<PAGE>
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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Vision-Sciences, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
VISION-SCIENCES, INC.
Nine Strathmore Road
Natick, Massachusetts 01760
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, AUGUST 17, 2000
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 Thursday, August 17, 2000 at 12:00 p.m., local time, to
consider and act upon the following matters:
(1) To elect Kenneth W. Anstey and Gerald B. Lichtenberger, Ph.D. as Class III
Directors, to serve for a three-year term;
(2) To consider and act upon a proposal, approved by the Board of Directors, to
adopt an Amendment to the Company's Certificate of Incorporation, increasing
the number of authorized shares of Common Stock from 25,000,000 to
50,000,000;
(3) To consider and act upon a proposal to approve the future issuance of up to
$5,000,000 of Common Stock, provided such issuance shall not exceed
10,000,000 shares of Common Stock, in an offering exempt from registration
under the Securities Act of 1933, as amended (the "Act"), on terms approved
by the Board of Directors.
(4) To consider and act upon a proposal, approved by the Board of Directors, to
adopt the 2000 Stock Incentive Plan (the "2000 Plan").
(5) To ratify the issuance of 833,332 shares of Common Stock on September 9,
1999 and 609,756 shares of Common Stock on December 21, 1999 in offerings
exempt from registration under the Act, both such offerings previously
approved by the Board of Directors.
(6) To ratify the selection of Arthur Andersen LLP as the Company's independent
auditors for the current fiscal year; and
(7) 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 June 30, 2000 will be
entitled to notice of and to vote at the meeting or any adjournment thereof.
By Order of the Board of Directors,
/s/ KATSUMI ONEDA
Katsumi Oneda, Chairman
Natick, Massachusetts
July 11, 2000
<PAGE>
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.
VISION-SCIENCES, INC.
NINE STRATHMORE ROAD
NATICK, MASSACHUSETTS 01760
------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 17, 2000
------------------------
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 17, 2000 at
12:00 p.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 on Form 10-K for the fiscal year ended
March 31, 2000, as filed with the Securities and Exchange Commission ("SEC"),
except for exhibits, was mailed to stockholders, along with these proxy
materials, on or about July 11, 2000.
VOTING SECURITIES AND VOTES REQUIRED
At the close of business on June 30, 2000, 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 20,933,413
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
entitled to vote is required to approve the proposed amendment to the Company's
Certificate of Incorporation. The affirmative vote of the holders of a majority
of the shares of Common Stock voting on the matter is required to approve the
issuance of up to $5,000,000 of Common Stock, the
<PAGE>
adoption of the 2000 Stock Incentive Plan (the "2000 Plan") and the selection of
Arthur Andersen LLP as the Company's independent auditors for the current fiscal
year. The affirmative vote of the holders of a majority of the shares of Common
Stock voting on the matter is required to ratify the issuance of 833,332 shares
of Common Stock on September 9, 1999 and the issuance of 609,756 shares of
Common Stock on December 21, 1999, excluding such shares of Common Stock from
the vote.
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 March 31, 2000 (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)
c/o Vision-Sciences, Inc.
Nine Strathmore Road
Natick, MA 01760.......................................... 5,172,927 24.6%
Lewis C. Pell (4)
c/o Machida Incorporated
40 Ramland Road South
Orangeburg, NY 10962...................................... 5,019,052 24.0%
Asahi Optical Co., Ltd.
2-36-9, Maeno-cho
Itabaski-Ku
Tokyo 174 Japan........................................... 2,000,000 9.6%
Fred E. Silverstein, M.D. (5)............................... 170,750 *
Gerald B. Lichtenberger, Ph.D. (6).......................... 178,500 *
Kenneth W. Anstey (7)....................................... 32,000 *
Isao Fujimoto (8)........................................... 124,500 *
All current directors and executive officers as a group (9
persons) (9).............................................. 10,802,979 50.5%
</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
-2-
<PAGE>
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 March 31, 2000.
(2) The number of shares deemed outstanding includes 20,933,413 shares
outstanding as of May 31, 2000 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 March 31, 2000.
(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 2,500 shares held by a trust for Dr. Silverstein's child.
Dr. Silverstein disclaims beneficial ownership of these shares. Also
includes 8,000 shares subject to stock options.
(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 100,000 shares subject to stock options.
(7) Comprised of 32,000 shares subject to stock options.
