SECURITIES AND EXCHANGE COMMISSION
                               Washington, DC 20549

                                   FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934

                For the fiscal year ended December 31, 1997

                       Commission file number 0-12025

                            CIRCON CORPORATION

         (Exact Name of Registrant as Specified in its Charter)

              Delaware                           95-3079904
      (State or Other Jurisdiction of       (I.R.S. Employer
       Incorporation or Organization       Identification No.)

                            6500 Hollister Avenue
                     Santa Barbara, California 93117
               (Address of Principal Executive Offices)

                           (805) 685-5100
         Registrant's telephone number, including area code

    SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

    SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                         Common Stock ($.01 par value)
                                (Title of class)

     Indicate by check mark whether the Registrant:
 (1) has filed all reports required to be
     filed by Section 13 or 15(d) of the Securities
     Exchange Act of 1934 during the preceding 12 months;and
 (2) has been subject to such filing requirements
     for the past 90 days.

                        Yes   X    No

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

          The aggregate market value of the voting
stock held by nonaffiliates of the Registrant was
approximately $195,126,987 at March 18, 1998, when the
closing sale price of such stock, as reported in the
NASDAQ National Market System, was $16.50.

          The number of shares outstanding of the
Registrant's Common Stock, $.01 par value, as of
March 18, 1998, was 13,326,011 shares.


                              PART I




Item 1.    Business.

    Circon designs, manufactures, markets and services medical
endoscopy systems for diagnosis and minimally invasive surgery.
The Company's systems are used for a growing number of medical
specialties, including urology, arthroscopy, laparoscopy, gynecology,
thoracoscopy and plastic surgery.  Circon also designs, assembles
and markets miniature color video systems used with endoscope
systems.

    On August 28, 1995 Circon Corporation merged with Cabot
Medical Corporation ("Cabot"), collectively referred to as "Circon"
or "the Company", creating a publicly-traded minimally invasive
surgery company with the largest U.S. endoscopy market share in
the fields of urology and gynecology.  Circon operates its business
through several divisions and subsidiaries including Circon Video,
Circon ACMI, Circon Cabot and Circon Surgitek.

    In addition, the merger with Cabot Medical brought the capability
to design, manufacture and market medical devices and systems for
use in gynecological diagnosis and surgery, ureteral stents, urological
diagnostic equipment and various products and systems principally
used in general surgery.

Minimally Invasive Surgery

    Minimally invasive surgery refers to surgical procedures which
can be accomplished without a major incision or other traumatization
to the patient, in some cases without general anesthesia.  Endoscopy,
which refers to the visualization of interior organs and tissues, is one
of the most important minimally invasive surgical techniques.  In
addition to decreasing patient trauma and frequently avoiding general
anesthesia, endoscopy can substantially reduce or eliminate
postoperative hospitalization.  The resulting cost savings and patient
benefits have caused government reimbursement programs, as well
as private insurance and prepaid health plans, to encourage the use of
endoscopic procedures over traditional open surgery.

    Specialized endoscopes for various diagnostic and surgical
procedures include laparoscopes (used for abdominal cavity surgery
below the diaphragm), thoraco- scopes (used for chest surgery above
the diaphragm), ureteroscopes (used for urinary tract surgery),
cystoscopes (used for surgery in the uro-genital tract) and
arthroscopes (used for knee and other joint surgery).  Endoscopic
procedures are often televised using miniature video camera systems
connected to the endoscope.  The procedures are performed in
hospitals, ambulatory surgical centers and physicians' offices.

    Medical Advantages

    The practice of endoscopy has expanded in recent years
because it provides several medical advantages over traditional open
surgery.  Endoscopy:

    o results in less trauma to muscle and surrounding tissue,
              and minimal blood loss;

    o requires only a sedative or local anesthesia in some
              cases, rather than general anesthesia;

    o reduces postoperative patient discomfort, immobilization,
              hospitalization, recovery time and therapy;

    o lowers the risk of infection; and

    o minimizes scarring.

    Cost Advantages

    The medical advantages of endoscopy can produce important cost
savings, particularly because endoscopy can reduce or eliminate
postoperative hospitalization and, in procedures such as arthroscopy,
rehabilitative therapy costs.  For example, the removal of the gall bladder
by conventional open surgery can require a period of approximately one
week of postoperative hospitalization followed by four to six weeks for
full recuperation.  By comparison, laparoscopic cholecystectomy
(removal of the gall bladder through a puncture in the navel using an
endoscope) can reduce to one night or completely eliminate
postoperative hospitalization.  As a result, the overall cost of this
procedure may be substantially reduced.  For these reasons,
government reimbursement programs, as well as private insurers and
prepaid health plans, have generally encouraged the use of the
endoscopy over traditional open surgery.

    Medical Applications

    Circon's endoscope systems and accessories are used in a
growing number of medical specialties including urology, gynecology,
laparoscopy, thoracoscopy, plastic surgery, athroscopy,
gastroenterology and cardiology.  In urology, the Company's
endoscopes and video systems are used principally for diagnosis and
surgery, while ureteral stents are used for post-operative care in the
urethra, prostate, bladder, ureter and kidney.  In gynecology, the
Company's colposcope, cryosurgical and electrosurgical systems are
used to diagnose and treat problems on the cervix and uterus; curettage
systems are used to perform D&C procedures; and the Company's USA
Resectoscope System is used to treat fibroid tumors and other uterine
conditions, and for procedures that provide an alternative to
hysterectomies.  In laparoscopy, Circon's endoscope and video systems
are being used to remove the gall bladder as well as to perform other
procedures in the abdominal cavity; irrigation/aspiration systems are
used to introduce sterile fluid to clean a surgical site and then remove
the fluid, surgical debris, smoke, etc.; and the specialty disposables
are used for rapid cauterization and cutting of tissue in a cost effective
manner.  In thoracoscopy, Circon's video hydro thoracoscope and
Kaiser  thoracoscopy instrument are inserted through small incisions
between the ribs and are used to perform biopsies and other thoracic
surgeries.  In arthroscopy, Circon's video systems are used to televise
surgery on the knee and other joints.  In gastroenterology, the Company's
endoscopic electrosurgery probes are used to cauterize ulcers and to
perform biopsies and other diagnostic procedures and the Company has
disposable specialty products for enteral feeding.  In cardiology, Circon's
mechanical endoscope subsystems are used with ultrasound equipment
to make high resolution images of the heart from inside the body.

Product Overview

    The Company manufactures products which comprise the core
technology of endoscopy --- the endoscope system:

    o Rigid Endoscopes

    o Flexible Endoscopes

    o Medical Video Systems

    The Company also manufactures accessory instrumentation
which are used in conjunction with endoscope systems for a variety of
diagnostic and therapeutic applications.

    o Electrosurgery Systems

    o Manual Instruments

    o Cryosurgery Products

    o Wound Closure Products

    o Tubal Ligation Products

    In addition, the Company manufactures cost-effective diagnostic
and disposable products for specific applications:

    o Ureteral Stents

    o Vacuum Curettage Products

    o Urinary Diagnostic Products


    o Gynecological Diagnostic Products

    Medical Endoscopy Systems

    A medical endoscope system consists of an endoscope,
a miniature color video camera, adapter optics, a high intensity light
source, a fiber optic light cable, one or more video monitors and a
video cassette recorder.  This complete optical-video chain allows
the surgeon to perform the procedure viewing a magnified image of the
subject organ or tissue on a video monitor, rather than directly through
the endoscope eyepiece.  Some procedures, such as arthroscopy
or laparoscopic cholecystectomy, are performed almost exclusively
using the video system.  This technique, which has been made practical
by the miniaturization of the color video camera so that it can be easily
attached to an endoscope, provides the following benefits:

    o reduces surgeon fatigue by alleviating eye and back strain
              from prolonged viewing through the eyepiece of the endoscope;

    o increases operating room coordination, staff efficiency
              and motivation by allowing the entire operating room team
              to view the medical procedure and follow its progress;

    o allows more than one physician to participate in the procedure;

    o facilitates the teaching of medical students and practicing
              surgeons by permitting live viewing and playback;

    o provides documentation of surgery; and

    o increases patient education by allowing patients to view
              prior operations in order to understand the nature of
              proposed surgery.

    Circon offers customers the complete set of components which
constitute the endoscopy system.  In addition, the Company now
provides a full range of specialized products and accessories that a
particular doctor, such as a urologist or gynecologist, might require
to treat a patient, from the initial diagnosis through surgery to
post-operative care.  The Company believes that many customers
prefer to purchase a complete system from a single source to simplify
the purchasing decision and to allow the customer to look to a single
company for servicing responsibility.  Selling a complete system
enables Circon to control overall quality of each link in the system
and to reduce or eliminate its dependence on components outside
its control.  Other advantages of a broad product line include greater
efficiency in distribution and more flexibility in competitive pricing.

    By having the core "endoscopy technology," Circon is able
to identify a new market opportunity and then quickly develop the
endoscope products and accessories needed to address specific
diagnoses and therapeutic procedures as they are identified.

    Rigid and Flexible Endoscope Systems

    The Company manufactures a broad line of rigid and flexible
endoscopes and accessories.  Rigid endoscopes transmit the
optical image through a linear series of high resolution lenses
encased in a stainless steel tube.  Flexible endoscopes transmit
the optical image through a coherent bundle of several thousand
parallel optical fibers in a pliable tube.  Both rigid and flexible
endoscopes use fiber optics to illuminate the subject organ.

    Rigid endoscopes provide higher image quality than flexible
endoscopes and, because they are less expensive to manufacture,
sell for significantly lower prices than flexible endoscopes. In addition,
rigid endoscopes are more durable and more easily manipulated by
the physician than flexible endoscopes.  Flexible endoscopes have
the advantage of greater patient comfort and can access certain areas
of the body inaccessible by rigid endoscopes.

    The critical features that doctors require in an endoscope are
high image quality (resolution, contrast, depth of focus, field of view
and color fidelity), sufficient light intensity, evenly distributed
illumination and ease of use.  Doctors also require responsive
service by the manufacturer.  Circon believes that its products and
service meet or exceed the industry standards.

    Video Systems

    Circon designs, assembles and markets miniature color video
systems for medical applications in endoscopy.  Circon purchases
and modifies video monitors, printers and video cassette recorders
for resale as part of these color video systems.  The camera, a high
intensity light source and optics, which are produced by Circon,
typically account for 50% to 95% of the complete video system's
retail price.  Color video systems range in price from approximately
$8,500 to $30,000.

    The most important features of video cameras for medical
applications are minimum size and weight, simplicity of operation,
reliability, light sensitivity, image quality and immersibility.  Circon
believes that its cameras meet or exceed the quality of competitive
cameras in each of these specifications.  All of Circon's cameras use
CCD sensors and are waterproof, which permits them to be
immersed in disinfecting solution together with other surgical
instruments.  Circon manufactures camera models in both the NTSC
(used in the United States and Japan) and PAL (used in much of
Europe) electronic formats so that they are compatible with
standard video accessories worldwide.   The MicroDigital  family
of cameras, the first single chip CCD sensor camera with all digital
signal processing of video images, enhanced color and resolution,
greatly assisting surgeons in properly diagnosing and performing
surgery by optimizing their view of all anatomical structures and
procedural instrumentation making it the ideal camera for minimally
invasive surgical applications.

    Electrosurgery Systems

    Circon manufactures probes, electrodes and generators for
use in procedures that utilize electrosurgery.  Circon's monopolar
electrosurgery equipment is used primarily in urological and
gynecological procedures.  Monopolar equipment passes electrical
current from the electrode through the body to an external grounding
pad and is very efficient for resection (cutting) and ablation (deep
tissue cauterization).

    Circon also manufactures bipolar equipment used to control
bleeding in the gastrointestinal tract. Unlike monopolar equipment,
the Company's BICAP  system passes electrical current only through
a localized area around the probe tip.  The isolation of the electrical
current to the area of bleeding reduces collateral tissue damage.
Circon manufactures BICAP  probes for treatment of gastric ulcers
and bleeding, esophageal tumors and hemorrhoids as well as other
bi-polar instruments for cutting and coagulating tissue in urological,
gynecological and pulmonary procedures.

    Primary Markets

    Urology.  The Company believes that Circon ACMI products
have the largest share of the urology endoscope market in the United
States and more Circon products are in current use in that market than
those of any competitor.  Having the largest installed base is an
important advantage when introducing new technology and products.
The Company's urology products are used for diagnosis and surgery
throughout the urinary tract  including the urethra, prostate, bladder,
ureter and kidney.

    The demand for ways of diagnosing and correcting medical
problems associated with the urinary tract and the prostate has
increased as the average age of the U.S. population has increased.
In addition, the Company believes that the introduction of new products
such as vaporizing electrodes, lasers and other new endoscopic
urological instruments with features not found in older products
coupled with the growing familiarity of urologists and the general
public with these innovative endoscopic techniques are factors
contributing to the growth of the urology market.

    Circon offers a comprehensive product line for the urology
market place.  The breadth of Circon's urology products includes
urodynamic equipment for diagnosing urinary problems, flexible
scopes for examining the bladder and complete urinary tract, rigid
scopes and accessories for correcting prostrate, bladder and kidney
problems, as well as ureteral stents used to insure proper urine flow
post-operatively.

    In 1988, Circon introduced the USA Series Resectoscope
System, a rigid cystoscope system.  This system incorporated new
features and materials designed specifically for transurethral
resection procedures used to treat enlarged prostate glands and
to remove bladder tumors and strictures in the urinary system.
The distinct features of the Circon USA system include a teflon-
coated sheath design that reduces trauma to the patient's urethra
and snap-in/snap-out locking components which simplify the
assembly and disassembly of the system in the clinical setting.
The ergonomic design of the USA Series Resectoscope also
reduces physician fatigue during the approximately hour-long
procedure.  All components are solid stainless steel for improved
durability rather than traditional chrome-plated brass.  Since
1993 Circon has been redesigning older products to incorporate
the USA Series design features.  In addition, two complete new
optical lens system designs (M3 and M4) have been completed
and are being incorporated into new products.  The price of a
basic USA Elite Resectoscope System, including accessories,
is approximately $8,000.

    Most recently, Circon revolutionized the treatment of BPH
with the introduction of the VaporTrode  Vaporization Electrodes,
the VaporTome  Resection Electrode and the Rotating Continuous
Flow Resectoscope.  The VaporTrode  electrodes provide an
outcome similar to TURP but with less bleeding, fewer complications
and a shorter hospital stay.  The VaporTome  electrodes provide
tissue resection similar to TURP with a deep coagulation zone for
less bleeding.

    Circon also manufactures and markets the ACN-1 flexible
cystoscope.  Its primary advantages over the rigid cystoscope are
patient comfort and 180 degree deflection capability, which allows the
physician to examine the entire bladder using a single scope.
Such examinations of the bladder require a minimum of three
endoscopes be inserted and withdrawn when rigid cystoscopes are
used.  Greater patient comfort usually leads to better patient
compliance for follow-up visits.  The ACN-1 cystoscope can also
be used as a flexible percutaneous nephroscope to remove stone
fragments through a small puncture into the kidney.
The flexible cystoscope is priced at approximately $7,200, while
the price of a rigid cystoscope is about $3,400.

    Circon's AUR-8 flexible ureteroscope, introduced in 1989,
is now part of a family of instruments which allow the urologist
access to the entire urinary system.  It was one of the first endoscopes
providing access to the kidney via a body orifice with reduced trauma
to the patient because of its relatively small diameter.  The AUR-7
flexible ureteroscope which began to be delivered in the latter part of
1996 has a smaller outside diameter than the AUR-8, lessening the
need for dilation and thereby further reducing patient trauma and
shortening operative time.  A large working channel allows surgeons
to achieve diagnostic and therapeutic procedures.  This product
substantially reduces the need to perform kidney surgery through
an incision in the patient's back.  The price of this product is
approximately $12,000.

    In December 1990, Circon began delivery of the Micro-6
semi-rigid ureteroscope, the first of the MR Series products.  These
products utilize flexible fiber optic imaging inside a long thin tube
which resembles a large-diameter hypodermic needle.  Circon's
MR Series ureteroscopes have a dual channel feature.  This
allows the physician to utilize the endoscope as both a source
of irrigation and as a means of access for surgical tools.  The MR
Series is essentially a rigid endoscope, is therefore easier to use
than the more sophisticated flexible ureteroscopes, and allows
the surgeon to operate on the lower one-third of the ureter,
which is where most kidney stone problems occur.  The MR Series
instruments allow the urologist to access the ureter without prior
dilation, thus reducing operative time and patient trauma.  It has
become the Gold Standard facilitating ureteroscopic procedures
for urologist.  In 1993, Circon added the MR-9 semi-rigid
ureteroscope with 5.4 and 2.1 French working channels for
operating convenience, and the MR-PC, the smallest 2 channel
pediatric cystoscope available.   The MRO-6 and MRO-7 new
offset ureteroscopes have straight working channels to
accomodate mechanical and ultrasonic intracorporeal lithotriptors.
The Company sells these products for approximately $7,000.

    Some of the most significant developments in urology in
recent years have been in endourology, which has developed
as an alternative to traditional open surgery for removal of kidney
and ureter stones.  Ureteroscopes and ESWL (extracorporeal
shockwave lithotripsy) equipment are utilized, either separately
or in conjunction with each other, to break up stones in the kidney
and ureter.  However, ESWL equipment is significantly more
expensive than the Company's ureteroscopes and intracorporeal
electrohydraulic lithotriptor and is not effective in certain
circumstances, particularly when the stone is in the ureter rather
than the kidney.  Ureteroscopes, when used in conjunction with
ESWL treatments, expedite the removal of stones from the kidney
and ureter.  The ureteroscope is used to further reduce the size of
the stone fragments following the ESWL treatment and then to remove
those stone fragments that are too large to pass comfortably through
the urinary tract.  Alternately, the ureteroscope may be used to
perform the entire stone removal task if ESWL is not affordable or
otherwise available.  The MRO-20 Rigid Percutaneous Nephroscope,
when used in conjunction with the USL-2000 Ultrasonic Lithotriptor
(intracorporeal), removes stagborn calculi from the renal pelvis
(kidney) in a single treatment versus multiple treatments
required for ESWL.  The MRO-20 sells for approximately $5,600
and the USL-2000 for approximately $15,000.

