VISION SCIENCES INC /DE/, DEF 14A, 1996-07-10

VISION SCIENCES INC /DE/
DEF 14A, 1996-07-10

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_]CONFIDENTIAL, FOR USE OF THE
[_] Preliminary Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

Vision-Sciences, Inc.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)

Vision-Sciences, Inc.
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:

Notes:
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VISION-SCIENCES, INC.
SIX STRATHMORE ROAD
NATICK, MASSACHUSETTS 01760

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY, AUGUST 19, 1996

The Annual Meeting of Stockholders of Vision-Sciences, Inc. (the "Company")
will be held at the offices of Hale and Dorr, 26th Floor, 60 State Street,
Boston, Massachusetts on Monday, August 19, 1996 at 10:00 a.m., local time, to
consider and act upon the following matters:

1. To elect Katsumi Oneda, Fred E. Silverstein, M.D. and Janice B. Wyatt,
as Class II Directors, to serve for a three-year term.

2. To ratify the selection of Arthur Andersen LLP as the Company's
independent auditors for the current fiscal year.

3. To transact such other business as may properly come before the
meeting or any adjournment thereof.

Stockholders of record at the close of business on July 5, 1996 will be
entitled to notice of and to vote at the meeting or any adjournment thereof.

By Order of the Board of Directors,

Steven A. Barner,
Secretary

Natick, Massachusetts
July 12, 1996

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE
PROXY IS MAILED IN THE UNITED STATES.
<PAGE>

VISION-SCIENCES, INC.
SIX STRATHMORE ROAD
NATICK, MASSACHUSETTS 01760

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 19, 1996

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Vision-Sciences, Inc. (the "Company") for
use at the Annual Meeting of Stockholders to be held on August 19, 1996 and at
any adjournment of that meeting. All proxies will be voted in accordance with
the stockholders' instructions, and if no choice is specified, the proxies
will be voted in favor of the matters set forth in the accompanying Notice of
Meeting. Any proxy may be revoked by a stockholder at any time before its
exercise by delivery of written revocation or a subsequently dated proxy to
the Secretary of the Company or by voting in person at the Annual Meeting.

The Company's Annual Report for the fiscal year ended March 31, 1996 was
mailed to stockholders, along with these proxy materials, on or about July 12,
1996.

A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
MARCH 31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC"),
EXCEPT FOR EXHIBITS, WILL BE FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON
WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY, VISION-SCIENCES, INC., SIX
STRATHMORE ROAD, NATICK, MASSACHUSETTS 01760.

VOTING SECURITIES AND VOTES REQUIRED

At the close of business on July 5, 1996, the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, there were outstanding and entitled to vote an aggregate of
13,002,699 shares of Common Stock of the Company, $.01 par value ("Common
Stock"), constituting all of the voting stock of the Company. Holders of
Common Stock are entitled to one vote per share. All references in this Proxy
Statement to past transactions in the Company's Common Stock reflect the one-
for-four reverse split of the Common Stock effected on June 3, 1992.

The holders of a majority of the shares of Common Stock outstanding and
entitled to vote at the Annual Meeting shall constitute a quorum for the
transaction of business at the Annual Meeting. Shares of Common Stock
represented in person or by proxy (including shares which abstain or do not
vote with respect to one or more of the matters presented for stockholder
approval) will be counted for purposes of determining whether a quorum exists
at the Annual Meeting.

The affirmative vote of the holders of a plurality of the shares of Common
Stock voting on the matter is required for the election of directors. The
affirmative vote of the holders of a majority of the shares of Common Stock
voting on the matter is required for the ratification of the selection of
Arthur Andersen, LLP as the Company's independent auditors for the current
fiscal year.

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Shares that abstain from voting as to a particular matter, and shares held
in "street name" by a broker or nominee who indicates on a proxy that he or
she does not have discretionary authority to vote such shares as to a
particular matter, will not be counted as votes in favor of such matter, and
also will not be counted as shares voted on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on
matters, such as the ones presented for stockholder approval at this Annual
Meeting, that require the affirmative vote of a certain percentage of the
shares voting on the matter.