(8) Includes 99,500 shares subject to stock options.
(9) Includes, as to all directors and executive officers as a group, 468,250
shares subject to stock options that are currently exercisable or
exercisable within 60 days after March 31, 2000. Also includes shares for
which certain individuals have disclaimed beneficial ownership, as set forth
in the above footnotes.
PROPOSAL 1: 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 is currently
one Class I Director, whose term expires at the 2001 Annual Meeting of
Stockholders, two Class II Directors, whose terms expire at the 2002 Annual
Meeting of Stockholders, and two Class III Directors, whose terms expire at the
2000 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, Ph.D. as Class III Directors, unless authority to
vote for the election of Mr. Anstey or Dr. Lichtenberger is withheld by marking
the proxy to that effect. Mr. Anstey and Dr. Lichtenberger are currently
Class III Directors of the Company. Mr. Anstey and Dr. Lichtenberger have
indicated willingness to serve, if elected, but if either is unable or unwilling
to stand for election, proxies may be voted for a substitute nominee or nominees
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 nominees for Class III Directors.
-3-
<PAGE>
CLASS I DIRECTOR
LEWIS C. PELL, age 57, 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. 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. Mr. Pell has been Chairman of the Board of Impulse
Dynamics LLC and Radiancy, Inc. since November 1996 and February 1999,
respectively.
CLASS II DIRECTORS
KATSUMI ONEDA, age 62, 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.
FRED E. SILVERSTEIN, M.D., age 58, 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 several private medical companies. He has been a director of the
Company since 1990.
CLASS III DIRECTORS
KENNETH W. ANSTEY, age 54, has served as Chief Executive Officer of Oratec
Interventions Inc., a medical device company, since April 1997. Mr. Anstey
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. Mr. Anstey is also a director of
Oratec Interventions, Inc. He has been a director of the Company since 1993.
GERALD B. LICHTENBERGER, PH.D., age 55, has served as Vice President,
Business Development of the Company since 1998. Dr. Lichtenberger served as
Executive Vice President, Chief Operating Officer and Secretary of the Company
from December 1996 to December 1998. 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.
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.
-4-
<PAGE>
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 once during the fiscal
year ended March 31, 2000. The current members of the Audit Committee are
Dr. Silverstein and Mr. Anstey.
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 four times during the fiscal year ended March 31, 2000. The current members
of the Compensation Committee are Mr. Anstey and Dr. Silverstein.
The Board of Directors met two times during the fiscal year ended March 31,
2000. 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 then served, except for Mr. Pell, who attended 50% of the aggregate
number of Board meetings.
DIRECTOR COMPENSATION
The Company's outside directors (currently, Dr. Silverstein and Mr. Anstey)
receive an annual director's fee in the amount of $10,000 payable quarterly.
Directors are reimbursed for certain Company-related travel expenses.
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 each of the Company's other executive officers who earned more than
$100,000 during the fiscal year ended March 31, 2000 (the "Senior Executives").
-5-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
NAME AND FISCAL ------------ UNDERLYING ALL OTHER
PRINCIPAL POSITION(1) YEAR SALARY(2) OPTIONS(#) COMPENSATION(3)
---------------------------------------------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Katsumi Oneda (4)
President, Chief Executive Officer 2000 $109,200 -- --
and Chairman of the Board of 1999 $109,200 -- --
Directors 1998 $187,850 -- --
Lewis C. Pell 2000 $109,200 -- $1,625
Vice Chairman of 1999 $109,200 -- $1,638
the Board of Directors 1998 $109,200 -- $1,638
Isao Fujimoto (5)
Vice President Manufacturing 2000 $111,478 30,000 $1,645
</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, 2000, 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,
2000 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, 2000. Because the Company had only two other executive
officers whose compensation exceeded $100,000 for the fiscal year ended
March 31, 2000, this table and the two tables that follow present
compensation information only for the Chief Executive Officer and such other
two 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
$50,000 or 10% of the total annual salary and bonus for the Senior
Executive.
(3) Consists of Company contributions to 401(k) Plan.
(4) All of Mr. Oneda's 1998, 1999 and 2000 salary have been accrued and will be
paid to Mr. Oneda at such time as the Company generates a positive cash
flow.
(5) Mr. Fujimoto became an executive officer of the Company on September 21,
1999.
OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended March 31, 2000 to each of the
Senior Executives.
