**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-K/A**


**(Amendment
      No. 1)**




x
                ANNUAL
                    REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                    THESECURITIES
                    EXCHANGE ACT OF
                    1934For
                    the fiscal year ended December 31, 2007ORo
                TRANSITION
                    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                    EXCHANGE ACT OF
                    1934


Commission
      file number: 0-22332




**INSITE
      VISION INCORPORATED**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            
            **94-3015807**(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)**965
                Atlantic Avenue, Alameda, CA**
            
            **94501**(Address
                of principal executive offices)
            
            (Zip
                Code)





**(510)-865-8800**


(Registrant’s
      telephone number, including area code)




Securities
      registered pursuant to Section 12(b) of the Act:




Title
                of each class
            
            Name
                of each exchange on which registeredCommon
                Stock, $0.01 par value per share
            
            American
                Stock Exchange




Securities
      registered pursuant to Section 12(g) of the Act: None




Indicate
                by check mark if the registrant is a well-known seasoned issuer,
                as
                defined in Rule 405 of the Securities Act.
              Yes o     
                  No x




Indicate
                  by check mark if the registrant is not required to file reports
                  pursuant
                  to Section 13 or Section 15(d) of the Exchange Act.
                Yes o     
                    No x


Indicate
                      by check mark whether the registrant (1) has filed all reports
                      required to
                      be filed by Section 13 or 15(d) of the Securities Exchange
                      Act of 1934
                      during the preceding 12 months (or for such shorter period
                      that the
                      registrant was required to file such reports), and (2) has
                      been subject to
                      such filing requirements for the past 90 days.
                  Yes x    
                      No o


Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K is not contained herein, and will not be contained, to the
        best
        of registrant’s knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-K or any amendment
        to this
        Form 10-K.   o


Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.




Large
                  accelerated filer o
              
              Accelerated
                  filer xNon-accelerated
                  filer o
              
              Smaller
                  reporting company o





Indicate
              by check mark whether the registrant is a shell company (as defined
              in
              Rule 12b-2 of the Exchange Act).
            Yes o     
                No x





The
      aggregate market value of registrant’s Common Stock, $0.01 par value, held by
      non-affiliates of the Registrant as of June 30, 2007 was approximately
      $109,145,151 (based upon the closing sale price of the Common Stock on the
      last
      business day of the registrant’s most recently completed second fiscal quarter).
      Shares of Common Stock held by each officer and director and by each person
      who
      owns 5% or more of the Common Stock have been excluded from such calculation
      as
      such persons may be deemed affiliates. This determination of affiliate status
      is
      not necessarily a conclusive determination for other purposes.




Number
      of
      shares of Common Stock, $0.01 par value, outstanding as of April 15, 2008:
      94,585,449.




2





**EXPLANATORY
      NOTE**




This
      Amendment No. 1 on Form 10-K/A (this “Amendment”) amends the Annual Report on
      Form 10-K of
      InSite
      Vision Incorporated (the “Company” or “Registrant”)for the fiscal year
      ended December 31, 2007, originally filed on March 17, 2008 (the “Original
      Filing”). The Registrant is re-filing Part III to include the information
      required by Items 10, 11, 12, 13 and 14 to Part III within the period required
      by General Instruction G(3) to Form 10-K. In addition, the Registrant is filing
      the Non-Employee Director Option Grant Program adopted under its 2007
      Performance Incentive Plan and the Offer Letter with Louis C. Drapeau, dated
      September 24, 2007, as exhibits to this Amendment. Further, in connection with
      the filing of this Amendment and pursuant to the rules of the Securities and
      Exchange Commission, or the SEC, the Registrant is including with this Amendment
      certain currently dated certifications. Except as described above, no other
      changes have been made to the Original Filing.




In
      addition, the Registrant has included the disclosure set forth under ”Item 9B.
      Other Information, ” which information reflects events that occurred after the
      date of the Original Filing




The
      Company's 2008 Annual Meeting of Stockholders is scheduled to be held on
      September 22, 2008 at 10:00 am PDT at the Company's headquarters located at
      965
      Atlantic Avenue, Alameda, California.




3




**PART
      II**




**Item
      9B. Other Information**




On
      April
      25, 2008, the Compensation Committee of the Company’s Board of Directors
      approved annual bonuses for 2007 for the Company’s Named Executive Officers (as
      identified herein). The amount of the bonus awarded to each of the Named
      Executive Officers was as follows: Dr. Chandrasekaran - $200,000; Mr. Drapeau
      -
      $15,000; Dr. Bowman - $56,000; Mr. Heniges - $36,000; and Ms. Heine -
      $40,000.




On
      April
      25, 2008, the Compensation Committee also approved the terms of a new bonus
      plan, the InSite Vision Incorporated 2008 Bonus Plan (the “Bonus Plan”), that
      provides bonus opportunities for 2008 for employees of the Company, including
      each of the Named Executive Officers. Each participant in the Bonus Plan has
      a
      target bonus percentage that is expressed as a percentage of the participant’s
      annual base salary. For Dr. Chandrasekaran, the target bonus percentage for
      2008
      is 40% of his base salary. For each of the other Named Executive Officers,
      the
      target bonus percentage for 2008 is 30% of his or her base salary. The target
      bonus percentages for all participants are aggregated to determine the Company’s
      on-target bonus pool. The actual bonus pool for participants in the Bonus Plan
      will, in general, be determined based on the Company’s achievement of 11
      specified corporate goals for 2008 with each goal being weighted between 5%
      and
      15% of the total bonus opportunity. These goals generally pertain to partnering
      the Company’s AzaSite product and other product candidates, moving product
      candidates into and through clinical trials, identifying and developing future
      product candidates, and achieving preestablished levels of non-dilutive
      financing and AzaSite revenues in North America. The amount of the actual bonus
      pool with respect to each performance goal may range from 0% to 150% of the
      on-target bonus pool for that goal based on the dates by which the goals are
      attained or, in the case of financial performance metrics, the Company’s actual
      performance as compared with the preestablished goals. Each participant’s actual
      bonus will be determined based on the overall funding of the bonus pool and
      an
      assessment of the individual’s performance during the year. In the case of the
      Named Executive Officers, this determination and assessment will be made by
      the
      Compensation Committee.




**PART
      III**




**Item
      10. Directors, Executive Officers and Corporate Governance**




As
      of
      April 15, 2008, the directors of the Company were as follows:




**Name**
            
            **Position(s)
                with the Company**
            
            **Age**
            
            **Director
                Since**S.
                Kumar Chandrasekaran, Ph.D.
            
            Chairman
                of the Board,President,
                and Chief Executive Officer
            
            65
            
            1989Francis
                W. Chen, Ph.D.
            
            Director
            
            59
            
            2007Mitchell
                H. Friedlaender, M.D.
            
            Director
            
            62
            
            1996John
                L. Mattana
            
            Director
            
            79
            
            1997Jon
                S. Saxe, Esq.
            
            Director
            
            71
            
            2000Anders
                P. Wiklund
            
            Director
            
            68
            
            1996




**Business
      Experience of Board Members**




***S.
      Kumar Chandrasekaran, Ph.D.*** has been
      a Director of the Company since April 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 1999 to October 2007, he also served
      as Chief Financial Officer, a position he also held from December 1995 to
      December 1997. Dr. Chandrasekaran holds a Ph.D. in Chemical Engineering from
      the
      University of California at Berkeley.




***Francis
      W. Chen, Ph.D.*** has been
      a Director of the Company since December 2007. Dr. Chen is a private investor
      and, since
      2005, has served as a venture partner at WI Harper Group in San Francisco,
      California. He also serves on the boards of directors of several privately-held
      companies, including Mail.com Media Corporation, Dermacia, Trace Life Sciences,
      Stealth Peptides International, Inc. and LogicEase Solutions ,
      Inc.
      Dr. Chen holds a Ph.D. in immunology from Harvard University.




4




***Mitchell
      H. Friedlaender, M.D.*** has been
      a Director of the Company since May 1996. He is Head of the Division of
      Opthamology and Director of the Laser Vision Center at Scripps Clinic in La
      Jolla, California. From 1976 to 1986, Dr. Friedlaender served as a full-time
      faculty member at the University of California, San Francisco. 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 former 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 drugs. Dr. Friedlaender holds an M.D. from
      the
      University of Michigan and an M.B.A. from the University of
      Phoenix.




***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. From October 1997 through
      February 2004 he 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 also a Director
      of
      the Company from 1992 through 1997, when he resigned as a member of the Board
      of
      Directors and became Director Emeritus until December 1999. Mr. Saxe is a
      Director of PDL Biopharma, Inc., a biotechnology company 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 boards of directors of Sciele Pharmaceuticals, Inc., PDL
      Biopharma, Inc., SciClone Pharmaceuticals, Inc., and Entelos, Inc. Mr. Saxe
      also
      serves on the boards of directors of several private companies. 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 2007, Mr. Wiklund
      has served as the President of Effrx, Inc., a privately-held company that
      develops innovative oral drug delivery products. Since January 1997 he has
      served as the principal at Wiklund International Inc., an advisory firm to
      the
      biotechnology industry. He served as Managing Director of KabiVitrum Ltd. from
      1973 to 1976 and as President of KabiVitrum International from 1976 to 1984.
      From 1984 to 1993 Mr. Wiklund served as President and Chief Executive Officer
      of
      KabiVitrum Inc. and KabiPharmacia Inc. For twenty-nine years Mr. Wiklund served
      the Pharmacia group of companies in various executive positions. From 1993
      to
      1996 Mr. Wiklund served as President of Pharmacia Development Corp., Executive
      Vice President of Pharmacia U.S. Inc., and Vice President of Pharmacia Upjohn
      Inc. Mr. Wiklund serves on the boards of directors of several private companies.
      Mr. Wiklund holds a Master of Pharmacy from the Pharmaceutical Institute,
      Stockholm, Sweden.