    The Circon Surgitek product line includes an array of
complementary ureteral stents, urological diagnostic equipment
and related products for use in urological procedures.

    Ureteral stents are used in urological surgical procedures
to maintain dilation of the ureters and thereby aid fluid drainage
from the kidneys.  While usually inserted through cystoscopes,
they may also be inserted intra-operatively.  Indwelling ureteral
stents are useful in helping to reduce complications and morbidity
following urological surgical procedures.  Ureteral stents are
frequently used to aid drainage following an endoscopic or
lithotripsy procedure and may also be used to help provide
internal support of an anastomosis and prevent leakage of
urine after surgery.  The ureteral stent products are sold primarily
to hospitals.

    The Circon Surgitek ureteral stent product line includes
16 types which are sold under the brand names Double J ,
Single J , Uro-Pass , Multi-Flo , Tractfinder , Magnetip ,
Uro-Guide , Magnetriever , Silitek , Surgitray , Lubri-Flex ,
Nephro-Stent , and Multi-Flex .

    Specialty guidewires are used in conjunction with the stent
product line to ease access to the ureter and position a ureteral
stent.  The Lumina  guidewire products feature radiopaque
markings which allow for visualization and measurement of the
ureter prior to stent placement, while Fastrac  wires have a
proprietary hydrophilic coating for easy and smooth introduction
in difficult anatomy.

    Circon Cabot's Surlock  Stone Retriever line consists of
over 42 configurations of helical and flatwire stone baskets and
pronged graspers to remove renal, ureteral and bladder stones.
These products are introduced through a cystoscope or urethroscope
and may be used in conjunction with extracorporeal shock wave
lithotripsy treatment (ESWL).  The Surlock  line features a
unique ergonomic locking handle design to aid in the retrieval of
stones once they are captured.

    Circon Cabot's urological diagnostic products include
urodynamic monitors and related ancillary equipment, including
the recently introduced OM-4, used for functional testing of the
bladder, urethra and sphincter.  By measuring urine flow,
concentration and muscle activity, urodynamic monitors provide
data to aid the diagnosis of a variety of urological disorders.
Endoscope attachments allow measurement to occur virtually
anywhere within the urine collection system using a procedure
that may be performed in a physician's office.   These products
offer a wide variety of diagnostic testing functions, including carbon
dioxide, water cystometry and uroflowmetry.  Circon Cabot's Ultra
monitor contains software for measuring, processing, recording
and storing all test data required for a complete urodynamic
evaluation, including data on flows and pressure.  The Stand-Alone
CMG unit provides the capability of the dual-channel cystometry
necessary to diagnose incontinence and prescribe collagen
treatments.  Circon Cabot's urological diagnostic products are
sold under the Endotek brand name primarily to physicians' offices
and hospitals.

    Gynecology.  Circon currently develops, manufactures and
markets medical devices and systems for use in gynecological
procedures.  The products include endoscopy systems, tubal ligation
systems, cryosurgical and electrosurgical systems, colposcopic
equipment, curettage systems, hemorrhoid treatments systems
and uterine resectoscope systems as well as disposable products
used in conjunction with these systems.

    Colposcopes are optical diagnostic instruments used in
gynecology to examine the cervix at high magnification to detect
abnormal tissues which could lead to cervical cancer or other lesions.
A range of accessory instruments are offered which provide
various magnification levels and documentation capabilities
(35mm photography, Polaroid photography, videocolposcopy, etc.).
Colposcopes are also used in conjunction with law enforcement efforts
to diagnose and document evidence in rape and child abuse cases.

    The cryosurgical system is marketed principally to gynecology
offices and clinics.  The primary application is to precisely destroy
defined areas of benign or pre-malignant lesions of the cervix.
A cryosurgical system consists of a gas cylinder (usually nitrous
oxide or carbon dioxide), a gun assembly, and special tips configured
for the intended application.  During cryosurgery, the tip is cooled by
rapidly expanding gas to temperatures low enough to freeze abnormal
tissues and destroy the lesion.  Cryosurgery offers the advantage of
less pain, faster healing, less scarring and faster and more
cost-efficient treatment over conventional surgery procedures.
Other medical specialties also use cryosurgery for dermatology,
proctology, ophthalmology and other procedures.

    The LLETZ (large loop excision of the transformation zone)
system is a quick, simple economical electrosurgical treatment for
cervical intraepithelial neoplasia which preceeds cervical cancer.
The primary advantage of the LLETZ electrosurgical procedure over
other procedures is the preservation of tissue for histopathological
examination.

    Circon's patented tubal ligation system, consisting of a
Falope-Ring  applicator and band, is used by the surgeon in
conjunction with an endoscope system to locate the fallopian tubes
and attach the bands for permanent female contraception.  The
Falope-Ring  Band is a small silastic ring which, once properly
attached to the fallopian tubes, occludes the tubes, preventing
migration of the ovum to the uterus, thereby blocking fertilization
and pregnancy.

    The Company's curettage system consists of a precision
vacuum pump and associated controls along with disposable
plastic tubing and cannula.  It is used by gynecologists in hospitals
and clinics to perform dilation and curettage and dilation and
evacuation procedures.

    Hysteroscopes and Other Office Products

    Circon markets uterine resectoscopes to gynecologists for
endometrial ablation and resection procedures.  Endometrial ablation,
the cauterization of the lining of the uterus, is a relatively new
procedure offering an alternative to a substantial number of
hysterectomy patients.  Approximately 600,000 hysterectomies
are performed annually in the United States.  Endometrial ablations
could be performed in approximately 30% of these cases on an
outpatient basis, which generally takes less than one hour to
perform and requires only a few days recovery time rather than
several weeks with a hysterectomy.  Circon products used in
endometrial ablation include a specialized electrosurgical working
element, a uterine resectoscope, and a color video camera with a
high intensity light source.  Circon's uterine video resectoscope
system sells for approximately $30,000.  Circon manufactures
and markets other specially designed endoscopes called
hysterscopes, in particular Micro-H  hysterscopes, and accessories
used in diagnostic and other gynecological procedures for both
the hospital and the office environment.

    General Surgery/Laparoscopy.  Circon offers a complete line
of medical instrumentation specifically designed to allow the general
surgeon to remove the gall bladder endoscopically using a procedure
called video laparoscopic cholecystectomy.  The surgeon performs
the procedure through small punctures in the abdomen through which
specially-designed surgical instruments are inserted.


    Equipment offered by Circon for use in laparoscopic
procedures include laparoscopes, flexible choledochoscopes,
video systems, insufflators for inflating the abdominal cavity during
surgery, electrosurgery systems and an array of specialized surgical
instruments such as grasping forceps and dissecting scissors.  A
complete video laparoscopic instrumentation system for an operating
room sells for approximately $40,000.

    During a laparoscopic surgical procedure, it is often necessary
to withdraw a conventional laparoscope frequently in order to clean
the lens.  Circon's HydroLaparoscope  addresses this problem of
keeping the lens clean.  It has a push-button lens cleaning design
that provides clearer visualization of the operative site.

    The Company also manufactures surgical hand instruments
and disposable products used in conjunction with the laparoscopy
system to cut and manipulate tissue, coagulate blood vessels and
remove tissue during a procedure.  Circon also markets the Snap-In
Snap-Out  line of reposable laparoscopic instruments, with multiple
use disposable tips and reusable handles.  These instruments are
easily disassembled for cleaning and sterilizing, and the tips and
handles can be interchanged to suit surgeon preference.  Since
the tips can be replaced instead of repaired when needed, the cost
per use is lower.

    Circon Cabot's irrigation/aspiration systems consist of a
series of pneumatically powered pumps coupled with a
complete family of Corson or Surgiflex disposable
suction/irrigation probes.  These systems allow the surgeon to
aspirate fluid, smoke, hard and soft tissue and irrigate with a
variable, uninterrupted flow for rapid cleaning and removal of
surgical debris, improving visualization of the surgical site
during laparoscopic procedures.

    The Company also markets a line of cost-effective specialty
disposable products.  The recently introduced Seitzinger
Tripolar  Cutting Forceps eliminates the need for the more
expensive stapling/cutting devices and provides for improved
safety, efficiency and cost effectiveness in more advanced
laparoscopic procedures.  Other products include the
Pleatman Sac  Tissue Removal System for easy containment
and removal of tissue in endoscopic procedures, Soft-Wand
Atraumatic Balloon Retractor for improved safety and control
during endoscopic retraction.

    Emerging and Other Markets

    Thoracoscopy.  In 1992, Circon began to see opportunity
for using minimally invasive surgical techniques to perform
surgery in the thoracic cavity.  Circon's video hydro thoracoscope
system with a push button lens cleaning design and line of sight
irrigation capability are particularly advantageous in thoracic
surgery due to the vascular structures typically involved.  This
unique and innovative product now provides consistent fog-free
viewing by means of a proprietary distal lens warming feature.
Circon recently began distributing a unique line of specialized
manual instruments for thoracoscopy to compliment the existing
video thoracoscopy system.

    Arthroscopy.  Arthroscopy is joint surgery utilizing an
endoscope called an arthroscope.  This technique revolutionized
knee surgery.  Small scissors and other instruments are used
to perform the arthroscopy through tiny incisions while the
surgeon views the inside of the joint on the video monitor.
Arthroscopy is usually performed in about one hour on an
outpatient basis.  Circon's complete optical-video system sells
for approximately $16,000.  Circon has been providing video
camera systems for arthroscopy since 1974.  Most of Circon's
cameras sold for arthroscopic applications are used with
arthroscope systems of other manufacturers.

    Gastroenterology.   Circon's products for gastroenterology
(GI) include bipolar and monopolar electrosurgery generators
and probes.  The Company's monopolar electrosurgery equipment
is used with gastroscopes to take biopsies and remove polyps in
the gastrointestinal tract.  Circon's BICAP bipolar electrosurgery
devices are used to control bleeding in both the upper and lower
gastrointestinal tract, to cauterize ulcers and to treat hemorrhoids
and esophageal tumors.  The Company's BICAP hemostatic probe
is designed to be used through a gastroscope.  A complete BICAP
electrosurgery system sells for approximately $10,000.

    The Company also markets a full line of products for enteral
feeding of the GI patient.  The Surgitek One-Step  button is a
proprietary product which allows for the placement of a low-profile
button device at initial gastrostomy, thereby avoiding the cost and
inconvenience of a second procedure.  The Surgitek Button and
Surgi-PEG  devices provide a choice of treatment and tube
options for pediatric and geriatric patients.

    Cardiology.  Circon provides flexible mechanical
endoscopy probes for use with ultrasonic transesophageal
echocardiography equipment ("TEE") sold by other companies.
In TEE procedures, the endoscopy probe containing an ultrasonic
generator is inserted through the mouth into the esophagus,
where it is used to generate images of the heart.  This technology
has gained rapid acceptance in the medical community because
it provides better images of the heart function than conventional
techniques.  No market share data are available for TEE
endoscopy probes.

    Non-Medical Markets

    Circon manufactures and distributes borescopes,
video systems, specialty glass and other microtool and hardware
products for non-medical applications.  Sales for these
applications were about 1% of total sales in 1997.

    Sales and Marketing

    Circon sells its endoscopy/urological products, video
systems and primary care products to hospitals, surgi-centers,
clinics and physicians' offices throughout the United States.
These products are sold by a direct sales organization with
158 employee representatives, including 129 direct sales
personnel, 16 region managers, 4 area managers, 3 national
contract managers, 2 video specialists and 4 nurses.

    The domestic sales and marketing activities are supervised
and supported by an in-house sales and marketing group, including
telemarketing, of approximately 69 individuals.

    In international markets, Circon employs 35 individuals and
sells through 70 local dealers.  The international organization
includes 4 direct sales representatives in Canada.  Circon's
German subsidiary, Circon GmbH,  has 3 employees in sales
and marketing.  Circon France SA, Circon's French subsidiary,
has 6 sales representatives, 2 marketing managers and 3
administrative support personnel.   International sales are
denominated in U.S. dollars except sales made by Circon
GmbH which are denominated in German marks, sales made
by Circon Canada which are denominated in Canadian dollars,
and sales made by Circon France which are denominated in
French francs.  Circon bears the risk of currency exchange
losses from German, Canadian and French customers
although no material losses have occurred in the past.

    The Company's key decision maker for most purchases
is either the physician utilizing the equipment or the materials
manager.  The Company tends to reach these individuals
through a combination of direct selling, national and regional
group contracts, training seminars, telemarketing, advertising,
direct mail and trade shows.  Circon participated in
approximately 350 exhibitions, workshops and conventions
worldwide during 1997 in which the Company demonstrated
endoscopes, urological stents, video camera products and
primary care urodynamic products.

    Since 1988, Circon has been providing flexible
mechanical endoscopy probes as an original equipment
manufacturer to customers which are suppliers of components
to manufacturers of trans-esophageal echocardiography
equipment.  Such sales are made directly by the Company
rather than through the sales force.

    Circon sells its industrial products through independent
sales representatives supported by a sales manager.  Miniature
hardware and MicroTools are sold through the mail directly to
end users and through catalog dealers.

    The Company maintains a specialized sales force for
Endotek  Urodynamic products and utilizes approximately
23 independent representatives and sales organizations who
devote a substantial portion of their time to selling the primary
care, cryosurgery and electrosurgery products.

    The Company establishes and maintains long-term
relationships with faculty members of leading medical schools
as well as with leading surgeons and endoscopists throughout
the world.  The Company's management, product development
and marketing personnel periodically meet with these faculty
members, corporate advisors and practitioners at hospitals,
clinics, company facilities, teaching seminars and trade shows.
Intensive concentrations occur with regard to new or planned
products within the specialist's particular area of interest.
These relationships have provided information concerning
practitioners' needs as well as valuable marketing contacts
and goodwill.  In addition, working with leading practitioners of
medical skills in new product development is a source of
product innovation.  The majority of the Company's sales are
to repeat customers.

    Circon typically ships hardware products within 30
days of receipt of a firm purchase order and disposable products
within 48 hours of order.  Accordingly, the Company does not
believe that backlog is a reliable indicator of future sales for any
fiscal period.

Research and Development

    The medical endoscopy system business has seen
numerous continuing engineering innovations.  Circon believes
that its ability to apply technical innovations quickly to products
designed for specific medical applications has been and will
continue to be important to its success.

    Expenditures for research and development were
$11,393,000, $11,896,000 and $10,941,000 in 1995, 1996
and 1997, respectively.

    During 1996 and 1997, Circon's development efforts
were directed toward expansion of the endoscope product
line for gynecology, office hysteroscopy, a new flexible
cystoscope and ureteroscope, a new distortion free rigid
endoscope, and new alternative versions of the
VaporTrode  electrode for urology.

    Endovideo product development concentrated on a
new digital camera platform with enhanced performance and
user-controlled features.

    The Company has continued to develop cost-effective
procedure-based disposables such as the 5mm Tripolar
Cutting Forceps, new ureteral stents, electrosurgical/suction
irrigation products and a new fluid management pump for
hysteroscopy.

Manufacturing and Service

    Circon manufactures entire endoscope systems,
using proprietary technologies and exacting quality
assurance.  Lens assemblies are manufactured from blocks
of optical glass, some of which the Company manufactures
from raw silica.  Glass fibers are drawn using advanced "3G"
or "glass on glass" processes.  The Company has developed,
refined and automated the technology required for grinding and
polishing large quantities of lenses and prisms having dimensions
and radius of curvatures less than one millimeter.  These lenses
and prisms are used in the manufacturing of high performance
small diameter flexible endoscopes.  A key component in lens
manufacturing is the application of appropriate coatings to the
surfaces of each lens, using state-of-the-art vapor deposition
equipment.

    In addition, the Company manufactures endoscopic video
systems, electro- surgical generators and electrodes required for
 electrosurgical procedures.  Most components used in the
manufacturing of video and electrosurgical devices are bought
from outside suppliers to Circon specifications.  Some
components, including certain sensors and cables,
are currently purchased from a single source.  The loss of any
single source of supply would have no more than a temporary effect
on the Company's operations.

    The Company's manufacturing organization follows good
manufacturing practices within the FDA's regulated guidelines.
At the same time, quality assurance consistently strives for
worldclass standards per ISO 9000 regulations.  In 1996
the Racine facility became ISO 9002 certified.  In 1998,
the Company's other facilities became ISO 9001 and EN46001
certified.  The Company is currently in the process of
obtaining a "CE" mark for all of its products.  Such mark
is obtained by demonstrating compliance with the ISO
quality system standards, and for medical device manufacturers,
the medical Device Directive promulgated by the European union.
After June 1998, manufacturers may not sell products which do
not bear a CE mark to members of the European union.
Although the Company expects to have the CE
mark on its products by June 1998, delays in
obtaining such mark may have an adverse effect on the
Company's European sales.

Service and Repairs

    The Company provides a two-year warranty on
endovideo systems sold in the United States.  Most
endovideo system repairs are performed by the
Company in Santa Barbara, California within 24 hours
of receipt.  For repairs requiring more than 24 hours,
loaner systems are provided to the customer.  The Company
also provides service and ongoing maintenance to customers
with video equipment that is no longer under warranty.

    All endoscope repairs are performed in Stamford,
Connecticut and Norwalk, Ohio.  For rigid out-of-warranty
endoscopes and other equipment repairs or service, the
Company offers a repair exchange instrument typically in
less than 48 hours for a fee well below the cost of a new
instrument.

Patents and Trademarks

    While the Company holds numerous patents
covering certain aspects of its endoscope, video,
electrosurgical, silicone stent and accessing technology,
it does not believe that its business is materially dependent
on any single patent or license.

    The Company utilizes several trademarks, including
 "Circon", "ACMI", "BICAP", "Cabot" and "Surgitek".

