INSITE VISION INC, PRE 14A, 2000-04-19

INSITE VISION INC
PRE 14A, 2000-04-19
PHARMACEUTICAL PREPARATIONS

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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:

[X] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)
(2))

[ ] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

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:

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(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:

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[LOGO]

May 1, 2000

Dear Stockholder:

You are cordially invited to attend the 2000 Annual Meeting of Stockholders
of InSite Vision Incorporated (the "Company") to be held on Monday, June 12,
2000 at 10:00 a.m. local time at the Oakland Yacht Club, 1101 Pacific Marina,
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 19, 2000, 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.

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INSITE VISION INCORPORATED

---------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD JUNE 12, 2000

---------------

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 12, 2000, at 10:00 a.m. local time, at the Oakland
Yacht Club, 1101 Pacific Marina, Alameda, California 94501, for the following
purposes:

1. To elect five directors to serve until the 2001 annual meeting or
until their respective successors are elected and qualified.

2. To approve an amendment to the Company's 1994 Employee Stock Purchase
Plan to increase the total number of shares of the Company's Common Stock
authorized for issuance under the 1994 Employee Stock Purchase Plan by an
additional 85,000 shares.

3. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of shares of the Company's Common Stock
authorized for issuance by an additional 30,000,000 shares, resulting in an
aggregate of 60,000,000 shares of the Company's Common Stock authorized for
issuance.

4. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000.

5. 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 17, 2000, 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.

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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
May 1, 2000

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INSITE VISION INCORPORATED
965 ATLANTIC AVENUE
ALAMEDA, CALIFORNIA 94501

---------------

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 12, 2000

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 10:00 a.m. local time
on June 12, 2000, 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 May 1, 2000.

RECORD DATE AND VOTING

Stockholders of record on April 17, 2000 (the "Record Date") are entitled to
notice of and, as described below, to vote at the Annual Meeting. As of the
Record Date, 21,276,185 shares of the Company's Common Stock, par value $0.01
per share (the "Common Stock"), were issued and outstanding, held by
approximately 192 stockholders of record or, as estimated by the Company's Board
of Directors (the "Board of Directors" or the "Board"), approximately 7,000
beneficial stockholders. As of the Record Date, warrants for 70 shares of the
Company's Series A Convertible Preferred Stock ("Series A Stock") were issued
and outstanding, but no shares of Series A Stock are issued and outstanding and
entitled to vote at 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. Broker non-votes will not be counted for purposes of determining
whether a proposal has been approved or not, except in the case of Proposal
Three in which broker non-votes will be treated as shares present at the Annual
Meeting and will have the effect of a vote against the proposal.

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 19, 2000.

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.

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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, 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.

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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 presently six. Five of the 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. Mr. John E. Lucas has
indicated to the Company that he does not wish to be a nominee for re-election
to the Board. He will not be replaced, and the Company has set the authorized
number of directors at five, effective as of the Annual Meeting. 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 2001 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 17, 2000:

NOMINEES POSITION(s) WITH THE COMPANY AGE DIRECTOR SINCE
-------- ---------------------------- --- --------------

<S> <C> <C> <C>
S. Kumar Chandrasekaran, Ph.D... Chairman of the 56 1989
Board, President,
Chief Executive
Officer and Chief
Financial Officer
Mitchell H. Friedlaender, M.D... Director 54 1996
John L. Mattana................. Director 70 1997
Jon S. Saxe, Esq................ Director 63 1999
Anders P. Wiklund............... Director 60 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, and since January 1999, he 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

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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.

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.

JON S. SAXE, ESQ. has been a Director of the Company since December 1999.
Mr. Saxe was a Director of the Company from 1992 through 1997, when he resigned
as a member of the Board of Directors and became Director Emeritus. Mr. Saxe is
a member of the Executive Committee and a Director of Protein Design Labs, Inc.
for which he served as President from January 1995 to May 1999. Mr. Saxe served
as President of Saxe Associates, a biotechnology consulting firm, from May 1993
to December 1994, President, Chief Executive Officer and a Director of Synergen,
Inc., from October 1989 to April 1993, and Vice President, Licensing & Corporate
Development for Hoffmann-LaRoche from August 1984 through September 1989. Mr.
Saxe serves on the board of directors of Questocor Pharmaceuticals, Inc., Incyte
Genomics Inc., First Horizon Pharmaceutical Corporation, VistaGen Inc., and ID
Biomedical Corporations, and is Chairman of Point Biomedical Corporation and
Iconix Pharmaceuticals. Mr. Saxe holds a B.S. in Chemical Engineering from
Carnegie-Mellon University, a J.D. from George Washington University School of
Law, and an L.L.M. from New York University School of Law.