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS

The following table sets forth the beneficial ownership of the Company's
Common Stock as of April 30, 1996 (i) by each person who is known by the
Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) by each director or nominee for director, (iii) by each of the
executive officers named in the Summary Compensation Table set forth under the
caption "Executive Compensation" below (the "Senior Executives"), and (iv) by
all current directors and executive officers as a group:

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<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIALLY OUTSTANDING
BENEFICIAL OWNER OWNED(1) COMMON STOCK(2)
- - ------------------- ------------ ---------------
<S> <C> <C>
Robert A. LaRoche(8)............................... 10,000 *
c/o Vision-Sciences, Inc.
Six Strathmore Road
Natick, MA 01760
Edward W. Benecke(9)............................... 8,000 *
887 Insbruck
Wright City, MO 63390
All current directors and executive officers
as a group (nine persons)(10)..................... 5,623,683 42.7%
</TABLE>
- - --------
*Less than 1% of the shares of Common Stock outstanding.
(1) Each person has sole investment and voting power with respect to the
shares indicated, except as otherwise noted. The number of shares of
Common Stock beneficially owned by each director, nominee for director or
executive officer is determined under the rules of the SEC and the
information is not necessarily indicative of beneficial ownership for any
other purpose. The inclusion herein of any shares as beneficially owned
does not constitute an admission of beneficial ownership. Any reference
in these footnotes to shares subject to stock options held by the person
in question refers to stock options held by such person that are
currently exercisable or exercisable within 60 days after April 30, 1996.
(2) The number of shares deemed outstanding includes 12,972,699 shares
outstanding as of April 30, 1996 and any shares subject to stock options
held by the person or entity in question that are currently exercisable
or exercisable within 60 days after April 30, 1996.
(3) Includes 125,000 shares subject to stock options.
(4) Includes 50,000 shares and 42,500 shares held of record and beneficially
owned by Mr. Pell's wife and child, respectively. Mr. Pell disclaims
beneficial ownership of these shares.
(5) Includes 12,000 shares subject to stock options. Also includes 375,000
shares owned by AmHS Purchasing Partners, Ltd. Mr. Nydam is Vice-Chairman
of this partnership and the Executive Vice-President of the general
partner of this partnership, and may therefore be deemed to be a
beneficial owner of these shares. Mr. Nydam disclaims beneficial
ownership of the shares owned by this partnership.
(6) Comprised of 12,000 shares subject to stock options.
(7) Comprised of 12,000 shares subject to stock options.
(8) Comprised of 10,000 shares subject to stock options.
(9) Comprised of 8,000 shares subject to stock options.
(10) Includes, as to all directors and executive officers as a group, 189,000
shares subject to stock options that are currently exercisable or
exercisable within 60 days after April 30, 1996. Also includes shares for
which certain individuals have disclaimed beneficial ownership, as set
forth in the above footnotes.

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<PAGE>

ELECTION OF DIRECTORS

The Company's Board of Directors is divided into three classes, with members
of each class holding office for staggered three-year terms. There are
currently two Class I Directors, whose terms expire at the 1998 Annual Meeting
of Stockholders, three Class II Directors, whose terms expire at the 1996
Annual Meeting of Stockholders, and two Class III Directors, whose terms
expire at the 1997 Annual Meeting of Stockholders (in all cases subject to the
election of their successors and to their earlier death, resignation or
removal).

The persons named in the enclosed proxy will vote to elect Katsumi Oneda,
Fred E. Silverstein, M.D. and Janice B. Wyatt as Class II Directors, unless
authority to vote for the election of either of the nominees is withheld by
marking the proxy to that effect. Messrs. Oneda and Silverstein and Ms. Wyatt
are currently Class II Directors of the Company. Each nominee has indicated
such nominee's willingness to serve, if elected, but if any of them should be
unable or unwilling to stand for election, proxies may be voted for a
substitute nominee designated by the Board of Directors.

Set forth below are the name and certain information with respect to each
director of the Company, including the three nominees for Class II Director.