Government Regulation and Reimbursement Programs

    The medical devices manufactured and marketed by the
Company are subject to regulation by the FDA as well as
state and foreign regulatory agencies.  Depending on the
classification of medical device, different levels of regulation
apply, ranging from extensive premarket testing and approval
procedures for Class III devices, such as implantable devices,
to substantially lower levels of regulation for Class II devices,
such as endoscopes, and Class I devices, such as video
cameras.  While the Company does market a Class III device,
most of the Company's products are Class I or II.  Some of the
Company's new products and some improvements to existing
products require premarket notification to the FDA under
an expedited procedure known as a 510(K) that is available
only for products which are substantially equivalent to a legally
marketed device.  If the FDA rejects the  Company's claim that
there is such a substantially equivalent product, the Company
would be required to obtain premarket approval from the FDA
which involves a procedure requiring extensive clinical testing,
additional cost and substantial delay in the introduction of the
product to market.

    FDA and state regulations also require adherence to
certain "good manufacturing practices" ("GMP") which mandate
detailed quality assurance and record-keeping procedures,
and the Company is subject to unscheduled periodic regulatory
inspections.  In 1998, the Company received a "warning letter"
from the FDA citing the Company for marketing a device that
had not been cleared by the FDA.  Although the Company had
a reasonable position as to why clearance was not required,
the Company promptly filed a 510(K) for the subject device as
the FDA indicated.  On previous occasions, the Company
received FDA "regulatory letters" notifying the Company
of deficiencies and warning of enforcement action if the
deficiencies were not corrected.  The Company believes that
the deficiencies have been corrected and that it is in substantial
compliance with FDA regulations.

    The system for Medicare reimbursement of hospital
expenses is based on the diagnosis of the patient.  Under
this Diagnostic Related Groups ("DRG") system, a hospital
is paid a fixed amount for admitting a patient with a specific
diagnosis according to a schedule of fees, regardless of the
hospital's actual costs of treating the patient.  Whether or not
the DRG reimbursement is sufficient to cover the hospital's
costs in a particular case, the ceiling on reimbursement may
provide an incentive to reduce such costs.  To the extent that
the DRG program, and similar programs of private insurers,
provide such an incentive, the Company believes that they
promote the use of minimally invasive diagnostic and surgical
procedures such as endoscopy which reduce postoperative
hospitalization costs.  The Company is unable to predict
whether future changes to reimbursement or other healthcare
reform efforts will materially affect sales of the Company's
products.

Competition

    As a result of the merger with Cabot, Circon has the largest
U.S. sales force of any minimally invasive surgery company in
the fields of urology and gynecology.  Circon ACMI is the leader
in urology and gynecology hardware products such as
endoscopes and video systems.  Circon Cabot is one of the
leading companies in the U.S. in disposable products such as
urological stents, laparoscopic suction-irrigation devices,
and a wide variety of gynecology products.

    Circon believes that its products have the largest share
of the urology endoscope market in the United States.
Major competitors in endoscopic markets include a
Japanese company (Olympus Optical Co. Ltd.) and two German
companies (Karl Storz GmbH and Richard Wolf GmbH).  These
companies, as well as Stryker Corporation and Dyonics
(an affiliate of Smith & Nephew plc), are the principal
competitors in the miniature medical color video camera
market and hold a larger share of the International market
than Circon.

    The urology market is relatively mature and dominated
by a small number of competitors.  The principal competitive
factors are product quality and reliability, product features,
innovation, price and service.  The Company believes that it
competes favorably with respect to each of these factors.

    The color video camera market is somewhat more
fragmented than the urology market, although some camera
producers sell products only for specific medical specialties.
The principal competitive factors are image quality, minimum
size and weight, simplicity of operation, reliability, light
sensitivity and immersibility.  The Company believes that it
competes favorably with respect to each of these factors.

    The gynecology market is a rapidly growing area in
which Circon has substantial presence. With the addition of
Cabot's line of specialty office and disposable products to
Circon's hysteroscopy products, the Company is well
positioned with respect to  competition and provides
a complete array of products.

    The emerging endoscope markets are highly fragmented
 and market shares are indeterminate.  The principal
competitive factors are product features, price and service.
The Company believes that it competes favorably with
respect to each of these factors.

    An additional competitive factor in the urology,
laparoscopy and gynecology fields is breadth of product line.
Circon now offers a complete range of diagnostic, therapeutic
and post-operative products for the urology, laparoscopy and
gynecology markets.  Companies with broad product lines
have certain selling advantages.  The Company believes that
many customers prefer to purchase a complete video-endoscope
system from a single source to simplify the purchasing decision
and to look to a single company for servicing responsibility.
 Additional advantages of a broader product line are greater
efficiency in distribution and more flexibility in responding to
competitors' price cuts offered on a single component of the
system.

    Several of Circon's competitors are also expanding their
product lines to enable them to be the sole source for all of a
customer's product needs for a particular field.  Several of these
customers are significantly larger than Circon and might have
the ability to take market share away from Circon in a specific
field by bundling products or offering deep discounts.

    Some surgical procedures which utilize the Company's
products could potentially be replaced or reduced in importance
 by alternative medical procedures or new drugs.  The
Company's Resectoscope Systems are used to perform
transurethral resection of the prostate ("TURP") to treat
benign prostatic hyperplasia ("BPH"), a condition in older
men where the enlarged prostate gland restricts urination.
Alternative procedures, new devices and certain drugs now
undergoing testing and evaluation may alleviate BPH or its
symptoms or delay the need for TURP.  Since 1992 Merck &
Co., Inc. has been marketing a drug that, according to clinical
testing reported by the pharmaceutical company,
caused the prostate gland to stop growing in most cases,
to shrink in some cases, and to restore urine flow to
near-normal rates in some cases.  Abbott Laboratories, Inc.
and Pfizer, Inc. also have drugs which are FDA
approved for treatment of hypertension and for treatment of
BPH.  High percentages of patients using these drugs are
reported to be showing some levels of symptomatic improvement.
Alternative procedures under evaluation include implantation of
a stent (metal coil) in the prostate to provide mechanical relief from
pressure on the urethra, and hyperthermia to shrink the prostate
using microwave probes inserted rectally or urethrally.  Another
procedure under evaluation uses a laser probe inserted in the
urethra to treat the prostate.  Circon is unable at this time to
assess the efficacy, safety, cost effectiveness, physician
acceptance and potential regulatory approval of these new
drugs, modalities and alternative medical procedures.  To
the extent that any of them significantly reduces the need
for Circon's products, sales of the Company's products
could be adversely affected.

    The markets in which the Company's products compete
are characterized by continuing technical innovation and
competition. In order to continue to be competitive, the
Company is engaged in continuing efforts to improve its
products, to develop additional products and, where appropriate,
to distribute products of other manufacturers.  There is no
assurance that competition will not further intensify, either from
existing competitors or from new entrants into the markets, or
that some future medical breakthrough or technological
development will not confer a competitive advantage on
another company.


Employees

    As of December 31, 1997, the Company had 1,204
full-time employees, of whom 691 were engaged in manufacturing,
152 in research and development, 279 in sales and marketing and
82 in administration.  Approximately 384 employees are covered
by collective bargaining agreements.  The Company's collective
bargaining agreements covering union workers expire in January
1999 and March 2003.  The Company has not experienced any
strikes or other work stoppages in recent years.


Forward Looking Statements

    The information provided in this report may contain forward
looking statements or statements which arguably imply or suggest
certain things about the Company's future.   These include, but are
not limited to, statements about: 1) any competitive advantage
Circon may have as a result of its installed base in the U.S.; 2)
Circon's belief that its products exceed industry standards or
favorably compete with other company's new technological
advancements; and 3) the anticipated success of certain recently
introduced products or products scheduled to be released in
the near future.  These statements are based on assumptions
that the Company believes are reasonable, but a number of
factors could cause the Company's actual results to differ
materially from those expressed or implied by these statements.
Investors are advised to review the Additional Cautionary
Statements section, which follows Management's Discussion
and Analysis of Operations (Item 7) of this report, for more
information about risks that could affect the financial results
of the Company.

Item 2.    Properties.

    Circon currently owns or leases a total of approximately
500,000 square feet of office and manufacturing space in
eight locations.

    The Company is headquartered in Santa Barbara,
California where it owns a 76,000 square foot facility used
for administration and manufacturing. The Company currently
sublets 23,000 square feet of the building.

    The Company owns 29 acres of land and 52,000 square
feet of manufacturing space in Norwalk, Ohio. The Company
also leases and occupies 14,000 square feet of manufacturing
space in Norwalk.

    The Company leases and occupies 98,000 square
feet of office and manufacturing space in a 150,000 square
foot building in Stamford, Connecticut.  The Company
subleases 47,000 square feet of this facility.

    The Company owns two buildings situated on 23 acres
in Racine, Wisconsin: (1) a 73,000 square foot building used
as a manufacturing and warehousing facility; and (2) a 36,000
square foot building used as an engineering and administrative
facility.

    The Company owns two  41,000 square foot buildings in
Langhorne, Pennsylvania, which were previously used as
administrative, manufacturing, engineering and warehousing
facilities.  Both properties have been leased and the manufacturing
operations have been relocated to the Norwalk, Santa Barbara
and Racine facilities.

    The Company leases and occupies 6,000 square feet of
office and manufacturing space in two buildings located in
Windsor, Ontario, Canada.

    The Company also leases and occupies approximately
3,500 square feet of office space in Paris, France.

    In 1997, Circon closed its primary German facility and
currently leases a small office facility for European based
sales and marketing personnel.

Item 3.   Legal Proceedings.

    On May 28, 1996, two purported stockholders of the
Company, Bart Milano and Elizabeth Heaven, commenced
an action in the Superior Court of the State of California for
the County of Santa Barbara, Case No. 213476, purportedly
on behalf of themselves and all others who purchased the
Company's common stock between May 2, 1995 and
February 1, 1996, against the Company, Richard A. Auhll,
Rudolf R. Schulte, Harold R. Frank, John F. Blokker,
Paul W. Hartloff, Jr., R. Bruce Thompson, Jon D. St. Clair,
Frederick A. Miller, David P. Zielinski, Winton L. Berci,
Jurgen Zobel, Trevor Murdoch and Warren G. Wood.
That complaint alleged that defendants violated Sections 11
and 15 of the Federal Securities Act of 1933, as amended,
Sections 25400-02 and 25500-02 of the California Corporations
Code, and Sections 1709-10 of the California Civil Code,
by disseminating allegedly false and misleading statements
relating to Circon's acquisition of Cabot Medical Corp. by
merger and to the combined companies' future financial
performance.  In general the complaint alleged that defendants
knew that synergies from the merger would not be achieved, but
misrepresented to the public that they would be achieved, in
order to obtain approval for the merger so they would be
executives of a much larger corporation.  This alleged conduct
allegedly had the effect of inflating the Company's stock price.
On July 29, 1996, defendants filed demurrers to the complaint on
the ground that plaintiffs' allegations fail to state facts sufficient to
constitute a cause of action.  On or about August 6, 1996, plaintiffs
served their response to defendants' demurrers, stating their
intention to file an amended complaint prior to the hearing on
defendants' demurrers.  On September 20, 1996, plaintiffs
voluntarily dismissed Rudolf R. Schulte, Harold R. Frank,
John F. Blokker and Paul W. Hartloff, Jr. from the action, without
prejudice.  On September 30, 1996, plaintiffs, joined by a third
purported stockholder of the Company, Adam Zetter, filed a first
amended complaint against the remaining defendants.  Plaintiffs'
amended complaint is substantially similar to the original complaint,
but adds a new purported cause of action under the unfair business
practices provisions of the California Business & Professions Code,
Sections 17200, et seq. and 17500, et seq.  Like the original
complaint, the amended complaint seeks compensatory and/or
punitive damages, attorneys fees and costs, and any other relief
(including injunctive relief) deemed proper.  On December 2, 1996,
defendants filed demurrers to the amended complaint again on the
grounds that plaintiffs' allegations fail to state facts sufficient to
constitute a cause of action.  On April 17, 1997, a hearing was
held regarding the defendants demurrers to the first amended
complaint.  By order dated May 28, 1997, the Superior Court
overruled the defendant's demurrers to the amended complaint.
The parties are now engaged in discovery proceedings.  The
Company believes plaintiffs' allegations to be without merit and
intends to vigorously defend the lawsuit.

    On August 15, 1996, an action captioned Steiner v. Auhll,
et al., No. 15165 was filed in the Court of Chancery of the State
of Delaware.  Shortly thereafter, three substantially similar
actions were filed by three other individuals claiming to be
stockholders of Circon.  All four actions allege that Circon
and certain of its officers and directors breached their fiduciary
duties to Circon's stockholders by taking steps to resist the
hostile tender offer by U.S. Surgical Corporation announced
on August 2, 1996.  All four of these actions purport to be
brought as class actions on behalf of all Circon stockholders.
On August 16, 1996, a separate action captioned
Krim v. Circon Corp., et al., No. 153767, was filed in the
Superior Court of California in Santa Barbara.  The
plaintiff in that action also claims to be a Circon stockholder
and purports to bring his claim as a class action.  On
September 27, 1996, that action was stayed by the Court
in favor of the actions pending in Delaware; the Court also
encouraged the plaintiff to refile his action in Delaware.
On or about August 30, 1996, the Chancery Court
consolidated the four Delaware complaints into a
single action, and plaintiffs filed an amended complaint.
The Company and its officers and directors filed an answer
to the amended complaint on November 12, 1996.  The
Company believes plaintiffs' allegations to be without merit
and intends to vigorously defend the lawsuits.

    On September 17, 1996, an action captioned
U.S. Surgical Corporation v. Auhll, et al., No. 15223NC was filed
in the Court of Chancery of the State of Delaware.  The
complaint in this action also alleges that Circon and certain
of its officers and directors breached their fiduciary
duties to Circon's stockholders by taking steps to resist
U.S. Surgical's hostile tender offer.  The Company and its
officers and directors filed an answer to the complaint on
November 12, 1996.  On or about October 28, 1997, U.S.
Surgical filed an Amended and Supplemental Complaint
(the "Amended Complaint").  The Amended Complaint repeats
the allegations in U.S. Surgical's September 17, 1996
complaint and adds new allegations regarding the supposed
breaches of fiduciary duties by certain officers and directors
of Circon since the filing of the September 17, 1996 complaint.
The Company believes plaintiff's allegations to be without merit
and intends to vigorously defend the lawsuit.


Item 4.    Submission of Matters to a Vote of Security Holders.

    The Annual Meeting of Shareholders was held on
October 6, 1997.  At the close of business on August 11, 1997,
the record date for determination of shareholders entitled to
vote at the Meeting, there were 13,267,848 shares of the
Company's Common Stock outstanding.  At the Meeting,
holders of 10,969,235 shares of the Company's Common
Stock were represented in person or by proxy, constituting
a quorum.

    Due to the contested nature of the matters submitted
to voters, CT Corporation System served as independent
"Inspector of Election."  All voting results were submitted to
 the Company on October 15, 1997, and are reported herewith.

    At the Meeting, the votes cast for the persons nominated
for Director were as follows.  There is no figure for
"Withheld" on Directors because cumulative voting was in effect.


                         In Favor


Richard A. Auhll        6,551,416


Paul W. Hartloff, Jr.         536


Charles M. Elson        7,181,072


Victor H. Krulak        7,181,072


    At the Meeting, the votes cast for, against and
abstaining from voting with respect to U.S. Surgical
Corporation's "Maximum Value Resolution" were as follows.
There were no "Broker Non Votes."


 For            Against             Abstain

7,492,976     3,402,655             73,604


    At the Meeting, the votes cast for, against and
abstaining from voting with respect to ratification of the
election of Arthur Andersen LLP as independent certified
public accountants for the Company were as follows.
The auditors totals are less than quorum because U.S.
Surgical's ballot did not include the proposal in their proxy
materials.


 For          Against            Abstain

3,566,570     41,915              30,991


                         PART II


Item 5.    Market for Registrant's Common Equity and Related
Stockholders Matters.

    Circon's Common Stock is traded in the over-the-counter
market and is quoted through the National Association of
Securities Dealers Automated Quotation System under the
NASDAQ symbol "CCON."  The following table shows the
actual closing prices of the Company's Common Stock
quoted on the NASDAQ National Market System.

                                High           Low
                              --------       --------
1996:

    First Quarter               20-1/4        10-3/4
    Second Quarter              15-5/8        10-3/4
    Third Quarter               19-1/2         8-1/2
    Fourth Quarter              17-5/8        15-1/4

1997:

    First Quarter               15-3/4        13-3/8
    Second Quarter              14-5/8        12-5/8
    Third Quarter               16-1/8        14
    Fourth Quarter              16-1/2        14-3/4

    As of December 31, 1997, the Company had 901
shareholders of record.  No dividends have been paid by
Circon and it is not anticipated that any will be paid in the
foreseeable future.ITEM 6.
<TABLE>
<S>
                       SUMMARY FINANCIAL INFORMATION
                   (in thousands, except per share data)
                         <C>        <C>        <C>        <C>        <C>

Circon Corporation and Subsidiaries

                               For the years ended  December 31,
                         (A) 1993   (A) 1994   (B) 1995   (C) 1996   (D) 1997
Income Statement Data:     ------     ------     ------     ------     ------

Net Sales                $156,861    $157,041   $160,447   $153,779   $159,954

Gross Profit               80,972      88,569     83,640     85,878     87,992
Operating Income (Loss)    (1,454)     13,753      3,820      6,709     10,209
Net Income (Loss)          (6,212)      6,509     (5,393)     2,071      5,099
Basic Net Income (Loss)
  per Share                 (0.50)       0.51     ( 0.44)      0.16       0.38
Diluted Net Income (Loss)
  per Share                 (0.50)       0.51      (0.44)      0.16       0.37
Basic Average Shares
     Outstanding           11,583      12,058     12,325     12,828     13,260
Diluted Weighted Average
     Shares Outstanding    11,583      12,629     12,325     13,339     13,658

</TABLE>


                                                December 31,
                            ------------------------------------------------
                              1993      1994       1995      1996       1997
Balance Sheet Data:         ------    ------     ------    ------     ------

Working Capital           $ 70,857  $ 70,811   $ 55,365   $ 61,261   $ 68,337
Total Assets               177,301   184,129    181,399    169,118    169,357
Total Debt                  74,184    73,483     72,292     50,994     49,189
Total Shareholders' Equity  81,768    86,965     87,172     98,901    103,959


No cash dividends have been paid during the periods presented.

