  of the  Company,  would  adversely  effect or require
premature  disclosure  of the  filing  of  such  Company-initiated  registration
(notice thereof, a "Blackout  Notice"),  the Company shall have the right to (A)
immediately  defer  such  filing  for a period of not more than  sixty (60) days
beyond the date by which such  Registration  Statement  was  otherwise  required
hereunder to be filed or (B) suspend use of such  Registration  Statement  for a
period of not more than  thirty  (30) days  (any  such  deferral  or  suspension
period,  a  "Blackout  Period").  The  Investor  acknowledges  that it  would be
seriously  detrimental to the Company and its stockholders for such Registration
Statement  to be filed (or  remain  in  effect)  during a  Blackout  Period  and
therefore  essential  to defer such filing (or suspend the use  thereof)  during
such  Blackout  Period and agrees to cease any  disposition  of the  Registrable
Securities  during such Blackout Period.  The Company may not utilize any of its
rights under this Section 1.1(e) to defer the filing of a Registration Statement
(or suspend its effectiveness)  more than six (6) times in any twelve (12) month
period.  In the event that,  within  fifteen  (15) Trading  Days  following  any
Settlement  Date,  the Company  gives a Blackout  Notice to the Investor and the
VWAP on the Trading Day immediately  preceding such Blackout Period ("Old VWAP")
is greater than the VWAP on the first Trading Day following such Blackout Period
that the Investor may sell its Registrable  Securities  pursuant to an effective
Registration Statement ("New VWAP"), then the Company shall pay to the Investor,
by wire transfer of immediately funds to an account  designated by the Investor,
the "Blackout Amount." For the purposes of this Agreement, Blackout Amount means
a percentage equal to: (1) seventy-five percent (75%) if such Blackout Notice is
delivered prior to the fifth  (5th)Trading  Day following such Settlement  Date;
(2) fifty  percent  (50%) if such  Blackout  Notice is delivered on or after the
fifth  (5th)Trading  Day following such Settlement  Date, but prior to the tenth
(10th) Trading Day following such Settlement Date; (3) twenty-five percent (25%)
if such  Blackout  Notice is delivered on or after the tenth (10th)  Trading Day
following such  Settlement  Date, but prior to the fifteenth  (15th) Trading Day
following such  Settlement  Date;  and (4) zero percent (0%)  thereafter of: the
product of (i) the number of  Registrable  Securities  purchased by the Investor
pursuant  to the  most  recent  Draw  Down  and  actually  held by the  Investor
immediately  prior  to the  Blackout  Period  and (ii) the

                                       2
<PAGE>

result  obtained by subtracting the New VWAP from the Old VWAP. For any Blackout
Period in respect of which a Blackout  Amount  becomes due and  payable,  rather
than paying the Blackout Amount, the Company may at is sole discretion, issue to
the Investor shares of Common Stock with an aggregate market value determined as
of the first  Trading Day following  such Blackout  Period equal to the Blackout
Amount ("Blackout Shares")..

                  (f) Liquidated  Damages.  The Company and the Investor  hereto
acknowledge  and agree that the amounts payable under Sections 1.1(d) and 1.1(e)
and the Blackout Shares  deliverable under Section 1.1(e) above shall constitute
liquidated damages and not penalties.  The parties further  acknowledge that (i)
the amount of loss or damages likely to be incurred by the Investor is incapable
or is  difficult  to  precisely  estimate,  (ii) the amounts  specified  in such
subsections  bear a  reasonable  proportion  and  are  not  plainly  or  grossly
disproportionate  to the probable loss likely to be incurred in connection  with
any  failure  by the  Company to obtain or  maintain  the  effectiveness  of the
Registration  Statement,  (iii)  one of the  reasons  for  the  Company  and the
Investor  reaching an agreement as to such amounts was the  uncertainty and cost
of litigation regarding the question of actual damages, and (iv) the Company and
the Investor are  sophisticated  business  parties and have been  represented by
sophisticated and able legal and financial counsel and negotiated this Agreement
at arm's length.