There
      are
      no family relationships between any members of our Board of Directors and our
      executive officers.




Information
      concerning our executive officers is incorporated by reference from Part I
      of
      our Annual Report on Form 10-K for the fiscal year ended December 31, 2007,
      filed with the SEC on March 17, 2008.




**Board
      Committees and Meetings**




During
      the fiscal year ended December 31, 2007, the Board of Directors held thirteen
      meetings. The Board of Directors has an Audit Committee, a Stock Plan and
      Compensation Committee, a Nominating and Corporate Governance Committee, a
      Financing Committee, a Mergers and Acquisitions Committee, a New Ophthalmic
      Opportunities Committee, and a Clinical Oversight Committee. During the 2007
      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.




5




**SECTION
      16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**




Section
      16(a) of the Securities Exchange Act of 1934 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 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 the Securities
      Exchange Act of 1934, as amended, 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, 2007, its officers,
      directors and holders of more than 10% of the Common Stock complied with all
      Section 16(a) filing requirements with one exception. Francis Chen did not
      timely file a Form 3 upon his election to our Board of Directors on December
      10,
      2007 or a Form 4 upon his receipt on December 10, 2007 of a stock option to
      purchase 30,000 shares of Common Stock pursuant to our Non-Employee Director
      Option Grant Program due to delays in receiving a filing code required for
      such
      filings. Mr. Chen’s Form 3 and Form 4 were filed with the SEC on January 3,
      2008.




**Code
      of Ethics**




We
      have
      adopted a Code of Ethics for our principal executive officer, principal
      financial officer, principal accounting officer or controller, or persons
      performing similar functions. Our Code of Ethics can be found on our website
      located at www.InSiteVision.com under “Investor Relations.” Any future
      amendments or waivers to our Code of Ethics will also be disclosed on our
      website. A copy of the Code of Ethics is available to investors free of charge
      by writing to InSite Vision Incorporated, Investor Relations, 965 Atlantic
      Avenue, Alameda, CA 94501.




*Audit
      Committee*




The
      Audit
      Committee currently consists of four directors: Francis W. Chen, John L.
      Mattana, Jon S. Saxe and Anders P. Wiklund.




The
      Board
      of Directors has determined that each of the members of the Audit Committee
      is
“independent” as that term is defined in Section 803(A) of the American
      Stock Exchange’s listing standards and also meets the additional criteria for
      independence of Audit Committee members set forth in Rule 10A-3(b)(1) under
      the
      Securities Exchange Act of 1934, as amended. In addition, the Board of Directors
      has determined that each member of its Audit Committee is “financially
      sophisticated” and that therefore the Audit Committee meets the requirement
      under the rules of the American Stock Exchange that at least one member of
      the
      audit committee be “financially sophisticated.” Although the Board of Directors
      does not believe any member of the Audit Committee currently qualifies as an
      “audit committee financial expert” as defined by the SEC, the Company believes
      that the experience and financial acumen of the members of its Audit Committee
      is sufficient given the Company’s current needs and financial position. The
      Board of Directors will continue to assess the qualifications of the members
      of
      its Audit Committee, including the need to appoint a financial expert, in light
      of the Company’s financial complexity, position and requirements in order to
      serve the best interests of the Company and its stockholders.




**DIRECTOR
      COMPENSATION — FISCAL 2007**




The
      following table presents information regarding the compensation paid for 2007
      to
      members of the Board of Directors who are not also employees of the Company
      (referred to herein as “ **Non-Employee
      Directors** “).
      The
      compensation paid to Dr. Chandrasekaran, who is an employee of the Company,
      is
      presented below in the Summary Compensation Table and the related explanatory
      tables. Dr. Chandrasekaran is not entitled to receive additional compensation
      for his service as a director.




6




Name
            Fees
              Earned
                or
              Paid
                in
              Cash
              ($)
            Stock
              Awards
              ($)(1)
            Option
              Awards
              ($)(1)(2)(3)
            Non-Equity
              Incentive
                Plan
              Compensation
              ($)
            Change
                in
              Pension
                Value
              and
              Nonqualified
              Deferred
              Compensation
                Earnings
              ($)
            All
                Other
              Compensation
              ($)
            Total
              ($)(a)
            (b)
            (c)
            (d)
            (e)
            (f)
            (g)
            (h)Francis
                W. Chen, Ph.D.(4)
            2,000
            0
            990
            0
            0
            0
            2,990Mitchell
                H. Friedlaender, M.D.
            34,000
            0
            30,249
            0
            0
            0
            64,249John
                L. Mattana
            26,500
            0
            30,249
            0
            0
            0
            56,749Jon
                S. Saxe, Esq.
            36,000
            0
            30,249
            0
            0
            0
            66,249Anders
                P. Wiklund
            38,500
            0
            30,249
            0
            0
            0
            68,749




(1)
        The
        amount reported in Column (d) of the table above reflects the aggregate dollar
        amounts recognized for option awards for financial statement reporting purposes
        with respect to 2007 (disregarding any estimate of forfeitures related to
        service-based vesting conditions). No option awards granted to Non-Employee
        Directors were forfeited during 2007. The Company has not granted any
        equity-based awards to Non-Employee Directors other than stock options. For
        a
        discussion of the assumptions and methodologies used to value the awards
        reported in Column (d), please see the discussion of option awards contained
        in
        Note 10 (Employee Stock-based Compensation) to the Company’s Consolidated
        Financial Statements, included as part of the Company’s 2007 Annual Report filed
        on Form 10-K and incorporated herein by reference.




(2)
      The
      following table presents the number of outstanding and unexercised option awards
      held by each of the Company’s Non-Employee Directors as of December 31,
      2007.




Director
            Number
                of Shares Subject to
              Outstanding
                Options
              as
                of December 31, 2007Francis
                W. Chen, Ph.D.
            30,000Mitchell
                H. Friedlaender, M.D.
            195,000John
                L. Mattana
            195,000Jon
                S. Saxe, Esq.
            200,000Anders
                P. Wiklund
            195,000





(3)
      As
      described below, the Company granted each of its Non-Employee Directors an
      option to purchase 30,000 shares of the Company’s Common Stock during 2007. Each
      of these options had a value of $17,300 on the grant date. See footnote (1)
      for
      the assumptions used to value these awards. No stock awards were granted to
      the
      Company’s Non-Employee Directors during 2007.




(4)
      Dr.
      Chen was appointed to the Board of Directors on December 10, 2007.




**Summary
      of Director Compensation**




Compensation
      for Non-Employee Directors for 2007 generally consisted of fees for attending
      meetings, fees for service on certain committees and annual stock option
      awards.




7




*Fees* .
      For
      2007, the Company paid its Non-Employee Directors the following
      compensation:




·
            a
                fee of $2,000 for attendance in person or by telephone at each meeting
                of
                the Board of Directors (up to a maximum of $8,000 per
                year);




·
            a
                fee of $500 for attendance in person or by telephone at each meeting
                of
                the Audit Committee (up to a maximum of $3,500 per
                year);




·
            a
                fee of $500 for attendance in person or by telephone at each meeting
                of
                the Compensation Committee (up to a maximum of $2,000 per
                year);




·
            an
                additional annual retainer of $12,000 for serving on the Financing
                Committee, the Mergers and Acquisitions Committee, the New Ophthalmic
                Committee, or the Clinical Oversight Committee;
                and




·
            reimbursement
                of reasonable expenses for attending any Board or committee
                meetings.




*Option
      Grants* .
      Under
      the Company’s current director compensation program, each Non-Employee Director
      is granted, at the time of his or her initial election or appointment to the
      Board, an option to purchase 30,000 shares of the Company’s Common Stock.
      Thereafter, each Non-Employee Director in office on the date of the first Board
      meeting in December of each year is granted on such date an option to purchase
      30,000 shares of the Company’s Common Stock, unless the director received his or
      her initial option grant within the preceding six months. In the event that
      there is no Board meeting in December of any year, the annual option grant
      will
      be made on December 15 of that year (or, if December 15 is not a trading day,
      the next succeeding trading day). In addition, Non-Employee Directors are
      eligible to receive discretionary award grants at any time under the Company’s
      2007 Performance Incentive Plan.




Each
      option granted to one of the Company’s Non-Employee Directors has a per-share
      exercise price equal to the closing price of the Company’s Common Stock on the
      date of grant and a maximum term of ten years. These options will generally
      vest
      on the first anniversary of the grant date, subject to the director’s continued
      service as a Board member, but may vest on an accelerated basis in connection
      with a change in control of the Company. Vested options will generally remain
      exercisable for three months following the termination of the director’s service
      or six months following a termination due to death or disability. The options
      do
      not include any dividend rights.