CLASS II DIRECTORS

KATSUMI ONEDA, age 58, a co-founder of the Company, has been President,
Chief Executive Officer and Chairman of the Board of Directors of the Company
since October 1993. He served as Vice-Chairman of the Board of Directors of
the Company from May 1992 to October 1993, as Honorary Chairman of the Board
of Directors from October 1991 to October 1993 and as Chairman of the Board of
Directors from September 1990 to October 1991. From 1979 to December 1990, he
was President and Chief Executive Officer of Pentax Precision Instrument
Corporation. Mr. Oneda is a director of several private companies and of
InStent, Inc., a public company. He has been a director of the Company since
1987.

FRED E. SILVERSTEIN, M.D., age 54, served as a Professor of Medicine at the
University of Washington from July 1989 to June 1994 and a partner of Frazier
and Company beginning in July 1994. Dr. Silverstein is a prominent
practitioner and author in the field of gastroenterology. Dr. Silverstein is a
director of Diametrics Medical Inc., a medical device company, and a director
of the Washington Technology Center in Seattle. He has been a director of the
Company since 1990.

JANICE B. WYATT, age 48, has been a partner of Korn Ferry International
Executive Search Consultants, a healthcare executive consulting firm, since
January 1994. She was President and Chief Executive Officer of MetroWest
Medical Center, a 508-bed community teaching hospital, from January 1992 to
April 1993. From December 1985 to December 1991, Ms. Wyatt was President of
Leonard Morse Hospital and Health Care Corp., a 259-bed community teaching
hospital which merged with Framingham Union Hospital to create MetroWest
Medical Center in January 1992. Prior to that, she was hospital director of
the University of Massachusetts Medical Center. She has been a director of the
Company since 1993.

CLASS I DIRECTORS

LEWIS C. PELL, age 53, a co-founder of the Company, has been Vice-Chairman
of the Board of Directors of the Company since May 1992. Mr. Pell has served
as a director of Heart Technology, Inc., a publicly-held

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medical device company. Mr. Pell is a founder or co-founder of a number of
other privately-held medical device companies, including Biosense, Inc.,
Influence, Inc., Flexiclave, Inc., iSight, Inc., Vitality Biotechnologies,
Inc. and of InStent, Inc., a public company. Mr. Pell was co-founder and a
director of Versaflex Delivery Systems, Inc., which was sold in 1988 to
Medtronic, Inc. In 1983, Mr. Pell co-founded American Endoscopy, Inc. and
served as a director until it was sold in 1986 to C.R. Bard, Inc. In September
1979, he co-founded Pentax Precision Instrument Corporation and served as
Executive Vice President and director until December 1990, when it was sold to
Asahi Optical Company.

EDWARD W. BENECKE, age 53, has been the President and owner of Medical
Contracts Associates and an associate at The Medalliance, both consulting
firms, since June, 1994. From 1968 to 1994, Mr. Benecke served in various
positions with Johnson & Johnson, most recently as Vice President of
Marketing. Mr. Benecke is a director of InnerDyne Medical, Inc., a medical
device company. He has been a director of the Company since 1994.

CLASS III DIRECTORS

KENNETH W. ANSTEY, age 50, has been Chief Executive Officer of Biofield,
Corp., a medical device company, since December 1995. From August 1991 to
December 1995, Mr. Anstey served as President and Chief Executive Officer of
Mitek Surgical Products, Inc., a medical device company. From 1989 to 1991,
Mr. Anstey served in various capacities at subsidiaries of Bristol-Meyers
Squibb Company, including as President of ConvaTec, Inc., a manufacturer of
ostomy and surgical products. Mr. Anstey is also a director of InStent, Inc.,
Cell Pro Inc. and Spine Tech, Inc. He has been a director of the Company since
1993.

WILLIAM J. NYDAM, age 46, has been Executive Vice President of Premier Inc.
since its merger with American Healthcare Systems, a healthcare company, in
January 1996. Mr. Nydam previously served as Chief Operating Officer of
American Healthcare Systems from March 1992 to January 1996 and was Chief
Financial Officer of that company from January 1986 to March 1992. He has been
a director of the Company since 1992.