                  (g) Additional  Registration  Statements.  In the event and to
the extent that the Registration Statement fails to register a sufficient amount
of Common Stock  necessary for the Company to issue and sell to the Investor and
the Investor to purchase from the Company all of the  Registrable  Securities to
be issued, sold and purchased under the Purchase Agreement and the Warrant,  the
Company  shall prepare and file with the  Commission an additional  registration
statement or statements in order to  effectuate  the purpose of this  Agreement,
the Purchase Agreement, and the Warrant.

                                   ARTICLE II
                             REGISTRATION PROCEDURES

Section 2.1.  FILINGS;  INFORMATION.  The Company shall effect the  registration
with  respect  to the sale of the  Registrable  Securities  by the  Investor  in
accordance with the intended  methods of disposition  thereof.  Without limiting
the  foregoing,  the  Company  in  each  such  case  will  do the  following  as
expeditiously  as  possible,  but in no event later than the  deadline,  if any,
prescribed therefor in this Agreement:
                  (a) Subject to Section  1.1(e),  the Company shall (i) prepare
and file with the Commission the Registration  Statement;  (ii) use commercially
reasonable efforts to cause such filed  Registration  Statement to become and to
remain  effective  (pursuant to Rule 415 under the Securities Act or otherwise);
(iii) prepare and file with the Commission  such  amendments and  supplements to
the  Registration  Statement and the Prospectus used in connection  therewith as
may be  necessary to keep such  Registration  Statement  effective  for the time
period  prescribed by Section 4.2 and in order to effectuate the purpose of this
Agreement,  the Purchase  Agreement,  and the Warrant;  and (iv) comply with the
provisions  of  the  Securities  Act  with  respect  to the  disposition  of all
securities  covered  by  such  Registration  Statement  during  such  period  in
accordance with the intended methods of disposition by the Investor set forth in
such  Registration  Statement;  provided,  however,  that the Investor  shall be
responsible  for the  delivery  of the  Prospectus  to the  Persons  to whom the
Investor  sells the Shares and the Warrant  Shares,  and the Investor  agrees to
dispose of Registrable  Securities in compliance  with the plan of  distribution
described  in the  Registration  Statement  and  otherwise  in  compliance  with
applicable federal and state securities laws.

                  (b) If so requested by a managing underwriter or underwriters,
if any, or the holders of a majority of the Registrable Securities being sold in
connection with the filing of a Registration  Statement under the Securities Act
for the  offering on a continuous  or delayed  basis in the future of all of

                                       3
<PAGE>

the  Registrable  Securities  (a "Shelf  Registration"),  the Company  shall (i)
promptly incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriters,  if any, and such holders agree should
be  included  therein,  and (ii) make all  required  filings of such  prospectus
supplement or post-effective  amendment as soon as practicable after the Company
has received  notification  of the matters to be incorporated in such prospectus
supplement or  post-effective  amendment;  provided,  however,  that the Company
shall not be required to take any action  pursuant  to this  Section  2.1(b)(ii)
that would, in the opinion of counsel for the Company, violate applicable law.

                  (c)  In  the  event  of an  underwritten  (other  than  by the
Investor)  offering  of  Registrable  Securities  pursuant  to the  Registration
Statement,  the Company shall enter into such reasonable agreements and take all
such  other  reasonable  actions  in  connection   therewith   (including  those
reasonably requested by the managing underwriters,  if any) in order to expedite
or  facilitate  the  disposition  of such  Registrable  Securities,  and in such
connection,  the Company shall (i) make such  representations  and warranties to
the holders of such Registrable  Securities and the  underwriters,  if any, with
respect to the business of the Company  (including with respect to businesses or
assets  acquired  or to be  acquired  by  the  Company),  and  the  Registration
Statement,  Prospectus  and  documents,  if any,  incorporated  or  deemed to be
incorporated by reference therein, in each case, in form,  substance (subject to
such exceptions as the Company may disclose) and scope as are  customarily  made
by  issuers  to  underwriters  in  underwritten  offerings,   and  confirm  such
representations  and warranties if and when  requested;  (ii) if an underwriting
agreement  is entered  into,  it shall  contain  indemnification  provision  and
procedures  no  less  favorable  to the  selling  holders  of  such  Registrable
Securities  and the  underwriters,  if any, than those set forth herein (or such
other provisions and procedures acceptable to the Company, holders of a majority
of  Registrable  Securities  covered  by  such  Registration  Statement  and the
managing   underwriters,   if  any);   and  (iii)  deliver  such  documents  and
certificates as may be reasonably  requested by the holders of a majority of the
Registrable  Securities being sold, their counsel and the managing underwriters,
if any,  to  evidence  the  continued  validity  of  their  representations  and
warranties made pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in the underwriting  agreement or other agreement
entered into by the Company.