On
      December 10, 2007, each of the Company’s Non-Employee Directors (i.e., Messrs.
      Chen, Friedlaender, Mattana, Saxe and Wiklund) received an automatic grant
      of an
      option to purchase 30,000 shares of the Company’s Common Stock. Each of these
      options has a per-share exercise price of $0.88 (the closing price of the
      Company’s Common Stock on the grant date) and will vest on the first anniversary
      of the grant date. Each of these options was granted under, and is subject
      to
      the terms of, the 2007 Performance Incentive Plan.




**Item
      11. Executive Compensation**




**COMPENSATION
      DISCUSSION AND ANALYSIS**




This
      section contains a discussion of the material elements of compensation earned
      by
      the Company’s principal executive officer, its principal financial officer, and
      its three other most highly compensated executive officers for 2007. These
      individuals are listed in the “Summary Compensation Table” below and referred to
      as the “Named Executive Officers” in this Annual Report.




The
      Company’s executive compensation programs are determined and approved by the
      Stock Plan and Compensation Committee (the “Compensation Committee”). None of
      the Named Executive Officers are members of the Compensation Committee or
      otherwise had any role in determining the compensation of the other Named
      Executive Officers, although the Compensation Committee does consider the
      recommendations of Dr. Chandrasekaran in setting compensation levels for the
      Named Executive Officers other than Dr. Chandrasekaran.




8




**Executive
      Compensation Program Objectives and Overview**




The
      Compensation Committee’s principal goals in making its executive compensation
      decisions are:




·
            to
                ensure that there exists an appropriate relationship between executive
                pay
                and both the performance of the Company and the creation of stockholder
                valuethrough
                the Company’s achievement of long-term strategic goals and initiatives;




·
            to
                attract, motivate and retain key executives in the face of competition
                within the bio-technology industry for qualified personnel;
                and




·
            to
                align the interests of the Company’s executive officers with those of its
                stockholders.




The
      Company’s current executive compensation program is based on three components,
      which are designed to be consistent with the Company’s compensation philosophy:
      (1) base salary, (2) annual incentive bonuses and (3) stock options that are
      subject to time-based vesting requirements. In certain cases, the Company also
      provides Named Executive Officers severance benefits if the executive’s
      employment terminates under certain circumstances. In structuring executive
      compensation packages, the Compensation Committee considers how each component
      promotes retention and/or motivates performance by the executive. The Company
      does not provide any material perquisites or personal benefits to its Named
      Executive Officers.




Base
      salaries and severance benefits are primarily intended to attract and retain
      highly qualified executives. Annual bonuses are primarily intended to motivate
      Named Executive Officers to achieve specific strategic and operating objectives
      for that year. Long-term equity incentives are primarily intended to align
      Named
      Executive Officers’ long-term interests with stockholders’ long-term interests.
      The Company also believes that annual bonuses and equity incentives help it
      to
      attract and retain top executives. These are the elements of the Company’s
      executive compensation program that are designed to reward performance and
      thus
      the creation of stockholder value.




The
      Compensation Committee believes that performance-based compensation such as
      annual bonuses and long-term equity incentives play a significant role in
      aligning management’s interests with those of the Company’s stockholders. For
      this reason, these forms of compensation constitute a substantial portion of
      each of the Named Executive Officers’ compensation. For 2007, the Compensation
      Committee approved executive compensation arrangements for Dr. Chandrasekaran
      that resulted in approximately 70% **** of
      his
      total direct compensation being incentive compensation, with his base salary
      constituting the balance of his 2007 total direct compensation. (As used in
      this
      discussion, the term “total direct compensation” means the aggregate amount of
      the executive’s base salary, annual incentive bonus, and long-term equity
      incentive awards based on the grant-date fair value of such awards as determined
      under the accounting principles used in the Company’s financial reporting.) With
      respect to the other Named Executive Officers, the Compensation Committee
      approved executive compensation arrangements that generally resulted in
      approximately 50% **** of
      each
      executive’s total direct compensation being incentive compensation, with base
      salary constituting the balance of their 2007 total direct compensation. The
      Company’s compensation packages are designed to promote teamwork, initiative and
      resourcefulness by key employees whose performance and responsibilities directly
      affect the results of its operations.




As
      part
      of its annual review of the Company’s executive compensation programs, the
      Compensation Committee generally reviews Radford’s surveys of compensation paid
      to similarly situated executive officers in the technology and biotechnology
      industries in the San Francisco Bay Area. These surveys are used by the
      Compensation Committee as one factor in determining appropriate compensation
      for
      the Company’s Named Executive Officers. However, the Compensation Committee does
      not target compensation levels to specific benchmarks against the companies
      represented in these surveys. The Compensation Committee did not retain
      independent compensation consultants for 2007.




9




**Current
      Executive Compensation Program Elements**




**Base
      Salaries**




The
      base salaries of the Named Executive Officers are reviewed by the Compensation
      Committee on an annual basis, as well as at the time of a promotion or other
      material change in responsibilities. Any increases in base salary are based
      on
      an evaluation of the particular individual’s performance and level of pay
      compared to similarly situated executives at comparable companies, as well
      as
      the individual’s criticality to the Company’s future plans.




In
      May
      2007, the Compensation Committee approved increases in salary levels for each
      of
      the Named Executive Officers (other than Mr. Drapeau) effective January 1,
      2007.
      The increase for each of the Named Executive Officers was approximately 14%
      over
      his or her 2006 salary level, except that the increase for Mr. Heniges was
      approximately 4% over his 2006 salary level.




In
      reviewing the base salaries for each of the Named Executive Officers for 2007
      the Compensation Committee took into account:




•
            the
                fact that the executives’ salary levels were not increased for 2006 in
                order to conserve funds for the Company’s operations;•
            Radford’s
                analysis of base salaries for similar positions at other biotechnology
                companies in the San Francisco Bay Area, as well as general compensation
                data for companies similar in size to the Company, and Radford’s resulting
                specific salary recommendations;•
            the
                individual’s particular experience in the biotechnology or pharmaceutical
                industries;•
            the
                scope of the executive’s responsibilities and the executive’s criticality
                to achieving the Company’s business goals; and•
            the
                corporate goals and objectives attained during 2007.




The
      Compensation Committee believes that the base salary levels of the Named
      Executive Officers generally are reasonable in view of competitive practices,
      the Company’s performance and the contribution of those officers to that
      performance. Other than the offer letter with Mr. Drapeau described under
“Compensation of Named Executive Officers - Employment Agreements” below, the
      Company has not entered into employment agreements with any of the Named
      Executive Officers that provide for minimum levels of base salary.




**Annual
      Bonuses**




Historically,
      annual incentive bonuses have been awarded to executive officers based upon
      multiple performance criteria, including evaluations of personal job performance
      and performance measured against objective business criteria. The Named
      Executive Officers do not have contractual rights to receive a fixed actual
      or
      target bonus for any given year. Their actual annual bonuses are established
      by
      the Compensation Committee in its sole discretion based on its assessment of
      the
      Company’s performance and the performance of the executive for the fiscal
      year.




In
      addition, the Compensation Committee considers the practices and performance
      of
      other similarly situated companies in the San Francisco Bay Area as described
      above. As with base salaries, the Compensation Committee generally targets
      bonus
      levels at approximately the middle percentile for similarly situated companies.
      However, because the Compensation Committee has broad discretion to establish
      annual bonuses based on the performance of the Company and the individual
      executive, the actual bonuses paid to the Named Executive Officers in any given
      year may differ substantially from the annual bonuses paid to comparable
      officers at similarly situated companies.




10




The
      Compensation Committee considered the performance of the Named Executive
      Officers and the Company generally in relation to the Company’s 2007 corporate
      performance goals. The Compensation Committee determined that the Company
      successfully achieved most, but not all, of its 2007 corporate performance
      goals. Among the Company’s critical achievements in 2007 were:




•
            the
                successful licensing of certain world-wide intellectual property
                rights
                from Pfizer Inc. to strengthen the Company’s position related to
                AzaSite®;•
            the
                successful completion of a licensing agreement with Inspire
                Pharmaceuticals, Inc. in the United States and Canada for AzaSite®;•
            the
                repayment of the Senior Secured Notes;•
            the
                approval by the Food and Drug Administration, or FDA, of the AzaSite
                New
                Drug Application, or NDA;•
            the
                filing of a New Drug Submission, or NDS, to Health Canada for the
                regulatory approval of AzaSite in Canada;•
            the
                initiation of the first of two Phase 3 clinical trials for AzaSite
                PlusTM
                subsequent to a successful meeting with the FDA regarding the clinical
                endpoints of the trials;•
            the
                successful completion of the first international licensing agreement
                of
                AzaSite and continued strong collaborative discussions related to
                additional international territories; and•
            significant
                advances in the Company’s pre-clinical research programs.




In
      May
      2007, the Compensation Committee approved performance bonuses for selected
      employees, including each of the Named Executive Officers (other than Mr.
      Drapeau), in light of the Company’s achievement of certain milestones, including
      completion of a corporate collaboration for the license of AzaSite with Inspire
      Pharmaceuticals in February 2007 and approval of the NDA for AzaSite in April
      2007. In awarding these performance bonuses, the Compensation Committee also
      took into account the fact that the executives had not received any incentive
      bonuses since 2004 and the compensation survey data for comparable companies
      referred to above.




