<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
InSite Vision Incorporated
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
InSite Vision Incorporated
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
LOGO
April 29, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of InSite Vision Incorporated (the "Company") to be held on Monday, June 7, 1999
at 11:00 a.m. local time at the Company's corporate headquarters, 965 Atlantic
Avenue, Alameda, California 94501. The formal Notice of Annual Meeting of
Stockholders and Proxy Statement accompanying this letter describe the business
to be acted upon.
Please sign, date and return your proxy card no later than May 17, 1999, in
the enclosed envelope, whether or not you plan to attend the meeting. If you
attend the meeting, you may still vote in person if you so desire.
Sincerely,
/s/ S. KUMAR CHANDRASEKARAN
S. Kumar Chandrasekaran, Ph.D.
Chairman of the Board and Chief
Executive Officer
YOUR VOTE IS IMPORTANT
SO THAT YOUR COMMON STOCK WILL BE REPRESENTED AT THE ANNUAL MEETING IN THE
EVENT YOU ARE NOT PERSONALLY PRESENT, PLEASE DATE, SIGN AND RETURN PROMPTLY THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. EXECUTION OF THE PROXY WILL NOT AFFECT
YOUR RIGHT TO VOTE IN PERSON IF YOU ARE PRESENT AT THE MEETING.
<PAGE> 3
INSITE VISION INCORPORATED
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 7, 1999
------------------------
TO THE STOCKHOLDERS OF INSITE VISION INCORPORATED:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting") of InSite Vision Incorporated, a Delaware corporation (the "Company"),
will be held on Monday, June 7, 1999, at 11:00 a.m. local time, at the Company's
corporate headquarters, 965 Atlantic Avenue, Alameda, California 94501, for the
following purposes:
1. To elect five directors to serve until the 2000 annual meeting or
until their respective successors are elected and qualified.
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999.
3. To transact such other business as may properly come before the
Annual Meeting and any adjournment of the Annual Meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 23, 1999,
as the record date for determining the stockholders entitled to receive notice
of and to vote at the Annual Meeting and any adjournment thereof. A complete
list of stockholders entitled to vote will be available from the Secretary of
the Company for 10 days before the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting.
However, to assure your representation at the meeting, please carefully read the
accompanying Proxy Statement which describes the matters to be voted upon at the
Annual Meeting and mark, date, sign and return the enclosed proxy card in the
reply envelope provided. Should you receive more than one proxy because your
shares are registered in different names and addresses, each proxy should be
returned to ensure that all your shares will be voted. If you attend the Annual
Meeting and vote by ballot, your proxy vote will be revoked automatically and
only your vote at the Annual Meeting will be counted. The prompt return of your
proxy card will assist us in preparing for the Annual Meeting.
By Order of the Board of Directors,
/s/ S. KUMAR CHANDRASEKARAN
S. Kumar Chandrasekaran, Ph.D.
Chairman of the Board and Chief
Executive Officer
Alameda, California
April 29, 1999
<PAGE> 4
INSITE VISION INCORPORATED
965 ATLANTIC AVENUE
ALAMEDA, CALIFORNIA 94501
------------------------
PROXY STATEMENT
------------------------
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 7, 1999
------------------------
GENERAL INFORMATION FOR STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of InSite Vision Incorporated, a Delaware corporation
(the "Company"), with principal executive offices at 965 Atlantic Avenue,
Alameda, California 94501, of proxies in the accompanying form to be used at the
Annual Meeting of Stockholders ("Annual Meeting") to be held at 11:00 a.m. local
time on June 7, 1999, and any adjournment thereof.
This Proxy Statement and the accompanying form of proxy are being mailed to
all stockholders entitled to vote at the Annual Meeting on or about April 29,
1999.
RECORD DATE AND VOTING
Stockholders of record on April 23, 1999 (the "Record Date") are entitled
to notice of and, as described below, to vote at the Annual Meeting. As of the
Record Date, 18,781,528 shares of the Company's Common Stock, par value $0.01
per share (the "Common Stock"), were issued and outstanding, held by
approximately 204 stockholders of record or, as estimated by the Board,
approximately 7,000 beneficial stockholders. As of the Record Date, 520 shares
of the Company's Series A Convertible Preferred Stock ("Series A Stock") were
issued and outstanding, but no holder of Series A Stock is entitled to vote on
any matter coming before the Annual Meeting. Each stockholder is entitled to one
vote for each share of Common Stock held by such stockholder as of the Record
Date. If a choice as to the matters coming before the Annual Meeting has been
specified by a stockholder on the Proxy, such stockholder's shares will be voted
accordingly. If no choice is specified, the shares will be voted IN FAVOR OF the
approval of the proposals described in the Notice of Annual Meeting of
Stockholders and in this Proxy Statement. Abstentions and broker non-votes
(i.e., the submission of a Proxy by a broker or nominee specifically indicating
the lack of discretionary authority to vote on the matter) are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. Abstentions will be counted towards the tabulation of votes cast on
proposals presented to the stockholders and will have the same effect as
negative votes, whereas broker non-votes will not be counted for purposes of
determining whether a proposal has been approved or not.