Executive officers of the Company are generally elected by the Board of
Directors on an annual basis and serve at the Board's discretion. No family
relationships exist among any of the executive officers or directors of the
Company.

BOARD AND COMMITTEE MEETINGS

The Company has a standing Audit Committee of the Board of Directors, which
reviews the Company's independent auditors' performance in the annual audit,
reviews auditors' fees, discusses the Company's internal accounting control
policies and procedures and considers and recommends the selection of the
Company's independent auditors. The Audit Committee met one time during the
fiscal year ended March 31, 1996. The current Audit Committee members are Dr.
Silverstein, Messrs. Nydam and Benecke and Ms. Wyatt.

The Company has a standing Compensation Committee of the Board of Directors,
which sets the compensation levels of executive officers of the Company
(subject to review by the Board of Directors), provides recommendations to the
Board regarding compensation programs of the Company, administers the
Company's 1990 Stock Option Plan (the "1990 Option Plan") and authorizes
option grants under the 1990 Option Plan to all employees other than the
officers of the Company who are reporting persons for purposes of Section 16
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Compensation Committee acted

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<PAGE>

by written action seven times during the fiscal year ended March 31, 1996. The
current members of the Compensation Committee are Messrs. Anstey, Nydam and
Benecke and Ms. Wyatt.

The Board of Directors met four times during the fiscal year ended March 31,
1996. Each incumbent director attended at least 75% of the aggregate of the
number of Board meetings and the number of meetings held by all committees on
which he or she then served.

DIRECTOR COMPENSATION

The Company's outside directors (currently, Messrs. Anstey, Benecke, Nydam
and Ms. Wyatt) receive an annual director's fee in the amount of $10,000
payable quarterly. Directors are reimbursed for certain Company-related travel
expenses.

Pursuant to the Company's 1993 Director Option Plan (the "1993 Director
Plan"), each person who was an outside director on August 16, 1993, the date
that the 1993 Director Plan was approved by the Company's stockholders, was
granted a nonstatutory option to purchase 20,000 shares of the Company's
Common Stock at a price equal to $11.625 per share (the fair market value at
time of grant), which option will become exercisable over a four-year period
from the date of grant with one-fifth of the option being exercisable on the
date of grant and an additional one-fifth becoming exercisable on each of the
first, second, third and fourth anniversaries of the date of grant. In
addition to the 20,000 share option grant described above, each outside
director whose option shares are fully vested is granted a nonstatutory stock
option on the date that all such shares become fully vested to purchase 20,000
shares of the Company's Common Stock at a price equal to the fair market value
at the time of grant, which option shall become exercisable over a four-year
period from the date of grant as set forth above. Each outside director
initially elected to the Board of Directors after August 16, 1993 will receive
an option to purchase 20,000 shares of Common Stock at an exercise price equal
to the fair market value of the Common Stock on the date of grant.

The Company is party to a consulting agreement with Dr. Silverstein, a
director of the Company. Under the agreement, Dr. Silverstein provides
consulting services to the Company with respect to certain matters concerning
sheathed endoscopic products for a two-year term ending on June 30, 1997. Dr.
Silverstein also agreed, as part of the consulting agreement, that he would
not, during the term of the consulting agreement and for two years thereafter,
provide consulting services to, accept employment with, or render other
services to, any business or entity or individual engaged in the design,
development or manufacture of sheathed endoscopic products.

