Placement Agent 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 pursuant to Rule 506 of Regulation D of the Securities Act of 1933 (the “Act”), as hereinafter described. Based upon our discussions, your representations to us and our investigation of the Company and its principals, the present and proposed business activities of the Company and the Company's operations and financial condition, Paramount BioCapital, Inc. (“Paramount”) hereby agrees to act as exclusive placement agent for the Company, on a “best efforts” basis, to introduce the Company to qualified investors (“Investors”) in connection with a private placement offering (the “Offering”) of the Company's securities, upon the following basic terms and conditions:

1. The Offering .   The Company will offer to sell debt or equity securities ( the “Securities”) representing or convertible into the Company’s common stock, par value $0.01 per share (the “Common Stock”), to persons who qualify as “accredited investors” as defined in Rule 501 of Regulation D promulgated under the Act upon terms to be agreed upon by such Investors and the Company (the “Offering”) yielding aggregate gross proceeds to the Company of up to $10 Million (the “Maximum Offering”). 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 letter agreement, the term “Offering Documents” shall mean the Subscription Agreements and related transaction documents to be drafted subsequent to the date hereof but prior to the offering of any of the Company’s Securities and any other document prepared or approved by the Company and provided to investors in connection with the Offering, if any (collectively the “Offering Documents”).

2.   Closing.   Subject to agreement between the Investors and the Company with respect to the Offering Documents, the Company intends to conduct one or more closings (each a “Closing”) of the Offering on or before March 31, 2005 subject to extension at the Company’s discretion without notice to investors for up to an additional 90 days (the “Final Closing Date”), until the date on which the Maximum Offering is met. 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. Unless terminated earlier in either the Company’s or Paramount’s sole discretion, the offering period (the “Offering Period”) will expire on the earlier of (i) the Final Closing Date; (ii) the date on which the Maximum Offering has been sold (iii) and March 31, 2005 (only if no Closing shall occur) (the “Termination Date”).

4.   Placement Fees.   Subject to the reduced Cash Commissions in the case of Affiliated Investments, as set forth below, (a) upon (i) each Closing and (ii) the closing of any Investment (as defined below), the Company will (x) pay to Paramount or its designees placement fees, in cash, equal to seven percent (7%) of the proceeds received by the Company at such Closing or at the closing of such Investment, as applicable (the “Cash Commissions”) and (y) issue to Paramount or its designees warrants (the “Placement Warrants”) to purchase a number of shares of the Securities (the “Placement Warrant Shares”) equal to 5% of the number of Securities actually sold (not including warrants or other securities for which no cash consideration was received upon issuance) at each Closing or at the closing of each Investment (as applicable) (the Cash Commissions and Placement Warrants are referred to collectively herein as the “Placement Fees”). The Placement Warrants, a form of which shall be agreed to in good faith by the parties and based substantially on the form of placement warrant previously issued by the Company to Paramount, shall have a purchase price of $0.02 per Placement Warrant (payable by Paramount to the Company upon issuance of each such Placement Warrant) and shall have an exercise price per share equal to 110% of the per share price at which the Securities are sold at the Closing or in the Investment (as applicable), adjust for stock splits, reverse stock splits, re-organizations, etc., have a cashless exercise feature, and be exercisable for 5 years from the Final Closing Date. 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 Termination Date or earlier termination or expiration of the Offering to an investor first introduced to the Company by or through Paramount (each an “Investor”). Investors will include any person or entity that participates in the Offering. Additionally, Paramount will provide the Company with a list of the Investors introduced to the Company on the date of the Termination Date or earlier termination or expiration of this Agreement that did not participate in any Offering, but were nevertheless introduced to the Company by Paramount. Such list will include (i) Proquest and Proquest’s affiliated funds specifically named in the schedule attached hereto; (ii) any person or entity for which the Company had a face to face meeting or a conference call arranged by Paramount during which the Company was able give a presentation to such entity or person concerning the Offering and (iii) any other person or entity that was introduced to the Company by Paramount provided the Company agrees, based on its sole reasonable determination in good faith, such person or entity was introduced to the Company by Paramount. Paramount, its employees and affiliates shall have the right to invest in the Offering provided they are accredited investors (each an "Affiliated Investment"). Cash Commissions with respect to any Affiliated Investment shall be three and a half percent (3.5%) of the proceeds received by the Company from such Affiliated Investment and no other Cash Commissions will be paid with respect to such Affiliated Investment.

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

 5.   Expense Allowance. At the Closing, the Company shall reimburse Paramount for its reasonable, documented expenses actually incurred up to a maximum of $30,000 (the “Expense Allowance”) to cover Paramount’s reasonable and verifiable out-of-pocket expenses incurred in connection with the Offering. Legal fees in connection with blue sky matters will be the responsibility of the Company.

6.  Confidentiality. Unless required by applicable law or the rules of a regulatory body (which shall be determined by the Company in its sole discretion upon advice of its legal counsel), any services and advice rendered by 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 shall not be disclosed in any manner without Company’s prior written approval and shall not be used by Paramount except in rendering its services pursuant to this Agreement.

7.   Conditions to Paramount's Obligations . The obligations of Paramount hereunder are subject to (i) (A) the accuracy of the representations and warranties of the Company 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 not later than the Final 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 or the Final Closing, as applicable;

(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;

(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 in the form mutually agreed to in good faith by the parties;

(e)   Officer's Certificate . Paramount shall receive an Officer's Certificate, signed by the appropriate parties and dated as of the Closing Date 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;

(g)   No Adverse Changes . There shall not have occurred, at any time prior to each Closing: (i) any domestic or international event, act or other similar occurrence which has disrupted, or in Paramount’s sole determination, 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 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 materially adverse change in the business, properties, assets, results of operations, prospects or financial condition of the Company; or (vii) any change in the market for securities in general or in political, financial or economic conditions which, in Paramount’s reasonable judgment, makes it inadvisable to proceed with the offering, sale, and delivery of the Securities.

8.   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 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)   Blue Sky . The Company shall use its reasonable commercial efforts to qualify the Securities for offering and sale under exemptions from qualification or registration requirements under the securities or “blue sky” laws of such jurisdictions, as Paramount may reasonably request; provided however, that the Company will not be obligated to qualify as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to the jurisdiction of any jurisdiction where it is not already subject. The Company will not consummate any sale of Securities in any jurisdiction in which it is not so qualified or in any manner in which such sale may not be lawfully made.

(c)   Form D Filing . The Company shall file five copies of a Notice of Sales of Securities on Form D with the SEC no later than 15 days after the date of the first Closing. The Company shall promptly file such amendments to such Notices on Form D as shall become necessary and shall also comply with any filing requirement imposed by the laws of any state or jurisdiction in which offers and sales are made.

(d)   Press Releases, Etc. Except as otherwise required by applicable law or the rules of a regulatory body (which shall be determined by the Company in its sole discretion upon advice of i