                  (d) Three (3)  Trading  Days prior to filing the  Registration
Statement or  Prospectus,  or any  amendment or  supplement  thereto  (excluding
amendments  deemed  to  result  from the  filing of  documents  incorporated  by
reference  therein),  the Company  shall  deliver to the Investor and to counsel
representing the Investor,  in accordance with the notice  provisions of Section
4.8, copies of the Registration  Statement,  Prospectus and/or any amendments or
supplements  thereto as proposed to be filed,  together with  exhibits  thereto,
which documents will be subject to review by the Investor and such counsel,  and
thereafter  deliver to the Investor and such  counsel,  in  accordance  with the
notice  provisions  of Section  4.8,  such number of copies of the  Registration
Statement,  each  amendment and  supplement  thereto (in each case including all
exhibits thereto),  the Prospectus  (including each preliminary  prospectus) and
such other  documents or  information  as the Investor or counsel may reasonably
request in order to facilitate the disposition of the Registrable Securities.

                  (e) The Company shall deliver,  in accordance  with the notice
provisions of Section 4.8, to each seller of Registrable  Securities  covered by
the  Registration  Statement such number of conformed copies of the Registration
Statement and of each amendment and  supplement  thereto (in each case including
all exhibits and documents incorporated by reference),  such number of copies of
the  Prospectus   (including  each   preliminary   prospectus  and  any  summary
prospectus) and any other prospectus filed under Rule 424 promulgated  under the
Securities Act relating to such seller's Registrable Securities,  and such other
documents,  as such seller may reasonably  request to facilitate the disposition
of its Registrable Securities.

                  (f)  After  the  filing  of the  Registration  Statement,  the
Company  shall  promptly  notify  the  Investor  of any  stop  order  issued  or
threatened by the Commission in connection  therewith and take

                                       4
<PAGE>

all commercially  reasonable  actions required to prevent the entry of such stop
order or to remove it if entered.

                  (g) The Company shall use commercially  reasonable  efforts to
(i) register or qualify the Registrable  Securities  under such other securities
or blue sky laws of each  jurisdiction  in the United States as the Investor may
reasonably  (in light of its intended plan of  distribution)  request,  and (ii)
cause the Registrable Securities to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary by
virtue of the  business and  operations  of the Company and do any and all other
customary  acts and things that may be  reasonably  necessary  or  advisable  to
enable the Investor to consummate the disposition of the Registrable Securities;
provided, however, that the Company will not be required to qualify generally to
do  business in any  jurisdiction  where it would not  otherwise  be required to
qualify  but for this  Section  2.1(g),  subject  itself to taxation in any such
jurisdiction,  consent  or subject  itself to general  service of process in any
such  jurisdiction,  change any existing  business  practices,  benefit plans or
outstanding securities or amend or otherwise modify the Charter or Bylaws.

                  (h) In the  event of an  underwritten  offering,  the  Company
shall  enter  into  customary  agreements  and take such  other  actions  as are
reasonably  required in order to expedite the  disposition  of such  Registrable
Securities.