Any stockholder or stockholder representative who, because of a disability,
may need special assistance or accommodation to allow him or her to participate
at the Annual Meeting may request reasonable assistance or accommodation from
the Company by contacting Investor Relations in writing at 965 Atlantic Avenue,
Alameda, California 94501 or by telephone at (510) 865-8800. To provide the
Company sufficient time to arrange for reasonable assistance, please submit such
requests by May 17, 1999.
IMPORTANT
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY CARD, AND RETURN IT AT YOUR
EARLIEST CONVENIENCE IN THE ENCLOSED, POSTAGE-PREPAID, RETURN ENVELOPE SO THAT,
IF YOU ARE UNABLE TO ATTEND THE ANNUAL MEETING, YOUR SHARES MAY BE VOTED.
REVOCABILITY OF PROXIES
Any person giving a proxy has the power to revoke it at any time prior to
or at the Annual Meeting. It may be revoked by filing with the Secretary of the
Company at the Company's principal executive offices,
<PAGE> 5
InSite Vision Incorporated, 965 Atlantic Avenue, Alameda, California 94501, a
notice of revocation or another signed proxy with a later date. You may also
revoke your proxy by attending the Annual Meeting and voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by telephone
or other means by directors, officers, employees or agents of the Company. The
Company will not pay any compensation to directors, officers or employees of the
Company for the solicitation and does not currently intend to retain a proxy
solicitation agent, however the Company may do so if necessary. The Company does
not presently intend to solicit proxies other than by mail.
THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31,
1998 (THE "ANNUAL REPORT") AND ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998 (THE "FORM 10-K") HAVE BEEN MAILED CONCURRENTLY WITH THE
MAILING OF THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT TO ALL STOCKHOLDERS
ENTITLED TO NOTICE OF AND TO VOTE AT THE ANNUAL MEETING. NEITHER THE ANNUAL
REPORT NOR THE FORM 10-K IS INCORPORATED INTO THIS PROXY STATEMENT AND NEITHER
IS CONSIDERED PROXY SOLICITING MATERIAL.
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<PAGE> 6
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL ONE -- ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall be
comprised of not less than five nor more than nine directors. The authorized
number of directors is five. Such directors will stand for re-election at the
Annual Meeting to serve until the Company's next annual meeting, until their
successors shall have been duly elected and qualified, or until their earlier
death, resignation or removal. The Board of Directors will vote all proxies
received by them in favor of the five nominees listed below unless otherwise
instructed in writing on such proxy. If, however, any of the nominees named in
the accompanying proxy card are unable or unwilling to serve (which is not
expected) at the time of the Annual Meeting, the proxies (except those marked to
the contrary) will be voted for such other person(s) as the persons named in the
accompanying proxy may recommend. The five candidates receiving the highest
number of affirmative votes of the shares represented and voting at the Annual
Meeting will be elected directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE FOLLOWING NOMINEES TO SERVE AS DIRECTORS OF THE COMPANY
UNTIL THE 2000 ANNUAL MEETING, UNTIL THEIR RESPECTIVE SUCCESSORS HAVE BEEN
ELECTED AND QUALIFIED OR UNTIL THEIR EARLIER DEATH, RESIGNATION OR REMOVAL.
Set forth below is information regarding the nominees, including
information furnished by them as to their principal occupation at present and
for the last five years, certain other directorships held by them, the year in
which each became a director of the Company, and their ages as of April 23,
1999:
<TABLE>
<CAPTION>
NOMINEES POSITION(S) WITH THE COMPANY AGE DIRECTOR SINCE
-------- ---------------------------- --- --------------
<S> <C> <C> <C>
S. Kumar Chandrasekaran, Ph.D.... Chairman of the Board, 55 1989
President, Chief Executive
Officer and Chief Financial
Officer
Mitchell H. Friedlaender, M.D.... Director 53 1996
John E. Lucas.................... Director 67 1996
John L. Mattana.................. Director 69 1997
Anders P. Wiklund................ Director 59 1996
</TABLE>
BUSINESS EXPERIENCE OF BOARD NOMINEES
S. KUMAR CHANDRASEKARAN, PH.D., has been a Director of the Company since
1989. Dr. Chandrasekaran joined the Company in September 1987 as Vice President,
Development. From 1988 to 1989, Dr. Chandrasekaran served as Vice President,
Research and Development. From 1989 to 1993, Dr. Chandrasekaran served as
President and Chief Operating Officer. Since August 1993, he has served as
Chairman of the Board of Directors, President and Chief Executive Officer and
from December 1995 to December 1997 he served, and since January 1999 he has
served, as Chief Financial Officer. Prior to joining the Company, Dr.
Chandrasekaran was Vice President of Technical Affairs for Sola Barnes Hind
(formerly Syntex Ophthalmics) from 1982 to 1987. From 1971 to 1982, he has
served as a Principal Scientist and director at Alza Corporation. Dr.