(A) Circon and Cabot merged - see Note 1 to the Consolidated Financial
    Statements
(B) See Note 3 to the Consolidated Financial Statements
(C) See Notes 4 and 5 to the Consolidated Financial Statements
(D) See Notes 5 and 6 to the Consolidated Financial Statements
ITEM 7.        Management's Discussion and Analysis of Operations
               and Financial Condition

See "Additional Cautionary Statements" regarding forwarding
looking statements contained in the following discussion.

Results of Operations
---------------------
    Overview

    1997 was a turnaround year for Circon.  The distraction
caused by an unsolicited tender offer to acquire the company's
outstanding common stock remained throughout the year.
Time and attention was diverted from operational business issues
to the issues related to the hostile tender offer and shareholder
lawsuits.      Despite these distractions, the Company's focus was on
improving operations.

         Comparison of the Year Ended December 31, 1997
             to the Year Ended December 31, 1996

    Sales

    Sales increased in 1997 to total $160.0 million, up $6.2
million over 1996.  Increases in U.S. sales and industrial sales
were partially offset by a decline in the international sector.

    Sales by the U.S. sales force totalled $123.7 million for
1997, up nearly 5% over 1996.  After a slow start in the first
quarter of 1997, the U.S. sales force rebounded and the
second, third, and fourth quarters each set new all-time sales
records.

    International sales began to decline after the first quarter
1997, and ended the year down 1% from 1996.  Excellent
growth was achieved by Circon's new sales force in France
as well as by the dealer network in Italy and South America.
However, these gains were more than offset by declines in
the Far East, Germany and other European countries.

    Gross Profit

    The 1997 gross profit percentage of sales was 55.0%
compared to 55.8% for 1996.  In the second and third quarters
of 1997, shifts in the mix of products sold, coupled with several
larger orders which carried lower selling prices, caused the
gross profit percentage to dip.  However, the gross profit
rebounded in the fourth quarter 1997 to 56.1% of sales.

    Operating Expenses

    Operating expenses totalled $77.8 million for 1997, a
decrease of $1.4 million or 1.8% from 1996.  A program
to reduce operating and manufacturing overhead expenses
was initiated in mid-August 1997.  Second half 1997 operating
expenses of $38.1 million were down $0.7 million from the
$38.8 million operating expenses recorded for the second half
of 1996.

    Selling, general and administrative expenses totalled $66.3,
up only $1.7 million year-to-year.    Increased commissions due to
higher sales were offset by reductions of convention, travel
and other marketing expenses. Moreover, second half 1997
selling, general and administrative expenses of $32.1 million were
down $2.1 million from the $34.2 million reported for the first half of
1997, due to the cost savings measures initiated in mid August 1997.

    Research and development expenditures totalled $10.9 million
for 1997, down 8% from 1996, and were 6.8% of sales.  The closure of
the Cabot Medical facility in Langhorne, Pennsylvania, and the
consolidation of R&D efforts into three locations were a significant
factor in the year-to-year decrease.  Development efforts focused on
new video cameras, new distortion free laparoscopes and other
accessories.

    Operating expenses for the fourth quarter were $18.7 million,
down $0.6 million from the 1996  period, and the lowest quarterly total
operating expense level since the merger with Cabot Medical in the
third quarter 1995.

    A charge of $0.4 million incurred in connection with closing the
sales and service office in Munich, Germany, was included in the
1997 operating expenses.  A charge of $2.6 million incurred in
connection with closing Cabot Medical's Langhorne facility was
included in 1996 operating expenses.

    Operating Income

    Operating income for 1997 totalled $10.2 million, up 52%
year-to-year.  This increase was the result of increased sales
coupled with reduced operating expenses, discussed above.

    Interest and Other Income (Expense)

    In 1996, the Company retired $67.0 million of Cabot
Medical convertible notes utilizing $50.5 million of a new bank
credit facility plus cash and marketable securities.  Interest
expense declined slightly, $0.1 million, during 1997 due to the
reduction of long-term debt by $1.8 million.  Interest income
declined $0.1 million due to the lower levels of marketable
securities.

    A special non-operating charge of $3.0 million associated
with the U.S. Surgical hostile tender offer and shareholder
lawsuits was included in the 1996 results.

    Income

    Net income for 1997 was $5.1 million, up 147% from 1996,
due to factors discussed above and including the facility closure charge
of $0.4 million and a related non-recurring tax benefit of $0.9 million.
1996 net income was $2.1 million, including special charges and
non-recurring income tax benefit of $2.0 million.

        Comparison of the Year Ended December 31, 1996
              to the Year Ended December 31, 1995

    Sales

    Sales increased sequentially during the last three quarter of
1996 to total $153.8 million, but remained below the 1995 sales of
$160.4 million due to declines in the international and other sectors.


    U.S. sales force sales totalled $118.5 million in 1996 and
represented 77% of total sales.

    During the seven months transition period immediately
following the merger, the newly combined U.S. sales force had
uneven performance.  However, from the second quarter through
the fourth quarter, U.S. sales force revenues grew sequentially.
Circon's U.S. sales force increased its fourth quarter sales by 10%
over the comparable 1995 period and achieved the highest sales of
any quarter since the merger.

    Circon utilizes specialized distributors in most countries;
however, late in the third quarter 1996, a Circon direct sales
force was established in France.  Fourth quarter sales results
were encouraging and the French sales organization should
become productive in 1997.  International sales of $22.1 million
were down $4.1 million or 15.6% compared to 1995 primarily due
to large initial orders from our new Japanese distributor which
occurred in 1995.

    Several new products began shipping in the fourth quarter,
most notably the AUR-7 Flexible Ureteroscope which is the smallest
diameter instrument of its type in the world.  Numerous other products
are targeted for release in 1997.

    Gross Profit

    The 1996 gross profit percentage of sales was 55.8% compared to
54.8% for 1995.  Gross profit for the first nine months was 55.6% of
sales compared to 54.6% of sales for the same 1995 period
due to increased manufacturing efficiencies and some stabilization in
pricing of Cabot products.

    Cabot Medical facility in Langhorne, Pennsylvania, was closed
at the end of October 1996. As a result of the Langhorne closure and other
measures, fourth quarter 1996 gross profit as a percent of sales
reached 56.6% from 55.4 % for the same 1995 period.

    Operating Expenses

    Selling, general and administrative expenses were up less than
one percent in 1996 over 1995.  Reduced marketing expenses
achieved through the synergies of the Cabot merger were offset
by increased sales incentives for the U.S. sales force, higher recruiting
expenses due to the sales force restructuring, and higher legal fees.

    Research and development expenditures for 1996 totalled $11.9
million, up 4.4% over the combined 1995 expenditures of $11.4 million,
and were 7.7% of sales.  Development efforts focused on new flexible
endoscopes, new video cameras and fluid management systems.

    Fourth quarter operating expenses were $19.3 million, up
3.3% over the combined fourth quarter 1995.

    A special business integration charge of $4.2 million,
associated with merging Circon and Cabot, was included in
1995 operating expenses.  A charge of $2.6 million incurred
in connection with the closing of the Langhorne facility was
included in 1996 operating expenses.

    Interest and Other Income (Expense)

    In 1996, the Company retired $67.0 million of Cabot's
convertible notes utilizing $50.5 million of a new credit facility
plus cash and marketable securities.  Therefore, interest income
of $0.4 million in 1996 declined compared to $1.3 million in 1995
and interest expense decreased from $5.9 million in 1995 to $4.2
million in 1996.

    A special non-operating charge of $3.0 million associated
with the U.S. Surgical hostile tender offer and shareholder
lawsuits is included in the 1996 results.

    Income

    Excluding one-time charges, 1996 income before taxes was
$5.6 million compared to $7.4 million for 1995, primarily due to
lower sales.

    Net income for 1996 was $5.7 million excluding special
charges of $5.6 million pretax and $3.7 million after taxes.
Including the special charges, 1996 net income of $2.1
million was the result of the factors discussed above offset
by a non-recurring income tax benefit of $2.0 million.

Liquidity and Capital Resources
-------------------------------

    Circon's financial position is solid with working capital
of $65.6 million.  Circon's current ratio improved to 4.9:1 as of
December 1997 compared to 4.1:1 as of December 1996.

    Circon had a $75.0 million secured, reducing revolving credit line with
a syndicate ofbanks.  The line of credit reduces by $3.0 million every six
months and totalled $66.0 million at December 31, 1997.
Interest on this credit line is indexed to either LIBOR or the
bank's base rate at Circon's option.  Circon also has a letter of
credit totalling $3.3 million underlying $3.2 million of  tax
exempt Cabot Industrial Development Authority Bonds.
The letter of credit has a renewable five year term and carries
an annual fee of 1% of the outstanding bond principal facility.

    In 1996, Circon repurchased at par the $67.0 million of
Cabot's 7.5% convertible notes pursuant to a November 1995
vote of the bond holders.  Circon used $50.5 million of its credit
facility, marketable securities and cash to purchase the Cabot notes.

    Net cash flows from operating activities totalled $4.3 million,
primarily due to $5.1 million in net income and $7.9 million
of depreciation and amortization being partially offset by changes
in other assets and liabilities.

    Inventories increased $3.4 million between December 1996
and December 1997, primarily due to the introduction of new
products.  Inventory increases reached a peak in August 1997
and efforts to reduce inventories during the last four months of the
year resulted in a $3.6 million drop by year-end 1997.

    Property, plant and equipment increased $4.9 million due
to additional sales demonstration equipment, facilities upgrades
and the conversion to a new MIS system.

    Cash flow of $0.5 million resulted from the exercise of stock
options.

    Combined non-cash charges for depreciation and amortization
aggregated $26.1 million over the three year period 1995 through 1997,
and $20.8 million was used to purchase plant and equipment net of
retirements (see consolidated statement of cash flow and
related notes in the accompanying financial statements).

    The company believes that cash flows from operations,
existing cash and marketable securities, and cash
available from bank credit arrangements are adequate to fund
the company's existing operations for the foreseeable future.


Year 2000 Compliance
---------------------

    Circon Corporation is in the process of replacing its entire
internal management information system with new software and
hardware which is year 2000 compliant.  The project is expected
to be completed by December 1998.  Software provided and
operated by third parties are also currently under evaluation.

    In addition, Circon's Manufacturing and Research and
Development staffs are in the process of reviewing all
manufacturing processes, manufactured products and secondary
compliance issues with vendors related to the year 2000.

    At the present time, the Company has not identified any
compliance issues that cannot be resolved within the required
time frames or will have a material impact on the  the Company's
business or financial results.

Additional Cautionary Statements
--------------------------------

    No Assurance of Cost Savings or Revenue/Earnings
Growth as provided in the Company's Strategic Plan

    Circon has implemented the initial phases of a
comprehensive strategic plan to maximize value for
shareholders that includes cost cutting and revenue/earnings
growth components.  Implementation and achievement of the
strategic plan is critical to the success of the Company and
the achievement of its corporate goals.  Although the strategic
plan has already begun to yield positive results, there can be no
assurance that this trend will continue.  The failure of the Company
to achieve cost and expense reductions in accordance with the
strategic plan, or the occurrence of unforeseen expenses, could
adversely affect the Company's ability to achieve the goals set
forth in the strategic plan.  Cost cutting measures include the
elimination of certain personnel, the decision to not fill
several open positions, the reduction in quantities of samples
provided to the sales force, and the reduction of salaries for
certain senior executives.  There can be no assurance that such
cost cutting will not have an adverse effect on the Company's
operations.  The sales force has gone through a significant
reorganization since the merger with Cabot Medical in
1995 and has not yet demonstrated the productivity required to
achieve the goals of the strategic plan.  In addition, the
strategic plan provides for revenues/earnings growth which
is contingent in large part on the success of both the sales force
and the Company's new products, some of which have not yet
been introduced to the marketplace.  The failure of the sales
force to achieve targeted results or of the Company's new products
to be accepted in the market may have a material adverse effect
on the Company's financial results and its ability to meet the goals
established in the strategic plan.

    Disruptive Effect of Hostile Tender Offer

    On August 2, 1996, a subsidiary of United States Surgical
Corporation ("USSC") initiated an unsolicited offer to purchase all
outstanding shares of the Company's Common Stock.  This tender
offer has had, and may continue to have, various adverse effects
on the Company's business and results of operations,
including the increased susceptibility of key employees of the
Company to employment offers by other companies, the risk of
negative reactions among distributors, suppliers or customers to
the prospect of such a change in control of the Company, the
distraction of management and other key employees and the fees
and other expenses of financial, legal and other advisors to the
Company in responding to the tender offer and related law suits.

    On October 6, 1997, two individuals who were nominated by
USSC to serve on the Circon Board were elected by the shareholders
of the Corporation.  A precatory resolution sponsored by USSC
calling for the Board of Circon to arrange for the prompt sale of the
Company was also approved by the shareholders.  In addition,
USSC filed a lawsuit in the State of Delaware which, among other
things, seeks to force the Board to redeem the Shareholder Rights
Plan and have the Employee Retention Plans nullified.  No assurance
can be given that these actions will not exacerbate one or more of the
potential adverse effects mentioned above.

    Increasing Competition and Risk of Obsolescence from
Technological Advances

    The markets in which Circon's products compete are
characterized by continuing technical innovation and
increasing competition.  Some surgical procedures which utilize
the Company's products could potentially be replaced or
reduced in importance by alternative medical procedures
or new drugs which may adversely affect Circon's business.

    Government Regulation

    The process of obtaining and maintaining required regulatory
approvals is lengthy, expensive and uncertain.  Although Circon has
not experienced any substantial regulatory delays to date, there is
no assurance that delays will not occur in the future, which could
have a significant adverse effect on Circon's ability to introduce new
products on a timely basis.  Regulatory agencies periodically
inspect Circon's manufacturing facilities to ascertain
compliance with "good manufacturing practices" and can subject
approved products to additional testing and surveillance programs.
Failure to comply with applicable regulatory requirements can, among
other things, result in fines, suspensions of regulatory approvals,
product recalls, operating restrictions and criminal penalties.
While the Company believes they are currently in compliance, if Circon
fails to comply with regulatory requirements, it could have an adverse
effect on Circon's results of operations and financial condition.

    Uncertainties within the Healthcare Markets

    Political, economic and regulatory influences are subjecting the
healthcare industry in the United States to rapid, continuing and
 undamental change.  Although Congress has not passed
comprehensive healthcare reform legislation to date, Circon
anticipates that Congress, state legislatures and the private sector
will continue to review and assess alternative healthcare delivery
and payment systems.  Responding to increased costs and
to pressure from the government and from insurance companies
to reduce patient charges, healthcare providers (including
customers of Circon) have demanded, and in many cases
received, reduced prices on medical devices.  These customers
are expected to continue to demand lower prices in the future.
Circon cannot predict what impact the adoption of any federal or
state healthcare reform measures, private sector reform or market
forces may have on its business.  However, pricing pressure is
expected to continue to adversely affect profit margins.

    Product Liability Risk

    Circon's products involve a risk of product liability.  Although
Circon maintains product liability insurance at coverage levels
which it believes are adequate, there is no assurance that, if the
Company were to incur substantial liability for product liability
claims, insurance would provide adequate coverage against such
liability.

    New Products

    Circon's growth depends in part on its ability to introduce
new and innovative products that meet the needs of medical
professionals.  Although Circon has historically been successful
at bringing new products to market, there can be no assurance
that Circon will be able to continue to introduce new and innovative
products or that the new products that Circon introduces, or has
introduced, will be widely accepted by the marketplace.  The
failure of the Company to continue to introduce new products
or gain wide spread acceptance of a new product could
adversely affect the Company's operations.


ITEM 8.   FINANCIAL STATEMENT AND SUPPLEMENTARY DATA

Report of Independent Public Accountants

Consolidated Financial Statements:

       Balance Sheets - December 31, 1996 and 1997

       Statements of Operations for the years ended
       December 31, 1995, 1996 and 1997

       Statements of Shareholders' Equity for the years
       ended December 31, 1995, 1996, and 1997

        Statements of Cash Flows for the years ended
        December 31, 1995, 1996 and 1997

        Notes to Consolidated Financial Statements

(All schedules are omitted because they are not applicable,
not required or the information required to be set forth therein
is included in the financial statements or in the notes thereto.)


    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Circon Corporation:

We have audited the accompanying consolidated balance
sheets of Circon Corporation (a Delaware corporation)
and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three
years ended in the period December 31, 1997.  These
financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion
on these financial statements based on our audits.

We conducted our audits in accordance with generally
accepted auditing standards.  Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial
statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles
used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Circon Corporation and subsidiaries as of December 31,
1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted
 accounting principles.





                                        ARTHUR ANDERSEN LLP

Stamford, Connecticut
March 6, 1998




Item 1.  Financial Statements


                    CIRCON CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                               DECEMBER 31, 1996 AND 1997

                                        ASSETS

                      (In thousands, except for share amounts)


                                                   December 31,   December 31,
                                                        1996             1997
                                                    -----------   ------------
CURRENT ASSETS:
 Cash and temporary cash investment                   $   6,234     $   3,660
 Marketable securities                                    1,074         1,115
 Accounts receivable, net of allowance of
       $1,644 in 1996 and $1,499 in 1997                 28,497        33,535
 Inventories                                             35,123        38,489
 Prepaid expenses and other assets                        1,939         1,959
 Deferred income taxes                                    8,046         6,178
                                                   ------------    ----------
      Total current assets                               80,913        84,936
                                                   ------------    ----------

DEFERRED INCOME TAXES                                       831           283

PROPERTY, PLANT, AND EQUIPMENT, NET                      53,841        53,503


OTHER  ASSETS, at cost net of accumulated amotization    33,533        30,635
                                                     ----------    ----------
                      Total assets                  $   169,118   $   169,357
                                                     ==========    ==========

                   The accompanying notes are an integral part of
                             these consolidated balance sheets.