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, and since 1997
has served as Senior Vice President at Biacore Holding Inc., a life science
technology company. 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. Mr. Wiklund holds a Master of Pharmacy from the Pharmaceutical Institute,
Stockholm, Sweden.

BOARD COMMITTEES AND MEETINGS

During the fiscal year ended December 31, 1999, the Board of Directors held
9 meetings. 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 1999 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 three meetings during the 1999 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 1999 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

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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.

During the 1999 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; except for Mitchell Friedlaender who attended 100% of the regularly
scheduled meetings and 40% of the special telephonic meetings.

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 the grant date.
However, the option will immediately become exercisable for all the option
shares upon certain changes in control of the Company.

Continuing non-employee Board members will each receive an automatic option
grant for 10,000 shares of Common Stock on the date of the first Board meeting
in December each year. The option will have an exercise price per share equal to
the fair market value per share of Common stock on the grant date and 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. 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.

Accordingly, on the date of the December 6, 1999 meeting of the Board, each
continuing non-employee Board member received an automatic option grant to
purchase 10,000 shares of Common Stock at an exercise price of $2.438 per share,
the fair market value per share of Common Stock on such grant date.

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 pays Mr. Lucas a consulting fee in the
amount of $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.

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PROPOSAL TWO -- AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN

INTRODUCTION

The stockholders are being asked to approve an amendment to increase the
number of shares issuable under the 1994 Employee Stock Purchase Plan (the
"Purchase Plan") by an additional 85,000 shares to a total of 218,333 shares.
The amendment was adopted by the Board of Directors on March 13, 2000, subject
to stockholder approval at the Annual Meeting.

The terms and provisions of the Purchase Plan as modified by the recent
amendment are summarized below. This summary, however, does not purport to be a
complete description of the Purchase Plan. Copies of the actual plan document
may be obtained by any stockholder upon written request to the Secretary of the
Company at the corporate offices in Alameda, California.

ADMINISTRATION

The Purchase Plan is administered by the Compensation Committee of the
Board. As plan administrator, the Compensation Committee has complete authority
to adopt rules and procedures for the administration of the Purchase Plan and to
resolve any disputes concerning the interpretation of the plan provisions. All
costs and expenses incurred in plan administration will be paid by the Company
without charge to participants.

SECURITIES SUBJECT TO THE PURCHASE PLAN

The Common Stock issuable under the Purchase Plan may be drawn from shares
newly issued by the Company or from shares reacquired by the Company, including
shares purchased on the open market. The maximum number of shares which may be
issued over the term of the Purchase Plan may not exceed 218,333 shares,
assuming shareholder approval of this Proposal Two.

To prevent dilution or enlargement of participant rights under the Purchase
Plan, appropriate adjustments will be made to (i) the class and maximum number
of securities issuable over the term of the Purchase Plan, (ii) the class and
maximum number of securities purchasable per participant on any purchase date
and (iii) the class and number of shares purchasable and the price per share
payable under each outstanding purchase right, in the event that any change is
made to the Company's outstanding Common Stock (whether by reason of any stock
dividend, stock split, combination of shares, recapitalization, or other similar
change in corporate structure effected without the Company's receipt of
consideration).

ELIGIBILITY AND PARTICIPATION

Any individual who is customarily employed by the Company or a participating
corporate affiliate for more than twenty (20) hours per week for more than five
(5) months per calendar year will be eligible to participate in the Purchase
Plan on the start date of any offering period beginning on or after his or her
completion of six months of employment.

Participating corporate affiliates include any parent or subsidiary
corporations of the Company, whether now existing or hereafter organized, which
elect, with the approval of the Compensation Committee, to extend the benefits
of the Purchase Plan to their eligible employees. Currently, there are no
corporate affiliates participating in the Purchase Plan.