-6-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS SHARE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN OR BASE EXPIRATION ------------------------------
NAME GRANTED (#) FISCAL YEAR PRICE ($) DATE 5% ($) 10% ($)
---- ----------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Katsumi Oneda................... -- -- -- -- -- --
Lewis C. Pell................... -- -- -- -- -- --
Isao Fujimoto................... 30,000 5.5% $1.50 7/1/09 28,300 71,718
</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, 2000 by each of the
Senior Executives, and the number and value of unexercised options held by each
of the Senior Executives on March 31, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT TO VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY
SHARES YEAR-END OPTIONS 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 -- -- --
Lewis C. Pell.......... -- -- -- -- -- --
Isao Fujimoto.......... -- -- 99,500 40,000 $105,719 $33,125
</TABLE>
------------------------
(1) Based on the fair market value of the Common Stock on March 31, 2000 ($2.25
per share), less the option exercise price.
AGREEMENTS WITH SENIOR EXECUTIVES
The Company entered into a Memorandum of Understanding (the "Memorandum")
with Dr. Lichtenberger in his capacity as Vice President, Business Development,
effective December 5, 1998. Pursuant to the Memorandum, Dr. Lichtenberger is to
receive $85,800 per year in exchange for working an average of three days per
week at the offices of the Company's Machida subsidiary. The Memorandum also
provides for severance pay in the lump sum amount of four months salary.
-7-
<PAGE>
The Company entered into a letter agreement with Alan Jacobson, the
Company's Vice President of Sales, on December 23, 1999. Pursuant to the
agreement, Mr. Jacobson is to receive an annual salary of $100,000 and a bonus
of $30,000, payable in equal installments on the six and twelve month
anniversaries of his employment. The agreement also provides for the grant of
stock options for 100,000 shares of Common Stock, vesting in equal installments
over four years.
The Company does not have any other employment contracts, termination of
employment or change in control arrangements with any of the Senior Executives.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 9, 1999, the Company issued 416,666 shares of its Common Stock
to each of Messrs. Oneda and Pell. The shares of Common Stock were sold to
Messrs. Oneda and Pell at a price per share equal to $1.20, representing 80% of
the average closing price of the Company's Common Stock on the Nasdaq Market
during the five trading days ended August 23, 1999.
On December 21, 1999, the Company issued 304,878 shares of its Common Stock
to each of Messrs. Oneda and Pell. The shares of Common Stock were sold to
Messrs. Oneda and Pell at a price per share equal to $.82, representing 80% of
the average closing price of the Company's Common Stock on the Nasdaq Market
during the five trading days ended December 8, 1999.
The Company leases its 25,000 square foot facility in Orangeburg, New York
from J&J Associates, Inc. under a lease which terminated in March 2000, when the
building was sold to GHP Office Realty. Messrs. Oneda and Pell together own 50%
of J&J Associates. During the fiscal year ended March 31, 2000, the Company paid
an aggregate of $197,325 to J&J Associates under this lease.
The Company believes that the terms of the foregoing transactions are at
least as favorable to the Company as could have been obtained from unaffiliated
third parties.
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 W. Anstey and
Fred E. Silverstein, M.D. 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, 2000, 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.
-8-
<PAGE>
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.
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 2000
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 incentives 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.
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
-9-
<PAGE>
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 the Company's
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, 2000 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 2000
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, 2000. The Compensation Committee set Mr. Oneda's base salary during
fiscal 2000 at $109,200, 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
all future performance-based compensation of its executive officers in a manner
that complies with this statute.
COMPENSATION COMMITTEE
Kenneth W. Anstey, Chairman
Fred E. Silverstein, M.D.
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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
Securities Exchange Act of 1934, as amended, 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 Exchange Act, except that
Dr. Silverstein filed a late Form 4 relating to the transfer on May 17, 1999 of
an aggregate of 10,000 shares of Common Stock by gift to certain trusts for the
benefit of his children.
COMPARATIVE STOCK PERFORMANCE
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company between March 31, 1995 and March 31, 2000 (the end
of fiscal 2000) with the cumulative total return of (i) the Russell 2000 Index,
(ii) the Nasdaq Stock Market-U.S. Index and (iii) the S&P Health Care
Diversified Index. This graph assumes the investment of $100 on March 31, 1995
in the Company's Common Stock, the Russell 2000 Index, the Nasdaq Stock
Market-U.S. Index and the S&P Health Care Diversified Index, and assumes
dividends are reinvested.