6
<PAGE>

EXECUTIVE COMPENSATION

Summary Compensation

The following table sets forth certain information concerning the
compensation, for the fiscal years indicated, of the Company's Chief Executive
Officer and the Company's three other most highly compensated executive
officers during the fiscal year ended March 31, 1996 (the "Senior
Executives").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------------
ANNUAL AWARDS
NAME AND FISCAL COMPENSATION NO. OPTION ALL OTHER
PRINCIPAL POSITION(1) YEAR SALARY(2) OF SHARES COMPENSATION(3)
--------------------- ------ ------------ ---------- ---------------
<S> <C> <C> <C> <C>
Katsumi Oneda(4)................ 1996 $194,718 -- $ --
President, Chief Executive 1995 193,386 -- --
Officer and Chairman of
the Board of Directors 1994 148,419 125,000 --
Robert A. LaRoche(5)............ 1996 109,231 15,000 1,638
Lewis C. Pell................... 1996 109,200 -- 1,638
Vice Chairman of the Board of 1995 114,240 -- 1,714
Directors
1994 109,149 -- --
Alan I. West.................... 1996 108,227 -- --
Former Vice President 1995 137,700 -- 2,066
1994 129,462 20,000 1,857
</TABLE>
- - --------
(1) The rules of the SEC require that this table, the stock option grant table
and the stock option exercise table which follow, present information
concerning the Company's Chief Executive Officer as of March 31, 1996, the
Company's fiscal year-end, any other person who served as the Company's
Chief Executive Officer at any time during the fiscal year ended March 31,
1996 and the Company's four other most highly compensated executive
officers (determined by reference to total annual salary and bonus earned
by such officers) whose total salary and bonus exceeded $100,000 for the
fiscal year ended March 31, 1996. Because the Company had only three other
executive officers whose compensation exceeded $100,000 for the fiscal
year ended March 31, 1996, this table and the two tables that follow
present compensation information only for the Chief Executive Officer and
such other three executive officers.
(2) In accordance with the rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted because such
perquisites and other personal benefits constituted less than the lesser
of $50,000 or 10% of the total annual salary and bonus for the Senior
Executive.
(3) Consists of Company contributions to 401(k) Plan.
(4) $97,500 of Mr. Oneda's 1996 salary has been accrued and will be paid to
Mr. Oneda at such time as the Company generates a positive cash flow.
(5) Mr. LaRoche joined the Company in July 1994 and became an executive
officer of the Company during fiscal 1996.

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Option Grants

The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended March 31, 1996 to each of the
Senior Executives.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL
SECURITIES GRANTED RATES OF SHARE
UNDERLYING TO EXERCISE PRICE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM(1)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#) YEAR ($) DATE 5%($) 10%($)
---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Katsumi Oneda........... -- -- -- -- -- --
Robert A. LaRoche....... 5,000 1.8% $3.125 3/29/06 $ 9,826 $ 24,902
10,000 3.6% $1.875 12/21/05 $ 11,792 $ 29,883
Lewis C. Pell........... -- -- -- -- -- --
Alan I. West............ -- -- -- -- -- --
</TABLE>
- - --------
(1) These columns show the hypothetical gains or option spreads of the options
granted based on the fair market value of the Common Stock on the date of
grant and assumed annual compound share appreciation rates of 5% and 10%
over the full term of the options. The assumed rates of appreciation are
mandated by the rules of the SEC and do not represent the Company's
estimate or projection of future stock prices. Actual gains, if any, on
option exercises will depend on the timing of such exercise and the future
performances of the Company's Common Stock. Values shown are net of the
option exercise price, but do not include deductions for taxes or other
expenses associated with the exercise.

Option Exercises and Holdings

The following table sets forth certain information concerning each exercise
of a stock option during the fiscal year ended March 31, 1996 by each of the
Senior Executives, and the number and value of unexercised options held by
each of the Senior Executives on March 31, 1996.

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

<TABLE>
<CAPTION>
NUMBER OF
SHARES SUBJECT
TO UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Katsumi Oneda........... -- -- 125,000 -- -- --
Robert A. LaRoche....... -- -- 10,000 45,000 $12,500 --
Lewis C. Pell........... -- -- -- -- -- --
Alan I. West............ 40,000 $42,750 -- -- -- --
</TABLE>
- - --------
(1) Based on the fair market value of the Common Stock on March 29, 1996
($3.125 per share), less the option exercise price.