                  (i) The Company shall make available to the Investor (and will
deliver to Investor's counsel),(A) subject to restrictions imposed by the United
States federal  government or any agency or instrumentality  thereof,  copies of
all public correspondence  between the Commission and the Company concerning the
Registration  Statement  and will  also make  available  for  inspection  by the
Investor and any  attorney,  accountant  or other  professional  retained by the
Investor  (collectively,  the  "Inspectors"),(B)  upon reasonable advance notice
during  normal  business  hours  all  financial  and  other  records,  pertinent
corporate documents and properties of the Company (collectively,  the "Records")
as shall be reasonably  necessary to enable them to exercise their due diligence
responsibility,  and cause the  Company's  officers and  employees to supply all
information  reasonably  requested  by any  Inspectors  in  connection  with the
Registration Statement;  provided,  however, that any such Inspectors must agree
in  writing  for the  benefit of the  Company  not to use or  disclose  any such
Records  except as provided in this  Section  2.1(i).  Records  that the Company
determines,  in  good  faith,  to be  confidential  and  that  it  notifies  the
Inspectors are confidential  shall not be disclosed by the Inspectors unless the
disclosure or release of such Records is requested or required  pursuant to oral
questions, interrogatories,  requests for information or documents or a subpoena
or other  order from a court of  competent  jurisdiction  or other  judicial  or
governmental process; provided, however, that prior to any disclosure or release
pursuant to the immediately  preceding clause,  the Inspectors shall provide the
Company  with  prompt  notice of any such  request  or  requirement  so that the
Company  may seek an  appropriate  protective  order or waive  such  Inspectors'
obligation not to disclose such Records; and, provided, further, that if failing
the entry of a  protective  order or the waiver by the  Company  permitting  the
disclosure or release of such Records,  the Inspectors,  upon advice of counsel,
are compelled to disclose such Records, the Inspectors may disclose that portion
of the Records that counsel has advised the  Inspectors  that the Inspectors are
compelled  to  disclose;   provided,   however,  that  upon  any  such  required
disclosure,  such  Inspector  shall  use  his  or her  best  efforts  to  obtain
reasonable  assurances  that  confidential   treatment  will  be  afforded  such
information.  The Investor  agrees that  information  obtained by it solely as a
result of such inspections (not including any information  obtained from a third
party who, insofar as is known to the Investor after reasonable  inquiry, is not
prohibited from providing such information by a contractual,  legal or fiduciary
obligation to the Company)  shall be deemed  confidential  and shall not be used
for any  purposes  other than as  indicated  above or by it as the basis for any
market  transactions  in the securities of the Company or its affiliates  unless
and until such  information  is made  generally  available  to the  public.  The
Investor  further  agrees that it will,  upon learning  that  disclosure of such
Records  is  sought in a court of  competent  jurisdiction,  give  notice to the

                                       5
<PAGE>

Company and allow the Company, at its expense,  to undertake  appropriate action
to prevent disclosure of the Records deemed confidential.

                  (j) In the event of an underwritten  (other than the Investor)
offering of the sale of  Registrable  Securities  pursuant  to the  Registration
Statement,  then  to the  extent  required  by  the  managing  underwriters  and
reasonably  necessary to effect a sale of  Registrable  Securities in accordance
with prevailing  business practices at the time of any such underwritten sale of
Registrable Securities pursuant to a Registration  Statement,  the Company shall
deliver to the Investor a signed counterpart,  addressed to the Investor, of (1)
an opinion or opinions of counsel to the  Company,  and (2) a comfort  letter or
comfort  letters from the  Company's  independent  public  accountants,  each in
customary  form and  covering  such matters of the type  customarily  covered by
opinions  or  comfort  letters,  as the case may be,  as the  Investor  therefor
reasonably requests.

                  (k) The Company  shall  otherwise  comply with all  applicable
rules  and  regulations  of  the  Commission,   including,  without  limitation,
compliance with applicable reporting requirements under the Exchange Act.

                  (l) The Company shall  appoint a transfer  agent and registrar
for all of the Registrable Securities covered by such Registration Statement not
later than the effective date of such Registration Statement.

                  (m)  The  Investor  shall  cooperate  with  the  Company,   as
reasonably  requested by the Company,  in connection  with the  preparation  and
filing of any  Registration  Statement  hereunder.  The  Company may require the
Investor to promptly  furnish in writing to the Company such  information as may
be required in connection with such registration including,  without limitation,
all such  information  as may be requested by the  Commission or the NASD or any
state securities commission and all such information regarding the Investor, the
Registrable  Securities  held  by  the  Investor  and  the  intended  method  of
disposition of the Registrable  Securities.  The Investor agrees to provide such
information  requested  in  connection  with such  registration  within five (5)
Business days after  receiving such written request and the Company shall not be
responsible for any delays in obtaining or maintaining the  effectiveness of the
Registration  Statement caused by the Investor's  failure to timely provide such
information.