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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG VISION-SCIENCES, INC., THE RUSSELL 2000 INDEX,
THE NASDAQ STOCK MARKET (U.S.) INDEX AND
THE S&P HEALTH CARE (DIVERSIFIED) INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
3/95 3/96 3/97 3/98 3/99 3/00
<S> <C> <C> <C> <C> <C> <C>
VISION-SCIENCES, INC. 100 67.57 27.03 32.43 29.73 48.65
RUSSELL 2000 100 127.24 147.57 211.24 164.7 186.53
NASDAQ STOCK MARKET (U.S.) 100 135.8 150.95 228.88 309.19 574.04
S & P HEALTH CARE (DIVERSIFIED) 100 142.32 183.86 290.94 373.11 337.29
</TABLE>
DOLLARS
*$100 invested on 3/31/95 in stock or index--including reinvestment of
dividends. Fiscal year ending March 31.
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The Company added the Russell 2000 Index to the comparative stock
performance graph in its 1999 Proxy Statement. The Russell 2000 Index measures
the performance of 2,000 small capitalization companies. The Board of Directors
believes that the broad base of the Russell 2000 Index is a better point of
comparison for the Company's performance than the Nasdaq Stock Market-U.S.
Index, which contains a high proportion of telecommunication and computer
related companies. The Company may choose to drop the comparison with the Nasdaq
Stock Market-U.S. Index from future proxy statements.
PROPOSAL 2: APPROVAL OF AMENDMENT TO CERTIFICATE
OF INCORPORATION TO INCREASE AUTHORIZED STOCK
On May 9, 2000, the Board of Directors of the Company adopted, subject to
stockholder approval, a proposed amendment (the "Amendment") to the Company's
Certificate of Incorporation, providing for an increase in the number of
authorized shares of Common Stock, from 25,000,000 shares to 50,000,000 shares.
As of June 30, 2000, the Company had a total of 20,933,413 shares of Common
Stock outstanding. Holders of Common Stock do not have any preemptive or other
rights to subscribe for any shares of Common Stock which may in the future be
issued by the Company.
If the Amendment is adopted by the stockholders, the Board of Directors will
have authority to issue additional shares of Common Stock from time to time
without further action on the part of the stockholders (other than as required
by applicable stock exchange rules). The additional authorized shares of Common
Stock would be available for issuance in the future for such corporate purposes,
including without limitation, financings, acquisitions, stock splits, stock
dividends and management incentive and employee benefit plans, as the Board of
Directors may deem advisable. The issuance of additional shares of Common Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of diluting the Company's
current stockholders, making it more difficult for a third party to acquire the
Company, or discouraging a third party from attempting to acquire control over
the Company.
The Company has no present intention or plans to issue any shares of Common
Stock other than in connection with the proposed issuance of shares of Common
Stock in one or more offerings exempt from registration under the Securities Act
of 1933, as described in more detail below and pursuant to the 1990 Option Plan
and the 2000 Plan. Except for the proposal hereinafter set forth, the Company
does not intend to seek any further stockholder approval for the issuance of the
shares of Common Stock to be authorized by the Amendment. The Company is not
aware of any attempts on the part of a third party to effect a change of control
of the Company and the Amendment has been proposed by the Company for the
reasons stated above and not for any possible anti-takeover effects it may have.
BOARD RECOMMENDATION
The Board of Directors believes that the Amendment is in the best interest
of the Company and its stockholders and therefore recommends a vote FOR this
proposal.
PROPOSAL 3: APPROVAL OF FUTURE ISSUANCE OF COMMON STOCK
The Board of Directors has determined that it is in the best interests of
the Company to increase the capitalization of the Company through the issuance
of shares of Common Stock in an offering exempt from registration under the
Securities Act of 1933, as amended (the "Act"). The Company seeks approval of
the issuance on or before March 31, 2002 of up to that number of shares of
Common Stock that would
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result in an aggregate gross proceeds to the Company of $5,000,000, up to a
maximum of 10,000,000 shares on terms acceptable to the Board of Directors. Such
offering shall consist of the issuance of Common Stock in exchange for cash
consideration. The number of shares to be issued may exceed 20% or more of the
Company's Common Stock or 20% or more of the voting power outstanding before
such issuance. The Company believes, based upon its discussions with various
financial sources, that the terms of any such offering will most likely include
a discount from the average of the last reported sales prices of the Common
Stock on the Nasdaq SmallCap Market over a trading period preceding such
offering. Such discounts may range from 15% to 50%.