In April
      2008, the
      Compensation Committee also approved annual incentive bonuses for 2007 for
      each
      of the Named Executive Officers. The Compensation Committee considered the
      achievement of all of the 2007 corporate performance goals listed above,
      compensation survey data for comparable companies referred to above in making
      its bonus determinations, as well as its subjective assessment of the individual
      performance of each executive and the performance of the Company as a whole.





The
      specific bonus amounts awarded to each of the Named Executive Officers for
      2007
      are reported below in the Summary Compensation Table.




**Long-Term
      Incentive Equity Awards**




The
      Company’s policy is that the long-term compensation of its Named Executive
      Officers and other executive officers should be directly linked to the value
      provided to stockholders. Therefore, the Company has historically made annual
      grants of stock options to provide further incentives to its executives to
      increase stockholder value. The Compensation Committee bases its award grants
      to
      executives each year on a number of factors, including:




·
            the
                executive’s position with the Company and total compensation
                package;




·
            the
                executive’s performance of his or her individual
                responsibilities;




·
            the
                equity participation levels of comparable executives at comparable
                companies; and




·
            the
                Company’s achievement of its business objectives and the executive’s
                contribution to those achievements.




11




In
      addition, the size, frequency and type of long-term incentive grants may be
      determined on the basis of tax consequences of the grants to the individual
      and
      the Company, accounting impact and potential dilution effects.




The
      Company’s stock option grants to the Named Executive Officers have an exercise
      price that is equal to the closing price of the Company’s common stock on the
      grant date. Thus, the executives will only realize value on their stock options
      if the Company’s stockholders realize value on their shares. The stock options
      also function as a retention incentive for executives as they vest ratably
      over
      the four-year period after the date of grant. In May 2007, the Compensation
      Committee approved grants of options to each of the Named Executive Officers
      (other than Mr. Drapeau) in connection with the achievement of certain
      milestones as described above. The Compensation Committee also approved the
      grant of an option to Mr. Drapeau in October 2007 in connection with his
      commencing employment with the Company. The material terms of these options
      are
      described below under “Grants of Plan-Based Awards.”




The
      Company generally does not make regular grants of equity awards to executives
      on
      an annual or other periodic basis. Rather, the Company’s practice has been to
      grant equity awards to executives primarily after certain performance objectives
      have been achieved and the achievement of these objectives has been fully
      disclosed and absorbed by the public market.




**Severance
      Benefits**




In
      May
      2007, the Company entered into a change in control agreement with Dr.
      Chandrasekaran that provides for severance benefits if his employment terminates
      under certain circumstances in connection with a change in control of the
      Company. The Company provides severance benefits to Dr. Chandrasekaran under
      this agreement because it believes that the occurrence, or potential occurrence,
      of a change in control transaction will create uncertainty regarding his
      continued employment as many change in control transactions result in
      significant organizational changes, particularly at the senior executive level.
      In order to encourage him to remain employed with the Company during an
      important time when his prospects for continued employment following the
      transaction may be uncertain, the Company provides Dr. Chandrasekaran with
      severance benefits if his employment is actually or constructively terminated
      by
      the Company without cause in connection with a change in control. The cash
      severance benefits for Dr. Chandrasekaran are generally determined as if he
      continued to remain employed with the Company for two years following his actual
      termination date, and his outstanding equity awards would generally become
      fully
      vested.




The
      Company believes that Dr. Chandrasekaran should receive these change in control
      severance benefits if his employment is constructively terminated in connection
      with a change in control. Given that he does not have an employment agreement
      that provides for fixed positions or duties, or for a fixed base salary or
      actual or target annual bonus, potential acquirers could constructively
      terminate his employment (i.e. by a material reduction in his compensation
      or
      duties) and avoid paying any severance benefits at all without this protection.
      Because the Company believes that constructive terminations in connection with
      a
      change in control are conceptually the same as actual terminations, the change
      in control agreement provides that he may terminate employment in connection
      with a change in control under circumstances that the Company believes would
      constitute a constructive termination of his employment.




As
      part
      of his change in control severance benefit, Dr. Chandrasekaran would be
      reimbursed for the full amount of any excise taxes imposed on his severance
      payments and any other payments under Section 4999 of the U.S. Internal Revenue
      Code. The Company provides Dr. Chandrasekaran with a “gross-up” for any
      parachute payment excise taxes that may be imposed because it determined the
      appropriate level of change in control severance protections for him without
      factoring in the adverse effects that may result from imposition of these excise
      taxes. The excise tax gross-up is intended to make him whole for any adverse
      tax
      consequences he may become subject to under Section 4999 of the U.S. Internal
      Revenue Code, and to preserve the level of change in control severance
      protections that the Company has determined to be appropriate.




12




**Policy
      with Respect to Section** **162(m)**




Section 162(m) of
      the Internal Revenue Code generally disallows a tax deduction to publicly held
      companies for compensation exceeding $1 million paid to their chief executive
      officers and certain other executive officers unless certain performance and
      other requirements are met. The Company’s intent generally is to design and
      administer executive compensation programs in a manner that will preserve the
      deductibility of compensation paid to its executive officers, and the Company
      believes that a substantial portion of its current executive compensation
      program (including the stock options granted to the Named Executive Officers
      as
      described above) satisfies the requirements for exemption from the $1 million
      deduction limitation. However, the Company reserves the right to design programs
      that recognize a full range of performance criteria important to its success,
      even where the compensation paid under such programs may not be deductible.
      The
      Compensation Committee believes that no part of the Company’s tax deduction for
      compensation paid to the Named Executive Officers for 2007 will be disallowed
      under Section 162(m). The Compensation Committee will continue to monitor the
      tax and other consequences of the Company’s executive compensation program as
      part of its primary objective of ensuring that compensation paid to executive
      officers is reasonable, performance-based and consistent with the goals of
      the
      Company and its stockholders.




**STOCK
      PLAN AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE
      COMPENSATION** **(1)**




The
      Compensation Committee has certain duties and powers as described in its
      charter. The Compensation Committee is currently composed of the two
      non-employee directors named at the end of this report, each of whom is
      independent as defined by the American Stock Exchange listing
      standards.




The
      Compensation Committee has reviewed and discussed with management the
      disclosures contained in the Compensation Discussion and Analysis section of
      this annual report. Based upon this review and discussion, the Compensation
      Committee recommended to the Board of Directors that the Compensation Discussion
      and Analysis section be included in the Company’s Annual Report on Form 10-K/A
      to be filed with the SEC.




**Stock
        Plan and Compensation Committee**
 **of
        the Board of Directors**
  John
          L. Mattana
 Anders
          P.
          Wiklund


(1)
      SEC
      filings sometimes “incorporate information by reference.” This means the Company
      is referring you to information that has previously been filed with the SEC,
      and
      that this information should be considered as part of the filing you are
      reading. Unless the Company specifically states otherwise, this report shall
      not
      be deemed to be incorporated by reference and shall not constitute soliciting
      material or otherwise be considered filed under the Securities Act or the
      Securities Exchange Act.




**COMPENSATION
      COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION**




The
      Compensation Committee members whose names appear on the Compensation Committee
      Report above were committee members during all of 2007. No member of the
      Compensation Committee is a former or current executive officer of the Company
      or had any relationships requiring disclosure by the Company under the SEC’s
      rules requiring disclosure of certain relationships and related-party
      transactions. None of the Company’s executive officers served as a director or a
      member of a compensation committee (or other committee serving an equivalent
      function) of any other entity, the executive officers of which served as a
      director or member of the Compensation Committee during the fiscal year ended
      December 31, 2007.




13




**SUMMARY
      COMPENSATION TABLE - FISCAL 2007 and 2006**




The
      following table presents information regarding compensation of the Named
      Executive Officers for services rendered during 2007 and 2006.




Name
              and
              Principal
              Position
            
            
            Year
            
            
            Salary
              ($)
            
            
            Bonus
              ($)(1)
            
            
            Stock
              Awards
              ($)(2)
            
            
            Option
              Awards
              ($)(2)
            
            
            Non-Equity
                Incentive Plan Compen-sation
              ($)
            
            
            Change
                in
              Pension
              Value
                and
              Nonquali-
              fied
              Deferred
              Compensa-
              tion
              Earnings
              ($)
            
            
            All
              Other
              Compen-
              sation
              ($)(3)
            
            
            Total
              ($)(a)
            
            
            (b)
            
            
            (c)
            
            
            (d)
            
            
            (e)
            
            
            (f)
            
            
            (g)
            
            
            (h)
            
            
            (i)
            
            
            (j)**S.
                Kumar Chandrasekaran, Ph.D.**
              Chairman
                of the Board, President and Chief Executive Officer
            
            
            2007
            
            
            450,000
            
            
            550,000
            
            
            --
            
            
            470,797
            
            
            --
            
            
            --
            
            
            6,494
            
            
            1,477,2912006
            
            
            390,000
            
            
            --
            
            
            --
            
            
            379,736
            
            
            --
            
            
            --
            
            
            5,782
            
            
            775,518**Louis
                Drapeau(4)**
              Vice
                President, Chief Financial Officer
            