                  (n) Upon receipt of a Blackout  Notice from the  Company,  the
Investor shall  immediately  discontinue  disposition of Registrable  Securities
pursuant to the  Registration  Statement  covering such  Registrable  Securities
until  (i) the  Company  advises  the  Investor  that the  Blackout  Period  has
terminated and (ii) the Investor  receives  copies of a supplemented  or amended
prospectus,  if  necessary.  If so directed by the Company,  the  Investor  will
deliver to the Company (at the expense of the  Company) or destroy  (and deliver
to the  Company a  certificate  of  destruction)  all  copies in the  Investor's
possession  (other  than a limited  number  of file  copies)  of the  prospectus
covering such  Registrable  Securities that is current at the time of receipt of
such notice.

                  (o) If the Investor  determines  to engage in an  Underwritten
Offering,  the  Investor  will enter into and perform its  obligations  under an
underwriting  agreement,  in  usual  and  customary  form,  including,   without
limitation,  customary  indemnification and contribution  obligations,  with the
managing  underwriter of such offering,  and will take such other actions as are
reasonably  required in order to expedite or facilitate  the  disposition of the
Registrable Securities. The Investor shall consult with the Company prior to any
Underwritten   Offering  and  shall  defer  such  Underwritten  Offering  for  a
reasonable period upon the commercially reasonable request of the Company.

Section  2.2.  REGISTRATION  EXPENSES.  The Company  shall pay all  registration
expenses   incurred  in  connection   with  the   Registration   Statement  (the
"Registration Expenses"),  including,  without limitation: (i) all registration,
filing,   securities   exchange  listing  and  fees  required  by  the  National

                                       6
<PAGE>

Association of Securities Dealers, (ii) all registration,  filing, qualification
and other fees and  expenses  of  compliance  with  securities  or blue sky laws
(including  reasonable fees and disbursements of counsel in connection with blue
sky  qualifications of the Registrable  Securities),  (iii) all word processing,
duplicating,  printing,  messenger  and delivery  expenses,  (iv) the  Company's
internal expenses (including,  without limitation,  all salaries and expenses of
its officers and employees  performing legal or accounting duties), (v) the fees
and  expenses  incurred  by the  Company in  connection  with the listing of the
Registrable  Securities,  (vi) reasonable fees and  disbursements of counsel for
the Company and customary  fees and expenses for  independent  certified  public
accountants  retained  by the  Company  (including  the  expenses of any special
audits or comfort  letters or costs  associated with the delivery by independent
certified  public  accountants  of such  special  audit(s) or comfort  letter(s)
requested pursuant to Section 2.1(k) hereof), (vii) the fees and expenses of any
special experts retained by the Company in connection with such registration and
amendments and supplements to the Registration Statement and Prospectus,  (viii)
all  reasonable  fees and  expenses  of counsel  for the  Investor to the extent
incurred in connection with the review,  and assistance in  preparation,  of the
Registration  Statement,  correspondence  with the Commission and amendments and
supplements to the  Registration  Statement and  Prospectus,  up to a maximum of
$2,500,  and (ix)  premiums  and other  costs of the  Company  for  policies  of
insurance  against  liabilities  arising  out  of  any  public  offering  of the
Registrable   Securities  being  registered.   Any  fees  and  disbursements  of
underwriters, broker-dealers or investment bankers, including without limitation
underwriting fees, discounts,  transfer taxes or commissions, and any other fees
or expenses (including legal fees and expenses) if any, attributable to the sale
of  Registrable  Securities,  shall be  payable  by each  holder of  Registrable
Securities pro rata on the basis of the number of Registrable Securities of each
such holder that are included in a registration under this Agreement.