Chandrasekaran holds a Ph.D. in Chemical Engineering from the University of
California at Berkeley.
MITCHELL H. FRIEDLAENDER, M.D. has been a Director of the Company since May
1996. He has served as an ophthalmologist at Scripps Clinic and Research
Foundation ("Scripps") since 1986 and currently serves as director of Cornea and
Refractive Surgery in the Division of Ophthalmology. Prior to joining Scripps,
Dr. Friedlaender served as a full-time faculty member at the University of
California, San Francisco for 10 years. He is the founder of the Aspen Corneal
Society and the Pacific Ophthalmic Forum, co-editor in chief of International
Ophthalmology Clinics, a member of four scientific editorial boards, a member of
the Sjogren's Syndrome Foundation Medical Advisory Board, and former president
of the Ocular Microbiology and Immunology Group. He also serves as a consultant
for several pharmaceutical companies and performs clinical studies on new
ophthalmic drugs. Dr. Friedlaender holds an M.B.A. from the University of
Phoenix and an M.D. from the University of Michigan.
3
<PAGE> 7
JOHN E. LUCAS has been a Director of the Company since May 1996. He served
as President and Chief Executive Officer of American Scientific Resources Ltd.
from 1994 to March 1996, and as President and Chief Executive Officer of
Oxigene, Inc. from 1991 to 1994. He also was the co-founder and served as
Chairman and Chief Executive Officer of XOMA Corporation. Mr. Lucas holds an
M.B.A. from Harvard Business School.
JOHN L. MATTANA has been a Director of the Company since September 1997.
From 1992 to 1997, Mr. Mattana served as an Investment Vice President at New
York Life Insurance Company, where he was a Director of Venture Capital
Investments. Since October 1997 he has served as a Vice President at Ceptor
Corporation. Mr. Mattana holds an M.B.A. from New York University.
ANDERS P. WIKLUND has been a Director of the Company since November 1996.
Since January 1997 he has served as Principal at Wiklund International Inc., an
advisory firm to the biotechnology and pharmaceutical industries. He served as
Vice President, Corporate Business Development of Pharmacia & Upjohn from
January to December 1996, as Executive Vice President of Pharmacia U.S. Inc.
from January to December 1995 and as President and Director of Pharmacia
Development Corp. from 1993 to 1994. Mr. Wiklund served as Chief Executive
Officer, President and Director of KABI Pharmacia Inc. from 1990 to 1993. Mr.
Wiklund serves on the board of directors of Ribozyme Pharmaceuticals Inc., Trega
Biosciences Inc., Vascular Therapeutics and Medivir AB, and is a Senior Vice
President at Biacore Holding Inc. Mr. Wiklund holds a Master of Pharmacy from
the Pharmaceutical Institute, Stockholm, Sweden.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1998, the Board of Directors held
8 meetings and acted by unanimous written consent 3 times. The Board of
Directors has an Audit Committee, a Stock Plan and Compensation Committee and a
Nominating Committee.
The Audit Committee currently consists of Anders P. Wiklund and John L.
Mattana. The Audit Committee held two meetings during the 1998 fiscal year. The
Audit Committee monitors the effectiveness of the internal and external audit
controls, oversees the Company's financial and accounting organization and
financial reporting, and selects a firm of certified public accountants whose
duty it is to audit the books and accounts of the Company for the fiscal year
for which they are appointed.
The Stock Plan and Compensation Committee (the "Compensation Committee")
currently consists of John L. Mattana and Anders P. Wiklund. The Compensation
Committee held one meeting during the 1998 fiscal year. The Compensation
Committee determines and reviews the compensation to be paid to the Company's
officers and directors and administers the Company's 1994 Stock Option Plan (the
"1994 Plan") and the 1994 Employee Stock Purchase Plan (the "ESPP").
The Nominating Committee consists of one director, S. Kumar Chandrasekaran,
Ph.D. The Nominating Committee held no meetings during the 1998 fiscal year. The
Nominating Committee, on behalf of the Board of Directors, makes nominations for
election to the Company's Board of Directors. The Nominating Committee will
consider nominations recommended by stockholders. Such nominations by
stockholders must be made by notice in writing delivered or mailed by first
class United States mail, postage prepaid, to the Secretary or Assistant
Secretary of the Company, and received by the Secretary or Assistant Secretary
not less than 120 days prior to any meeting of stockholders called for the
election of directors, provided, however, that if less than 100 days' notice of
the meeting is given to stockholders, such nomination must be mailed or
delivered to the Secretary or Assistant Secretary of the Company not later than
the close of business on the seventh day following the day on which the notice
of the meeting was mailed. Such notice shall set forth as to each proposed
nominee who is not an incumbent director (i) the name, age, business address
and, if known, residence address of each nominee proposed in such notice, (ii)
the principal occupation or employment of each such nominee, (iii) the number of
shares of stock of the Company which are beneficially owned by each such nominee
and by the nominating stockholder, and (iv) any other information concerning the
nominee that must be disclosed of nominees in proxy solicitations regulated by
Regulation 14A of the Securities Exchange Act of 1934, as amended.