            
            2007
            
            
            48,750
            
            
            15,000
            
            
            --
            
            
            2,009
            
            
            --
            
            
            --
            
            $
            673
            
            
            66,432**Lyle
                M. Bowman, Ph.D.**
              Vice
                President, Development and Operations
            
            
            2007
            
            
            250,000
            
            
            126,000
            
            
            --
            
            
            69,631
            
            
            --
            
            
            --
            
            
            2,245
            
            
            447,8762006
            
            
            220,000
            
            
            --
            
            
            --
            
            
            56,725
            
            
            --
            
            
            --
            
            
            2,012
            
            
            278,737**David
                Heniges**
              Vice
                President and General Manager, Commercial Opportunities
            
            
            2007
            
            
            245,000
            
            
            76,000
            
            
            --
            
            
            50,866
            
            
            --
            
            
            --
            
            
            3,445
            
            
            375,3112006
            
            
            235,000
            
            
            --
            
            
            --
            
            
            50,924
            
            
            --
            
            
            --
            
            
            3,326
            
            
            289,250**Sandra
                C. Heine**
              Vice
                President, Finance and Administration
            
            
            2007
            
            
            155,802
            
            
            90,000
            
            
            --
            
            
            63,093
            
            
            --
            
            
            --
            
            
            324
            
            
            309,2192006
            
            
            145,000
            
            
            --
            
            
            --
            
            
            51,981
            
            
            --
            
            
            --
            
            
            288
            
            
            197,269





(1)
      The
      figure reported in this column reflects two separate bonuses that the Named
      Executive Officers received for 2007. As described in the “Compensation
      Discussion and Analysis” above, the Named Executive Officers (other than Mr.
      Drapeau) were awarded performance bonuses in May 2007 in connection with the
      Company’s achievement of certain milestones. The amounts awarded to each
      executive were as follows: Dr. Chandrasekaran - $350,000; Dr. Bowman - $70,000;
      Mr. Heniges - $40,000; and Ms. Heine - $50,000. In April 2008, the Named
      Executive Officers were also awarded annual incentive bonuses for 2007 in the
      following amounts: Dr. Chandrasekaran - $200,000; Mr. Drapeau - $15,000; Dr.
      Bowman - $56,000; Mr. Heniges - $36,000; and Ms. Heine - $40,000.




14




(2)
      The
      amounts reported in Column (f) of the table above reflect the aggregate dollar
      amounts recognized for option awards for financial statement reporting purposes
      with respect to 2007 and 2006 (disregarding any estimate of forfeitures related
      to service-based vesting conditions). No option awards granted to Named
      Executive Officers were forfeited during 2007. The Company has not granted
      any
      equity-based awards other than stock options to Named Executive Officers that
      were outstanding during 2007 or 2006. For a discussion of the assumptions and
      methodologies used to value the awards reported in Column (f), please see the
      discussion of option awards contained in Note 9, Employee Stock-based
      Compensation, to the Company’s Consolidated Financial Statements, included
      as part of this Annual Report for 2007 filed on Form 10-K with the SEC (or,
      for
      years prior to 2007, the corresponding note in the Company’s Form 10-K for the
      applicable fiscal year). For information about the option awards granted to
      the
      Named Executive Officers for 2007, please see the discussion under “Grants of
      Plan-Based Awards” below.




(3)
      For
      2007, the amounts reported in Column (i) represent the Company’s payments of
      term life insurance premiums on behalf of each Named Executive Officer. The
      Company is not the beneficiary of the life insurance policies, and the premiums
      that the Company pays are taxable as income to the applicable officer. This
      insurance is not split-dollar life insurance.




(4)
      Mr.
      Drapeau was appointed the Company’s Chief Financial Officer effective October 1,
      2007.




**Compensation
      of Named Executive Officers** **- Employment Agreements**




The
      Summary Compensation Table above quantifies the value of the different forms
      of
      compensation earned by the Named Executive Officers for 2007 and 2006. The
      primary elements of each Named Executive Officer’s total compensation reported
      in the table are base salary, bonuses, and long-term equity incentives
      consisting of stock options. The Named Executive Officers also earned the other
      benefits listed in Column (i) of the Summary Compensation Table, as further
      described in footnote (3) to the table.




The
      Summary Compensation Table should be read in conjunction with the tables and
      narrative descriptions that follow. The Grants of Plan-Based Awards table and
      accompanying narrative description provides information regarding the stock
      options granted to Named Executive Officers in 2007. The Outstanding Equity
      Awards at 2007 Fiscal Year End and Option Exercises and Stock Vested tables
      provide further information on the Named Executive Officers’ potential
      realizable value and actual value realized with respect to their equity
      awards.




As
      noted
      above, the Company has not entered into employment agreements with any of the
      Named Executive Officers, except for an offer letter that the Company entered
      into with Mr. Drapeau in September 2007. The offer letter provides that Mr.
      Drapeau’s employment with the Company will be part time in nature at
      approximately 30 hours per week, that his annual rate of base salary will be
      $195,000 and that he will be entitled to participate in the Company’s annual
      bonus program and other employee benefit programs generally.




**GRANTS
      OF PLAN-BASED AWARDS - FISCAL 2007**




The
      following table presents information regarding the equity incentive awards
      granted to the Named Executive Officers for 2007.




15




Estimated Future
                Payouts
              Under
              Non-Equity
                Incentive
              Plan
                Awards
            
            
            Estimated Future
                Payouts
              Under
              Equity Incentive Plan
              Awards
            
            
            All
              Other
              Stock
              Awards:
              Number
              of
              Shares
            
            
            All Other
              Option
              Awards:
              Number
              of
              Securities
              Under-
            
            
            Exercise
              or Base
              Price of
            
            
            Grant
              Date
              Fair
              Value
              of
              Stock
              andName
            
            
            Grant
              Date
            
            
            Thres-hold
            
            
            Target
            
            
            Maxi-
              mum
            
            
            Thres-
              hold
            
            
            Target
            
            
            Maxi-
              mum
            
            
            of Stock
              or
                Units
            
            
            lying
              Options
            
            
            Option
              Awards
            
            
            Option
                Awards($)
            
            
            ($)
            
            
            ($)
            
            
            (#)
            
            
            (#)
            
            
            (#)
            
            
            (#)
            
            
            (#)
            
            
            ($/Sh)
            
            
            ($)(1)(a)
            
            
            (b
            
            
            (c)
            
            
            (d)
            
            
            (e)
            
            
            (f)
            
            
            (g)
            
            
            (h)
            
            
            (i)
            
            
            (j)
            
            
            (k)
            
            
            (l)S.
                Kumar Chandrasekaran, Ph.D.
            
            
            5/2/07
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            500,000
            
            
            1.59
            
            
            507,350Louis
                Drapeau
            
            
            10/15/07
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            50,000
            
            
            1.20
            
            
            37,745Lyle
                M. Bowman, Ph.D.
            
            
            5/2/07
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            80,000
            
            
            1.59
            
            
            81,176David
                Heniges
            
            
            5/2/07
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            50,000
            
            
            1.59
            
            
            50,735Sandra
                C. Heine
            
            
            5/2/07
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            70,000
            
            
            1.59
            
            
            71,029





(1)
      The
      amounts reported in Column (l) reflect the fair value of these awards on the
      grant date as determined under the principles used to calculate the value of
      equity awards for purposes of the Company’s financial statements. For the
      assumptions and methodologies used to value the awards reported in Column (l),
      please see footnote (2) to the Summary Compensation Table.




**Description
      of Plan-Based Awards**




Each
      of
      the options reported in the Grants of Plan-Based Awards Table was granted under,
      and is subject to the terms of the Company’s 1994 Stock Option Plan (the “1994
      Plan”), except for Mr. Drapeau’s option which was granted under the Company’s
      2007 Performance Incentive Plan (the “2007 Plan”). The 1994 Plan and 2007 Plan
      are each administered by the Compensation Committee. The Compensation Committee
      has authority to interpret the plans’ provisions and make all required
      determinations under the plans. This authority includes making required
      proportionate adjustments to outstanding awards upon the occurrence of certain
      corporate events such as reorganizations, mergers and stock splits, and making
      provision to ensure that any tax withholding obligations incurred in respect
      of
      awards are satisfied. Awards granted under the plans are generally only
      transferable to a beneficiary of a Named Executive Officer upon his or her
      death. However, the Compensation Committee may establish procedures for the
      transfer of awards to other persons or entities, provided that such transfers
      comply with applicable securities laws and, with limited exceptions, are not
      made for value.




Each
      option reported in the table above was granted with a per-share exercise price
      equal to the fair market value of a share of the Company’s common stock on the
      grant date. For these purposes, and in accordance with the Company’s option
      grant practices, the fair market value is equal to the closing price of a share
      of the Company’s common stock on the applicable grant date. Each of these
      options is also subject to a four-year vesting schedule, with 25% of the option
      vesting on each of the first anniversary of the grant date and the remaining
      75%
      vesting ratably on a daily basis over the next three years of service
      thereafter.




Once
      vested, each option will generally remain exercisable until its normal
      expiration date. Each of the options granted to the Named Executive Officers
      in
      2007 has a term of ten years. However, vested options may terminate earlier
      in
      connection with a change in control transaction or a termination of the Named
      Executive Officer’s employment. Subject to any accelerated vesting that may
      apply in the circumstances, the unvested portion of the option will immediately
      terminate upon a termination of the Named Executive Officer’s employment. The
      Named Executive Officer will generally have three months to exercise the vested
      portion of the option following a termination of his or her employment. This
      period is extended to 12 months if the termination was a result of the Named
      Executive Officer’s death or disability.