As of April 1, 2000, 114,980 shares of Common Stock have been issued under
the Purchase Plan, and approximately 29 employees (including two executive
officers of the Company) were eligible to participate under the Purchase Plan.
Each of the executive officers named in the Summary Compensation Table below has
the right

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to purchase shares of Common Stock on each of the purchase dates during the
offering period that began on January 3, 2000 and will end on December 29, 2001
at a purchase price that will not exceed $2.444 per share.

OFFERING PERIODS

The Purchase Plan will be implemented in a series of successive or
overlapping offering periods, each to be of such duration (not to exceed
twenty-four (24) months per offering period) as determined by the Compensation
Committee prior to the commencement date of the offering period. Offering
periods will begin, at the Compensation Committee's discretion, on the first
business day of January and July each year and will generally have a duration of
twenty-four (24) months. Accordingly, up to two separate offering periods may
commence in each calendar year during which the Purchase Plan remains in
existence. However, the Compensation Committee has the discretion to vary the
beginning date and ending date of an offering period prior to its commencement,
provided the offering period does not last longer than twenty-four (24) months.

The participant will be granted a separate purchase right for each offering
period in which he or she participates. The grant will be made on the first day
of the offering period and will be automatically exercised at semi-annual
intervals during that offering period, on the last business day of June and
December each year. For the offering period that began on January 3, 2000 and is
expected to continue through December 29, 2001, the purchase dates on which the
outstanding purchase rights are to be exercised will occur on June 30, 2000,
December 29, 2000, June 29, 2001 and December 29, 2001.

An employee may participate in only one offering period at a time.
Accordingly, an employee who wishes to join a new offering period must withdraw
from the current offering period in which he or she is participating. However,
if the fair market value of the Common Stock on any purchase date is lower than
such fair market value on the start date of that offering period, then all
participants in that offering period will be automatically withdrawn from such
offering period and re-enrolled in the immediately following offering period.

PURCHASE PRICE

The purchase price per share of the Common Stock issuable under the Purchase
Plan will be equal to the lesser of (i) eighty-five percent (85%) of the fair
market value per share of Common Stock on the start date of the offering period
or (ii) eighty-five percent (85%) of the fair market value per share of Common
Stock on the date on which the purchase right is exercised. The fair market
value of the Common Stock on any relevant date will be the closing selling price
per share on such date as reported on the American Stock Exchange. The fair
market value of the Common Stock on January 3, 2000 was $2.875 per share.

PURCHASE RIGHTS; STOCK PURCHASES

Each participant may, through authorized payroll deductions, apply from one
percent (1%) to ten percent (10%) of his or her cash earnings during the
relevant offering period to the purchase of Common Stock under the Purchase
Plan. Cash earnings for this purpose include base salary, bonuses, overtime and
other incentive-type payments.

On the last day of the purchase period (generally, the last business day of
June and December each year), the payroll deductions of each participant will be
automatically applied to the purchase of whole shares of Common Stock at the
purchase price in effect for such purchase date.

SPECIAL LIMITATIONS

The Purchase Plan imposes certain limitations upon a participant's rights to
acquire Common Stock, including the following limitations:

(i) Purchase rights may not be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company or any of its affiliates.

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(ii) No purchase right granted to a participant may permit such
individual to purchase Common Stock at a rate greater than $25,000 worth of
such Common Stock (valued at the time such purchase right is granted) for
each calendar year the purchase right remains outstanding at any time.

(iii) The maximum number of shares purchasable by the participant on any
purchase date may not exceed 6,666 shares.

TERMINATION OF PURCHASE RIGHTS

The purchase right of a participant will terminate upon (i) the
participant's cessation of employment for any reason or (ii) the participant's
election to withdraw from the Purchase Plan. The participant may elect to have
his or her payroll deductions for the period in which his or her purchase right
terminates either refunded immediately or applied to the purchase of Common
Stock on the next purchase date.

In addition, the Company has specifically reserved the right, exercisable in
the sole discretion of the Compensation Committee, to terminate the Purchase
Plan immediately following the purchase date occurring after such action is
authorized. If such right is exercised by the Company, then the Purchase Plan
will terminate in its entirety and no further purchase rights will be granted or
exercised thereunder.