                                   ARTICLE III
                                 INDEMNIFICATION

Section 3.1. INDEMNIFICATION.  The Company agrees to indemnify and hold harmless
the Investor, its partners, Affiliates,  officers, directors, employees and duly
authorized  agents, and each Person or entity, if any, who controls the Investor
within the  meaning of  Section  15 of the  Securities  Act or Section 20 of the
Exchange  Act,  together  with the partners,  Affiliates,  officers,  directors,
employees  and duly  authorized  agents  of such  controlling  Person  or entity
(collectively,  the "Controlling  Persons"),  from and against any loss,  claim,
damage, liability, costs and expenses (including, without limitation, reasonable
attorneys' fees and  disbursements  and costs and expenses of investigating  and
defending any such claim) (collectively,  "Damages"),  joint or several, and any
action or  proceeding in respect  thereof to which the  Investor,  its partners,
affiliates,  officers, directors,  employees and duly authorized agents, and any
Controlling Person, may become subject under the Securities Act or otherwise, as
incurred, insofar as such Damages (or actions or proceedings in respect thereof)
arise out of,  or are  based  upon,  any  untrue  statement  or  alleged  untrue
statement of a material fact contained in any Registration  Statement, or in any
preliminary  prospectus,  final  prospectus,  summary  prospectus,  amendment or
supplement relating to the Registrable Securities or arises out of, or are based
upon, any omission or alleged omission to state therein a material fact required
to be stated  therein or  necessary  to make the  statements  therein  under the
circumstances  not misleading,  and shall reimburse the Investor,  its partners,
affiliates,  officers, directors, employees and duly authorized agents, and each
such Controlling Person, for any legal and other expenses reasonably incurred by
the Investor, its partners, affiliates,  officers, directors, employees and duly
authorized agents, or any such Controlling Person, as incurred, in investigating
or  defending  or  preparing  to defend  against any such  Damages or actions or
proceedings;  provided,  however,  that the  Company  shall not be liable to the
extent  that  any  such  Damages  arise  out of the  Investor's  (or  any  other
indemnified  Person's) failure to send or give a copy of the final prospectus or
supplement (as then amended or supplemented) to the persons  asserting an untrue
statement  or alleged  untrue  statement  or omission or alleged  omission at or
prior to the written confirmation of the sale of Registrable  Securities to such
person if such  statement or omission was corrected in such final  prospectus or
supplement;  provided,

                                       7
<PAGE>

further,  that the  Company  shall  not be liable  to the  extent  that any such
Damages  arise out of or are based upon an untrue  statement  or alleged  untrue
statement or omission or alleged omission made in such  Registration  Statement,
or any  such  preliminary  prospectus,  final  prospectus,  summary  prospectus,
amendment  or  supplement  in  reliance  upon  and in  conformity  with  written
information  furnished  to the  Company by or on behalf of the  Investor  or any
other person who  participates as an underwriter in the offering or sale of such
securities,  in  either  case,  specifically  stating  that it is for use in the
preparation thereof. In connection with any Registration  Statement with respect
to which the Investor is  participating,  such Investor will  indemnify and hold
harmless,  to the  same  extent  and in the  same  manner  as set  forth  in the
preceding paragraph, the Company, each of its directors,  officers, each Person,
if any,  who  controls  the  Company  within  the  meaning  of Section 15 of the
Securities  Act or Section 20 of the Exchange  Act (each a "Company  Indemnified
Person") against any Damages to which any Company  Indemnified Person may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
Damages  arise out of or are based  upon (a) any  untrue  statement  or  alleged
untrue statement of a material fact contained in any Registration  Statement, or
in any preliminary prospectus, final prospectus,  summary prospectus,  amendment
or  supplement  relating to the  Registrable  Securities or arise out of, or are
based upon,  any omission or alleged  omission to state  therein a material fact
required to be stated therein or necessary to make the statements  therein under
the  circumstances  not misleading to the extent that such  violation  occurs in
reliance  upon and in  conformity  with  written  information  furnished  to the
Company  by the  Investor  or on behalf  of the  Investor  expressly  for use in
connection with such  Registration  Statement or (b) any failure by the Investor
to comply with  prospectus  delivery  requirements  of the  Securities  Act, the
Exchange Act or any other law or legal requirement applicable to sales under the
Registration Statement

Section   3.2.   CONDUCT  OF   INDEMNIFICATION   PROCEEDINGS.   All  claims  for
indemnification  under  Section 3.1 shall be asserted and resolved in accordance
with the provisions of Section 10.02 and 10.03 of the Purchase Agreement.

Section  3.3.  ADDITIONAL  INDEMNIFICATION.   Indemnification  similar  to  that
specified  in the  preceding  paragraphs  of this  Article  3 (with  appropriate
modifications)  shall be given  by the  Company  with  respect  to any  required
registration or other qualification of securities under any federal or state law
or regulation of any  governmental  authority other than the Securities Act. The
provisions  of this  Article  III shall be in  addition  to any other  rights to
indemnification,  contribution or other remedies which an Indemnified Party or a
Company  Indemnified  Person  may have  pursuant  to law,  equity,  contract  or
otherwise.

