<PAGE>
VISION-SCIENCES, INC.
SIX STRATHMORE ROAD
NATICK, MASSACHUSETTS 01760
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY, AUGUST 18, 1997
The Annual Meeting of Stockholders of Vision-Sciences, Inc. (the "Company")
will be held at the offices of Hale and Dorr LLP, 26th Floor, 60 State Street,
Boston, Massachusetts on Monday, August 18, 1997 at 10:00 a.m., local time, to
consider and act upon the following matters:
1. To elect Kenneth W. Anstey and Gerald B. Lichtenberger, as Class III
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; and
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 7, 1997 will be
entitled to notice of and to vote at the meeting or any adjournment thereof.
By Order of the Board of Directors,
Katsumi Oneda,
Chairman
Natick, Massachusetts
July 11, 1997
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 18, 1997
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 18, 1997 at
10:00 a.m. at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 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, 1997 was
mailed to stockholders, along with these proxy materials, on or about July 11,
1997.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
MARCH 31, 1997, 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 7, 1997, 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
14,696,909 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.
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.
<PAGE>
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, 1997 (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 current 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 and (iv) by all current directors
and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIALLY OUTSTANDING
BENEFICIAL OWNER OWNED (1) COMMON STOCK (2)
------------------- ------------ ----------------
<S> <C> <C>
Katsumi Oneda(3)............................... 3,480,509 23.5%
c/o Vision-Sciences, Inc.
Six Strathmore Road
Natick, MA 01760
Lewis C. Pell(4)............................... 3,234,134 22.0%
c/o Machida Incorporated
40 Ramland Road
Orangeburg, NY 10962
William J. Nydam(5)............................ 345,000 2.3%
c/o AmHS Purchasing Partners, Ltd.
12370 High Bluff Drive
San Diego, CA 92130
Fred E. Silverstein, M.D....................... 154,250 1.0%
1246 15th Avenue E
Seattle, WA 98112
Gerald B. Lichtenberger, Ph.D.(6).............. 103,500 *
c/o Vision-Sciences
Six Strathmore Road
Natick, MA 01760
Janice B. Wyatt(7)............................. 16,000 *
15 Juniper Ridge
Lincoln, MA 01773
Kenneth W. Anstey(8)........................... 16,000 *
1225 Northmeadow Pkwy., Suite 120
Roswell, GA 30076
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIALLY OUTSTANDING
BENEFICIAL OWNER OWNED (1) COMMON STOCK (2)
------------------- ------------ ----------------
<S> <C> <C>
E. Paul Harhen(9)............................... 22,500 *
c/o Vision-Sciences, Inc.
Six Strathmore Road
Natick, MA 01760
Robert A. LaRoche (10).......................... 26,050 *
Edward W. Benecke(11) .......................... 12,000 *
887 Insbruck
Wright City, MO 63390
All current directors and executive officers
as a group (nine persons)(12).................. 7,383,893 49.5%
</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, 1997.
(2) The number of shares deemed outstanding includes 14,696,909 shares
outstanding as of April 30, 1997 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, 1997.
(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 16,000 shares subject to stock options. Also includes 329,000
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. Mr. Nydam is not
standing for re-election at the Annual Meeting.
(6) Includes 3,000 shares owned by Dr. Lichtenberger and 3,000 shares owned
by Dr. Lichtenberger's wife as custodians for their children. Dr.
Lichtenberger disclaims beneficial ownership of these shares. Also
includes 25,000 shares subject to stock options.
(7) Comprised of 16,000 shares subject to stock options.
(8) Comprised of 16,000 shares subject to stock options.
(9) Comprised of 22,500 shares subject to stock options.
(10) Includes 23,750 shares subject to stock options. Mr. LaRoche resigned
from the Company effective April 30, 1997.
(11) Comprised of 12,000 shares subject to stock options.
(12) Includes, as to all directors and executive officers as a group, 232,500
shares subject to stock options that are currently exercisable or
exercisable within 60 days after April 30, 1997. Also includes shares for
which certain individuals have disclaimed beneficial ownership, as set
forth in the above footnotes.