STOCKHOLDER RIGHTS

No participant will have any stockholder rights with respect to the shares
covered by his or her purchase rights until the shares are actually purchased on
the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.

ASSIGNABILITY

No purchase rights will be assignable or transferable by the participant,
except by will or by the laws of descent and distribution. The purchase rights,
during the lifetime of the participant, will be exercisable only by the
participant.

ACQUISITION

Should the Company be acquired by merger or asset sale during an offering
period, all outstanding purchase rights will automatically be exercised
immediately prior to the effective date of such acquisition. The purchase price
will be equal to eighty-five (85%) of the lower of (i) the fair market value per
share of Common Stock on the start date of that offering period or (ii) the fair
market value per share of Common Stock immediately prior to such acquisition.
The limitation on the maximum number of shares purchasable per participant on
any one purchase date will continue to apply to the share purchases effected in
connection with such acquisition.

AMENDMENT AND TERMINATION

The Purchase Plan will terminate upon the earlier of (i) December 31, 2003
or (ii) the date on which all shares available for issuance thereunder are sold
pursuant to exercised purchase rights. However, the Board may from time to time
alter, amend, suspend or discontinue the provisions of the Purchase Plan.

The Board may not, without stockholder approval, (i) increase the number of
shares issuable under the Purchase Plan, except in connection with certain
changes in the Company's capital structure, (ii) alter the purchase price
formula so as to reduce the purchase price, or (iii) modify the requirements for
eligibility to participate in the Purchase Plan.

PLAN BENEFITS

8
<PAGE> 14

The table below shows, as to the Company's current executive officers and
the indicated groups, the number of shares purchased under the Purchase Plan for
the period from the April 1, 1994 start date of the initial offering period to
the most recent semi-annual purchase date on December 31, 1999.

- -------------------------------------------------------------------------------------------------
PURCHASE PLAN TRANSACTIONS
=================================================================================================
NAME NUMBER OF PURCHASED SHARES
- -------------------------------------------------------------------------------------------------
<S> <C>
S. Kumar Chandrasekaran, Ph.D. 16,257
- -------------------------------------------------------------------------------------------------
Lyle M. Bowman, Ph.D. 0
- -------------------------------------------------------------------------------------------------
All current executive officers as a group (2 persons) 16,257
- -------------------------------------------------------------------------------------------------
All employees, including current officers, as a group (58 114,980
persons)
=================================================================================================
</TABLE>

NEW PLAN BENEFITS

No purchase rights have been granted, and no shares have been issued, on the
basis of the 85,000-share increase which is the subject of this Proposal Two.

FEDERAL TAX CONSEQUENCES

The Purchase Plan is intended to be an "employee stock purchase plan" within
the meaning of Section 423 of the Internal Revenue Code. Under a plan which so
qualifies, no taxable income will be recognized by a participant, and no
deductions will be allowable to the Company, in connection with the grant or the
exercise of an outstanding purchase right.

Taxable income will not be recognized until there is a sale or other
disposition of the shares acquired under the Purchase Plan or in the event the
participant should die while still owning the purchased shares.

If the participant sells or otherwise disposes of the purchased shares
within two (2) years after the start date of the offering period in which such
shares were acquired or within one (1) year after the actual purchase date of
those shares, then the participant will recognize ordinary income in the year of
sale or disposition equal to the amount by which the fair market value of the
shares on the purchase date exceeded the purchase price paid for those shares,
and the Company will be entitled to an income tax deduction, for the taxable
year in which such sale or disposition occurs, equal in amount to such excess.

If the participant sells or disposes of the purchased shares more than two
(2) years after the start date of the offering period in which such shares were
acquired and more than one (1) one year after the actual purchase date of those
shares, then the participant will recognize ordinary income in the year of sale
or disposition equal to the lesser of (i) the amount by which the fair market
value of the shares on the sale or disposition date exceeded the purchase price
paid for those shares or (ii) fifteen percent (15%) of the fair market value of
the shares on the start date of the offering period, and any additional gain
upon the disposition will be taxed as a long-term capital gain. The Company will
not be entitled to any income tax deduction with respect to such sale or
disposition.

If the participant still owns the purchased shares at the time of death, the
lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen percent (15%) of the
fair market value of the shares on the start date of the offering period in
which those shares were acquired will constitute ordinary income in the year of
death.