16




The
      options granted to Named Executive Officers during 2007 do not include any
      dividend rights.




Under
      the
      terms of the 1994 Plan, if a “corporate transaction” occurs, outstanding options
      granted under the plan will generally become fully vested and exercisable,
      unless the Compensation Committee provides for the substitution, assumption
      or
      other continuation of the outstanding options. Any options that accelerate
      under
      the 1994 Plan in connection with a corporate transaction will generally
      terminate upon the transaction. The 1994 Plan defines a “corporate transaction”
as either 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 the persons holding those
      securities immediately prior to the transaction, or the sale, transfer or other
      disposition of all or substantially all of the Company’s assets in complete
      liquidation or dissolution of the Company.




If
      a
“change in control” of the Company occurs, outstanding options granted under the
      1994 Plan will generally become fully vested and exercisable. Any options that
      accelerate under the 1994 Plan in connection with a change in control will
      remain exercisable until the expiration or sooner termination of the option
      term
      specified in the option agreement. The 1994 Plan defines a “change in control”
of the Company as an acquisition of 40% or more of the Company’s voting power or
      certain changes in the membership of the Board of Directors.




Under
      the
      terms of the 2007 Plan, if the Company dissolves or completes a merger, a sale
      of substantially all of its assets or any other transaction that it does not
      survive (or does not survive as a publicly traded company), all then-outstanding
      awards granted under the 2007 Plan (including awards held by the Named Executive
      Officers) will generally become fully vested and, in the case of options,
      exercisable, unless the Compensation Committee provides for the substitution,
      assumption, exchange or other continuation of the outstanding awards. Any
      options that become vested in connection with such a transaction generally
      must
      be exercised prior to the transaction, or they will be canceled in exchange
      for
      the right to receive a cash payment in connection with the
      transaction.




**OUTSTANDING
      EQUITY AWARDS AT 2007 FISCAL YEAR-END**




The
      following table presents information regarding the outstanding stock options
      held by each of the Named Executive Officers as of December 31, 2007, including
      the vesting dates for the portions of these options that had not vested as
      of
      that date. None of the Named Executive Officers held any outstanding stock
      awards as of that date.




Name
            Option
              Grant
              Date
            Number
                of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Exercisable
            Number
                of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
            Option
              Exercise
              Price
              ($)
            Option
              Expiration
              Date(a)
            (b)
            (c)
            (d)
            (e)
            (f)S.
                Kumar
              Chandrasekaran,
              Ph.D.
            5/2/07
              2/1/06
              6/1/05
              6/1/04
              3/30/04
              12/12/03
              9/23/03
              2/14/03
              9/20/02
              6/18/01
              2/23/99
            --
              382,299
              698,699
              107,436
              56,304
              120,000
              100,000
              75,000
              65,000
              50,000
              250,000
            500,000(1)
              417,701(3)
              301,301(4)
              12,564(5)
              3,696(6)
              --
              --
              --
              --
              --
              --
            1.59
              1.50
              0.63
              0.75
              0.88
              0.41
              0.63
              0.85
              0.93
              1.45
              1.13
            5/2/17
              2/1/16
              6/1/15
              6/1/14
              3/30/14
              12/12/13
              9/23/13
              2/14/13
              9/20/12
              6/18/11
              2/23/09






17




Louis
                Drapeau
            10/15/07
            **--**
            50,000(2)
            1.20
            10/15/17Lyle
                M. Bowman, Ph.D.
            5/2/07
              2/1/06
              6/1/05
              6/1/04
              3/30/04
              12/12/03
              9/23/03
              2/14/03
              9/20/02
              6/18/01
              2/23/99
            **--**
              38,229
              122,272
              35,812
              18,768
              25,000
              15,000
              25,000
              15,000
              15,000
              25,000
            80,000(1)
              41,771(3)
              52,728(4)
              4,188(5)
              1,232(6)
              --
              --
              --
              --
              --
              --
            1.59
              1.50
              0.63
              0.75
              0.88
              0.41
              0.63
              0.85
              0.93
              1.45
              1.13
            5/2/17
              2/1/16
              6/1/15
              6/1/14
              3/30/14
              12/12/13
              9/23/13
              2/14/13
              9/20/12
              6/18/11
              2/23/09David
                Heniges
            5/2/07
              2/1/06
              6/1/05
              6/1/04
              3/30/04
              12/12/03
              9/23/03
              2/14/03
              9/20/02
            **--**
              31,061
              87,337
              26,859
              14,076
              10,000
              5,000
              25,000
              75,000
            50,000(1)
              33,939(3)
              37,663(4)
              3,141(5)
              924(6)
              --
              --
              --
              --
            1.59
              1.50
              0.63
              0.75
              0.88
              0.41
              0.63
              0.85
              0.93
            5/2/17
              2/1/16
              6/1/15
              6/1/14
              3/30/14
              12/12/13
              9/23/13
              2/14/13
              9/20/12Sandra
                C. Heine
            5/2/07
              2/1/06
              6/1/05
              6/1/04
              3/30/04
              1/7/03
              9/20/02
              6/18/01
              9/17/99
              2/23/99
            **--**
              35,840
              104,804
              35,812
              18,768
              25,000
              15,000
              15,000
              15,000
              10,000
            70,000(1)
              39,160(3)
              45,196(4)
              4,188(5)
              1,232(6)
              --
              --
              --
              --
              --
            1.59
              1.50
              0.63
              0.75
              0.88
              0.70
              0.93
              1.45
              2.38
              1.13
            5/2/17
              2/1/16
              6/1/05
              6/1/14
              3/30/14
              1/7/13
              9/20/12
              6/18/11
              9/17/09
              2/23/09





(1)
      25%
      vest at 5/2/08, balance daily thru 5/2/11


(2)
      25%
      vest at 10/15/08, balance daily thru 10/15/11


(3)
      25%
      vest at 2/1/07, balance daily thru 2/1/10


(4)
      15%
      vest at 9/29/05, 25% vest at 6/1/06, balance daily thru 6/1/09


(5)
      25%
      vest at 6/1/05, balance daily thru 6/1/08


(6)
      25%
      vest at 3/30/05, balance daily thru 3/30/08




**OPTION
      EXERCISES AND STOCK VESTED - FISCAL 2007**




None
      of
      the Named Executive Officers exercised any stock options or held any stock
      awards that vested during 2007.




**POTENTIAL
      PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL**




On
      May 2,
      2007, the Compensation Committee approved the Company’s entering into a change
      in control agreement with Dr. Chandrasekaran, the Company’s Chief Executive
      Officer, in order to provide severance benefits to Dr. Chandrasekaran should
      his
      employment terminate in certain circumstances in connection with a change in
      control of the Company. Under this agreement, if, within 6 months before or
      12
      months after a change in control of the Company, the Company terminates Dr.
      Chandrasekaran’s employment without cause, Dr. Chandrasekaran terminates his
      employment for good reason or his employment terminates due to his death or
      disability, he would be entitled to the following payments and
      benefits:




18




·
            a
                cash lump sum payment equal to two times the sum of his annual base
                salary
                and annual target bonus opportunity in effect for the fiscal year
                in which
                the termination occurs (or, if no annual target bonus opportunity
                has been
                established for that fiscal year, the average annual bonus he received
                for
                the three fiscal years immediately preceding the fiscal year in which
                the
                termination occurs);




·
            full
                vesting of all equity-based awards granted by the Company to him
                that are
                outstanding and unvested as of the date of
                termination;




·
            for
                24 months following the termination, payment or reimbursement by
                the
                Company for the cost of the premiums charged to continue medical
                coverage
                under COBRA for Dr. Chandrasekaran and his eligible dependents and
                continued coverage under the Company’s life insurance plans at the same
                cost to Dr. Chandrasekaran as applied prior to his termination;
                and




·
            in
                the event that Dr. Chandrasekaran’s benefits are subject to excise taxes
                as being “excess parachute payments” as determined under Section 280G of
                the U.S. Internal Revenue Code, an additional payment by the Company
                so
                that the net amount of such payment (after taxes) received by Dr.
                Chandrasekaran is sufficient to pay the excise taxes
                due.




Dr.
      Chandrasekaran’s right to receive benefits under the change in control agreement
      is subject to his executing a release of claims in favor of the Company upon
      the
      termination of his employment. The terms “cause,” “good reason” and “change in
      control” as used above are each defined in the agreement.




The
      following chart presents the Company’s estimate of the amount of the benefits to
      which Dr. Chandrasekaran would have been entitled had his employment terminated
      on December 31, 2007 under the circumstances described above:




**Name**
            **Cash
                Severance**
              **($)**
            **Continuation
                of Benefits**
              **($)**
            **Equity
                Acceleration ($)**
            **Section
                280G Gross-Up ($)**S. KumarChandrasekaran,
                Ph.D.
            1,300,000**(1)**
            102,459
            36,156**(2)**
            514,232**(3)**





(1)
      Dr.
      Chandrasekaran did not have an annual target bonus opportunity in effect for
      2007. Accordingly, the bonus component of his cash severance for purposes of
      this calculation was determined based on his average annual bonus for
      2004-2006.