                    CIRCON CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                               DECEMBER 31, 1996 AND 1997

                    LIABILITIES AND SHAREHOLDERS' EQUITY

                      (In thousands, except for share amounts)


                                                     December 31, December 31,
                                                           1996         1997
                                                       ----------   ---------
CURRENT LIABILITIES:
     Current maturities of long-term                  $     429    $      390
     Accounts payable                                     6,344         4,629
     Accrued liabilities                                 12,000        10,892
     Customer deposits                                      879           688
                                                       ---------    ---------
          Total current liabilities                      19,652        16,599
                                                       ---------    ---------
NONCURRENT LIABILITIES:
     Long-term obligations                               50,565        48,799
                                                       ---------    ---------

SHAREHOLDERS' EQUITY:
Preferred stock: $0.01 par value
      1,000,000 shares authorized, none
      outstanding
Common stock: $0.01 par value
     50,000,000 shares authorized
     13,239,746 and 13,293,812  issued and outstanding
     in 1996 and 1997, respectively                         132           133
Additional paid-in capital                              104,426       105,079
Cumulative translation adjustment                          (502)       (1,197)
Accumulated deficit                                      (5,155)          (56)
                                                       ----------     --------
Total shareholders' equity                               98,901        103,959
                                                       ----------     --------
Total liabilities and shareholders'
     equity                                          $  169,118     $  169,357
                                                       ==========     ========
                   The accompanying notes are an integral part of
                              these consolidated balance sheets.



                      CIRCON CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

             For the years ended December 31, 1995, 1996, and 1997

                      (In thousands, except per share amounts)

<TABLE>

<S>                                                         <C>      <C>       <C>


                                                              1995       1996     1997
                                                           --------   --------   --------
NET SALES                                                $  160,447  $ 153,779  $ 159,954

 Cost of sales                                               72,595     67,901     71,962
 Circon/Cabot merger and product integration costs            4,212        -          -               -
                                                           --------   --------   -------
GROSS PROFIT                                                 83,640     85,878
         87,992


OPERATING EXPENSES:
 Research and development                                    11,393     11,896     10,941
 Selling, general and administrative                         64,206     64,644     66,330
 Circon/Cabot merger and product integration and other costs  4,221        -          -
 Facilities shutdown expense (see note 3)                       -        2,629        -
 Reorganization (see note 5)                                    -          -          512
                                                           --------   --------   --------
 Total operating expenses                                    79,820     79,169     77,783

INCOME FROM OPERATIONS                                        3,820      6,709     10,209

 Circon/Cabot merger related transaction costs               (4,936)       -          -
 USSC Tender Offer (see note 4)                                 -       (3,000)       -
 Interest income                                              1,346        347        247
 Interest expense                                            (5,946)    (4,199)    (4,062)
 Other income (expense), net                                   (251)       141        131
                                                           ---------  ---------  --------
INCOME (LOSS) BEFORE INCOME TAXES                            (5,967)        (2)     6,525


 Provision (benefit) for income taxes                          (574)       (73)     2,276
 Non-recurring tax benefit (see note 6)                         -       (2,000)      (850)
                                                          ----------  ---------  ---------
NET INCOME (LOSS)                                       $    (5,393)   $ 2,071  $   5,099
                                                          ==========  =========  ========

EARNINGS (LOSS) PER SHARE BASIC:                        $     (0.44)   $  0.16 $     0.38
                                                          ==========  =========  =========
EARNINGS (LOSS) PER SHARE DILUTED:                      $     (0.44)   $  0.16 $     0.37
                                                          ==========  =========  =========
Weighted Average Number of Shares of Common
Stock and Equivalents Outstanding:
BASIC                                                        12,325     12,828     13,260
                                                          ----------  ---------  --------
DILUTED                                                      12,325     13,339     13,658
                                                          ----------  ---------  --------
</TABLE>

                              The accompanying notes are an intergal part of
                                      these consolidated statements



<TABLE>
<S>



                                               CIRCON CORPORATION AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                        FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                                               (In thousands, except share amounts)

                              <C>         <C>  <C>         <C>         <C>         <C>        <C>        <C>             <C>

                                                              Notes     Unrealized                        Retained
                                               Additional  Receivable  Lossws on   Minimum   Cumulative  Earnings         Total
                              Shares     Common   Paid-in     From      Marketable  Pension   Tranalation (accumulated Shareholder's
                              Issues      Stock   Capital    Officers   Securities  Liability Adjustment   Deficit)       Equity
                            ----------  ------- --------     -------    ----------  --------  ---------  -----------  -----------
Balance December 31, 1994   12,181,391  $ 122   $ 89,749    $ (272)     $ (314)        -       $ (338)    $ (1,982)     $ 86,965

Tax benefit from exercise
 of stock options                 -       -        1,169        -            -         -           -            -          1,169
Stock options exercised        384,624     4       4,010        -            -         -           -            -          4,014
Retirement of non-vested
 shares                         (1,598)   -          -          -            -         -           -            -            -
Other                             (338)   -          -         272           -         -           -            -            272
Unrealized losses on
 marketable securities              -     -          -          -          314         -           -            -            314
Minimum pension liability           -     -          -          -           -        (143)         -            -           (143)
Cumulative translation adjustment   -     -          -          -           -          -         (175)          -           (175)
Net loss                            -     -          -          -           -          -           -        (5,393)       (5,393)
Cabot income - November and
 December 1994                      -     -          -          -           -          -           -           149           149
                             ---------- -----    -------     ------       -----     ------      ------     --------      --------
Balance December 31, 1995    12,564,079 $ 126   $ 94,928        -           -      $ (143)     $ (513)    $ (7,226)     $ 87,172

Tax benefit from exercise
 of stock options                   -     -        1,643        -           -          -           -           -           1,643
Stock options exercised         675,667     6      7,855        -           -          -           -           -           7,861
Minimum pension liability           -     -          -          -           -         143          -           -             143
Cumulative translation
 adjustment                         -     -          -          -           -          -           11          -              11
Net income                                -          -          -           -          -           -         2,071         2,071
                             ----------- ----  --------       ------     ------    -------      -------    --------      -------
Balance December 31, 1996    13,239,746 $ 132 $ 104,426         -           -        $ -       $ (502)    $ (5,155)     $ 98,901

Tax benefit from exercise
 of stock options                   -     -         118        -            -          -           -           -             118
Stock options exercised          53,613     1       528        -            -          -           -           -             529
Stock issued to Circon
  Employee Stock Purchase Plan      453   -           7        -            -          -           -           -               7
Cumulative translation
 adjustment                         -     -          -         -            -          -         (695)         -            (695)
Net income                          -     -          -         -            -          -           -         5,099         5,099
                             ----------  ----  --------     ------        ------    ------     ---------     ------     --------
Balance December 31, 1997    13,293,812 $ 133 $ 105,079        -            -      $   -      $ (1,197)     $ (56)     $ 103,959
                            ===========  ===== ========     ======        ======    ======     ========      ======     ========

</TABLE>





<TABLE>
<S>


                    CIRCON CORPORATION AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF CASH FLOWS

              For the years ended December 31,1995, 1996, and 1997

                                (In thousands)

                                                      <C>       <C>        <C>

CASH FLOWS FROM OPERATING ACTIVITIES                    1995       1996       1997
                                                     --------   --------   --------

 Net income (loss)                                  $ (5,393)   $ 2,071   $ 5,099

 Adjustments to reconcile net
  income  to cash provided by (used in)
  operating activities:

  Depreciation and amortization                        9,603      8,598     7,940
  Deferred income taxes                               (2,582)    (5,196)    1,411
  Other                                                  149        -         -
  Loss on disposals                                    2,042         66         5

Change in assets and liabilities:
  Accounts receivable                                    478     (1,958)   (5,038)
  Inventories                                         (2,292)    (3,478)   (3,366)
  Prepaid expenses and other assets                    2,674      1,530       209
  Current liabilities                                  1,739       (380)   (2,048)
                                                    --------   ---------  --------
Net cash provided by operating activities          $   6,418  $   1,253  $  4,212
                                                    --------   ---------  -------
</TABLE>
<TABLE>
<S>
                    CIRCON CORPORATION AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF CASH FLOWS

            For the years ended December 31,1995, 1996, and 1997

                                (In thousands)

                                                         <C>        <C>      <C>
CASH FLOWS FROM INVESTING ACTIVITIES                       1995       1996      1997
                                                         -------    -------   ------
  Disposals (acquisitions) of marketable, net           $ 15,119   $ 5,422   $   (41)
  Purchases of property, plant and equipment and other    (9,519)   (6,306)   (4,938)
                                                         -------    -------   -------
  Net cash provided by (used in) investing activities      5,600      (884)   (4,979)
                                                         -------    -------   ------
CASH FLOWS FROM FINANCING ACTIVITIES

  Proceeds from issuance of common stock                   4,011     7,861       536
  Repayments of long-term obligations                     (1,437)  (21,379)   (1,766)
  Tax benefit from exercise of stock options               1,169     1,643       118
  Other                                                     (478)      143        -
                                                         -------   --------   -------
  Net cash provided by (used in) financing activities      3,265   (11,732)   (1,112)
                                                         -------   --------   -------
  Cumulative translation adjustment                         (172)       11      (695)
                                                         -------   --------   -------
  Net increase (decrease) in cash and temporary
   cash investments                                       15,111   (11,352)   (2,574)

  Cash and temporary cash investments, beginning
   of period                                               2,475    17,586     6,234

  Cash and temporary cash investments, end of period   $  17,586  $  6,234   $ 3,660
                                                        ========   =======    ========
SUPPLEMENTAL DISCLOSURES

  Cash paid for interest                              $   5,398   $  3,294   $ 4,297
                                                        =======    =======    =======
  Cash paid (refunded) for income taxes, net          $   2,097   $    410   $   (86)
                                                        =======    =======    =======
</TABLE>
                           The accompanying notes are an integral part of
                                    these consolidated statements.



               CIRCON CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       DECEMBER 31, 1997

       (In thousands except share and per share information)

(1)            Background
               ----------
                On August 28, 1995, Circon Corporation
merged with Cabot Medical Corporation ("Cabot"),
collectively referred to as "Circon or the Company",
in a transaction accounted for as a pooling of interests
(see Note 3).  Circon's consolidated financial
statements have been restated for all periods prior to
the merger to include the financial position, results of
operations and cash flows of Cabot.

               The Company markets medical devices for diagnosis
and minimally invasive surgery and general surgery.
The Company's products are used in a number of medical
specialities including urology, gynecology, arthroscopy,
laparoscopy, thorascopy and plastic surgery.  The Company's
products compete in markets characterized by continuing
technological innovation, increasing competition and
pressures on cost.  Political, economic and regulatory
influences are subjecting the Company's industry in the
United States to rapid, continuing and fundamental change.

               The Company sells products worldwide from its
facilities in the United States, Canada, France and Germany.
The German facility was closed as of December 31, 1997
(see Note 5).  Net sales by geographic area are as follows:

                          1995         1996         1997
                       --------     --------     ---------
Domestic sales         $134,262     $131,675     $138,166
International sales      26,185       22,104       21,788
                      ---------     --------     --------
                       $160,447     $153,779     $159,954
                       ========     ========     ========

(2)           Summary of Significant Accounting Policies
              ------------------------------------------
              Basis of Presentation
              ---------------------

                The Company prepares its consolidated
 financial statements in accordance with generally
accepted accounting principles, which require that
management make estimates and assumptions that affect
the reported amounts.  Actual results could differ
from these estimates.  See additional cautionary
statements in Item 7 (Management's Discussion and
Analysis).

                Principles of Consolidation
                ---------------------------

                The consolidated financial statements
include the accounts of Circon and its domestic and
foreign subsidiaries.  All significant intercompany
transactions and accounts have been eliminated
in consolidation.

                 Sales Recognition
                 -----------------

                 The Company recognizes revenue from
product sales upon shipment of goods.

                Earnings Per Share
                ------------------

                Basic earnings per share have been
computed by dividing net income by the weighted
average number of shares of common stock.  Diluted
earnings per share have been computed by dividing
net income by the weighted average number of shares
of common stock and common stock equivalents
outstanding during the year.  The number of common
shares used in the calculation of diluted earnings
per share was increased for the dilutive effect of shares
issuable upon the exercise of warrants and stock
options, except for 1995 where the effect is anti-dilutive.

                Inventories
                -----------

                Inventories include costs of materials, labor
and manufacturing overhead.  Inventories are priced
at the lower of cost (first-in, first-out) or market.

                Property, Plant, and Equipment and Other Assets
                -----------------------------------------------

                Depreciation of property, plant, and
equipment and amortization of other assets are provided
for using the straight-line method over the following
estimated useful lives:

    Buildings                           31-33 years
    Manufacturing equipment             3-10 years
    Office and other equipment          4-10 years
    Demonstration equipment             3 years
    Leasehold improvements and
      leasehold interest                Lower of estimated
                                        useful life or
                                        remaining term
                                        of lease
    Goodwill                            20-40 years
    Patents and licenses                3-17 years
    Trademarks                          10-23 years
    Other                               5-21 years

               The Company capitalizes expenditures that
materially increase asset lives and charges ordinary
maintenance and repairs to operations as incurred.
When properties are disposed of, the costs and
accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected
in the consolidated statements of operations.

               Long lived assets and intangibles held and
used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable.

               Demonstration equipment, which is eventually
refurbished and sold, is depreciated on a straight-line
basis, after considering estimated residual value.

                 Foreign Currency Translation
                 ----------------------------

                 The assets and liabilities of foreign subsidiaries
are translated into U.S. dollars at current exchange rates.
The related translation adjustments are recorded in a
separate component of shareholders' equity.  Revenues
and expenses are translated at the average exchange
rates in effect during the period.

                Research and Development
                ------------------------

                Expenditures for research and development
are charged to operations as incurred.

                 Cash and Temporary Cash Investments
                 -----------------------------------

                 The Company's cash and temporary cash
investments include investments in bank money market
funds and other short-term, highly liquid investments with
maturities of three months or less.

(3)            Cabot Business Combination
               --------------------------

                 On August 28, 1995, Circon issued 4,339,302
shares of its common stock for all the outstanding shares
of Cabot Medical Corporation.

                 In connection with the merger of Circon and
Cabot, $13,369 (pre-tax) of merger costs and non-recurring
combination expenses were incurred and charged to expense
in the third quarter of 1995.  These costs include $8,433
associated with the elimination of duplicative, excess, and
obsolete inventories and related production equipment and
reorganizing and cross-training the sales force, and $4,936
of fees and other expenses specifically associated with the
merger process.

                During the second quarter of 1996, the Company
announced the planned closure of its Langhorne,
Pennsylvania facility.  The closure was completed by the end
of 1996 and will result in reduced future operating costs
through human resource and facility rationalization.  In
connection with this plan, the Company recorded a pre-tax
charge of $2,629 consisting of $2,174 of employee severance
 and out-placement costs and $455 of cancellation of
operating leases and other facility closure costs.

(4)            USSC Tender Offer
               -----------------

                 On August 1, 1996, United States Surgical
Corporation ("USSC") through its wholly-owned
subsidiary, USS Acquisition Corp., launched an
unsolicited tender offer (the "Offer") for all of the
common stock of the Company at a price of $18 per
share.  The Board of Directors considered the Offer
and recommended that stockholders reject it so the
Company could continue to pursue its strategic plan.
In reaching its conclusion, the Board retained and
consulted with Bear Stearns and Company as financial
advisors and Wilson, Sonsini, Goodrich & Rosati as
legal advisors.  In addition, the Company retained The
Abernathy/MacGregor Group Inc. to advise the
Company on public relations matters, Corporate
Investors Communications, Inc. to assist the Company
in connection with communications to stockholders and
William M. Mercer Incorporated to advise the Board of
Directors on certain employee matters.  In connection
with rejecting the Offer, the Company adopted a
Shareholders Rights Plan and an Employee Retention
Plan, both of which are the subject of a lawsuit brought
by USSC against the Company and certain of its officers
and directors.  In addition, the Company and certain of its
directors and officers are also defendants in certain class
action lawsuits purportedly brought on behalf of Circon
stockholders.  On December 16, 1996, USSC reduced the
offer to $17 per share and extended the solicitation until
February 13, 1997.  On February 13, 1997, the offer was
again extended to June 16, 1997.  On June 16, 1997,
USSC modified their tender offer by lowering the price to
$14.50 and reducing the number of shares to 973,174 or
7.3% of Circon's total outstanding shares.  On July 14, 1997,
USSC purchased 973,174 shares at $14.50 per share.
On August 5, 1997, USSC launched a new tender offer
for all of the common stock of the Company at a price of
$16.50 per share.  On October 22, 1997, USSC extended
the offer of $16.50 per share until November 25, 1997.
On November 25, 1997, the offer of $16.50 per share was
extended until January 15, 1998.  On January 15, 1998,
the offer of $16.50 per share was extended until July 16,
1998.   The Company charged $3,000 into expense in
1996 primarily for costs related to the Offer and defending
the stockholder litigation (see Part II, Item (3) Legal
Proceedings and note 18.)

(5)            Reorganization
               --------------

       During the third quarter of 1997 the Company
undertook a cost reduction/income enhancement program
to improve operating margins in the second half of 1997
and 1998.  As part of this program, the Company eliminated
certain domestic sales territories and realigned others.
The Company recorded a $139 charge for the payment of
employee severance.

                In the fourth quarter of 1997, the Company
reorganized its European operations to consolidate
customer service, operations, finance, and sales and
marketing functions in Paris, France.  As part of this
consolidaiton, Circon closed its operations in Munich,
Germany and recorded a charge of $373 for costs
associated with employee severance and lease buyouts.

                Substantially all of the reorganization
costs referred to above were paid in 1997.

(6)            Non-Recurring Tax Benefits
               --------------------------

                 During the second quarter of 1996, Cabot was
liquidated and merged into Circon.  Prior to the merger,
the Cabot net operating loss carryforwards (NOL's) had
a valuation allowance since historical data did not support
current recognition of the loss carryforwards.  With the
liquidation, Circon's ability to utilize these NOL's became
more probable than not and the Company recognized a
non-recurring tax benefit by reducing the valuation
allowance by $2,000 in 1996.

                During the fourth quarter of 1997, Circon
recorded $850 of non-recurring tax benefits resulting
primarily from the reorganization of Circon's German subsidiary.
The reorganization enabled Circon to record the benefit
of German losses and closing costs that were not previously
recorded by the Company.

