Placement Agency Agreement

S. Kumar Chandrasekaran, Ph.D.

Dear Dr. Chandrasekaran:

Reference is made to our recent discussions relating to the proposed private placement by InSite Vision Incorporated (the “Company”) of certain of its securities for sale solely pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Act”), or Rule 506 (“Rule 506”) of Regulation D (“Regulation D”) promulgated under the Act, as hereinafter described. On the basis of the representations, warranties, covenants and agreements set forth herein, Paramount BioCapital, Inc., having a principal place of business at 787 Seventh Avenue, 48 ^th Floor, New York, New York 10019 (“Paramount”) hereby agrees to act as exclusive placement agent for the Company, on a “best efforts” basis, to introduce the Company to “accredited investors” as defined in Rule 501 of Regulation D (“Rule 501”) promulgated under the Act (“Investors”) in connection with a private placement offering (the “Offering”) of the Company's debt or equity securities, upon the following basic terms and conditions:

1.   The Offering .   The Company will offer to sell debt or equity securities (the ”Securities”) to Investors, upon terms to be agreed upon by the Company and the Placement Agent and intended to be in the form attached as Exhibit A , yielding aggregate gross proceeds to the Company of at least $3,000,000 (the “Minimum Offering”) and up to $5,000,000 (the “Maximum Offering”), with an over-allotment option granted in favor of Paramount and the Company (to be agreed upon mutually) to offer for sale additional Securities which would provide the Company with gross proceeds of up to an additional $1,000,000 (the “Over-allotment”). The terms and conditions of the purchase and sale of the Securities in the Offering will be evidenced by a written subscription agreement between the Company and each Investor in the Offering (the “Subscription Agreement”). For purposes of this Agreement, the term “Offering Documents” shall mean each Subscription Agreement and any related transaction document to be drafted subsequent to the date hereof and any other document prepared or approved by the Company and provided to Investors in connection with the Offering, if any (including, without limitation, any offering memoranda).

2.   Closing.   Subject to obtaining subscriptions in an aggregate amount equal to or greater than the Minimum Offering, the Company intends to conduct one or more closings (each, a “Closing”) of the Offering on or before December 31, 2005, subject to extension at the Company’s and Paramount’s mutual discretion without notice to Investors for up to an additional 90 days (the “Final Closing Date”), until the date on which the Maximum Offering, including the Over-allotment, if applicable, is met, whichever event occurs first. Prior to any Closing, all subscription amounts will be deposited in a segregated escrow account with an escrow agent reasonably acceptable to the Company and Paramount.

3.   Placement Fees.   (a) Upon (i) each Closing and (ii) the closing of any Investment (as defined below), the Company will pay to Paramount or its designees placement fees, in cash, equal to seven percent (7%) of the gross proceeds received by the Company at such Closing or the closing of any Investment, as applicable (provided, however, that such cash placement fee shall not be payable with respect to any gross proceeds received by the Company at such Closing or the closing of any Investment from any of Valesco Healthcare Partners I LP, Valesco Healthcare Partners II LP and Valesco Healthcare Overseas Fund, Ltd. (collectively, the “Valesco Entities”). In addition, upon the Final Closing Date (as defined below), the Company shall issue to Paramount’s designees warrants (the “Placement Warrants”) to purchase 200,000 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”) (such shares issuable upon the exercise of the Placement Warrants, the “Placement Warrant Shares”). The Placement Warrants shall have an exercise price per share equal to the exercise price of the Investor Warrants sold at the Closing, be subject to adjustments for stock splits, reverse stock splits, re-organizations, etc., have a cashless exercise feature, be exercisable for 5 years from the date on which the final Closing occurs (the “Final Closing Date”), and otherwise be substantially in the form attached hereto as Exhibit B . For purposes of this Agreement, an “Investment” shall mean any original issuance of securities of the Company which is made during the 12-month period following the Final Closing Date or earlier termination or expiration of the Offering to an Investor set forth on Annex A hereto (other than the Valesco Entities), which contains each Investor which the Company and Paramount agree will be introduced by Paramount to the Company. Annex A hereto shall be updated to reflect additional Investors introduced by Paramount to the Company, provided that each such additional Investor is approved in writing by the Company prior to such introduction. Notwithstanding the foregoing, Annex A will automatically be deemed to include each Investor that participates in the Offering. Paramount, its employees and its affiliates shall have the right to invest in the Offering provided they are “accredited investors” as defined in Rule 501(a) of Regulation D.

(b)   The Company agrees that the Placement Warrant Shares shall be afforded equivalent registration rights as the Securities sold in the Offering pursuant to which the Placement Warrants are issued. In consideration for the Company’s inclusion of the Placement Warrant Shares in the Registration Statement (as defined below), Paramount agrees that it shall be deemed a “Holder” under the Subscription Agreement or other document granting the Investors registration rights in the Offering or as otherwise provided in the Offering Documents prepared for the Investments and, accordingly, it shall abide by all of the terms, conditions and limitations set forth in such documents.