To the extent that any  indemnification  provided  for herein is  prohibited  or
limited by law, the indemnifying  party will make the maximum  contribution with
respect to any amounts for which it would otherwise be liable under this Article
III to the fullest extent permitted by law. However, (a) no contribution will be
make under  circumstances  where maker of such contribution  would not have been
required to indemnify the indemnified  party under the fault standards set forth
in  this  Article  III,  (b) no  seller  of  Registrable  Securities  guilty  of
fraudulent  misrepresentation  (within  the  meaning  of  Section  11(f)  of the
Securities  Act) will be  entitled  to  contribution  from any Person who is not
guilty of such fraudulent misrepresentation, and (c) contribution (together with
any  indemnification   obligations  under  this  Agreement)  by  any  seller  of
Registrable  Securities  will be limited in amount of proceeds  received by such
seller from the sale of such Registrable Securities.

                                       8
<PAGE>

                                   ARTICLE IV
                                  MISCELLANEOUS

Section 4.1. NO OUTSTANDING  REGISTRATION RIGHTS.  Except as otherwise disclosed
in accordance with the Purchase  Agreement or in the Commission  Documents,  the
Company  represents  and warrants to the Investor that there is not in effect on
the date hereof any  agreement  by the Company  pursuant to which any holders of
securities  of the  Company  have a right to cause the  Company to  register  or
qualify such  securities  under the Securities Act or any securities or blue sky
laws of any jurisdiction.

Section  4.2.  TERM.  The  registration   rights  provided  to  the  holders  of
Registrable  Securities  hereunder,  and the  Company's  obligation  to keep the
Registration  Statement  effective,  shall  terminate at the earlier of (i) such
time that is two years following the termination of the Purchase Agreement, (ii)
such time as all  Registrable  Securities have been issued and have ceased to be
Registrable Securities, or (iii) upon the consummation of an "Excluded Merger or
Sale" as defined  in the  Purchase  Agreement.  Notwithstanding  the  foregoing,
paragraphs (c) and (d) of Section 1.1, Article III, Section 4.8, and Section 4.9
shall survive the termination of this Agreement.

Section 4.3.  RULE 144. The Company  will,  at its expense,  promptly  take such
action as holders of Registrable  Securities  may  reasonably  request to enable
such holders of Registrable  Securities to sell Registrable  Securities  without
registration  under the  Securities  Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act ("Rule 144"), as such Rule may
be amended from time to time,  or (b) any similar rule or  regulation  hereafter
adopted by the  Commission.  If at any time the Company is not  required to file
such reports, it will, at its expense, forthwith upon the written request of any
holder  of  Registrable  Securities,  make  available  adequate  current  public
information  with respect to the Company within the meaning of paragraph  (c)(2)
of Rule 144 or such other  information  as necessary to permit sales pursuant to
Rule 144.  Upon the request of the  Investor,  the Company  will  deliver to the
Investor  a written  statement,  signed  by the  Company's  principal  financial
officer, as to whether it has complied with such requirements.

Section 4.4. CERTIFICATE.  The Company will, at its expense,  forthwith upon the
request  of any  holder of  Registrable  Securities,  deliver  to such  holder a
certificate,  signed by the Company's principal  financial officer,  stating (a)
the Company's name,  address and telephone number (including area code), (b) the
Company's  Internal  Revenue Service  identification  number,  (c) the Company's
Commission  file  number,  (d) the  number  of  shares  of each  class  of Stock
outstanding  as shown by the most recent  report or  statement  published by the
Company,  and (e) whether the Company has filed the reports required to be filed
under the  Exchange  Act for a period of at least  ninety (90) days prior to the
date of such certificate and in addition has filed the most recent annual report
required to be filed thereunder.