3
<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 1999
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 Kenneth W. Anstey
and Gerald B. Lichtenberger as Class III Directors, unless authority to vote
for the election of Mr. Anstey and Dr. Lichtenberger is withheld by marking
the proxy to that effect. Mr. Anstey is currently a Class III Director of the
Company. Mr. Anstey and Dr. Lichtenberger have indicated their willingness to
serve, if elected, but if either should be unable or unwilling to stand for
election, proxies may be voted for a substitute nominee or nominees designated
by the Board of Directors. William J. Nydam, currently a Class III Director,
is not standing for re-election at the Annual Meeting.
Set forth below are the name and certain information with respect to each
director of the Company, including the nominees for Class III Director.
CLASS I DIRECTORS
LEWIS C. PELL, age 54, 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 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., and Vitality Biotechnologies, Inc. Mr. Pell
was co-founder and a director of Versaflex Delivery Systems, Inc. and InStent,
Inc., which were sold in 1988 and 1996, respectively, 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 54, has been the President and owner of Medical
Contracts Associates and an associate at The Medalliance, both consulting
firms, since June, 1994. From 1967 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 II DIRECTORS
KATSUMI ONEDA, age 59, 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. He has been
a director of the Company since 1987.
4
<PAGE>
FRED E. SILVERSTEIN, M.D., age 55, 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 has been a prominent
practitioner and author in the field of gastroenterology. Dr. Silverstein is a
director of Aradigm Corporation, Washington Research Foundation, the
Washington Technology Center in Seattle and several private medical companies.
He has been a director of the Company since 1990.
JANICE B. WYATT, age 49, is the President and Chief Executive Officer of
Health Care Negotiation Associates. Ms. Wyatt served as a partner of Korn
Ferry International Executive Search Consultants, a healthcare executive
consulting firm, from 1994 to 1997. 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.
CONTINUING CLASS III DIRECTOR AND NOMINEE FOR CLASS III DIRECTOR
KENNETH W. ANSTEY, age 51, served as Chief Executive Officer of Biofield,
Corp., a medical device company, from December 1995 to March 1997. 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
Cell Pro Inc. and Spine Tech, Inc. He has been a director of the Company since
1993.
GERALD B. LICHTENBERGER, PH.D., age 52, has served as Executive Vice
President, Chief Operating Officer, Acting Chief Financial Officer and
Secretary of the Company since December 1996. From June 1990 to December 1996,
Dr. Lichtenberger served as President and a Director of iSight, Inc., a
developer and manufacturer of digital video cameras and components. Dr.
Lichtenberger was Vice President of Strategic Planning and Vice President of
Operations of Pentax Precision Instrument Corporation from 1986 until 1990,
and was President, Chief Executive Officer and Chairman of the Board of
Directors of Systems of the Future, Inc. from 1979 until 1986.
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, 1997. The current Audit Committee members are Dr.
Silverstein, Messrs. Nydam and Benecke and Ms. Wyatt.
5
<PAGE>
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 of the Company. The
Compensation Committee met one time during the fiscal year ended March 31,
1997. The current members of the Compensation Committee are Messrs. Anstey,
Nydam and Benecke and Ms. Wyatt.
The Board of Directors met eight times during the fiscal year ended March
31, 1997. 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 becomes 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 who earned more than $100,000 during the fiscal year ended March 31,
1997 (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)................ 1997 $191,629 -- --
President, Chief Executive 1996 194,718 -- --
Officer and Chairman of 1995 193,386 -- --
the Board of Directors
Lewis C. Pell.................... 1997 109,200 -- $1,638
Vice Chairman of the Board of 1996 109,200 -- 1,638
Directors 1995 114,240 -- 1,714
E. Paul Harhen................... 1997 104,494 60,000 1,414
Vice President--Operations 1996 97,923 15,000 1,261
1995 90,923 30,000 1,121
Robert A. LaRoche(5)............. 1997 109,231 10,000 1,638
Former Vice President--Sales and 1996 109,231 15,000 1,638
Marketing
</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, 1997, 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,
1997 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, 1997. Because the Company had only three other
executive officers whose compensation exceeded $100,000 for the fiscal
year ended March 31, 1997, 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) $97,500 of Mr. Oneda's 1996 salary and all of Mr. Oneda's 1997 salary have
been accrued and will be paid to Mr. Oneda at such time as the Company
generates a positive cash flow.
(5) Mr. LaRoche joined the Company in July 1994 and became an executive
officer in fiscal 1996. Mr. LaRoche resigned from the Company effective
April 30, 1997.