(7)            Marketable Securities
               ---------------------

                The Company classifies its investments as
available-for-sale and does not hold any trading securities.
In 1995, the Company recorded an income statement charge of
$272, included in other expense, to recognize market
value losses on securities that were liquidated in early
1996 in connection with the redemption of the Cabot
convertible debentures.

                The following summarizes the Company's
marketable securities at December 31, 1996 and 1997:

                                     1996              1997
                                   -------           -------
Available-for-sale
------------------

Mutual fund of preferred
  stock of utility companies       $ 1,074           $ 1,115
                                   =======           =======

(8)            Inventories
               -----------
                Inventories at December 31, 1996 and 1997
consist of the following:

                        1996                1997
                      -------            -------
Raw materials         $11,995            $ 8,559
Work in process        17,938             18,309
Finished goods          5,190             11,621
                      -------            -------
                      $35,123            $38,489
                      =======            =======

(9)            Property, Plant and Equipment
               -----------------------------

       Property, plant and equipment consists of
the following at December 31, 1996 and 1997:

                                         1996              1997
                                       -------          -------
Land                                   $ 3,380          $ 3,380
Building                                24,914           25,549
Manufacturing equipment                 21,135           22,154
Office and other equipment              11,864           14,176
Platinum used in manufacturing
  equipment                              1,434            1,423
Demonstration equipment                 25,055           27,539
Construction in progress                 2,677              610
Leasehold improvements                   1,199            1,217
                                       -------          -------
                                        91,658           96,048
Less - Accumulated depreciation
      and amortization                 (37,817)         (42,545)

                                       $53,841          $53,503
                                       =======          =======

(10)          Other Assets
              ------------

                 Other assets consist of the following at
December 31, 1996 and 1997:

                                     1996                1997
                                  -------             -------
Goodwill                          $15,480             $15,451
Patents and Licenses                9,006               9,006
Trademarks                         20,536              20,536
Other                               3,353               3,368
                                   -------             -------
                                   48,375              48,361

 Less - Accumulated amortization  (14,842)            (17,726)
                                  --------            --------
                                  $33,533              $30,635
                                  =======              =======

(11)          Accrued Liabilities
              -------------------
                 Accrued liabilities consist of the following at
December 31, 1996 and 1997:

                                         1996                1997
                                      -------             --------
Payroll and payroll related           $ 6,433             $  6,135
Interest                                  718                   47
Taxes - other than income                 686                1,067
Professional fees                       1,620                  615
Other                                   2,543                3,028

                                      $12,000              $10,892
                                      =======              =======

(12)          Income Taxes
              ------------

                The components of the provision (benefit) for
income taxes applicable to income (loss) for the three
years ended December 31, 1995, 1996 and 1997 are
as follows:

                             1995         1996          1997
Federal                    ------       ------        ------
   Current                 $1,400       $1,100        $  -
   Deferred                (1,877)      (3,164)        1,301
                           -------      -------       ------
                             (477)      (2,064)        1,301
                           -------      -------       ------
State
  Current                     497          148           -
  Deferred                   (617)        (158)          110
                           -------      -------        ------
                             (120)         (10)          110
                           -------      -------        ------

Foreign
  Current                      23            1            15
                           -------      -------        -----
Provision (benefit) for
  income taxes             $ (574)     $(2,073)       $1,426
                           =======     ========       =======

               The income before provision for income taxes
includes foreign pretax losses of $634,  $427, and
$394 in 1995, 1996 and 1997, respectively.

               For income tax purposes, the Company deducts
the difference between market value and exercise price
arising from the exercise of non-qualified stock options
and disqualifying dispositions of stock acquired under
the Company's qualified plans.  Any reductions in income
taxes payable resulting from these differences are credited
to additional paid in capital.  A benefit of $1,169, $1,643
and $118 was credited to additional paid in capital during
1995, 1996, and 1997,  respectively.

           A reconciliation of the provision (benefit) for
income taxes to the Federal statutory provision (benefit) is as follows:

                                           1995         1996      1997
                                         --------     ------    -------
Federal statutory provision (benefit)    $(2,029)   $  (1)      $ 2,218
State tax, net of federal income
  tax benefit                                (60)       (10)        261
Addition (reduction) in valuation
  allowance                                  716     (2,000)       (305)
Non-deductible goodwill and
  amortization                               (60)        20          98
Tax exempt income                           (239)        -           -
Benefit of foreign sales corporation        (102)      (350)       (208)
Loss of foreign subsidiaries for which
  no benefit is currently available          179         15         134
Deduction related to foreign subsidiary       -          -         (545)
Non-deductible merger costs                 1,074        -           -
Research and development credit                -       (115)       (178)
Other                                         (53)      238         (49)
                                          --------  --------    -------
                                           $ (574)  $(2,073)    $ 1,426
                                          ========  ========    ========

               The components of the net deferred tax asset
 are as follows:

                                        1996           1997
                                      -------         ------
Inventory reserves                    $3,739          $3,215
Accrued vacation                         591             673
Net operating loss carryforwards       4,534           3,772
Income tax credit carryforwards        1,620           2,797
Depreciation                          (4,128)         (5,320)
Other reserve                          2,371           2,285
Other                                    856            (560)
                                      ------          ------
                                       9,583           6,862
Valuation allowance                     (706)           (401)

Net deferred tax asset                $8,877          $6,461
                                      ======          ======

               At December 31, 1996 and 1997, the Company
has recorded a deferred tax asset of $1,620 and $2,797,
respectively, consisting of research and development credits
not previously utilized and alternative minimum tax credit
carryforwards.   At December 31, 1996 and 1997, the
Company has recorded a deferred tax asset of $1,620
and $2,797, respectively, consisting of research and
development credits not previously utilized and alternative
minimum tax credit carryforwards.  To the extent not used,
the research and development tax credit carryforward
expires in various amounts beginning in 2006.  Additionally,
the Company has a deferred tax asset for federal and
various state net operating losses of $4,534 and $3,772 in
1996 and 1997, respectively.  The federal net operating loss
will begin expiring in 2006 and the various state net operating
 losses will begin expiring in 1999.

               The Company has recorded a valuation allowance,
which at December 31, 1996, represents Cabot losses
subject to separate state income tax return limitations and
capital loss carryforwards.  The valuation allowance at
December 31, 1997 has been reduced due to the Company's
increased ability to utilize the separate state net operating loss
carryforwards and the capital loss carryforward.  Due to the
reduction of the valuation allowance, the Company
recognized a non-recurring tax benefit of $305 in 1997.
Based on projected earnings and the Company's current
tax planning strategies, the Company believes it is more
 probable than not that the remaining net deferred tax
asset will be realized.

(13)          Long-Term Obligations
              ---------------------

                Long-term obligations as of December 31, 1996
and 1997 consist of the following:

                                          1996         1997
                                        -------      -------
Revolving credit facility               $46,500      $46,000
Industrial development
  authority bonds due
  December 2, 2006                        4,435        3,165
Other                                        59           24
                                        -------      -------
                                         50,994       49,189

Less: current maturities                   (429)        (390)
                                        -------      -------
                                        $50,565      $48,799
                                        =======      =======

               The Company has a five year $75,000 reducing
revolving credit facility (the "Credit Facility") with a
syndicate of banks which provides for direct borrowings
and a maximum of $5,000 in letters of credit.  The line of
availability under the credit facility is reduced by
$3,000 every six months and is $66,000 at December 31, 1997.
The Company has the option to borrow money based upon (i) the
higher of the prime rate or an adjusted federal funds rate or
(ii) an adjusted Eurodollar rate.  The unused portion of the Credit Facility
has a commitment fee which ranges from .1875% to .375%.
The Credit Facility, which expires August 1, 2001, contains
certain restrictive financial covenants and is secured by
substantially all of the assets of the Company.

               The Company has a letter of credit in the amount
of approximately $3,307 as of December 31, 1997
underlying $3,555 of tax exempt Industrial Development
Authority Bonds (the "Bonds") issued in December 1991
with a 15 year maturity requiring monthly interest payments
and annual principal payments.  The letter of credit has a
renewable 5 year term and carries an annual fee of 1% of
the outstanding bond principal amount.  The bonds are
subject to weekly repricing at an interest rate based on the
remarketing agents' professional judgement and prevailing
market conditions at the time.  The Bonds and the letter of
credit are collateralized by the Company's two
Langhorne, Pennsylvania facilities.  These
facilities had a net carrying value of $4,543 as of
December 31, 1997.

               Future principal maturities of the long-term
obligations are as follows:

               1998                   $    390
               1999                        405
               2000                        430
               2001                     46,450
               2002                        475
               Thereafter                1,039
                                        ------
                                       $49,189
                                       =-=====

(14)          Retirement Plans
              ----------------

                The Company has a defined benefit retirement
plan (the "Plan") covering certain hourly union employees
at one of the Company's manufacturing facilities.  The
components of pension expense are as follows:

                                            1995     1996    1997
                                           -----    -----   -----
Service cost - benefits earned
  during the year                          $  46    $  73   $  79
Interest cost on projected benefit
  obligation                                  73       91      98
Actual return on plan assets                 (38)     (40)    (48)
Deferred loss on net assets                  (29)     (45)    (51)
Amortization of prior service cost            14       24      23
Amortization of net loss (gain)
  from earlier periods                         3       15      11
                                           -----    -----   -----
Net pension expense                        $  69    $ 118   $ 112
                                           =====    =====   =====

               Annual contributions to the Plan are at least
equal to the minimum required by law.  The benefit
obligations and funded status of the Plan are as follows:

                                                  1996         1997
                                                --------     -------
    Actuarial present value of accumulated
     benefit obligation, including vested
     benefits of $1,246 in 1996 and
     $1,331 in 1997                             $(1,368)     $(1,424)
                                                ========      =======
    Projected benefit obligation for service
     rendered to date                            (1,368)      (1,493)

    Plan assets at market value, primarily
     fixed income securities                        951        1,086
                                                -------       ------
    Projected benefit obligation in excess
     of plan assets                                (417)        (407)

    Unrecognized net loss                           322          347

    Unrecognized prior service cost                 232          208

    Adjustment required to recognize
     minimum liability                             (557)        (488)

    Unrecognized net obligations at
     January 1, 1989 being amortized
     over 15 years                                    3            2
                                                 ------       ------
       Pension liability                        $  (417)     $  (338)
                                                 ======        ======

       The discounted rate assumed in determining the
actuarial present value of benefit obligations was 7.25% and
7.00% for 1996 and 1997, respectively.  The expected long
term rate of return on assets was 10% for 1996 and 1997.
There were no plan amendments during 1996 or 1997.

       Certain other hourly manufacturing employees are
covered by a union-sponsored collectively-bargained,
multi-employer pension plan.  Contributions to this plan are
based on collectively-bargained agreements and were
approximately $196,  $313 and $331 in 1995, 1996 and 1997,
respectively.

       The Company maintains a 401(k) savings plan for all
employees except those excluded by collective bargaining agreements.
The Company matches 50% of the first 3% of employee contributions.
The amounts charged to income for the Company match were $257,
$332 and $512 in 1995, 1996 and 1997, respectively.  Beginning
January 1, 1996, Cabot employees became eligible to participate in
the 401(k) savings plan.

(15)   Stock-Based Compensation Plans
       ------------------------------

       Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock Based Compensation," encourages,
but does not require companies to record compensation cost for
stock-based employee compensation plans at fair value.  The
Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's
stock at the date of grant over the amount an employee must pay
to acquire the stock.  Compensation costs for phantom stock rights
are recorded annually based on the quoted market price of the
Company's stock at the end of the period.

       The Company has two stock-based compensation plans,
a 1993 Stock Option Plan (the "1993 Plan"), and a 1995 Directors
Stock Option Plan (the "1995 Plan").  The Company accounts for
these plans pursuant to APB No. 25, under which no compensation
cost has been recognized for stock options granted.  Had compensation
cost for these stock options been determined consistent with SFAS
No. 123, the Company's net income and earnings per share would
have been reduced to the following proforma amounts:

                                     1996         1997
                                   ------       ------
       Net Income:  As Reported    $2,072       $5,099
                    Pro Forma       1,417        4,562

       Basic EPS:   As Reported      0.16         0.38
                    Pro Forma        0.11         0.34

       The effects of applying SFAS 123 in this proforma
disclosure are not indicative of future amounts.  SFAS 123 does
not apply to awards prior to 1995, and additional awards in future
years are anticipated.

       The 1993 Plan was adopted by the Board of Directors
of Circon Corporation, and subsequently approved by the stockholders.
Pursuant to the 1993 Plan, the Company may grant options for shares
of common stock to employees and consultants of the company, for a
price not less than the fair market value on the date of grant.  The total
number of shares of stock with respect to which options may be granted
under the 1993 Plan is 2,000,000 shares.  As of December 31, 1997,
774,691 options have been issued under the 1993 Plan.

       The 1995 Plan was adopted by the Board of Directors of
Circon Corporation, and subsequently approved by the stockholders.
Pursuant to the 1995 Plan, the Company may grant options for shares
of common stock to directors who are not officers of the Company,
for a price not less than 85% of the fair market value of the common
stock on the date of grant.  The total number of shares of stock with
respect to which options may be granted under the 1995 Plan shall
be 200,000 shares.  As of December 31, 1997, 58,574 options have
been issued under the 1995 plan.
Option activity during 1995, 1996 and 1997 are summarized as follows:



<TABLE>
<S>
                                  <C>              <C>        <C>        <C>         <C>      <C>          <C>


                                                          1995                  1996                       1997
                                                    -------------------   -------------------  ----------------------------
                                       Option                 Weighted               Weighted              Weighted Average
                                      Exercise                 Average               Average      Price          Exercise
                                       Range        Shares       Price       Shares   Price     Shares             Price
                                  ---------------  ---------   --------   ---------  --------  ----------  ---------------
Outstanding at beginning of year  $ 2.89 - 19.125  1,873,705    $10.823   1,669,649   $10.740   1,041,318         $10.054
Granted                             8.75 - 17.000    330,625     12.201     176,402    10.304     204,378          15.026
Exercised                           2.89 - 18.750   (384,624)    10.442    (675,667)   11.596     (53,613)         10.009
Forfeited                           5.00 - 19.125   (150,057)    12.254    (129,066)   11.186    (101,244)         10.786
                                                   ----------             ---------            -----------
Outstanding at end of year          2.89 - 18.750  1,669,649     10.740   1,041,318    10.054   1,090,839          10.918
Exercisable at end of year          2.89 - 18.750    836,825     11.267     428,737    10.451     595,439          10.734
Weighted average fair value of
 options granted                                                  5.820                 6.270                       9.701

The following table summarizes information about stock options outstanding
at December 31, 1997:
</TABLE>
<TABLE>
<S>
 <C>                       <C>            <C>                 <C>              <C>            <C>
                                         Options Outstanding                       Options Exercisable
  ---------------       ------------------------------------------------      -------------------------------
                             Number        Weighted Average   Weighted          Number          Weighted
       Range of          Outstanding at       Remaining        Average        Exercisable        Average
  Exercise Prices           12/31/97      Contractual Life   Exercise Price    at 12/31/97   Exercise Price
  ---------------       ------------       -------------     -----------      ------------   ---------------
  $ 3.50 - $ 6.25           57,030             1.362           $ 3.992            56,030            $ 3.965
    6.26 -  12.75          779,673             6.193             9.828           399,769              9.954
   12.76 -  18.75          254,136             7.697            15.813           139,640             15.683
                         ----------                                           ------------
  $ 3.50 - $18.75        1,090,839             6.291           $10.918           595,439            $10.734
                         ==========                                           ============
</TABLE>



The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions used for grants in 1996 and 1997, respectively: risk-free
interest rates of 6.05 and 6.27 percent; expected lives of 7 years;
expected dividend rate of zero; and expected volatility of 51.94 and
54.41 percent.

(16)   Earnings Per Share

       A reconciliation of the Company's basic and diluted
earnings (loss) per share calculations for the three years ended
December 31, 1997 is as follows:

                                                             Per Share
(In thousands)                             Income    Shares    Amount
For the year ended December 31, 1995:      -------   ------   --------
-------------------------------------

Basic and Diluted Loss Per Share:
Net Loss                                  $(5,393)    12,325   $(0.44)
                                           =======    ======   =======

For the year ended December 31, 1996:
-------------------------------------

Basic Earnings Per Share:
Net Income                                $ 2,071     12,828    $0.16

Stock Options and Warrants                               511
                                                      ------

Diluted Earnings Per Share:
Net Income                               $ 2,071      13,339    $0.16
                                          ======     =======    =====

For the year ended December 31, 1997:
------------------------------------

Basic Earnings Per Share:
Net Income                               $ 5,099     13,260     $0.38

Stock Options and Warrants                              398
                                                     ------

Diluted Earnings Per Share
Net Income                               $ 5,099     13,658     $0.37
                                         =======     ======     =====

       Due to net loss for the year ended December 31, 1995,
all stock options and warrants were antidilutive, regardless of the
exercise prices.  Options and warrants to purchase 357,034 and
257,707 shares of common stock as of December 31, 1996 and
1997, respectively, were not included in the computation of diluted
earnings per share because the exercise price was greater than the
average market price of the common shares.

In 1997, the Company adopted FAS No. 128, "Earnings per Share,"
As a result, the Company's reported earnings per share for prior years
were restated. The effect of this accounting change on previously reported
earnings per share data was to increase 1995 basic loss per share by $0.03
compared to the previously reported calculation of primary loss per
share.  Earnings per share did not change for 1996.

(17)   Rights and Warrants
       -------------------

       On August 21, 1996, the Company issued a dividend of
one right ("Right") for each share of the Company's common stock.
Each Right represents the right to purchase one-thousandth of a
share of Series A Participating Preferred Stock upon terms and
conditions set forth in the Rights Agreement.  Accordingly, 40,000
of the Company's authorized but unissued Preferred Stock was
designated as "Series A Participating Preferred Stock."