ACCOUNTING TREATMENT

Under current accounting rules, the issuance of Common Stock under the
Purchase Plan will not result in a direct charge to the Company's reported
earnings. However, the Company must disclose, in footnotes and pro-

9
<PAGE> 15

forma statements to the Company's financial statements, the impact the purchase
rights granted under the Purchase Plan would have upon the Company's reported
earnings were the fair value of those purchase rights treated as compensation
expense.

STOCKHOLDER APPROVAL

The affirmative vote of a majority of the Company's voting stock present or
represented and entitled to vote at the Meeting is required for approval of the
85,000-share increase to the Purchase Plan. Should such stockholder approval not
be obtained, then the 85,000-share increase will not be implemented, and any
purchase rights granted on the basis of that increase will immediately
terminate. No additional purchase rights will be granted on the basis of such
share increase, and the Purchase Plan will terminate once the existing share
reserve has been issued.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE PURCHASE PLAN.

PROPOSAL THREE -- AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION

The present capital structure of the Company authorizes 30,000,000 shares of
Common Stock. The Board of Directors believes this capital structure is
inadequate for the present and future needs of the Company. Therefore, the Board
has unanimously approved the amendment of the Company's Restated Certificate of
Incorporation to increase the number of shares of Common Stock authorized for
issuance by Article IV to 60,000,000 shares. The Board believes this capital
structure more appropriately reflects the present and future needs of the
Company and recommends such amendment to the Company's stockholders for
adoption. On December 31, 1999, 20,298,923 shares of Common Stock were
outstanding, 2,541,300 shares were reserved for issuance under the 1994 Plan (of
which 2,176,819 shares were reserved for issuance upon exercise of outstanding
options), 938,787 shares were reserved for issuance upon conversion of
outstanding warrants to acquire Series A Stock and 317,308 shares were reserved
for issuance upon exercise of outstanding warrants to acquire Common Stock.

PURPOSE OF AUTHORIZING ADDITIONAL COMMON STOCK

The additional 30,000,000 shares of Common Stock would provide the Board of
Directors with the express authority, without further action of the
stockholders, to issue such Common Stock from time to time as the Board deems
necessary. The Board believes it is necessary to have the ability to issue such
additional Common Stock for general corporate purposes. Potential uses of
additional authorized shares may include partnering transactions, joint
ventures, third-party collaborative relationships, licensing transactions,
acquisition transactions, equity or convertible debt financings, stock
dividends, splits or distributions, issuance of Common Stock upon exercise of
options pursuant to the Company's 1994 Plan and issuances of Common Stock
pursuant to the Company's Purchase Plan without further action by the
stockholders, unless such action were specifically required by applicable law or
rules of any stock exchange on which the Company's securities may then be
listed.

The proposed increase in the authorized number of shares of Common Stock
could have a number of effects on the Company's stockholders depending upon the
exact nature and circumstances of any actual issuances of authorized but
unissued shares. The increase could have an anti-takeover effect, in that
additional shares could be issued (within the limits imposed by applicable law)
in one or more transactions that could make a change in control or takeover of
the Company more difficult. For example, additional shares could be issued by
the Company so as to dilute the stock ownership or voting rights of persons
seeking to obtain control of the Company. Similarly, the issuance of additional
shares to certain persons allied with the Company's management could have the
effect of making it more difficult to remove the Company's current management by
diluting the stock ownership or voting rights of persons seeking to cause such
removal. In addition, an issuance of additional shares by the Company could have
an effect on the potential realizable value of a stockholder's investment. In
the absence of a proportionate increase in the Company's earnings and book
value, an increase in the aggregate number of outstanding shares would dilute
the earnings per share and book value per share of all outstanding shares of
Common Stock. If such factors were reflected in the price per share of Common
Stock, the potential realizable value of a stockholder's

10
<PAGE> 16

investment could be adversely affected. The Common Stock carries no preemptive
rights to purchase additional shares. The adoption of the amendment will not of
itself cause any change in the capital accounts of the Company.

The proposed amendment of the Company's Restated Certificate of
Incorporation was approved by the directors of the Company on March 13, 2000.