4
<PAGE> 8
During the 1998 fiscal year each individual currently serving as a director
attended at least 75% of the aggregate number of meetings of the Board of
Directors and meetings of the Committees of the Board of Directors on which he
served.
COMPENSATION OF DIRECTORS
Each non-employee Board member who is not otherwise affiliated with a
substantial investor in the Company is eligible to receive $1,000 for each Board
meeting and $250 for each committee meeting attended in person, plus
reimbursement of expenses for attending such meetings.
Under the Automatic Option Grant Program in effect under the 1994 Plan,
each individual who first joins the Board as a non-employee Board member will
receive, at the time of his or her initial election or appointment to the Board,
an option grant to purchase 10,000 shares of Common Stock at an exercise price
per share equal to the fair market value per share of Common Stock on the grant
date. Each such option will have a maximum term of 10 years measured from the
grant date, subject to earlier termination upon the optionee's cessation of
Board service, and will become exercisable for all of the option shares upon the
optionee's completion of one year of Board service measured from such grant
date. However, the option will immediately become exercisable for all the option
shares upon certain changes in control of the Company.
On December 15, 1998, in accordance with the amended Automatic Option Grant
Program in effect under the 1994 Plan, each non-employee Board member received
an option grant to purchase 10,000 shares of Common Stock at an exercise price
of $1.3125 per share, the fair market value per share of Common Stock on such
grant date. Each option has a maximum term of 10 years measured from the grant
date, subject to earlier termination upon the optionee's cessation of Board
service. The option will become exercisable for all the option shares upon the
optionee's completion of one year of Board service, measured from the grant
date. However, the option will immediately vest and become exercisable upon
certain changes in control of the Company.
On December 13, 1996, the Company entered into a consulting agreement with
John E. Lucas, a non-employee Board member, pursuant to which Mr. Lucas serves
as a special advisor and consultant to the Company in the fields of public
relations, mergers and acquisitions and other special assignments. In exchange
for such consulting services, the Company paid Mr. Lucas a consulting fee in the
amount of $3,900 per month through December 31, 1998. As of January 1, 1999,
this amount decreased to $1,000 per month.
On November 1, 1996, the Company entered into a consulting agreement with
Anders P. Wiklund, a non-employee Board member, pursuant to which Mr. Wiklund
serves as an advisor and consultant in the field of business development. In
exchange for such consulting services, the Company pays Mr. Wiklund a consulting
fee in the amount of $5,000 per month.
On December 1, 1997, the Company entered into a deferred compensation
consulting agreement with John L. Mattana, a non-employee Board Member, pursuant
to which Mr. Mattana serves as an advisor and consultant in the field of
investor relations. In exchange for such consulting services, the Company
accrues $2,500 per month, payable to Mr. Mattana in January 2002.
5
<PAGE> 9
PROPOSAL TWO -- RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed the firm of Ernst & Young LLP,
independent accountants, to audit the financial statements of the Company for
the fiscal year ending December 31, 1999, and is asking the stockholders to
ratify this appointment.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board of Directors in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board of
Directors believes that such a change would be in the best interests of the
Company and its stockholders. The affirmative vote of the holders of a majority
of the Company's voting shares represented and voting at the Annual Meeting is
required to ratify the selection of Ernst & Young LLP.
Ernst & Young LLP has audited the Company's financial statements annually
since 1986. A representative of Ernst & Young LLP is expected to be present at
the Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP TO SERVE AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board is responsible for establishing the
cash and equity compensation of the Company's Chief Executive Officer, President
and Chief Financial Officer, Dr. Chandrasekaran, and the Company's other
executive officers. All decisions by the Compensation Committee with respect to
cash compensation are reviewed by the full Board of Directors. However, the
Compensation Committee has the sole and exclusive authority to administer the
Company's 1994 Stock Option Plan (the "1994 Plan") and to make option grants to
the Company's executive officers under the 1994 Plan. The Compensation Committee
has furnished the following report with respect to the 1998 compensation of Dr.
Chandrasekaran and the Company's other executive officers.
Compensation Policy
The Compensation Committee's principal goals in making its executive
compensation recommendations are (i) to ensure that there exists an appropriate
relationship between executive pay and both the operating performance of the
Company and stockholder value, particularly, but not exclusively, as reflected
in the price of the Company's Common Stock, and (ii) to attract, motivate and
retain key executives in the face of competition within the biopharmaceutical
industry for qualified personnel. To achieve these objectives, the Compensation
Committee's executive compensation policies generally integrate annual base
salaries and other guaranteed payments for Dr. Chandrasekaran and the Company's
other executive officers with variable incentive bonuses and stock options
primarily based upon corporate and individual performance. In addition to
linking executive compensation directly to stockholder value, the Compensation
Committee believes that stock options, through staged vesting provisions,
perform an important role in motivating and retaining key executives.
Performance is measured primarily by comparison with specific objectives.