The Company expects that the purchasers of such shares would be a limited
number of institutional or individual investors who are "accredited investors"
as defined in Rule 501(a) of Regulation D promulgated under the Act. Purchasers
in such offering have not been identified and, therefore, the consummation of
the offering will depend upon the ability of the Company to identify and reach
agreement with such purchasers upon terms of the sale, including price, which
are acceptable to the Board of Directors of the Company. Investors participating
in such offering may include officers or directors of the Company or
stockholders holding more than 10% of the outstanding shares of Common Stock of
the Company. There can be no assurance that such offering will be consummated.
The Company's Board of Directors will determine the terms of such offering, and
no further authorization of the Company's stockholders for the offering will be
solicited. Accordingly, the stockholders will not have an opportunity to vote on
the use of the proceeds from such offering.
The Company intends to use the proceeds from the offering, after payment of
the costs related to the offering, for working capital, to purchase equipment
and support research and development and for general corporate purposes.
Although the issuance of these shares may have the effect of diluting the
Company's current stockholders, the Board of Directors believes that the
increase in the capitalization of the Company will be in the best interests of
the stockholders. The Board of Directors believes that the issuance of shares of
Common Stock in such offering described herein may accomplish several of the
Company's goals, such as to produce increased flexibility in responding to
favorable product development opportunities, to support efforts to promote the
Company's EndoSheath-Registered Trademark- system and to broaden the Company's
stockholder base.
The shares to be issued in such offering will not be registered under the
Act or applicable state securities laws and may not be resold unless they are
subsequently registered under the Act and such state securities laws or unless
an exemption from registration is available. Consequently, the purchasers of
these shares may be unable to liquidate their investment in the Company in the
event of an emergency or for any other reason and may thus be required to retain
their shares for an indefinite period. Accordingly, the Company anticipates that
the price paid by the purchasers for the shares issued in such offering may be
less than the market price of the Company's Common Stock on the Nasdaq SmallCap
Market at the date of closing of the offering. However, the Company anticipates
that it will be required by the purchasers to register the shares issued in the
offering under the Act under certain specified conditions. Although any changes
in the market price of the Company's Common Stock are impossible to predict with
any certainty, large block resales by the purchasers of shares issued in such
offering or the perceived possibility of large block future resales may have a
negative impact on the market price of the Company's Common Stock.
The Board of Directors of the Company approved the proposal to seek
stockholder approval to sell additional equity capitalization of the Company,
subject to market conditions and other factors outlined above. To date, no
financial advisors have been engaged by the Company in connection with such
offering.
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The Company is soliciting approval from the stockholders for the potential
offering of Common Stock in order to comply with the Marketplace Rules of The
Nasdaq Stock Market.
BOARD RECOMMENDATION
The Board of Directors believes that approval of the issuance of shares of
Common Stock is in the best interest of the Company and its stockholders and
therefore recommends a vote FOR this proposal.
PROPOSAL 4: APPROVAL OF 2000 STOCK INCENTIVE PLAN
On May 9, 2000, the Board of Directors of the Company adopted, subject to
stockholder approval, the 2000 Stock Incentive Plan (the "2000 Plan"). Up to
4,000,000 shares of Common Stock (subject to adjustment in the event of stock
splits and other similar events) may be issued pursuant to awards granted under
the 2000 Plan.
The 2000 Plan is intended to replace the Company's 1990 Stock Option Plan
(the "1990 Plan"), which expires by its terms on November 5, 2000. As of May 9,
2000, options to purchase 2,518,047 shares of Common Stock were outstanding
under the 1990 Plan and an additional 1,218,622 shares were reserved for future
option grants. Upon the expiration date of the 1990 Plan on November 5, 2000,
all then outstanding options will remain in effect, but no additional option
grants may be made under the 1990 Plan.
The Board of Directors believes that the future success of the Company
depends, in large part, upon the ability of the Company to maintain a
competitive position in attracting, retaining and motivating key personnel.
Accordingly, the Board of Directors believes adoption of the 2000 Plan is in the
best interests of the Company and its stockholders and recommends a vote FOR
this proposal.
SUMMARY OF THE 2000 PLAN
The following is a brief summary of the 2000 Plan.