STOCKHOLDER APPROVAL

The affirmative vote of a majority of the outstanding voting shares of the
Company is required for approval of the amendment of the Company's Restated
Certificate of Incorporation authorizing 30,000,000 additional shares of Common
Stock for a total of 60,000,000 authorized shares.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION AUTHORIZING
30,000,000 ADDITIONAL SHARES OF COMMON STOCK FOR A TOTAL OF 60,000,000
AUTHORIZED SHARES.

PROPOSAL FOUR -- 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, 2000, 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, 2000.

11
<PAGE> 17

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 1999 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
1999 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 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 1999
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.

12
<PAGE> 18

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.

CEO Compensation

In setting the total compensation payable to Dr. Chandrasekaran, the
Company's Chief Executive Officer, for the 1999 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 1999 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 1999 fiscal year, the Committee estimates that Dr.
Chandrasekaran's base salary was at the 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 1999 fiscal year was based solely on the Company's
attainment of performance milestones. Those milestones were tied to clinical and
regulatory developments and 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 1999 fiscal year.

The stock option granted to Dr. Chandrasekaran for the 1999 fiscal year
reflected the Committee's continuing policy to maintain his option holdings at a
level competitive with that of other chief executive officers in the industry
and to subject a portion of his compensation each year to the market performance
of the Company's common stock. Accordingly, the stock option grant will be of no
value to Dr. Chandrasekaran unless he continues in the Company's employ and the
market price of the Company's common stock appreciates over his period of
continued employment.

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 1999 fiscal year did not exceed the $1
million limit per officer, but the option grants made under the 1994 Stock
Option Plan will not qualify as performance-based compensation, because the
Compensation Committee is not, by reason of the consulting arrangements in
effect between the committee members and the Company, comprised of disinterested
individuals for purposes of Internal Revenue Code Section 162(m). However, it is
not expected that the non-performance based compensation to be paid to the
Company's executive officers for fiscal 2000, including any non-performance
based compensation attributable to option exercises, will exceed the $1 million
limit per named executive officer. Because it is very unlikely that the
compensation payable to any of the Company's executive officers in the

13
<PAGE> 19

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

14
<PAGE> 20

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, 1999 with (ii) the cumulative total return on (a) The American Stock
Exchange (U.S. Index), (b) the Nasdaq Biotech Index and (c) the Nasdaq (U.S.
Index). The comparison assumes (i) an investment of $100 on January 1, 1995 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 markets. 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 trading on the same exchange as the
Company.

THE STOCK PRICE PERFORMANCE SHOWN ON THE GRAPH BELOW REPRESENTS HISTORICAL
PRICE PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF ANY FUTURE STOCK PRICE
PERFORMANCE.

Date ISV IXBT NASDAQ AMEX
<S> <C> <C> <C> <C>
01/31/95 100 100 100 100
02/28/95 88.89 103.69 105.25 103.25
03/31/95 72.22 101.95 108.38 104.69
04/28/95 66.67 105.66 111.79 107.22
05/31/95 61.11 106.10 114.68 110.25
06/30/95 69.44 119.15 123.97 112.86
07/31/95 100 129.96 133.07 118.74
08/31/95 88.89 146.22 135.78 121.81
09/29/95 104.17 150.44 138.90 124.29
10/31/95 79.17 145.27 138.10 119.52
11/30/95 48.61 152.84 141.34 123.04
12/29/95 79.17 179.66 140.59 125.31
01/31/96 136.11 193.50 141.30 125.42
02/29/96 152.78 187.44 146.68 127.49
03/29/96 122.22 179.55 147.18 128.66
04/30/96 136.11 187.09 159.37 133.13
05/31/96 152.78 194.21 166.68 137.55
06/28/96 127.78 173.98 159.17 129.89
07/31/96 105.56 157.66 145 119.78
08/30/96 97.22 167.71 153.13 123.29
09/30/96 97.22 180.86 164.84 126.66
10/31/96 91.67 175.36 163.01 124.14
11/29/96 98.61 173.37 173.13 129.26
12/31/96 133.33 179.07 172.98 127.31
01/31/97 111.11 195.29 185.26 130.27
02/28/97 97.22 200.50 175.01 132.66
03/31/97 95.83 173.62 163.60 126.16
04/30/97 101.39 164.97 168.69 122.44
05/30/97 136.11 189.29 187.8 134.75
06/30/97 122.22 182.56 193.57 139.42
07/31/97 113.89 188.65 213.97 145.34
08/29/97 100 183.56 213.66 146.99
09/30/97 102.78 201.95 226.33 158.85
10/31/97 86.11 189.78 214.54 153.32
11/28/97 77.78 185.03 215.67 153.18
</TABLE>