8
<PAGE>

AGREEMENTS WITH SENIOR EXECUTIVES

The Company does not have any employment contracts, termination of
employment or change in control arrangements with any of the Senior
Executives.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company leases its 25,000 square foot facility in Orangeburg, New York
from J&J Associates, Inc. under a lease due to expire in August 1995, subject
to renewal or extension. Messrs. Oneda and Pell together own 50% of J&J
Associates. During the fiscal year ended March 31, 1996, the Company paid an
aggregate of $298,870 to J&J Associates under this lease. The Company believes
that the terms of this lease are at least as favorable to the Company as could
have been obtained from an unaffiliated third party.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On June 6, 1995, the Company issued 320,000 shares of its Common Stock to
each of Messrs. Oneda and Pell. The shares of Common Stock were sold to
Messrs. Oneda and Pell in a private transaction at a price per share equal to
the average closing price of the Company's Common Stock on the Nasdaq National
Market during the ten trading day period ended May 31, 1995.

On December 27, 1995, the Company issued 987,654 shares of its Common Stock
to each of Messrs. Oneda and Pell. The shares of Common Stock were sold to
Messrs. Oneda and Pell in a private transaction at a price per share equal to
the average closing price of the Company's Common Stock on the Nasdaq National
Market during the ten trading day period ended December 26, 1995.

See "Compensation Committee Interlocks and Insider Participation" above for
information relating to a business relationship between the Company and an
entity jointly owned by Messrs. Oneda and Pell.

The Company has a policy that transactions, if any, between the Company and
its officers, directors or other affiliates will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties and will
be approved by a majority of the members of the Board of Directors and by a
majority of the disinterested members of the Board of Directors; and further,
that any loans by the Company to its officers, directors or other affiliates
must be for bona fide business purposes only.

COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION

The Company's executive compensation program is administered by the
Compensation Committee, which is currently comprised of Kenneth Anstey,
William J. Nydam, Edward W. Benecke and Janice B. Wyatt. The Compensation
Committee is responsible for determining the compensation package of each
executive officer and recommending it to the Board of Directors. In the fiscal
year ended March 31, 1996, the Board of Directors did not modify or reject in
any material way any action or recommendation of the Compensation Committee.
In making decisions regarding executive compensation, the Compensation
Committee considers the input of the Company's other directors, including the
input of Mr. Oneda with respect to the compensation of the Company's executive
officers other than Mr. Oneda.

Policies and Philosophy

The Company's executive compensation program is structured and administered
to achieve three broad goals in a manner consistent with stockholder
interests. First, the Compensation Committee structures executive

9
<PAGE>

compensation programs and decisions regarding individual compensation in a
manner that the Compensation Committee believes will enable the Company to
attract and retain key executives. Second, the Compensation Committee
establishes compensation programs that are designed to reward executives for
the achievement of specified business objectives of the Company, which are
often targeted to the individual executive's particular business unit.
Finally, the Compensation Committee designs the Company's executive
compensation programs to provide executives with long-term ownership
opportunities in the Company in an attempt to align executive and stockholder
interests.

The Company is still in the development stage and is not yet generating
significant revenues from the sales of its new products that incorporate its
disposable Endosheath technology. Accordingly, in evaluating both individual
and corporate performance for purposes of determining salary levels and stock
option grants, the Compensation Committee currently places significant
emphasis on the progress and success of the Company with respect to matters
such as product development, including product design and manufacturing, and
enhancement of the Company's patent and licensing position as well as on the
Company's overall financial performance and sales by product line.

Executive Officer Compensation in Fiscal 1996

The compensation programs for the Company's executives established by the
Compensation Committee consist of two elements based upon the foregoing
objectives: (i) base salary and benefits competitive with the marketplace; and
(ii) stock-based equity incentive in the form of participation in the 1990
Option Plan. The Compensation Committee believes that providing a base salary
and benefits to its executive officers that are competitive with the
marketplace enables the Company to attract and retain key executives. The
Compensation Committee generally provides executive officers discretionary
stock option awards to reward them for achieving specified business objectives
and to provide them with long-term ownership opportunities. In evaluating the
salary level and equity incentives to award to each current executive officer,
the Compensation Committee examines the progress which the Company has made in
areas under the particular executive officer's supervision, such as
manufacturing or sales, and the overall performance of the Company. The
Compensation Committee does not establish specific goals or milestones which
automatically trigger additional compensation for the executive officers but
rather decides on each executive officer's compensation after taking into
account actions by such officer to accomplish established Company goals. The
Compensation Committee decided not to award bonuses for fiscal 1996 based on
the overall financial performance of the Company during the year.