DESCRIPTION OF AWARDS
The 2000 Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonstatutory stock options, restricted stock awards and other
stock-based awards, including the grant of shares based upon certain conditions,
the grant of securities convertible into Common Stock and the grant of stock
appreciation rights (collectively "Awards").
INCENTIVE STOCK OPTIONS AND NONSTATUTORY STOCK OPTIONS
Optionees receive the right to purchase a specified number of shares of
Common Stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. Options may be
granted at an exercise price which may be less than, equal to or greater than
the fair market value of the Common Stock on the date of grant. Under present
law, however, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common Stock
on the date of grant (or less than 110% of the fair market value in the case of
incentive stock options granted to optionees holding more than 10% of the voting
power of the Company). Options may not be granted for a term in excess of ten
years. The 2000 Plan permits the Board to determine the manner of payment of the
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exercise price of options, including through payment by cash, check or in
connection with a "cashless exercise" through a broker, by surrender to the
Company of shares of Common Stock, by delivery to the Company of a promissory
note, or by any other lawful means.
RESTRICTED STOCK AWARDS
Restricted stock Awards entitle recipients to acquire shares of Common
Stock, subject to the right of the Company to repurchase all or part of such
shares from the recipient in the event that the conditions specified in the
applicable Award are not satisfied prior to the end of the applicable
restriction period established for such Award.
OTHER STOCK-BASED AWARDS
Under the 2000 Plan, the Board has the right to grant other Awards based
upon the Common Stock having such terms and conditions as the Board may
determine, including the grant of shares based upon certain conditions, the
grant of securities convertible into Common Stock and the grant of stock
appreciation rights.
ELIGIBILITY TO RECEIVE AWARDS
Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to be granted Awards under the 2000 Plan. Under
present law, however, incentive stock options may only be granted to employees.
The maximum number of shares with respect to which an Award may be granted to
any participant under the 2000 Plan may not exceed 2,000,000 shares per calendar
year.
As of June 30, 2000, approximately 27 persons were eligible to receive
Awards under the 2000 Plan, including the Company's seven executive officers and
two non-employee directors. The granting of Awards under the 2000 Plan is
discretionary, and the Company cannot now determine the number or type of Awards
to be granted in the future to any particular person or group.
On June 30, 2000, the last reported sale price of the Company Common Stock
on the Nasdaq SmallCap Market was $1.31.
ADMINISTRATION
The 2000 Plan is administered by the Board of Directors. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 2000 Plan and to interpret the provisions of the 2000
Plan. Pursuant to the terms of the 2000 Plan, the Board of Directors may
delegate authority under the 2000 Plan to one or more committees of the Board,
and subject to certain limitations, to one or more executive officers of the
Company. The Board has authorized the Compensation Committee to administer
certain aspects of the 2000 Plan, including the granting of options to executive
officers. Subject to any applicable limitations contained in the 2000 Plan, the
Board of Directors, the Compensation Committee, or any other committee or
executive officer to whom the Board delegates authority, as the case may be,
selects the recipients of Awards and determines (i) the number of shares of
Common Stock covered by options and the dates upon which such options become
exercisable, (ii) the exercise price of options, (iii) the duration of options,
and (iv) the number of shares of Common Stock subject to any restricted stock or
other stock-based Awards and the terms and conditions of such Awards, including
conditions for repurchase, issue price and repurchase price.
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The Board of Directors is required to make appropriate adjustments in
connection with the 2000 Plan and any outstanding Awards to reflect stock
dividends, stock splits and certain other events. In the event of a merger,
liquidation or other Acquisition Event (as defined in the 2000 Plan), the Board
of Directors is authorized to provide for outstanding Options or other
stock-based Awards to be assumed or substituted for, to accelerate the Awards to
make them fully exercisable prior to consummation of the Acquisition Event or to
provide for a cash out of the value of any outstanding options. If any Award
expires or is terminated, surrendered, canceled or forfeited, the unused shares
of Common Stock covered by such Award will again be available for grant under
the 2000 Plan.
AMENDMENT OR TERMINATION
No Award may be made under the 2000 Plan after May 9, 2010, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the 2000 Plan, except that no Award
designated as subject to Section 162(m) of the Code by the Board of Directors
after the date of such amendment shall become exercisable, realizable or vested
(to the extent such amendment was required to grant such Award) unless and until
such amendment shall have been approved by the Company's stockholders.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under the
2000 Plan and with respect to the sale of Common Stock acquired under the 2000
Plan.