15
<PAGE> 21

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 1999 Annual Meeting, consisted of John
L. Mattana and Anders P. Wiklund. No member of the Compensation Committee was at
any time during the 1999 fiscal year, or at any other time, an officer or
employee of the Company.

During the 1999 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.

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

16
<PAGE> 22

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 1999 was in excess of $100,000, for
services rendered in all capacities to the Company for the 1999, 1998 and 1997
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 1999 fiscal year resigned or terminated employment during that
fiscal year.

17
<PAGE> 23

SUMMARY COMPENSATION TABLE

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. ............. 1999 320,012 68,098 2,478(3) -- --
Chairman of the Board, President 1998 302,000 10,000 3,150(3) -- --
and Chief Executive Officer 1997 302,000 -- 3,150(3) -- --
Lyle M. Bowman, Ph.D. ...................... 1999 169,000 10,000 1,227(3) -- --
Vice President, Development 1998 164,000 -- 967(3) -- --
and Operations 1997 164,000 -- 967(3) --
</TABLE>

- ----------

(1) Principal Position determined as of December 31, 1999.

(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.

OPTION GRANTS

The following table contains information concerning the grant of stock
options under the Plan to the Named Executive Officers during the 1999 fiscal
year. No stock appreciation rights were granted to the Named Executive Officers
during the 1999 fiscal year, except for the limited stock appreciation rights
described in footnote (2) below which form part of each option grant made to
them.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS
----------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION --------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ---------- ----------- --------- ---- -- ---

<S> <C> <C> <C> <C> <C> <C>
S. Kumar Chandrasekaran, Ph.D. ..... 250,000(2) 52% $1.13 2/22/09 $176,877 $448,240
Lyle M. Bowman, Ph.D. .............. 25,000(2) 5% $1.13 2/22/09 $ 17,688 $ 44,824
</TABLE>

- --------------

(1) Potential realizable value is based on assumption that the market price of
the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the 10-year option term. There can
be no assurance that the actual stock price appreciation over the 10-year
option term will be at the assumed 5% and 10% levels or at any other defined
level.

(2) The option has a maximum term of 10 years, subject to earlier termination in
the event of the optionee's cessation of service with the Company. The
option will become exercisable for 50% of the option shares upon the
optionee's completion of one year of service measured from the February 23,
1999 grant date and for the balance in equal daily installments over the
next year of service. However, the option will become immediately
exercisable for all the option shares upon an acquisition of the Company by
merger or asset sale, unless the

18
<PAGE> 24

option is assumed by the successor entity. The option, to the extent so
assumed, will subsequently vest in full should the optionee's employment be
terminated (whether involuntarily or through a resignation following a
material change in the optionee's duties and responsibilities, level of
compensation or principal place of employment) within twelve (12) months
following the acquisition in which that option does not otherwise vest on an
accelerated basis. The 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 Company's Common Stock in such hostile tender offer over (ii)
the exercise price payable per share under the cancelled option. The
exercise price may be paid in cash or in shares of Common Stock (valued at
fair market value on the exercise date) or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company may
also finance the option exercise by loaning the optionee sufficient funds to
pay the exercise price for the purchased shares and the federal and state
withholding taxes to which the optionee becomes subject in connection with
such exercise.

OPTION EXERCISES AND HOLDINGS

The following table sets forth information concerning the exercise of
options during the 1999 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 1999 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 described
in footnote (2) to the Option/SAR Grant table above.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
NUMBER OF AGGREGATE DECEMBER 31, 1999 DECEMBER 31, 1999(1)
SHARES ACQUIRED VALUE ----------------- --------------------
NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
S. Kumar Chandrasekaran, Ph.D...... -- -- 528,453 493,213 $637,832 $406,250
Lyle M. Bowman .................... -- -- 109,854 66,311 $163,755 $ 40,625
</TABLE>

(1) Calculated on the basis of the closing sale price per share of the Common
Stock on the American Stock Exchange of $2.75 on December 31, 1999.