Base Salary
The base salary levels for the executive officers were established for the
1998 fiscal year on the basis of the following factors: personal performance,
the estimated salary levels in effect for similar positions at a select group of
companies with which the Company competes for executive talent, and internal
comparability considerations. The Compensation Committee, however, did not rely
upon any specific compensation surveys for comparative compensation purposes.
Instead, the Compensation Committee made its decisions as to the appropriate
market level of base salary for each executive officer on the basis of its
understanding of the salary
6
<PAGE> 10
levels in effect for similar positions at those companies with which the Company
competes for executive talent. The Compensation Committee estimates that the
base salary levels in effect for the Company's executive officers were at the
median of the salary levels in effect for similar positions at those competitor
companies. Base salaries will be reviewed on an annual basis, and adjustments
will be made in accordance with the factors indicated above.
Performance Measures
Due to the current stage of the Company's development, the Compensation
Committee believes that corporate performance is not appropriately measured in
terms of traditional financial performance criteria such as profitability and
earnings per share. Rather, the Compensation Committee believes that corporate
performance is appropriately measured by analyzing the degree to which the
Company has achieved certain goals established by the Compensation Committee and
approved by the Board. Accordingly, annual incentive compensation is awarded on
the basis of these non-traditional factors.
The incentive compensation paid to the executive officers for the 1998
fiscal year was based primarily upon the Company's attainment of performance
milestones tied to clinical and regulatory developments and the pursuit and
formation of third-party collaborative relationships with respect to the
Company's technology. The bonuses awarded to the executive officers on the basis
of the Company's achievement of those milestones are reflected in the Summary
Compensation Table which appears later in this Proxy Statement.
Stock Option Grants
Stock option grants under the 1994 Plan are designed to align the interests
of each executive officer with those of the stockholders and provide each
individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business. Each grant allows
the individual to acquire shares of Common Stock at a fixed price per share (the
market price on the grant date) over a specified period of time (up to 10
years). Each option generally becomes exercisable in installments over a period
of years, contingent upon the executive officer's continued employment with the
Company. Accordingly, the option will provide a return to the executive officer
only if the executive officer remains employed by the Company during the
applicable vesting period, and then only if the market price of the underlying
shares appreciates over the option term.
The number of shares subject to each option grant will be set at a level
intended to create a meaningful opportunity for stock ownership based on the
officer's current position with the Company, the base salary associated with
that position, the size of comparable awards made to individuals in similar
positions within the industry, the individual's potential for increased
responsibility and promotion over the option term, and the individual's personal
performance in recent periods. The Compensation Committee will also take into
account the executive officer's existing holdings of Common Stock and the number
of vested and unvested options held by that individual in order to maintain an
appropriate level of equity incentive. However, the Compensation Committee does
not intend to adhere to any specific guidelines as to the relative option
holdings of the Company's executive officers. No option grants were made to the
executive officers during the 1998 fiscal year.
CEO Compensation
In setting the total compensation payable to Dr. Chandrasekaran, the
Company's Chief Executive Officer, for the 1998 fiscal year, the Compensation
Committee sought to make such compensation competitive with that provided by
other companies with which the Company competes for executive talent.
The base salary paid to Dr. Chandrasekaran for the 1998 fiscal year was not
based to any significant extent on Company performance. Instead, it is the
Committee's intent to have this component of his compensation remain stable from
year to year. For the 1998 fiscal year, the Committee estimates that Dr.
Chandrasekaran's base salary was at the [median] level of base salaries paid to
the chief executive officers of other companies with which the Company competes
for executive talent. The incentive portion of Dr. Chandrasekaran's cash
compensation for the 1998 fiscal year was based solely on the Company's
attainment of performance milestones. Those milestones were tied to clinical and
regulatory developments and
7
<PAGE> 11
the pursuit and formation of third-party collaborative relationships with
respect to the Company's technology and were the same milestones used to measure
the incentive compensation payable to the other executive officers for the 1998
fiscal year.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly-held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. The
limitation applies only to compensation which is not considered to be
performance-based. The non-performance based compensation to be paid to the
Company's executive officers for the 1998 fiscal year did not exceed the $1
million limit per officer, and it is not expected that the non-performance based
compensation to be paid to the Company's executive officers for fiscal 1999,
including any non-performance based compensation attributable to option
exercises, will exceed that limit. Because it is very unlikely that the
compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limit, the Compensation
Committee has decided at this time not to take any action to limit or
restructure the elements of compensation payable to the Company's executive
officers. The Compensation Committee will reconsider this decision should the
individual compensation of any executive officer ever approach the $1 million
level.