In determining the salary of each executive officer, including the Senior
Executives, the Compensation Committee and the Board of Directors consider
numerous factors such as (i) the individual's performance, including the
expected contribution of the executive officer to the Company's goals, (ii)
the Company's long-term needs and goals, including attracting and retaining
key management personnel and (iii) the Company's competitive position,
including data on the payment of executive officers at comparable companies
that are familiar to members of the Compensation Committee. The companies
described under the caption "Comparative Stock Performance" below constitute a
much broader group of companies at various stages of development than those
considered by the Compensation Committee to compare compensation levels of the
Company's executive officers. Rather, the companies used by the Compensation
Committee to compare executive compensation are companies of which the members
of the Compensation Committee have specific knowledge and are considered as of
the time those companies were at similar stages of development as the Company.
To the extent determined to be appropriate, the Compensation Committee also
considers general economic conditions and the historic compensation levels of
the individual. The Compensation Committee believes that the salary levels of
its executive officers are in the middle third when compared to the
compensation levels of companies at similar stages of development as the
Company.

10
<PAGE>

Stock option grants made pursuant to the 1990 Option Plan in the fiscal year
ended March 31, 1996 were designed to make a portion of the overall
compensation of the executive officers receiving such awards vary depending
upon the performance of the Company's Common Stock. Such grants, as a result
of vesting arrangements applicable to such stock options, also serve as a
means of retaining these individuals. In making stock option grants to
executives, the Compensation Committee considers a number of factors,
including the performance of the executive, the responsibilities of the
executive, and the executive's current stock or option holdings.

Compensation of the Chief Executive Officer in Fiscal 1996

The compensation philosophy applied by the Committee in establishing the
compensation for the Company's President and Chief Executive Officer is the
same as for the other senior management of the Company--to provide a
competitive compensation opportunity that rewards performance.

Mr. Oneda served in the positions of President, Chief Executive Officer and
Chairman of the Board of Directors of the Company during the fiscal year ended
March 31, 1996. Prior to October 14, 1993, he served as Vice Chairman of the
Board of Directors of the Company from May 1992 to October 1993, as Honorary
Chairman of the Board of Directors from October 1991 to October 1993 and as
Chairman of the Board of Directors from September 1990 to October 1991. The
Compensation Committee set Mr. Oneda's base salary during fiscal 1996 at
$194,718, considered by the Compensation Committee to be the middle third of
the compensation of Chief Executive Officers at other publicly-traded
companies at the same stage of development as the Company. Of this amount,
$97,500 has been accrued and will be paid to Mr. Oneda at such time as the
Company generates a positive cash flow.

Compliance with Internal Revenue Code Section 162(m)

Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1,000,000
paid to the corporation's Chief Executive Officer and four other most highly
compensated executive officers. Qualifying performance-based compensation will
not be subject to the deduction limit if certain requirements are met.
Although the Company has not paid any of its executive officers annual
compensation over $1,000,000 and has no current plan to do so, it currently
intends to structure the performance-based portion of the compensation of its
executive officers in a manner that complies with this statute.

COMPENSATION COMMITTEE

Kenneth Anstey
Edward W. Benecke
William J. Nydam
Janice B. Wyatt

11
<PAGE>

COMPARATIVE STOCK PERFORMANCE

The following graph compares the cumulative total stockholder return on the
Common Stock of the Company between December 15, 1992 (the date the Company's
Common Stock commenced public trading) and March 31, 1996 (the end of fiscal
1995) with the cumulative total return of (i) the S&P Health Care Diversified
Index and (ii) the Nasdaq Stock Market-U.S. Index. This graph assumes the
investment of $100 on December 15, 1992 in the Company's Common Stock, and on
November 30, 1992 in the S&P Health Care Diversified Index and the Nasdaq
Stock Market-U.S. Index, and assumes dividends are reinvested.