7
<PAGE>
Option Grants
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended March 31, 1997 to each of the
Senior Executives.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL
SECURITIES GRANTED RATES OF SHARE
UNDERLYING TO EXERCISE PRICE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM(1)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#) YEAR ($) DATE 5%($) 10%($)
---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Katsumi Oneda........... -- -- -- -- -- --
Lewis C. Pell........... -- -- -- -- -- --
E. Paul Harhen.......... 50,000 6.9% $1.188 12/17/06 $ 37,341 $ 94,628
10,000 1.4% 1.875 6/21/06 11,792 29,883
Robert A. LaRoche....... 10,000 1.4% 1.875 6/21/06 11,792 29,883
</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, 1997 by each of the
Senior Executives, and the number and value of unexercised options held by
each of the Senior Executives on March 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES SUBJECT
TO UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
NUMBER OF YEAR-END AT FISCAL YEAR-END(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Katsumi Oneda........... -- -- 125,000 -- -- --
Lewis C. Pell........... -- -- -- -- -- --
E. Paul Harhen.......... -- -- 22,500 87,500 -- $3,125
Robert A. LaRoche....... -- -- 23,750 41,250 -- --
</TABLE>
- --------
(1) Based on the fair market value of the Common Stock on March 31, 1997
($1.25 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 24, 1996, the Company issued 842,105 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
$1.1875, the closing price of the Company's Common Stock on the Nasdaq
National Market on December 17, 1996.
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 31, 2000,
subject to renewal or extension. Messrs. Oneda and Pell together own 50% of
J&J Associates. During the fiscal year ended March 31, 1997, the Company paid
an aggregate of $204,000 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.
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, 1997, 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 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.
9
<PAGE>
The Company has not to date generated 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 1997
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 1997 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.
Stock option grants made pursuant to the 1990 Option Plan in the fiscal year
ended March 31, 1997 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.
10
<PAGE>
Compensation of the Chief Executive Officer in Fiscal 1997
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, 1997. 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 1997 at
$191,629, 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. All of this amount
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
REPORTS UNDER SECTION 16(A) OF THE EXCHANGE ACT
Based solely on its review of copies of reports filed by persons ("Reporting
Persons") required to file such reports pursuant to Section 16(a) of the
Exchange Act, the Company believes that all filings required to be made by
Reporting Persons of the Company were timely made in accordance with the
requirements of the Securities Exchange Act of 1934, as amended, except that
Messrs. Oneda and Pell each filed a Statement of Changes in Beneficial
Ownership on Form 4 on January 28, 1997 reflecting the purchase of 842,105
shares of Common Stock each, as more fully described under "Certain
Relationships and Related Transactions."
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, 1997 (the end of fiscal
1997) 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.
<TABLE>
<CAPTION>
Cumulative Total Return
------------------------------------------------
12/15/92 03/93 03/94 03/95 03/96 03/97
<S> <C> <C> <C> <C> <C> <C> <C>
VISION-SCIENCES, INC. VSCI 100 104 54 39 26 10
NASDAQ STOCK MARKET (U.S.) INAS 100 106 114 127 172 192
S & P HEALTH CARE (DIVERSIFIED) IHCV 100 89 85 120 171 221
</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 1998 Annual
Meeting of Stockholders must be received by the Company at its principal
office in Natick, Massachusetts not later than March 13, 1998 for inclusion in
the proxy statement for that meeting.
By Order of the Board of Directors,
Katsumi Oneda,
Chairman
July 11, 1997
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.
13
<PAGE>
APPENDIX A
----------
VISION-SCIENCES, INC.
PROXY PROXY
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 18, 1997
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 LLP, 60 State Street, Boston,
Massachusetts, on August 18, 1997 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 AND 2. 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 III Directors (except as marked below):
Kenneth W. Anstey and Gerald B. Lichtenberger.
[_] FOR all nominees [_] WITHHOLD AUTHORITY to vote for all nominees
[_] FOR all nominees except the following:__________________________________
2. To ratify the selection of Arthur Andersen LLP as the Company's
independent auditors for the current fiscal year.
[_] FOR [_] AGAINST [_] ABSTAIN
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 a partnership, please sign by
authorizing person.
Signature: ______________________________________
Date: ___________________________________________
THIS PROXY IS SOLICITED Signature: ______________________________________
ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY Date: ___________________________________________