(2)
      This
      column reports the intrinsic value of the unvested portions of Dr.
      Chandrasekaran’s awards that would accelerate in the circumstances. For options,
      this value is calculated by multiplying the amount (if any) by which the closing
      price of the Company’s common stock on the last trading day of the fiscal year
      exceeds the exercise price of the option by the number of shares subject to
      the
      accelerated portion of the option.




(3)
      As
      noted above, severance benefits payable to Dr. Chandrasekaran may be eligible
      for a “gross up” payment for excise taxes imposed on “excess parachute payments”
under Section 280G of the U.S. Internal Revenue Code. This amount represents
      the
      Company’s estimate of the gross-up payment that would have been made to Dr.
      Chandrasekaran if his employment had terminated under the circumstances
      described above. For purposes of this calculation, the Company has assumed
      that
      his outstanding equity awards would be accelerated and terminated in exchange
      for a cash payment upon the change in control. The value of this acceleration
      (and thus the amount of the additional payment) would be slightly higher if
      the
      accelerated awards were assumed by the acquiring company rather than terminated
      upon the transaction.




In
      addition to the severance benefits described above, outstanding equity awards
      held by the Named Executive Officers and other participants in the 1994 Plan
      and
      the 2007 Plan may be subject to accelerated vesting in connection with certain
      corporate transactions as noted under “Grants of Plan-Based Awards -
      Description of Plan-Based Awards” above.




19




**Item
      12. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**




The
      following table sets forth certain information known to the Company regarding
      beneficial ownership of the Company’s Common Stock, as of March 31, 2008 unless
      otherwise noted 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 Named Executive Officers of the Company,
      (iii) each director and nominee for director at the Annual Meeting, and (iv)
      all
      current executive officers and directors as a group. Unless otherwise indicated,
      the principal address of each of the stockholders below is: c/o InSite Vision
      Incorporated, 965 Atlantic Avenue, Alameda, California 94501. Except as
      otherwise indicated, the Company believes that each of the beneficial owners
      of
      the Common Stock listed below has sole voting and investment power with respect
      to such shares, subject to community property laws, where applicable.
      Information for Pinto Technology Ventures, Visium Asset Management, LLC, Eli
      Jacobson, and Jonathan M.Glaser and the related individuals and entities of
      each
      of those who are identified below is based upon the most recent 13G or 13G/A
      filed by such persons with the SEC.




The
      percentage of beneficial ownership is calculated based on the 94,585,449 shares
      of Common Stock that were outstanding on March 31, 2008. This percentage also
      includes Common Stock of which such individual or entity had the right to
      acquire beneficial ownership of as of March 31, 2008 or within 60 days
      thereafter, including but not limited to upon the exercise of options and
      warrants; however, such Common Stock shall not be deemed outstanding for the
      purpose of computing the percentage owned by any other individual or entity.




20




**Beneficially
                Owned****Name
                of Beneficial Owner**
            
            **Number
                of Shares**
            **Percent
                of Class**Pinto
                Technology Ventures, LLP
              Pinto
                Technology Ventures GP, L.P
              Pinto
                TV GP Company LLC
              Matthew
                Crawford
              Evan
                Melrose
              c/o
                PTV Sciences
              1000
                Main Street, Suite 3250
              Houston,
                TX 77002
            
            10,516,504
                (1)
            10.83%Visium
                Asset Management, LLC
              Visium
                Long Bias Fund, LP
              Visium
                Balanced Fund, LP
              Visium
                Capital Management, LLC
              c/o
                Visium Asset Management, LLC
              950
                Third Avenue
              New
                York, NY 10022
              Visium
                Balanced Offshore Fund, Ltd.
              Visium
                Long Bias Offshore Fund, Ltd.
              c/o
                Morgan Stanley Fund Services (Cayman) Limited
              P.O.
                Box 2681GT
              Century
                Yard, 4th Floor, Cricket Square, Hutchins Drive
              Grand
                Cayman, Cayman Islands, British West Indies
              Atlas
                Master Fund, Ltd.
              c/o
                Walkers SPV Limited, Walker House, P.O. Box 908 GT
              George
                Town, Grand Cayman, Cayman islands, British West Indies
              Jacob
                Gottlieb
            
            8,199,194
                (2)
            8.64%Eli
                Jacobson
              125
                Broad Street, 32nd Floor
              New
                York, NY 10004
            
            5,537,166
                (3)
            5.83%Jonathan
                M. Glaser
              11601
                Wilshire Boulevard, Suite 2180
              Los
                Angeles, CA 90025
              Pacific
                Capital Management, Inc
              Pacific
                Assets Management, LLC
              Daniel
                Albert David
              100
                Drakes Landing, Suite 207
              Greenbrae,
                CA 94904
              JMG
                Capital Management, LLC
              JMG
                Capital Management, LLC
              Roger
                Richter
              One
                Sansome Street, 39thFloor
              San
                Francisco, CA 94104
            
            5,604,092
                (4)
            5.92%S.
                Kumar Chandrasekaran, Ph.D.
            
            2,570,942
                (5)
            2.66%John
                L. Mattana
            
            225,000
                (6)
            *Jon
                S. Saxe
            
            207,000
                (7)
            *Anders
                P. Wiklund
            
            200,000
                (8)
            *Mitchell
                H. Friedlaender, M.D.
            
            195,000
                (9)
            *Francis
                W. Chen
            
            -
            *Lyle
                M. Bowman, Ph.D.
            
            458,006
                (10)
            *Sandra
                C. Heine
            
            411,504
                (11)
            *David
                F. Heniges
            
            312,860
                (12)
            *Louis
                C. Drapeau
            
            40,000
            *All
                current executive officers and directors as a group (10
                persons)
            
            4,620,312
                (13)
            4.69%


__________




*  Less
      than
      one percent of the outstanding Common Stock.




21




(1)
      Information is based on the Schedule 13G filed with the SEC on August 21, 2006
      by Pinto Technology Ventures, L.P., Pinto Technology Ventures GP, L.P. and
      Pinto
      TV GP Company LLC (collectively, the “Pinto Entities”) and Matthew Crawford and
      Evan Melrose. The amount above includes 7,744,621 shares held by Pinto
      Technology Ventures, L.P. and 2,494,379 shares of Common Stock issuable upon
      the
      exercise of warrants. The Pinto Entities and Messrs. Crawford and Melrose share
      voting and dispositive power with respect to such shares. Messrs. Crawford
      and
      Melrose disclaim beneficial ownership in the shares held by the Pinto Entities,
      except to the extent of their pecuniary interest therein. In addition, the
      amount above includes 128,000 shares and 149,504 shares for which Mr. Crawford
      and Mr. Melrose, respectively, have sole voting and dispositive
      power.




(2)
      Information is based on the Schedule 13G filed with the SEC on July 11, 2007
      by
      Visium Balanced Fund, LP (“VBF”), Visium Long Bias Fund, LP (“VLBF”) ,
      Visium
      Balanced Offshore Fund, Ltd. (“VBFO”), Visium Long Bias Offshore Fund, Ltd.
      (“VLBFO”), Visium Capital Management, LLC (“VCM”), Visium Asset Management, LLC
      (“VAM”), Atlas Master Fund, Ltd. (“AMF”) and Jacob Gottlieb. By virtue of its
      position as investment advisor to each of VBF, VLBF, VBFO and VLBFO as well
      as
      managing an account for AMF, VAM may be deemed to beneficially own the 8,199,194
      shares of Common Stock beneficially owned, in the aggregate, by VBF, VLBF,
      VBFO
      and VLBFO as well as the shares of Common Stock managed by AMF. By virtue of
      its
      position as General Partner to each of VBF and VLBF, VCM may be deemed to
      beneficially own the 1,593,062 shares of Common Stock beneficially owned by
      VBF
      and VLBF. By virtue of his position as the principal of VAM and the sole
      managing member of VCM, Dr. Gottlieb may be deemed to beneficially own the
      8,199,194 shares of Common Stock beneficially owned by VAM.




(3)
      Information is based on the Schedule 13G/A filed with the SEC on February 14,
      2008 by Eli Jacobson.




(4)
      Information is based on the Schedule 13G/A filed with the SEC on February 14,
      2008 by Jonathan M. Glaser, Pacific Capital Management, Inc. (“PCM”), Pacific
      Assets Management, LLC “(PAM”), JMG Capital Management, Inc. (“JMGI”), JMG
      Capital Management, LLC (“JMG”), Daniel Albert David and Roger Richter. The
      amount above includes 150,000 shares for which Mr. Glaser has sole voting and
      sole dispositive power, 5,454,092 shares for which Mr. Glaser has shared voting
      power and dispositive power, and 2,727,046 shares for which PCM, PAM, JMGI,
      JMG,
      Mr. David and Mr. Richter each have shared voting power and dispositive
      power.




(5)
      Includes 2,225,917 shares issuable upon the exercise of stock options
      exercisable on March
      31 ,
      2008 or
      within 60 days thereafter.




(6)
      Includes 165,000 shares issuable upon the exercise of stock options exercisable
      on March 31, 2008 or within 60 days thereafter.




(7)
      Includes 170,000 shares issuable upon the exercise of stock options exercisable
      on March 31, 2008 or within 60 days thereafter.