John L. Mattana
Anders P. Wiklund
8
<PAGE> 12
PERFORMANCE GRAPH
The following graph compares the monthly percentage change in (i) the
cumulative total stockholder return on the Company's Common Stock from October
18, 1993, the date of the Company's initial public offering, through December
31, 1998 with (ii) the cumulative total return on (a) The American Stock
Exchange (U.S. Index), (b) the Nasdaq Biotech Index (IXBT) and (c) the Nasdaq
(U.S. Index). The comparison assumes (i) an investment of $100 on October 18,
1993 in each of the foregoing indices and (ii) reinvestment of dividends, if
any. In June, 1998, the Company listed its Common Stock on the American Stock
Exchange and delisted from the Nasdaq National Market. Accordingly, the Company
has added the American Stock Exchange (U.S. Index) to its performance graph in
order to enable a comparison to equity securities trade on the same exchange as
the Company's Common Stock.
THE STOCK PRICE PERFORMANCE SHOWN ON THE GRAPH BELOW REPRESENTS HISTORICAL
PRICE PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF ANY FUTURE STOCK PRICE
PERFORMANCE.
<TABLE>
<CAPTION>
INSV IXBT NASDAQ AMEX
---- ---- ------ ----
<S> <C> <C> <C> <C>
12/31/93 100 100 100 100
12/30/94 45.25 81.5646 97.752 93.2565
12/29/95 34 153.78 138.256 119.985
12/31/96 57.1429 153.28 170.015 121.897
12/31/97 31 153.174 208.58 152.427
12/31/98 12 220.942 293.209 162.595
</TABLE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act, which might incorporate future filings made by the Company under those
statutes, the preceding Compensation Committee Report on Executive Compensation
and the Company Stock Performance Graph will not be incorporated by reference
into any of those prior filings, nor will such report or graph be incorporated
by reference into any future filings made by the Company under those Acts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee, since the 1998 Annual Meeting, consisted of
John L. Mattana and Anders P. Wiklund. No member of the Compensation Committee
was at any time during the 1998 fiscal year, or at any other time, an officer or
employee of the Company.
During the 1998 fiscal year, no executive officer of the Company served as
a member of the board of directors or compensation committee of any entity which
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
9
<PAGE> 13
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
On May 30, 1995, the Company amended the 1994 Plan to implement a special
change in control feature designed to protect the economic benefit of the
outstanding options in the event the Company were to be acquired. As a result of
this special feature, should any optionee's service be involuntarily terminated
within twelve (12) months following a Corporate Transaction in which his or her
options are assumed by the successor corporation and do not otherwise accelerate
at that time, then those options will accelerate and become fully exercisable
for all of the option shares as fully-vested shares of Common Stock upon such
involuntary termination. A "Corporate Transaction" under the 1994 Plan is
defined as a merger or consolidation in which securities possessing more than
50% of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held those
securities immediately prior to such transaction, or the sale, transfer or other
disposition of all or substantially all of the Company's assets in complete
liquidation of the Company. "Involuntary Termination" is defined under the 1994
Plan as the optionee's involuntary dismissal or discharge by the Company for
reasons other than misconduct, or the optionee's voluntary resignation following
(a) a change in his or her position with the Company which materially reduces
his or her responsibilities or (b) a reduction in his or her level of
compensation (including base salary, fringe benefits and any non-discretionary
and objective-standard incentive payment or bonus award) by more than 15% or (c)
a relocation of the optionee's place of employment by more than 50 miles, and
such change, reduction or relocation is effected by the Company without the
optionee's consent.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer, and each of the Company's other executive officers
whose salary and bonus for fiscal year 1998 was in excess of $100,000, for
services rendered in all capacities to the Company for the 1998, 1997 and 1996
fiscal years (the "Named Executive Officers"). No executive officer who would
have otherwise been included in such table on the basis of salary and bonus
earned for the 1998 fiscal year resigned or terminated employment during that
fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- SECURITIES ALL
OTHER ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY($) BONUS($)(2) COMPENSATION($) OPTIONS/(#) COMPENSATION
------------------------------ ---- --------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
S. Kumar Chandrasekaran, Ph.D...... 1998 302,000 10,000 3,150(3) -- --
Chairman of the Board, President 1997 302,000 -- 3,150(3) -- --
and Chief Executive Officer 1996 262,000 50,000 2,592(3) -- --
Lyle M. Bowman, Ph.D............... 1998 164,000 -- 967(3) --
Vice President, 1997 164,000 -- 967(3) -- --
Development and Operations 1996 154,445 15,000 901(3) -- --
Michael D. Baer (4)................ 1998 141,167 -- 145,892(5) -- --
Chief Financial Officer and 1997 154,000 -- 1,486(3) -- --
Vice President of Finance 1996 84,854 15,000 38,806(6) -- --
</TABLE>
- ---------------
(1) Principal Position determined as of December 31, 1998.
(2) The amounts shown under the Bonus column include cash bonuses earned for the
indicated fiscal years.
(3) Represents amounts paid for excess life insurance coverage.
(4) Michael D. Baer resigned as Chief Financial Officer and Vice President of
Finance of the Company as of December 31, 1998.
(5) The 1998 amount includes excess life insurance coverage in the amount of
$1,486, a severance payment in the amount of $126,230 and accrued and unpaid
vacation in the amount of $18,176 paid upon Mr. Baer's termination.