Section 4.5. AMENDMENT AND MODIFICATION.  Any provision of this Agreement may be
waived,  provided  that such  waiver is set forth in a writing  executed by both
parties to this  Agreement.  The  provisions  of this  Agreement,  including the
provisions of this sentence, may not be amended,  modified or supplemented,  and
waivers or consents to departures  from the provisions  hereof may not be given,
unless the Company has obtained the written consent of the holders of a majority
of the then outstanding Registrable  Securities.  Notwithstanding the foregoing,
the  waiver of any  provision  hereof  with  respect  to a matter  that  relates
exclusively to the rights of holders of Registrable  Securities whose securities
are being sold  pursuant to a  Registration  Statement  and does not directly or
indirectly  affect the rights of other holders of Registrable  Securities may be
given by holders of at least a majority of the Registrable Securities being sold
by such  holders;  provided  that the  provisions  of this  sentence  may not be
amended,  modified or  supplemented  except in accordance with the provisions of
the immediately  preceding  sentence.  No course of dealing between or among any
Person having any interest in this Agreement will be deemed effective to modify,
amend or discharge any part of this  Agreement or any rights or  obligations  of
any person under or by reason of this Agreement.

                                       9
<PAGE>

Section 4.6. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement and all of
the  provisions  hereof  shall be binding  upon and inure to the  benefit of the
parties hereto and their  respective  successors  and assigns.  The Investor may
assign  its  rights  under  this  Agreement  to  any  subsequent  holder  of the
Registrable  Securities  (unless  sold  pursuant  to an  effective  registration
statement or in accordance  with Rule 144 under the  Securities  Act),  provided
that the  Company  shall  have the right to require  any  holder of  Registrable
Securities  to execute a  counterpart  of this  Agreement as a condition to such
holder's claim to any rights hereunder. The Company may assign this Agreement at
any time in connection  with a sale or  acquisition  of the Company,  whether by
merger, consolidation, sale of all or substantially all of the Company's assets,
or similar transaction,  without the consent of the Investor or other holders of
Registrable  Securities,  provided  that the  successor or  acquiring  Person or
entity agrees in writing to assume all of the Company's  rights and  obligations
under this Agreement.  This Agreement,  together with the Purchase Agreement and
the Warrant(s)  sets forth the entire  agreement and  understanding  between the
parties as to the  subject  matter  hereof and merges and  supersedes  all prior
discussions, agreements and understandings of any and every nature among them.

Section 4.7.  SEVERABILITY.  In the event that any  provision of this  Agreement
becomes or is  declared  by a court of  competent  jurisdiction  to be  illegal,
unenforceable  or void,  this Agreement  shall continue in full force and effect
without said provision;  provided that such severability shall be ineffective if
it  materially  changes  the  economic  benefit of this  Agreement  to any party
hereto.

Section 4.8. NOTICES. All notices, demands, requests,  consents,  approvals, and
other  communications   required  or  permitted  hereunder  shall  be  given  in
accordance with Section 10.04 of the Purchase Agreement.

Section  4.9.  GOVERNING  LAW;  DISPUTE  RESOLUTION.  This  Agreement  shall  be
construed under the laws of the State of New York. Any dispute arising out of or
relating to this Agreement shall be resolved by means of arbitration pursuant to
the provisions of Article X of the Purchase Agreement.

Section 4.10.  HEADINGS.  The headings in this Agreement are for  convenience of
reference only and shall not constitute a part of this Agreement, nor shall they
affect their meaning, construction or effect.

Section  4.11.  COUNTERPARTS.   This  Agreement  may  be  executed  in  multiple
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute one and the same instrument.

Section  4.12.  FURTHER  ASSURANCES.  Each party shall  cooperate  and take such
action as may be reasonably requested by another party in order to carry out the
provisions  and purposes of this  Agreement  and the  transactions  contemplated
hereby.

Section 4.13. ABSENCE OF PRESUMPTION.  This Agreement shall be construed without
regard to any  presumption  or rule  requiring  construction  or  interpretation
against the party drafting or causing any instrument to be drafted.

                                       10
<PAGE>

         IN WITNESS  WHEREOF,  the parties hereto have caused this  Registration
Rights Agreement to be executed by the  undersigned,  thereunto duly authorized,
as of the date first set forth above.

                                                  CELLEGY PHARMACEUTICALS, INC.

                                                  By:
                                                     ---------------------------
                                                     Name:
                                                    Title:

                                                  KINGSBRIDGE CAPITAL LIMITED

                                                  By:
                                                     ---------------------------
                                                     Name:  Valentine O'Donoghue
                                                     Title:  Director

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