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, 1999, its

<PAGE> 25

officers, directors and holders of more than 10% of the Common Stock complied
with all Section 16(a) filing requirements.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of March 20, 2000, 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.

BENEFICIALLY OWNED(1)(11)
-------------------------
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ------------------------ ---------------- ----------------
<S> <C> <C>
Pharmacia & Upjohn AB ......................... 2,665,614 12.64%
Lindhagensgata 133
112 87 Stockholm, Sweden
New York Life Insurance Company (2) ........... 1,132,813 5.32
51 Madison Avenue
New York, NY 10010-1603
S. Kumar Chandrasekaran, Ph.D.(3) ............. 802,889 3.68
Lyle M. Bowman, Ph.D.(4) ...................... 143,052 *
Mitchell H. Friedlaender, M.D.(5) ............. 45,000 *
John E. Lucas (6) ............................. 83,000
John L. Mattana (7) ........................... 50,000 *
Jon S. Saxe (8) ............................... 20,812 *
Anders P. Wiklund (9) ......................... 45,000 *
All current executive officers and
directors as a group (7 persons) (10) ......... 1,189,753 5.39
</TABLE>

* Less than one percent of the outstanding Common Stock.

(1) Percentage of beneficial ownership is calculated assuming 21,083,877 shares
of Common Stock were outstanding on March 20, 2000. This percentage also
includes Common Stock of which such individual or entity has the right to
acquire beneficial ownership as of March 20, 2000 or within 60 days after
March 20, 2000, 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, 1996.

(3) Includes 749,866 shares issuable upon the exercise of stock options
exercisable on March 20, 2000 or within 60 days thereafter.

(4) Includes 118,719 shares issuable upon the exercise of stock options
exercisable on March 20, 2000 or within 60 days thereafter.

(5) Includes 35,000 shares issuable upon the exercise of stock options
exercisable on March 20, 2000 or within 60 days thereafter.

(6) Comprised of 25,000 shares issuable upon the exercise of stock options
exercisable on March 20, 2000 or within 60 days thereafter.

(7) Includes 30,000 shares issuable upon the exercise of stock options
exercisable on March 20, 2000 or within 60 days thereafter.

(8) Includes 14,812 shares issuable upon the exercise of stock options
exercisable on March 20, 2000 or within 60 days thereafter.

20
<PAGE> 26

(9) Comprised of 35,000 shares issuable upon the exercise of stock options
exercisable on March 20, 2000 or within 60 days thereafter.

(10) Includes 1,008,397 shares issuable upon the exercise of stock options
exercisable on March 20, 2000 or within 60 days thereafter.

(11) Information presented regarding beneficial ownership of the Company's
Common Stock is as of March 20, 2000, 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, 1999 (the "Annual Report") and the Annual Report on Form 10-K for
the fiscal year ended December 31, 1999 (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 2001 must be received by the Company no later than [January 1], 2000 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 December 29,
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: May 1, 2000

21
<PAGE> 27

PROXY 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 17,
2000, 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 12, 2000, 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 2001 annual meeting of
stockholders or until their respective successors are elected and qualified:

FOR WITHHOLD AUTHORITY TO VOTE
S. Kumar Chandrasekaran, Ph.D. [ ] [ ]
FOR WITHHOLD AUTHORITY TO VOTE
Mitchell H. Friedlaender, M.D. [ ] [ ]
FOR WITHHOLD AUTHORITY TO VOTE
John L. Mattana [ ] [ ]
FOR WITHHOLD AUTHORITY TO VOTE
Jon S. Saxe [ ] [ ]
FOR WITHHOLD AUTHORITY TO VOTE
Anders P. Wiklund [ ] [ ]

2. To approve an amendment to the Company's 1994 Employee Stock Purchase Plan
to increase the total number of shares of the Company's Common Stock
authorized for issuance under the 1994 Employee Stock Purchase Plan by an
additional 85,000 shares.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

4. 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, 2000.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

5. 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)

22
<PAGE> 28

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: _____________________,2000

---------------------------------
Signature

---------------------------------
Signature if held jointly

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.