10
<PAGE> 14
(6) The 1996 amount includes excess life insurance coverage in the amount of
$806 and fees totaling $38,000 received as an independent contractor.
OPTION GRANTS
No stock options or stock appreciation rights were granted to the Chief
Executive Officer or any of the other Named Executive Officers during the 1998
fiscal year.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning the exercise of
options during the 1998 fiscal year by the Company's Chief Executive Officer and
each of the Company's Named Executive Officers and the unexercised options held
by such individuals at the end of such fiscal year. No stock appreciation rights
were exercised by such individuals during the 1998 fiscal year, and no
outstanding stock appreciation rights were held by them at the end of such
fiscal year, except for the special limited stock appreciation rights [WHICH
FORM PART OF EACH OPTION GRANT MADE TO SUCH EXECUTIVE OFFICER.]
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
NUMBER OF AGGREGATE DECEMBER 31, 1998(1) DECEMBER 31, 1998(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
S. Kumar Chandrasekaran,
Ph.D. ...................... -- -- 307,285 401,381 $192,833 $
Michael D. Baer............... -- -- 59,681 50,319 $ -- $
Lyle M. Bowman................ -- -- 80,582 70,583 $ 49,507 $
</TABLE>
- ---------------
(1) Each option includes a limited stock appreciation right which will result in
the cancellation of that option, to the extent exercisable for vested
shares, upon the successful completion of a hostile tender offer for
securities possessing more than 50% of the combined voting power of the
Company's outstanding voting securities. In return for the cancelled option,
the optionee will receive a cash distribution per cancelled option share
equal to the excess of (i) the highest price paid per share of the Common
Stock in such hostile tender offer over (ii) the exercise price payable per
share under the cancelled option.
(2) Calculated on the basis of the closing sale price per share of the Common
Stock on the American Stock Exchange of $1.25 on December 31, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who beneficially own more than 10% of a registered class of the
Company's equity securities, to file with the United States Securities and
Exchange Commission (the "SEC") initial reports of beneficial ownership and
reports of changes in beneficial ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than 10% stockholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that during the fiscal year ended December 31, 1998, its
officers, directors and holders of more than 10% of the Common Stock complied
with all Section 16(a) filing requirements.
11
<PAGE> 15
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of March 19, 1999, by (i) each
person who is known by the Company to beneficially own more than five percent of
the Company's Common Stock, (ii) the Chief Executive Officer and each of the
other executive officers of the Company named in the Summary Compensation Table,
(iii) each director and nominee for director at the Annual Meeting, and (iv) all
current executive officers and directors as a group. Except as otherwise
indicated, the Company believes that each of the beneficial owners of the Common
Stock listed below has sole investment power with respect to such shares,
subject to community property laws, where applicable.
<TABLE>
<CAPTION>
BENEFICIALLY OWNED(1)(13)
------------------------------------
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
------------------------ ---------------- ----------------
<S> <C> <C>
New York Life Insurance Company(2)............ 1,132,813 5.97%
51 Madison Avenue
New York, NY 10010-1603
Pharmacia & Upjohn AB(3)...................... 1,095,506 5.83%
Lindhagensgata 133
112 87 Stockholm, Sweden
General Motors Investment Management
Corporation(4).............................. 1,007,902 5.37%
767 5th Avenue
New York, NY 10153
S. Kumar Chandrasekaran, Ph.D.(5)............. 472,771 2.46%
Lyle M. Bowman, Ph.D.(6)...................... 102,725 *
Michael D. Baer(7)............................ 70,075 *
Mitchell H. Friedlaender, M.D.(8)............. 25,000 *
John E. Lucas(9).............................. 63,000
John L. Mattana(10)........................... 20,000 *
Anders P. Wiklund(11)......................... 25,000 *
All current executive officers and directors
as a group (6 persons)(12).................. 708,496 4.00%
</TABLE>
- ---------------
* Less than one percent of the outstanding Common Stock.
(1) Percentage of beneficial ownership is calculated assuming 18,781,528 shares
of Common Stock were outstanding on March 19, 1999. This percentage also
includes Common Stock of which such individual or entity has the right to
acquire beneficial ownership as of March 19, 1999 or within 60 days after
March 19, 1999, including but not limited to upon the exercise of options;
however, such Common Stock shall not be deemed outstanding for the purpose
of computing the percentage owned by any other individual or entity. Such
calculation is required by General Rule 13d-3(1)(i) under the Exchange Act.
(2) Pursuant to a Schedule 13G dated February 12, 1997, filed with the
Securities and Exchange Commission, New York Life Insurance Company
reported that as of December 31, 1996 it had sole voting power and sole
dispositive power of all 1,132,813 shares. No filing has been made
subsequent to that date, so the Company assumes that the holdings of New
York Life Insurance Company remained the same as of December 31, 1998.