       In 1989, the Company issued to the Company's president
warrants (the "Warrants") to purchase up to $2.5 million of common
stock at $4.33 per share (or less under certain circumstances).  The
Warrants were issued in consideration for the president agreeing to
restructure his commitment to provide working capital to the Company
and to convert, at the demand of the Company, outstanding borrowings
owed to him into common shares (at the market price per share on the
conversion date) to prevent technical default under the Company's loan
agreement (the "Stock Purchase Commitment").  On May 7, 1990, the
Company's president agreed to return the Warrants.  The Company
terminated the Stock Purchase Commitment and issued a warrant which
allow the president to purchase 100,000 shares of common stock at $4.61
per share.  The warrants remain outstanding and expire on January 1, 2000
or earlier under certain circumstances.

       The Company has a warrant plan for consultants.  A total of
25,000 shares of common stock has been reserved under this plan and
warrants to purchase 3,000 shares have been granted with an exercise
price of $18.75 per share, of which 1,000 are still outstanding.

       Pursuant to the merger with Cabot Medical Corporation in
August 1995, the Company assumed 126,767 outstanding warrants
issued to Medical Engineering Corporation at an exercise price of
$28.398 per share.  These warrants remain outstanding and expire on
July 29, 1999.

(18)   Commitments and Contingencies
       -----------------------------

       Leases
       ------

       The Company leases six facilities, one each in Connecticut,
Ohio, Germany, France and two in Canada, under operating leases
which expire in 2003, 1999, 2002 and 2002, respectively.  These
leases provide for additional rental payments to cover property taxes,
insurance and maintenance.  In addition, the Company leases office
equipment and vehicles.  Rental expense for the years ended
December 31, 1995, 1996 and 1997 was $1,543, $1,497, and
$1,910,  respectively.

       The minimum lease payments at December 31, 1997
are as follows:

            1998                            1,895
            1999                            1,850
            2000                            1,812
            2001                            1,809
            2002                            1,807
            2003 and thereafter               471
                                           ------
                                           $9,644
                                           ======
       Contingencies
       -------------

       In May 1996, an action was brought against the Company
and certain officers and directors alleging that the defendants knew
synergies from the Cabot merger would not be achieved but
misrepresented to the public they would be achieved, in order to
obtain approval for the merger.

       In August 1996 and shortly thereafter, actions were brought
against the Company and certain officers and directors alleging breach
of fiduciary duty by taking steps to resist the hostile USSC tender offer.

       The Company believes the above actions and the USSC suit
discussed in Note 4 are without merit and intends to vigorously defend
the suits.  Litigation is inherently unpredictable.  No assurance can be
given that the Company will be successful in these matters, or that they
will not result in future charges to income which could be significant.

       In the course of conducting its business, the Company has
various claims asserted against it.  Management believes the outcome
of these claims will not have a material adverse effect on the Company's
financial position or results of operations.

(19)   Quarterly Financial Information (Unaudited)
       ------------------------------------------

       The following is a summary of unaudited selected quarterly
financial data for the years ended December 31, 1996 and 1997:

                                         Quarter Ended
                            ---------------------------------------------
1996                        March 31    June 30   September 30  December 31
--------                    --------    -------  -------------  -----------
Net sales                   $39,962     $37,062     $ 38,369      $38,386
Gross profit                 22,198      20,596       21,339       21,745
Operating income (loss)       3,578      (1,166)       1,857        2,440
Net income (loss)             1,659         705       (1,525)       1,232
Basic net income (loss)
  per share                $   0.13   (A)$ 0.06  (B)$  (0.12)     $  0.09
Diluted net income (loss)
  per share                $   0.13   (A)$ 0.05  (B)$  (0.12)     $  0.09

1997
--------
Net sales                    38,393      40,455       41,034       40,072
Gross profit                 21,466      21,782       22,257       22,487
Operating income              2,003       1,522        2,897        3,787
Net income                      791         440        1,236        2,632
Basic net income
  per share                 $  0.06     $  0.03   (C)$  0.09  (D)$   0.20
Diluted net income
   per share                $  0.06     $  0.03   (C)$  0.09  (D)$   0.19

A.     Includes facility shut down expense and non-recurring income
       tax benefit - see Notes 3 and 6
B.     Includes USSC tender offer charges - see Note 4
C.     Includes a charge associated with a cost reduction program - see note 5
D.     Includes a charge for reorganization of the European operations and a
       non recurring tax benefit - see notes 5 and 6
Item 9.     Changes in and Disagreements with
                Accountants on Accounting and Financial
                Disclosure.

            None.

                              PART III


Item 10.     Directors and Executive Officers of the Registrant.

Directors of the Registrant

          The Company's Board of Directors is divided into
three classes.  The term of one of the three classes
expires each year.  The term of the Class I Directors
expires in 2000 and each third year thereafter, the term
of the Class II Directors expires in 1998 and each third
year thereafter, and the term of the Class III Directors
expires in 1999 and each third year thereafter.  If any
Director who was elected while serving as an officer
 ceases to be an officer during that Director's term,
such Director's term will expire at the next subsequent
annual meeting of Shareholders.

          The following persons are currently serving on
 the Board of Directors of the Company:

                                                                   Director
         Name        Principal Occupation          Class     Age    Since
----------------     -------------------------     -----    ----    --------
Richard A. Auhll     Chairman of the Board,          III      56      1969
                     President and Chief
                     Executive Officer of the
                     Company

John F. Blokker      President and Chief Executive   III      68      1991
                     Offier, Luxcom, Inc.

George A. Cloutier   Chairman of the Board            II      52      1997
                     President and Chief Executive
                     Officer of American
                     Management Services, Inc.

Charles M. Elson     Professor of Law, Stetson         I      38      1997
                     College of Law

Harold R. Frank      Investor                        III      73      1984

Victor H. Krulak,    President of Words Limited        I      84      1997
Lt. Gen.


R. Bruce Thompson    Executive Vice President and     II      53      1997
                     Chief Financial Officer of the
                     Company


         Mr. Auhll has been the Chairman of the Board of
Directors, President and Chief Executive Officer of the
Company since 1969.   Prior to 1969, Mr. Auhll held
positions with United Technologies Corporation and
was a management consultant.  Mr. Auhll is a member
of the Board of Trustees of the University of California
at Santa Barbara Foundation and a member of the
Foundation's Executive Committee.  He is past Chairman
of the Board of Directors of Seton School for
Developmentally Disabled Children.

         Mr. Blokker is President and Chief Executive Officer
of Luxcom, Inc.  He was a general partner of Hambrecht &
Quist Venture Partners, an investment banking firm, from
February 1985 to February 1988.  Prior to 1985, he served
for twenty-seven years in various executive and management
positions including Vice President, General Manager with
Hewlett-Packard Company, a manufacturer of computers
and electronic test and measurement instruments.  He is a
member of the Boards of Directors of Mid-Peninsula Bank
of Palo Alto and Whittier Trust Company.

         Mr. Cloutier is Chairman of the Board, President and
Chief Executive Officer of American Management Services,
Inc., a consulting firm for small to mid-size businesses.
Prior to founding American Management Services in 1986,
Mr. Cloutier held a number of executive positions with
companies providing a broad range of business consulting
and management services.

         Mr. Elson has been a Professor of Law at Stetson
University College of Law in St. Petersburg, Florida since
1990.  He has served of Counsel to the law firm of Holland
& Knight since 1995.  Mr. Elson is a director of Sunbeam
Corporation.

         Mr. Frank is the founder of Applied Magnetics
Corporation, a manufacturer of magnetic recording heads.
He served as Chairman of its Board of Directors from
inception until February, 1996 and continues to serve as a
Director.  Mr. Frank currently serves on the Board of Directors
of Trust Company of the West and as Chairman of the Board
of Key Technology, Inc.  Mr. Frank is past Chairman of the
Board of the American Electronics Association.

         Lt. Gen. Krulak has served as President of Words
Limited, an editorial and feature syndicate, since 1988.
Prior to 1988, he served a distinguished career with the
U.S. Marine Corps from 1934 until his retirement as
Lieutenant General in 1968.  Lt. Gen. Krulak held positions
with Copley News Service from 1968 until 1977, serving
as Vice President and then President prior to his retirement
in 1977.

         Mr. Bruce Thompson has been Executive Vice
President and Chief Financial Officer of the Company
since 1985, and Vice President since 1982.  He joined
the Company in 1977 as Controller.  Prior to 1977, Mr.
Thompson held positions with Heyer-Schulte Corporation,
a subsidiary of American Hospital Supply Corporation,
and Cutter Laboratories Inc. Mr. Thompson is a member
of the Board of Directors and Chairman of the Finance
Committee of MEDMARC Insurance Company, a product
liability insurance provider for medical product companies.

Executive Officers of the Registrant

                                                                    First Year
                                                                    Elected
    Name                Position with Company             Age       Office
----------------        ---------------------            -----     --------
Richard A. Auhll        President and Chief               56          1969
                        Executive Officer

Winton L. Berci         Vice President,                   42          1989
                        Marketing and Sales

Frank D. D'Amelio       Vice President, Chief             39          1989
                        Manufacturing Officer

Andrew D. Simons        Vice President                    37          1996
                        Secretary, General Counsel

R. Bruce Thompson       Executive Vice President          53          1982
                        Chief Financial Officer

David P. Zielinski      Vice President, General           55          1994
                        Manager ACMI Division


         For certain information concerning the business
experience of Mr. Auhll and Mr. Thompson, refer to
previous section titled "Directors of the Registrant."

         Winton Berci joined the Company as Vice
President, Marketing and Sales in 1989.  Prior to
joining Circon, he worked for fourteen years with
Karl Storz Endoscopy America, Inc., a major Circon
competitor.  He held various positions with Karl Storz
including Director of Marketing for six years.

           Frank D'Amelio was appointed Vice President,
Chief Manufacturing Officer in 1994, prior to which he
was Vice President, General Manager of the Video
Division since 1993, and Vice President, CIRCON ACMI
Engineering and Quality Control, beginning in 1989.
Prior to 1989, Mr. D'Amelio held various positions with
the Company including Director of Quality Assurance.
He joined ACMI in 1982.

           Andrew Simons joined the Company as Vice
President, Secretary and General Counsel in 1996.
From 1992 until joining Circon, Mr. Simons worked
for Tokos Medical Corporation in various capacities,
including Vice President, General Counsel and
Corporate Secretary.  Prior to 1992, Mr. Simons was
an Associate at the law firm of Gibson, Dunn & Crutcher.

    David Zielinski was appointed Vice President,
General Manager of Circon ACMI in 1994, prior to which
he was Vice President of Manufacturing for Circon ACMI.
Prior to 1986, Mr. Zielinski held various positions with the
Company including Director of Manufacturing for ACMI.
He joined ACMI in 1982.  Prior to joining ACMI, Mr.
Zielinski held various positions with General Electric.

Item 11.     Executive Compensation.

Compensation Tables

        Summary Compensation Table. The following table
sets forth three years of compensation history for the Chief
Executive Officer and each of the other four most highly
compensated executive officers of the Company as of the
last completed fiscal year:


<TABLE>
<S>
                                 Annual Compensation  (1)                         Long-Term Compensation
                                 ------------------------                         ------------------------------
                                                                                 Awards                  Payouts
                                                                                 ------------------      --------
<C>                       <C>    <C>          <C>       <C>   <C>           <C>           <C>             <C>       <C>       <C>
                                                               Other                      Securities
                                                               Annual       Restricted    Underlying      LTIP      All Other
 Name and                                                      Compen-        Stock        Options        Payouts   Compen-
 Principal Position       Year   Salary ($)   Bonus ($)  (2)   sation ($)       $            (#)             $      sation ($)
-------------------       ----   ----------   ---------       ----------    ----------    ---------       -------   ----------
R. Auhll                  1997   $265,860     $ 45,316   (3)      -              -           -               -       $10,538   (5)
 President, CEO and       1996   $316,500     $ 39,274            -              -           -               -       $10,538
 Chairman of the Board    1995   $298,000     $136,739            -              -           -               -       $10,408

F. D'Amelio               1997   $171,045     $ 11,665   (4)      -              -        10,000             -       $ 4,344   (6)
 Vice President           1996   $181,000     $ 43,365            -                          -               -       $ 4,432
 Chief Manufacturing      1995   $169,000     $ 58,000            -              -           -               -       $ 3,672
 Officer

R.B. Thompson             1997   $166,320     $ 11,343   (4)      -              -        10,000             -      $  5,454   (7)
 Executive Vice President 1996   $176,000     $ 26,860            -              -           -               -      $  5,312
 Chief Financial Officer  1995   $166,000     $ 64,840            -              -           -               -      $  4,192

W. Berci                  1997   $154,262     $ 10,522   (4)      -              -        10,000             -      $  3,741   (8)
 Vice President           1996   $163,240     $ 39,329            -              -           -               -      $  3,621
 Marketing and Sales      1995   $154,000     $ 45,500            -              -           -               -      $  3,283

A. Simons                 1997  $146,806      $ 10,013   (4)      -              -        10,000             -      $  1,766   (9)
 Vice President           1996  $155,350      $  9,519            -              -        10,000             -      $  1,704
 Secretary and            1995       N/A           N/A            -              -           -               -      $   N/A
 General Counsel

</TABLE>



(1)    Included amounts earned in fiscal year, whether
        or not deferred.
(2)   Bonus amounts for 1997 have not been fully
        calculated or paid.  Such amounts will be filed in
        the Company's 1998 Proxy Statement.
(3)    Includes incentive payments earned as part of
        cost cutting incentive program implemented in
        August 1997.  Mr. Auhll's salary was reduced
        20% as part of the August 1997 cost reduction
        program
(4)    Includes incentive payments earned as part of
        cost cutting incentive program implemented in
        August 1997.  Other executive officers' salearies
        were reduced 10% as part of the August 1997
        cost reduction program.
(5)    Reflects $4,750 Company match of employee
         contributions to 401(k) plan and $5,788 premium
         on life insurance paid by the Company.
(6)    Reflects $3,585 Company match of employee
         contributions to 401(k) plan and $759 premium
         on life insurance paid by the Company.
(7)     Reflects $3,554 Company match of employee
         contributions to 401(k) plan and $1,900 premium
         on life insurance paid by the Company.
(8)     Reflects $3,107 Company match of employee
         contributions to 401(k) plan and $634 premium on
         life insurance paid by the Company.
(9)    Reflects $1,163 Company match of employee
         contributions to 401(k) plan and $603 premium on
         life insurance paid by the Company.


      Option/SAR Grants in Last Fiscal Year. The following table
sets forth, for each of the executive officers in the Summary Compensation
Table above, stock options granted during the year ended December 31, 1997.
The Company has never granted stock appreciation rights (SARs).

<TABLE>
<S>

<C>                    <C>           <C>             <C>         <C>           <C>          <C>

                                                                               Potential Realizable Value at
                       Number of     % of Total                                  Assumed Annual Rates of
                       Securited       Options                                   Stock Price Appreciation
                       Underlying     Granted to     Exercise                        for Option Term
                        Options      Employees in      Price     Expiration   ----------------------------
Name                   Granted (#)   Fiscal Year     ($/Share)     Date          5%($)           10%($)
--------------------   -----------  ------------     ---------   ----------   ------------   -------------
All Shareholders (1)       n/a           n/a            n/a          n/a      $135,856,617   $344,287,331

R. Auhll                  none           n/a            n/a          n/a            n/a           n/a

R. B. Thompson           10,000 (2)      6.86%        $16.25      10/09/07    $    102,195   $    258,983

F. D'Amelio              10,000 (2)      6.86%        $16.25      10/09/07    $    102,195   $    258,983

W. Berci                 10,000 (2)      6.86%        $16.25      10/09/07    $    102,195   $    258,983

A. Simons                10,000 (2)      6.86%        $16.25      10/09/07    $    102,195   $    258,983

</TABLE>

(1) Total dollar gain based on assumed annual rate of stock appreciation
    shown here and calculated on 13,293,812 shares outstanding as of
    Dececmber 31, 1997, based on a ten year term.

(2) Options were granted on 10/09/97 and are exercisable on 12/31/98.
    Options expire 10 years from grant date




      Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Values. The following table sets
forth, for each of the executive officers named in the
Summary Compensation Table above, each exercise
of stock options during the year ended December 31,
1997 and the year-end value of unexercised options:

<TABLE>

<S>
<C>               <C>               <C>           <C>             <C>              <C>             <C>


                                                     Number of Securities              Value of Unexercised
                                                 Underlying Unexercised Options       In-the-Money Option                       In-t
                  Shares                             At Fiscal Year End 1997         at Fiscal Year End 1997
                  Aquired on          Value      -------------------------------  -------------------------------
 Name             Exercise (#)     Realized($)    Exercisable      Unexercisable  Exercisable (1)  Unexercisable (1)
--------------    ------------     -----------    -----------      -------------  ---------------  -----------------
R. Auhll              n/a              n/a            40,000  (2)         -           $200,000(2)       -

R.B. Thompson         n/a              n/a             8,571           21,429         $ 51,426       $ 68,574

F. D'Amelio           n/a              n/a            29,377           28,252         $268,974       $111,171

W. Berci              n/a              n/a            19,771           21,429         $177,426       $ 68,574

A. Simons             n/a              n/a             1,429           18,571         $  9,289       $ 55,712

</TABLE>


(1)    Excess of $15.25 (market price at year end) over
         exercise price.
(2)    Mr. Auhll also holds warrants to purchase 100,000
         shares which were fully exercisable at year end.
         The value of these warrants, computed as in Note 17,
         was $1,064,000.  The warrants were issued in 1990
         in connection with Mr. Auhll's guarantee of certain
         indebtedness of the Company and not in connection
         with his performance of services to the Company.


Compensation of Directors

      The compensation for outside directors was modified
effective July 1, 1997, as discussed below.  First, the
annual retainer for services as a director was increased
from $2,500 to $10,000.  Second, provision was made
for annual grants of Common Stock equivalents.  These
changes were made to bring the Company's directors
within comparable levels of compensation for companies
similar in size, capital structure and board structure.
The new compensation program is designed to ensure
that a significant portion of a non-employee director's
compensation is equity-based and, therefore, highly
dependent on the long-term performance of Circon
Common Stock.  Thus, the program is designed to align
the interests of Circon's non-employee directors and its
shareholders.

      Effective July 1, 1997, each director who is not an
employee of the Company receives an annual retainer
of $10,000 for services as a director.  These fees are
paid quarterly in cash.  Directors continue to receive a
fee of $500 for each Board and committee meeting
attended and reimbursement for expenses incurred in
connection with attendance at Board and committee
meetings.