INCENTIVE STOCK OPTIONS
In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will recognize
taxable income with respect to an incentive stock option only upon the sale of
Common Stock acquired through the exercise of the option ("ISO Stock"). The
exercise of an incentive stock option, however, may subject the participant to
the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior to
having owned it for at least two years from the Grant Date and one year from the
Exercise Date (a "Disqualifying Disposition"), then all or a portion of the gain
recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
one year prior to the date of sale.
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NONSTATUTORY STOCK OPTIONS
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a nonstatutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
nonstatutory stock option generally will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of the Common Stock
acquired through the exercise of the option ("NSO Stock") on the Exercise Date
over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will be
a long-term gain or loss if the participant has held the NSO Stock for more than
one year prior to the date of the sale.
RESTRICTED STOCK AWARDS
A participant will not recognize taxable income upon the grant of a
restricted stock Award, unless the participant makes an election under
Section 83(b) of the Code (a "Section 83(b) Election"). If the participant makes
a Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary income, for the year in which the Award is
granted, in an amount equal to the difference between the fair market value of
the Common Stock at the time the Award is granted and the purchase price paid
for the Common Stock. If a Section 83(b) Election is not made, the participant
will recognize ordinary income, at the time that the forfeiture provisions or
restrictions on transfer lapse, in an amount equal to the difference between the
fair market value of the Common Stock at the time of such lapse and the original
purchase price paid for the Common Stock. The participant will have a basis in
the Common Stock acquired equal to the sum of the price paid and the amount of
ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the Common Stock and the participant's
basis in the Common Stock. The gain or loss will be a long-term gain or loss if
the shares are held for more than one year. For this purpose, the holding period
shall begin just after the date on which the forfeiture provisions or
restrictions lapse if a Section 83(b) Election is not made, or just after the
Award is granted if a Section 83(b) Election is made.
OTHER STOCK-BASED AWARDS
The tax consequences associated with any other stock-based Award granted
under the 2000 Plan will vary depending on the specific terms of such Award.
Among the relevant factors are whether or not the Award has a readily
ascertainable fair market value, whether or not the Award is subject to
forfeiture provisions or restrictions on transfer, the nature of the property to
be received by the participant under the Award and the participant's holding
period and tax basis for the Award or underlying Common Stock.
MAXIMUM INCOME TAX RATES ON CAPITAL GAIN AND ORDINARY INCOME
Long-term capital gain will be taxable at a maximum rate of 20% if
attributable to Common Stock held for more than eighteen months and at a maximum
rate of 28% if attributable to Common Stock held for more than one year but not
more than eighteen months. Short-term capital gain and ordinary income will be
taxable at a maximum rate of 39.6%. Phaseouts of personal exemptions and
reductions of allowable
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itemized deductions at higher levels of income may result in slightly higher
marginal tax rates. Ordinary compensation income will also be subject to a
medicare tax and, under certain circumstances, a social security tax.
TAX CONSEQUENCES TO THE COMPANY
The grant of an Award under the 2000 Plan will have no tax consequences to
the Company. Moreover, in general, neither the exercise of an incentive stock
option nor the sale of any Common Stock acquired under the 2000 Plan will have
any tax consequences to the Company. The Company generally will be entitled to a
business-expense deduction, however, with respect to any ordinary compensation
income recognized by a participant under the 2000 Plan, including in connection
with a restricted stock Award or as a result of the exercise of a nonstatutory
stock option or a Disqualifying Disposition. Any such deduction will be subject
to the limitations of Section 162(m) of the Code. The Company will have a
withholding obligation with respect to any ordinary compensation income
recognized by participants under the 2000 Plan who are employees or otherwise
subject to withholding in connection with a restricted stock Award or the
exercise of a nonstatutory stock option.
PROPOSAL 5: RATIFICATION OF ISSUANCE OF AN AGGREGATE OF
1,433,088 SHARES OF COMMON STOCK
The Board of Directors determined on August 24, 1999 that it was in the best
interests of the Company to generate funds through the issuance of shares of
Common Stock in an offering exempt from registration under the Act. On
September 9, 1999, the Company issued 416,666 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
$1.20, representing 80% of the average closing price of the Company's Common
Stock on the Nasdaq SmallCap Market during the five trading days ended
August 23, 1999. The gross proceeds raised from this offering were $1,000,000.