5.   Confidentiality. Unless required by law, any services and communications rendered by or involving Paramount pursuant to this Agreement (and the existence of this Agreement) shall not be disclosed publicly in any manner without Paramount’s prior written approval and shall be treated by the Company as confidential information. All material non-public information given to Paramount by the Company shall be treated by Paramount as confidential information and, subject to applicable law, shall not be disclosed in any manner without the Company’s prior written approval and shall not be used by Paramount except in rendering its services pursuant to this Agreement. Notwithstanding anything to the contrary contained herein, the Company shall not disclose material non-public information of any company with a public market (other than material non-public information of the Company) to Paramount or its representatives, unless prior to disclosure of such information the Company identifies such information as being material non-public information and provides Paramount and its representatives with the opportunity to accept or refuse to accept such material non-public information for review. 

6.   Conditions to Paramount's Obligations . The obligations of Paramount hereunder are subject to (i) the accuracy of the representations and warranties of the Company (A) herein contained as of the date hereof and as of the date of each Closing; and (B) in each of the Offering Documents as of the date of each Closing; (ii) to the performance by the Company of its obligations hereunder; and (iii) to the following additional conditions:

(a)   Due Qualification or Exemption . (1) The Offering contemplated by this Agreement shall become qualified or be exempt from qualification under the securities laws of the jurisdictions in which the Securities are contemplated to be offered in accordance with applicable laws, rules, and regulations, but in any event not later than the initial Closing Date, subject to any filings to be made thereafter, and (2) at the Final Closing Date no stop order suspending the sale of the Securities shall have been issued, and no proceeding for that purpose shall have been initiated or threatened;

(b)   Compliance with Agreements . Except for such agreements and conditions that expressly may be performed or satisfied after the Final Closing Date, the Company shall have complied with all agreements and satisfied all conditions that the Company is required to perform or satisfy hereunder and under the Offering Documents at or prior to each Closing;

(c)   Corporate Action . The Company shall have taken all corporate action necessary in order to permit the valid execution, delivery and performance of the Offering Documents by the Company, including, without limitation, obtaining the approval of the Company's board of directors for the execution and delivery of the Offering Documents, the performance by the Company of its obligations hereunder and the Offering contemplated hereby. Such corporate action shall be in form and substance reasonably satisfactory to Paramount;

(d)   Opinion of Counsel to the Company . Paramount shall have received an opinion of counsel to the Company reasonably satisfactory to Paramount and its counsel (which opinion shall also be addressed to the Investors in the Offering), in the form attached hereto as Exhibit C;

(e)   Officer's Certificate . Paramount shall have received an officer's certificate of the Company, duly executed and in the form mutually agreed to in good faith by the parties. The certificate shall state, among other things, that the representations and warranties contained herein and in the Offering Documents are true and accurate in all material respects at such Closing date with the same effect as though expressly made at such Closing date and Paramount shall be entitled to rely on such representations of the Company in the Offering Documents as if they were made directly to Paramount;

(f)   Escrow Agreement . The Company, Paramount and an escrow agent reasonably acceptable to the parties shall execute an Escrow Agreement for the purpose of holding funds until each Closing; and

(g)   No Adverse Changes . There shall not have occurred, at any time prior to each Closing, in Paramount’s reasonable discretion: (i) any domestic or international event, act or other similar occurrence which has disrupted, or will materially disrupt, the securities markets; (ii) a general suspension of, or a general limitation on prices for, trading in securities on the principal market or exchange on which the Common Stock is then traded for more than one-trading day; (iii) any outbreak of major hostilities or terrorist act or other national or international calamity having a material effect on the performance of this Agreement; (iv) any banking moratorium declared by a state or federal authority; (v) any material interruption in the mail service or other means of communication within the United States; (vi) any event or events which, individually or in the aggregate, would reasonably be likely to have a material adverse effect on the business, prospects, operations, conditions (financial or otherwise), assets or results of operations of the Company as a whole (a “Material Adverse Effect”); or (vii) any change in the market for securities in general or in political, financial or economic conditions which makes it inadvisable to proceed with the offering, sale, and delivery of the Securities.

7.   Covenants of the Company .

(a)   Notification . The Company shall notify Paramount immediately, and in writing, when any event shall have occurred during the period commencing on the date hereof and ending on the Final Closing Date as a result of which the Offering Documents would include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made.

(b)   Use of Proceeds . The net proceeds from the Offering will be used for working capital and general corporate purposes. Except as set forth in the Offering Documents, the Company shall not use any proceeds from the Offering to repay any current indebtedness of the Company, including, but not limited to, any indebtedness to current executive officers or principal stockholders of the Company, but excluding accounts payable and accrued expenses incurred in the ordinary course of business.

(c)   Expenses of Offering . The Company shall be responsible for and shall bear all Company Expenses (as defined below). For the purposes of this Agreement, the “Company Expenses” shall include: the costs of preparing and duplicating the Offering Documents and all exhibits thereto; the costs of preparing, printing and filing with the Securities and Exchange Commission (“