(8)
      Includes 165,000 shares issuable upon the exercise of stock options exercisable
      on March 31, 2008 or within 60 days thereafter.




(9)
      Includes 165,000 shares issuable upon the exercise of stock options exercisable
      on March 31, 2008 or within 60 days thereafter.




(10)
      Includes 385,618 shares issuable upon the exercise of stock options exercisable
      on March 31, 2008 or within 60 days thereafter.




(11)
      Includes 320,356 shares issuable upon the exercise of stock options exercisable
      on March 31, 2008 or within 60 days thereafter.




(12)
      Includes of 309,510 shares issuable upon the exercise of stock options
      exercisable on March 31, 2008 or within 60 days thereafter.




(13)
      Includes 3,906,401 shares issuable upon the exercise of stock options
      exercisable on March 31, 2008 or within 60 days thereafter.




22




**EQUITY
      COMPENSATION PLAN INFORMATION**




The
      Company currently maintains three equity compensation plans: the 2007
      Performance Incentive Plan (the “2007 Plan”), the 1994 Stock Option Plan (the
“1994 Plan”) and the Amended and Restated Employee Stock Purchase Plan (the
“ESPP”). These plans have each been approved by the Company’s stockholders.




The
      following table sets forth, for each of the Company’s equity compensation plans,
      the number of shares of common stock subject to outstanding options, the
      weighted-average exercise price of outstanding options, and the number of shares
      remaining available for future award grants as of December 31,
      2007.




**Plan
                category**
              
              
              **Number
                    of shares**
                  **of
                    Common Stock**
                  **to
                    be issued upon**
                  **exercise
                    of**
                  **outstanding
                    options**
              
              
              **Weighted-**
                **average
                  exercise**
                **price
                  of**
                **outstanding
                  options**
              
              
              **Number
                  of shares of**
                **Common
                  Stock**
                **remaining
                  available for**
                **future
                  issuance under**
                **equity
                  compensation**
                **plans
                  (excluding shares**
                **reflected
                  in the first**
                **column)**Equity
                  compensation plans
                approved
                  by stockholders
              
              
              7,003,8551
              
              $
              1.09
              
              
              2,538,2082Equity
                  compensation plans
                not
                  approved by stockholders
              
              
              N/A
              
              
              N/A
              
              
              N/ATotal
              
              
              7,003,855
              
              $
              1.09
              
              
              2,538,208




1 Of these
      shares, 220,000 were subject to options then outstanding under the 2007 Plan,
      and 6,783,855 were subject to options then outstanding under the 1994 Plan.
      No
      new awards may be granted under the 1994 Plan.




2 This
      number is presented after giving effect to purchases under the ESPP for the
      purchase period that ended December 31, 2007. Of the aggregate number of shares
      that remained available for future issuance, 1,995,074 **** shares
      were available under the 2007 Plan, and 543,134 shares were available under
      the
      ESPP. Subject to certain express limits of the 2007 Plan, shares available
      for
      award purposes under the 2007 Plan generally may be used for any type of award
      authorized under that plan including options, stock appreciation rights, and
      other forms of awards granted or denominated in shares of the Company’s common
      stock or units of our common stock including, without limitation, stock bonuses,
      restricted stock, stock units and performance shares.




**Item
      13. Certain Relationships and Related Transactions and Director
      Independence**




*Related* *Transactions*




The
      Company’s Restated Certificate of Incorporation, or Certificate, provides for
      indemnification of directors and officers of the Company to the fullest extent
      permitted by the General Corporation Law of the State of Delaware, or Delaware
      Law. Each of the current directors and executive officers of the Company has
      entered into separate indemnification agreements with the Company. In addition,
      the Certificate limits the liability of directors to the Company or its
      stockholders to the fullest extent permitted by Delaware Law.




On
      February 15, 2007, in connection with the pay-off and redemption of the
      Company’s senior secured notes issued in December 2005 and January 2006, the
      Company redeemed for cash a senior secured note with an aggregate principal
      amount of $231,000 that was issued to Dr. Chandrasekaran, our chief executive
      officer and a member of our board of directors. The total accrued interest
      paid
      under such note was $15,797.




23




Each
      of
      the transactions set forth above were approved by the Board and the Board
      believes that each such transaction was made on terms no less favorable
      to us than could have been obtained from unaffiliated third parties.
      Pursuant to recently adopted American Stock Exchange regulations, our
      corporate governance policies and our revised Audit Committee charter, all
      future related-party transactions will be reviewed and approved by the Audit
      Committee.




*Director
      Independence*




The
      Board
      has determined that each of Messrs. Chen, Friedlaender, Mattana, Saxe and
      Wiklund is an “independent director” as that term is defined under the American
      Stock Exchange listing standards.




**Item
      14. Principal Accounting Fees and Services**




The
      following table shows the fees paid or accrued by the Company for the
      audit and other services provided by our independent registered public
      accounting firm Burr, Pilger & Mayer LLP, or BPM, for fiscal years 2007
      and 2006 (in thousands):




****
              ****
              **2007**
              ****
              ****
              **2006**Audit
                    Fees(1)
              
              $
              410
              
              $
              347Audit-related
                  Fees(2)
              
              
              -
              
              
              7Tax
                  Fees
              
              
              -
              
              
              -All
                  Other Fees
              
              
              -
              
              
              -Total
              
              $
              410
              
              $
              354
  (1)
              Audit
                  fees represent fees for professional services provided in connection
                  with
                  the audit of our annual consolidated financial statements, review
                  of our
                  quarterly condensed consolidated financial statements and services
                  that
                  are normally provided by Burr, Pilger & Mayer LLP in connection with
                  statutory and regulatory filings or engagements.(2)
              Audit-related
                  fees consist of assurance and related services that are reasonably
                  related
                  to the performance of the audit or review of our consolidated financial
                  statements and are not reported above under audit
                  fees.




*Independence
      of Independent Registered Public Accounting Firm and Pre-Approval Policy*





Our
      Audit
      Committee has determined that the provision by BPM of non-audit services is
      compatible with maintaining the independence of BPM. The Audit Committee has
      adopted a policy for the pre-approval of audit and non-audit services rendered
      by our independent registered public accounting firm. The policy generally
      pre-approves specified services in the defined categories of audit services,
      audit-related services and tax services for up to $25,000. Pre-approval may
      also
      be given as part of the Audit Committee's approval of the scope of the
      engagement of the independent registered public accounting firm or on an
      individual explicit case-by-case basis before the independent registered public
      accounting firm is engaged to provide each service. The pre-approval of services
      may be delegated to one or more of the Audit Committee's members, but the
      decision must be reported to the full Audit Committee at its next scheduled
      meeting. The Audit Committee has delegated to Mr. Jon Saxe the ability to
      pre-approve audit-related fees and services on behalf of the Audit Committee
      in
      accordance with Rule 10A-3 under the Securities Exchange Act of 1934. During
      fiscal 2007, all services provided by BPM were pre-approved by the Audit
      Committee.




24




**PART
      IV**




**Item
      15. Exhibits, Financial Statement Schedules**




(3)
            Exhibits  No.
            Exhibit
              Table  10.1
            Non-Employee
                Director Option Grant Program.




10.2
            Offer
                Letter with Louis C. Drapeau, dated September 24,
                2007.




31.1
            Certification
                of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a)
                promulgated under the Securities Exchange Act of 1934, as
                amended.




31.2
            Certification
                of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a)
                promulgated under the Securities Exchange Act of 1934, as
                amended.




**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.






Dated:
              April 29,
              2008INSITE
              VISION
              INCORPORATEDBy:
            /s/
              Louis DrapeauLouis
                Drapeau
              Chief
                Financial Officer
              (Principal
                Financial Officer)





25




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.




Name
            
            Capacity
            Date/s/
              *
            
            Chairman
                  of the Board,President
                  and
            April
                29, 2008S.
                Kumar Chandrasekaran, Ph.D.
            
            Chief
Executive
                Officer/s/*
            
            Director
            April
                29, 2008Francis
                W. Chen, Ph.D./s/*
            
            Director
            April
                29, 2008Mitchell
                H. Friedlaender, M. D./s/*
            
            Director
            April
                29, 2008John
                L. Mattana/s/*
            
            Director
            April
                29, 2008Jon
                S. Saxe/s/*
            
            Director
            April
                29, 2008Anders
                P. Wiklund




*
      S.
      Kumar Chandrasekaran, Ph.D., by signing his name hereto, does sign this document
      on behalf of the above noted individuals, pursuant to powers of attorney duly
      executed by such individuals, which have been filed with the original Annual
      Report on Form 10-K filed with the SEC on March 17, 2008.




By:




/s/
      Louis
      Drapeau


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


Louis
      Drapeau


Attorney-in-fact




26


**EXHIBIT
        INDEX**
  **Number**
              
              **Exhibit
                  Table**10.1
              
              Non-Employee
                  Director Option Grant Program.10.2
              
              Offer
                  Letter with Louis C. Drapeau, dated September 24, 2007.31.1
              
              Certification
                  of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a)
                  promulgated under the Securities Exchange Act of 1934, as
                  amended.31.2
              
              Certification
                  of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a)
                  promulgated under the Securities Exchange Act of 1934, as
                  amended.




27