(3) Pursuant to a Schedule 13G dated February 26, 1999, filed with the
Securities and Exchange Commission, Pharmacia & Upjohn AB reported that as
of February 16, 1999 it had sole voting power and sole dispositive power of
all 1,095,506 shares. The report also indicates that Pharmacia & Upjohn
Holdings B.V. and Pharmacia & Upjohn, Inc. may be deemed to beneficially
own the same shares.
(4) Pursuant to an Amendment 1 to Schedule 13G dated March 19, 1999, filed with
the Securities and Exchange Commission, General Motors Investment
Management Corporation reported that as of December 31, 1998 it had shared
voting power and shared dispositive power of its 1,007,902 shares. This
number includes 503,951 shares held by Mellon Bank, N.A. as Trustee for the
General Motors Hourly-
12
<PAGE> 16
Rate Employee Pension Trust and 503,951 shares held by Mellon Bank, N.A. as
Trustee for the General Motors Salaried Employee Pension Trust.
(5) Includes 419,748 shares issuable upon the exercise of stock options
exercisable on March 19, 1999 or within 60 days thereafter.
(6) Includes 88,892 shares issuable upon the exercise of stock options
exercisable on March 19, 1999 or within 60 days thereafter.
(7) Includes 70,075 shares issuable upon the exercise of stock options
exercisable on March 19, 1999 or within 60 days thereafter.
(8) Comprised of 25,000 shares issuable upon the exercise of stock options
exercisable on March 19, 1999 or within 60 days thereafter.
(9) Includes 25,000 shares issuable upon the exercise of stock options
exercisable on March 19, 1999 or within 60 days thereafter.
(10) Includes 20,000 shares issuable upon the exercise of stock options
exercisable on March 19, 1999 or within 60 days thereafter.
(11) Comprised of 25,000 shares issuable upon the exercise of stock options
exercisable on March 19, 1999 or within 60 days thereafter.
(12) Includes 673,715 shares issuable upon the exercise of stock options
exercisable on March 19, 1999 or within 60 days thereafter.
(13) Information presented regarding beneficial ownership of the Company's
Common Stock is as of March 19, 1999, the most recent practicable date for
which data is reasonably available to the Company.
ANNUAL REPORT AND FORM 10-K
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1998 (the "Annual Report") and the Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 (the "Form 10-K"), as filed with the
Securities and Exchange Commission, have been mailed concurrently with this
Proxy Statement to all stockholders entitled to notice of and to vote at the
Annual Meeting. Neither the Annual Report nor the Form 10-K is incorporated into
this Proxy Statement and neither is considered proxy soliciting material.
OTHER MATTERS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's annual meeting of stockholders in calendar
year 2000 must be received by the Company no later than December 29, 1999 in
order that they may be included in the proxy statement and form of proxy
relating to that meeting.
In addition, the proxy solicited by the Board of Directors for the annual
meeting of stockholders in calendar year 2000 will confer discretionary
authority to vote on any shareholder proposal presented at that meeting, unless
the Company is provided with notice of such proposal no later than March 14,
2000.
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is granted
by the execution of the enclosed proxy.
THE BOARD OF DIRECTORS
Dated: April 29, 1999
13
<PAGE> 17
INSITE VISION INCORPORATED
965 ATLANTIC AVENUE,
ALAMEDA, CALIFORNIA 94501
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders and the Proxy Statement and
appoints S. Kumar Chandrasekaran, Ph.D. the Proxy of the undersigned, with full
power of substitution, to vote all shares of Common Stock of InSite Vision
Incorporated (the "Company") held of record by the undersigned on April 23,
1999, either on his or her own behalf or on behalf of any entity or entities, at
the Annual Meeting of Stockholders of the Company to be held June 7, 1999, and
at any adjournment or postponement thereof, with the same force and effect as
the undersigned might or could do if personally present thereat. The shares
represented by this Proxy shall be voted in the manner set forth below.
1. To elect the following directors to serve until the 2000 annual meeting
of stockholders or until their respective successors are elected and
qualified:
INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee name on the list below.
[ ] FOR [ ] WITHHOLD AUTHORITY TO VOTE
S. Kumar Chandrasekaran, Ph.D. Mitchell H. Friedlaender, M.D.;
John E. Lucas John L. Mattana Anders P. Wiklund
2. To ratify the Board of Directors' selection of Ernst & Young LLP to serve
as the Company's independent accountants for the fiscal year ending
December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
(Please Date and Sign on Reverse Side)
<PAGE> 18
This Proxy, when properly executed, will be voted in the manner directed
herein. THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS LISTED AND
FOR THE OTHER PROPOSALS IF NO SPECIFICATION IS MADE.
Please sign exactly as your name(s) is (are) shown on the stock certificate
to which the Proxy applies. When shares are held by joint tenants, both should
sign. When signing as an attorney, executor, administrator, trustee or guardian,
please give full title, as such. If a corporation, please sign in full corporate
name by the President or other authorized officer. If a partnership, please sign
in the partnership name by an authorized person.
Dated: , 1999
-------------------------
Signature
-------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE
AND RETURN THE PROXY CARD
PROMPTLY USING THE
ENCLOSED ENVELOPE.