The Board of Directors determined on December 8, 1999 that it was in the
best interests of the Company to generate funds through the issuance of shares
of Common Stock in an offering exempt from registration under the Act. On
December 21, 1999, the Company issued 304,878 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
$.82, representing 80% of the average closing price of the Company's Common
Stock on the Nasdaq SmallCap Market during the five trading days ended
December 8, 1999. The gross proceeds raised from this offering were $500,000.
The Company used the proceeds from these offerings, after payment of the
costs related to the offerings, for working capital purposes, including the
ongoing financing of operations at the Company's Israeli affiliate, 3DV
Systems Ltd. Although the issuance of these shares may have the effect of
diluting the Company's current stockholders, the Board of Directors believed
that the offerings were in the best interests of the stockholders.
The shares issued in these offerings were not registered under the Act or
applicable state securities laws and may not be resold unless they are
subsequently registered under the Act and such state securities laws or unless
an exemption from registration is available. Consequently, the purchasers of
these shares may be unable to liquidate their investment in the Company in the
event of an emergency or for any other reason and may thus be required to retain
their shares for an indefinite period. Accordingly, the price paid by the
purchasers for the shares issued in this offering was less than the market price
of the Company's
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Common Stock on the Nasdaq SmallCap Market at the date of closing of the
offering. However, the Company anticipates that it will be required by the
purchasers to register the shares issued in the offering under the Act under
certain specified conditions. Although any changes in the market price of the
Company's Common Stock are impossible to predict with any certainty, large block
resales by the purchasers of shares issued in any such offering or the perceived
possibility of large block future resales may have a negative impact on the
market price of the Company's Common Stock.
The Company is soliciting ratification from the stockholders for these
offerings of Common Stock in order to comply with the Marketplace Rules of The
Nasdaq Stock Market. Those regulations require the Company to obtain stockholder
approval when a stock option or purchase plan is to be established or other
arrangements made pursuant to which stock may be acquired by officers or
directors, except for warrants or rights issued generally to security holders of
a company or broadly based plans or arrangements including other employees.
BOARD RECOMMENDATION
The Board of Directors believes that ratification of the issuance of shares
of Common Stock in the offerings is in the best interest of the Company and its
stockholders and therefore recommends a vote FOR this proposal.
PROPOSAL 6: 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.
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Proposals of stockholders intended to be presented at the 2001 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Natick, Massachusetts not later than March 23, 2001 for inclusion in the
proxy statement for that meeting.
If a stockholder of the Company wishes to present a proposal before the 2001
Annual Meeting of Stockholders, but does not wish to have the proposal
considered for inclusion in the Company's proxy statement and proxy card, such
stockholder must give written notice to the Company at its principal office in
Natick, Massachusetts not later than June 11, 2001. If the stockholder fails to
provide timely notice of a proposal to be presented at the 2001 Annual Meeting,
the proxies designated by the Board of Directors of the Company will have
discretionary authority to vote on any such proposal.
By Order of the Board of Directors,
Katsumi Oneda, Chairman
July 11, 2000
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.
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VISION-SCIENCES, INC.
FORM OF PROXY FORM OF PROXY
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 17, 2000
The undersigned, revoking all prior proxies, hereby appoint(s) Katsumi Oneda,
Gerald B. Lichtenberger 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 17, 2000 at 12:00 p.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, 3, 4, 5 AND 6. 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 Kenneth W. Anstey and Gerald B. Lichtenberger, Ph.D. as Class
III Directors.
[ ] FOR the nominee [ ] WITHHOLD AUTHORITY to vote for the nominee
2. To adopt an amendment to the Company's Certificate of Incorporation,
increasing the number of authorized shares of Common Stock from 25,000,000 to
50,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the issuance of up to $5,000,000 of Common Stock, provided
such issuance shall not exceed 10,000,000 shares of Common Stock, in an
offering exempt from registration under the Securities Act of 1933, as
amended (the "Act").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To adopt the 2000 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To ratify the issuance of 833,332 shares of Common Stock on September 9,
1999 and 609,756 shares of Common Stock on December 21, 1999 in offerings exempt
from registration under the Act.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. To ratify the selection of Arthur Andersen LLP as the Company's
independent auditors for the current fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
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: Signature:
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Date: Date:
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