[GRAPH]

12/92 3/93 3/94 3/95 3/96
<S> <C> <C> <C> <C> <C>
Vision-Sciences, Inc. 100 104 54 39 26
Nasdaq Stock Market-U.S. 100 106 114 127 172
S&P Health Care Diversified 100 89 85 120 171

</TABLE>

12
<PAGE>

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The Board of Directors has selected the firm of Arthur Andersen LLP as the
Company's independent auditors for the current fiscal year. Arthur Andersen
LLP has served as the Company's independent auditors since 1991. Although
stockholder approval of the Board of Directors' selection of Arthur Andersen
LLP is not required by law, the Board of Directors believes that it is
advisable to give stockholders an opportunity to ratify this selection. If
this proposal is not approved at the Annual Meeting, the Board of Directors
may reconsider its selection.

Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they desire
to do so and will also be available to respond to appropriate questions from
stockholders.

OTHER MATTERS

The Board of Directors does not know of any other matters which may come
before the Annual Meeting. However, if any other matters are properly
presented to the Annual Meeting, it is the intention of the persons named in
the accompanying proxy to vote, or otherwise act, in accordance with their
judgment on such matters.

All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and
regular employees, without additional remuneration, may solicit proxies by
telephone, telegraph and personal interviews, and the Company reserves the
right to retain outside agencies for the purpose of soliciting proxies.
Brokers, custodians and fiduciaries will be requested to forward proxy
soliciting material to the owners of stock held in their names, and the
Company will reimburse them for their out-of-pocket expenses in this
connection.

Proposals of stockholders intended to be presented at the 1997 Annual
Meeting of Stockholders must be received by the Company at its principal
office in Natick, Massachusetts not later than March 14, 1997 for inclusion in
the proxy statement for that meeting.

By Order of the Board of Directors,

Steven A. Barner,
Secretary

July 12, 1996

THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.

<PAGE>

PROXY VISION-SCIENCES, INC. PROXY

PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 19, 1996

The undersigned, revoking all prior proxies, hereby appoint(s) Katsumi
Oneda and Peter B. Tarr, and each of them, with full power of substitution, as
proxies to represent and vote, as designated herein, all shares of Common Stock
of Vision-Sciences, Inc. (the "Company") which the undersigned would be entitled
to vote if personally present at the Annual Meeting of Stockholders of the
Company to be held at the offices of Hale and Dorr, 60 State Street, Boston,
Massachusetts, on August 19, 1996 at 10:00 a.m., local time, and at any
adjournment thereof.

This proxy when properly executed will be voted in the manner directed by
the undersigned stockholder(s). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, AND 3. Attendance of the undersigned at the meeting
or any adjournment thereof will not be deemed to revoke this proxy unless the
undersigned shall revoke this proxy in writing before it is exercised or
affirmatively indicate his intent to vote in person.

1. To elect the following Class II Directors (except as marked below):

Katsumi Oneda, Fred E. Silverstein, M.D. and
Janice B. Wyatt

/ / FOR all nominees / / WITHHOLD AUTHORITY to vote for all nominees

/ / FOR all nomineees except the following:__________________________

2. To ratify the selection of Arthur Andersen, LLP as the Company's
independent auditors for the current year.

/ / FOR / / AGAINST / / ABSTAIN

3. To transact such other business as may properly come before the
meeting or any adjournment of the meeting.

/ / FOR / / AGAINST

<PAGE>

Please sign exactly as name appears hereon.
When shares are held by joint owners, both
should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give title as such. If a corporation
or partnership, please sign by authorizing
person.

Signature:_________________________________

Date:______________________________________

THIS PROXY IS SOLICITED Signature:_________________________________
ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY. Date:______________________________________