      In 1995, the shareholders approved the adoption
of the 1995 Directors Stock Option Plan (the "1995
Plan") to replace the 1984 Directors Stock Option Plan
(the "1984 Plan") which expired in 1994. The 1995 Plan
is substantially similar to the 1984 plan. Under the 1995
Plan, options for up to 200,000 shares of common stock
may be granted to directors who are not officers of the
Company, for a price not less than 85% of the fair market
value of the common stock on the date of grant.  The
vesting schedule for the options granted is determined
by a committee of directors at the time of the option grant.
The maximum option term is ten years.  If the optionee
ceases to be a director for any reason, any options granted
which have not been exercised will be canceled according
to the terms of the stock option agreement.  No options
were granted to directors in 1996.  In July 1997, each
director who is not an employee of the Company received
a grant of Common Stock options in recognition of services
rendered over the past year.  The number of options
granted in the July 1997 grant to a particular director
was determined by using a schedule designed to bring
that director's total stock options vesting in 1997 to 11,000
shares.  Subsequent grants will be done on an annual basis
and will be based on a vesting schedule not to exceed 5,000
shares per year.

      The Company also provides director liability insurance
for all directors.

Severance Agreements

      In August 1996, the Company established a Management
Retention Plan (the "Plan") designed to retain managers and
ease their concerns regarding a possible change in control of
the Company.  All of the Company's executive officers are
participants in the Plan as well as certain other key employees,
including the domestic sales force, at reduced benefit levels.
The Plan provides for severance benefits of 2.5 times the
participant's Annual Compensation (as defined in the Plan) in
the case of Mr. Auhll and 2.0 times the participant's Annual
Compensation in the case of Mr. Thompson, Mr. D'Amelio, Mr.
Berci and Mr. Simons.  The severance benefit is only paid if the
officer is involuntarily terminated other than for "cause" (defined
below) following a "change in control" (defined below), provided,
however, that one third of the severance benefit will be paid to
the officer as a retention payment if the officer remains employed
by the Company for ninety days after the date of the change in
control.  The Plan also provides for continuation of healthcare
benefits in the event of an involuntary termination without cause
for 2.5 years in the case of Mr. Auhll and 2.0 years in the case of
the other named executive officers.

      The Plan terminates on August 20, 1999, unless extended
by the Board of Directors or a change in control occurs prior to
that time.  Except with respect to amendments that are not
adverse to Participants, the Plan is not subject to any amendment
or termination prior to the Plan's expiration.

      "Cause" is defined in the Plan as (I) any act of personal
dishonesty taken by the participant in connection with his
responsibilities as an employee and intended to result in s
ubstantial personal enrichment of the participant, (ii) the
participant's conviction of a felony, (iii) a willful act by the
participant which constitutes gross misconduct and which is
injurious to the Company, or (iv) continued substantial
violations by the participant of the participant's employment
duties which are demonstrably willful and deliberate on the
participant's part after there has been delivered to the
participant a written demand for performance from the Company
which specifically sets forth the factual basis for the Company's
belief that the participant has not substantially performed his
duties.

      A "Change of Control" is defined in the Plan as the
occurrence of any of the following: (I) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent
(50%) or more of the total voting power represented by the
Company's then outstanding voting securities; or (ii) a change
in the composition of the Board occurring within a two-year
period, as a result of which fewer than a majority of the directors
are incumbent directors.  "Incumbent directors" shall mean
directors who either (a) are directors of the Company as of the
date hereof, or (b) are elected, or nominated for election, to the
Board with the affirmative votes of at least a majority of the
incumbent directors at the time of such election or nomination
(but shall not include an individual whose election or nomination
is in connection with an actual or threatened proxy contest
relating to the election of directors to the Company); or (iii) the
consummation of a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty percent
(50%) of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding
immediately after such merger of consolidation; or (iv) the
consummation of the sale or disposition by the Company of
all or substantially all the Company's assets.

Information Regarding Compensation Committee Interlocks and
 Insider Participation

      Directors Auhll, Frank and Cloutier comprise the
Compensation Committee.  Mr. Auhll also serves as President
and Chief Executive Officer of the Company.  Mr. Auhll
participates in discussions regarding compensation for executive
officers, except discussions regarding the Chief Executive Officer.

      No other member of the Compensation Committee is a former
or current officer or employee of the Company or any of its
subsidiaries.  Furthermore, there are no compensation committee
interlocks between Circon and other entities involving the
Company's executive officers and board members.

Item 12.    Security Ownership of Certain Beneficial Owners
                  and Management.

      The following table sets forth certain information as of
March 18, 1998, except as otherwise indicated, regarding
the beneficial ownership of Common Stock of Circon by (i)
each person who is known to Circon to be the beneficial
owner of 5% or more of Circon's Common Stock, (ii) each
director of Circon, (iii) certain executive officers of Circon
and (iv) all directors and executive officers as a group.
To the Company's knowledge, the beneficial owners named
in the table have sole voting and investment power with
respect to the shares.
                                           Shares
                                        Beneficially  Percent of
    Name                                   Owned      Class(1)
-----------------------                 ------------  --------
US Surgical Corporation.  . . . . . . . 1,959,348(2)    14.4%
150 Glover Avenue
Norwalk, CT 06856

Richard A. Auhll . .  . . . . . . . . . 1,558,142(3)    11.4%
6500 Hollister Avenue
Santa Barbara, CA  93117



Chancellor LGT Asset Management, Inc  . 1,045,805(4)    7.7%
1166 Avenue of the Americas
New York, NY 10036



Harold R. Frank. . . . . . . . .. . . .    53,277(5)      *

John F. Blok . . .  . . . . . . . . . .    47,225(6)      *

R. Bruce Thompson. .  . . . . . . . . .    41,917(7)      *

Frank D. D'Amelio. .  . . . . . . . . .    29,377(8)      *

Winton L. Berci. .. . . . . . . . . . .    20,271(9)      *

Charles M. Elson . .. . . . . . . . .     17,963(10)      *

George A. Cloutier . . .. . . . . . .     16,000(11)      *

Victor H. Krulak . . .. . . . . . . .     15,463(12)      *

David P. Zielinski  . . . . . . . . .     12,179(13)      *


All directors and executive officers as a group

(11 persons) .  . . . . . . . . . . .  1,813,543(14)    13.3%

__________________________


  *        Less than 1%.

 (1)      Percent of the outstanding shares of Common Stock,
            treating as outstanding all shares issuable upon
            exercise of options held by the particular beneficial
            owners that are included in the first column.
 (2)      Information is given as of December 31, 1997, and
           is based on a Form 4 Statement filed by this shareholder.
 (3)     Includes 140,000 shares subject to warrants and options
             exercisable currently or within 60 days.
 (4)       Information is given as of December 31, 1997, and is
             based on a Schedule 13G filed by this shareholder.
 (5)       Includes 18,858 shares subject to options exercisable
            currently or within 60 days.
 (6)       Includes 47,225 shares subject to options exercisable
            currently or within 60 days.
 (7)       Includes 8,571 shares subject to options exercisable
            currently or within 60 days.
 (8)       Includes 29,377 shares subject to options exercisable
            currently or within 60 days.
 (9)       Includes 19,771 shares subject to options exercisable
            currently or within 60 days.
(10)      Includes 11,000 shares subject to options exercisable
            currently or within 60 days.
(11)      Includes 16,000 shares subject to options exercisable
            currently or within 60 days.
(12)      Includes 11,000 shares subject to options exercisable
            currently or within 60 days.
(13)      Includes 10,179 shares subject to options exercisable
            currently or within 60 days.
(14)      Includes 313,410 shares subject to warrants and options
            exercisable currently or within 60 days.


Item 13.     Certain Relationships and Related Transactions.

          None.                             PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K.

      a. Financial Statements and Schedules Filed

         1. Financial Statements - see Item 8 of this Report.

         2. Supplemental Schedules - see Item 8 of this Report.

      b. The Company filed no Reports on Form 8-K in the fourth quarter
         of 1997 with the Securities and Exchange Commission.

      c. Exhibit Index

         3.1.  Certificate of Incorporation of Circon Corporation,
               (incorporated by reference to the Form 10-K filed
               by the Company for 1988).

         3.1A. Certificates of Amendment of Certificate of Incorporation of
               Circon Corporation (incorporated by reference to the
               Form 10-K filed by the Company for 1992).

         3.1B. Certificate of Amendment of Certificate of Incorporation of
               Circon Corporation merging Cabot Medical Corporation into
               Circon Corporation (incorporated by reference to the Form 10-Q
               filed by the Company for the quarter ended June 30, 1996).

         3.1C. Certificate of Amendment of Certificate of Incorporation of
               Circon Corporation providing that no action required or
               permitted to be taken at a meeting of the shareholders may be
               taken without a meeting or by written consent (incorporated by
               reference to the Form 10-Q filed by the Company for the
               quarter ended June 30, 1996).

         3.1D. Certificate of Designation or Rights, Preferences and
               Privileges of Series A Participating Stock of Circon
               Corporation (incorporated by reference to the Registration
               Statement on Form 8-A filed by the Company on August 15, 1996).

         3.2A. Bylaws of Circon Corporation, as amended, (incorporated by
               reference to Exhibit 3.2A of the Form 10-Q filed by the
               Company for the quarter ended Spetember 30, 1997).

         4.1.  Warrant Agreement between Richard A. Auhll and the Company
               dated May 7, 1990 (incorporated by reference to the Form 10-K
               filed by the Company for 1990).

         4.2.  Preferred Shares Rights Agreement between Circon Corporation
               and Rights Agent dated August 14, 1996 (incorporated by
               reference to the Form 8-A filed by the Company on August 15,
               1996).

         10.1. 1983 Stock Option Plan, as amended.

         10.2. 1984 Directors Stock Option Plan, as amended.

         10.3. 1991 Employee Stock Purchase Plan (incorporated by reference
               to the Form S-8 filed by the Company on November 14, 1991).

         10.4. 1993 Stock Option Plan, as amended.

         10.5. 1995 Directors Stock Option Plan.

         10.6. Circon Corporation Business Loan Agreement covering a
               $75,000,000 Revolving Line of Credit between Registrant and a
               Bank dated November 22, 1995 (incorporated by reference to the
               Form 10-K filed by the Company for 1995).

         10.7. Form of Indemnification Agreement with directors and executive
               officers (incorporated by reference to the Schedule 14d-9
               filed by the Company on August 15, 1996).

         10.8. Form of Employee Retention Plan for certain officers
               (incorporated by reference to Amendment No. 3 to the Schedule
               14d-9 filed by the Company on August 27, 1996).

           11.   Computation of Net Income per Share.

           21.   Subsidiaries of the Registrant.  *

           23.   Consent of Independent Public Accountants.


            * Contained elsewhere herin.
Exhibit 10.2                 CIRCON CORPORATION

                    1984 DIRECTORS STOCK OPTION PLAN

               (As Amended, Effective September 26, 1997)


     1.   Purposes of the Plan.  The purposes of this Stock Option
Plan are to attract and retain the best available directors, to provide
them with additional incentive and to promote the success of the
Company's business.

     Options granted hereunder will be "non-statutory stock options"
and will be evidenced by written option agreements.

     2.   Definitions.  As used herein, the following definitions
shall
apply:

          (a)  "Board" shall mean the Board of Directors of the
Company.

          (b)  "Common Stock" shall mean the Common Stock
of the Company.

          (c)  "Company" shall mean Circon Corporation, a
Delaware corporation.

          (d)  "Committee" shall mean the Committee appointed
by the Board of Directors in accordance with paragraph (a) of
Section 4 of the Plan.

          (e)  "Option" shall mean a stock option granted
pursuant to the Plan.

          (f)  "Optioned Stock" shall mean the Common Stock
subject to an Option.

          (g)  "Optionee" shall mean a director who receives an
Option.

          (h)  "Parent" shall mean a "parent corporation",
whether now or hereafter existing, as defined in Section 425(e) of the
Internal Revenue Code of 1954, as amended.

          (i)  "Plan" shall mean this Directors Stock Option
Plan.

          (j)  "Share" shall mean a share of the Common Stock,
as adjusted in accordance with Section 11 of the Plan.

          (k)  "Subsidiary" shall mean a "subsidiary
corporation",
whether now or hereafter existing, as defined in Section 425(f) of the
Internal Revenue Code of 1954, as amended.

     3.   Stock Subject to the Plan.  Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of shares
which may be optioned and sold under the Plan is 210,000 shares of
Common Stock.  The Shares may be authorized, but unissued, or
reacquired Common Stock.

     If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares
which were subject thereto shall, unless the Plan shall have been
terminated, become available for future grant under the Plan.

     4.   Administration of the Plan.

          (a)  Procedure.  The Plan shall be administered by,
and grants of options shall be made by, or only in accordance with the
recommendation of, a Committee consisting of two or more persons,
who may, but not need be, directors or employees of the Company,
appointed by the Board of Directors but having full authority to act in
the matter, none of whom is eligible to participate in this Plan.  Once
appointed, the Committee shall continue to serve until otherwise
directed by the Board of Directors.  Subject to the foregoing, from time
to time the Board of Directors may increase the size of the Committee
and appoint additional members thereof, remove members (with or
without cause), and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.

          (b)  Powers of the Committee.  Subject to the
provisions of the Plan, the Committee shall have the authority, in its
discretion:  (i) to determine, upon review of relevant information and in
accordance with Section 8(b) of the Plan, the fair market value of the
Common Stock; (ii) to determine the exercise price per share of
Options to be granted, which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iii) to whom, and the time or
times at which, Options shall be granted and the number of shares to
be represented by each Option; (iv) to interpret the Plan; (v) to
prescribe, amend and rescind rules and regulations relating to the
Plan; (vi) to determine the terms and provisions of each Option
granted (which need not be identical) and, with the consent of the
holder thereof, modify or amend each Option; (vii) to accelerate or
defer (with the consent of the Optionee) the exercise date of any
Option; (viii) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option
previously granted; and (ix) to make all other determinations deemed
necessary or advisable for the administration of the Plan.

          (c)  Effect of Committee's Decision.  All decisions,
determinations and interpretations of the Committee shall be final and
binding on all Optionees and any other holders of any Options granted
under the Plan.

     5.   Eligibility.  Options may be granted only to Directors of
the Company, or a Subsidiary who are not otherwise employed by the
company or a subsidiary.

     6.   Term of Plan.  The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its approval
by the shareholders of the Company as described in Section 17 of the
Plan.  It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 13 of the Plan.

     7.   Term of Option.  The term of each Option shall be
ten (10) years from the date of grant thereof or such shorter term as
may be provided in the Stock Option Agreement.

     8.   Exercise Price and Consideration.

          (a)  The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be no less than 85% of
the fair market value per Share on the date of grant.

          (b)  The fair market value shall be the mean of the bid
and asked prices (or the closing price if listed as a "National Market
Issue") of the Common Stock for the date of grant, as reported in the
Wall Street Journal (or, if not so reported, as otherwise reported by
the
National Association of Securities Dealers Automated Quotation
(NASDAQ) System) or, in the event the Common Stock is listed on a
stock exchange, the fair market value per Share shall be the closing
price on such exchange on the date of grant of the Option, as reported
in the Wall Street Journal.

          (c)  The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment,
shall be determined by the Committee and may consist entirely of
cash, check, promissory note, other Shares of Common Stock having
a fair market value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said option shall be
exercised,
or any combination of such methods of payment, or such other
consideration and method of payment for the issuance of Shares to
the extent permitted under Sections 408 and 409 of the California
General Corporation Law.

     9.   Exercise of Option.

          (a)  Procedure for Exercise; Rights as a Shareholder.
Any Option granted hereunder shall be exercisable at such times and
under such conditions as determined by the Committee, including
performance criteria with respect to the Company and/or the Optionee,
and as shall be permissible under the terms of the Plan.

          An Option may not be exercised for a fraction of a Share.

          An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance
with the terms of the Options by the person entitled to exercise the
Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company.  Full payment
may, as authorized by the Committee, consist of any consideration
and method of payment allowable under Section 8(c) of the Plan.  Until
the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company)
of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the
Option.  No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued,
except as provided in Section 11 of the Plan.

          Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available,
both for the purposes of the Plan and for sale under the Option, by the
number of Shares as to which the Option is exercised.

          (b)  Termination of Status as Director.  If an
Optionee's continuous status as a director is terminated, he may, but
only within such period of time from the date he ceases to be a
director of the Company not exceeding seven (7) months as is set
forth in his Option Agreement (but not later than the expiration of the
term of the Option), exercise his Option to the extent that he was
entitled to exercise it at the date of such termination.  To the extent
that he was not entitled to exercise the Option at the date of such
termination, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.

          (c)  Disability of Optionee.  Notwithstanding the
provisions of Section 9(b) above, in the event a director is unable to
continue as a director with the Company as a result of his total and
permanent disability (as defined in Section 105(d)(4) of the Internal
Revenue Code), he may, but only within such period of time from the
date of termination not exceeding twelve (12) months as is set forth in
his Option Agreement (but not later than the expiration of the term of
the Option), exercise his Option to the extent he was entitled to
exercise it at the date of such termination.  To the extent that he was
not entitled to exercise the Option at the date of the termination, or if
he does not exercise such Option (which he was entitled to exercise)
within the time specified herein, the Option shall terminate.

          (d)  Death of Optionee.  In the event of the death of an
Optionee during the term of the Option who is at the time of his death
a director of the Company and who shall have been in continuous
status as a director since the date of grant of the Option, the Option
may be exercised following the date of death as set forth in the Option
Agreement (but not later than the expiration of the term of the Option),
by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of
the right to exercise that would have accrued had the Optionee
continued living and remained in continuous status as a director three
moths after the date of death.

     10.  Non-Transferability of Options.  The Option may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in
any manner other than by will or by the laws of descent or distribution
and may be exercised, during the lifetime of the Optionee, only by the
Optionee.

     11.  Adjustments Upon Changes in Capitalization or Merger.
Subject to any required action by the shareholders of the Company,
the number of shares of Common Stock covered by each outstanding
Option, and the number of shares of Common Stock which have been
authorize for issuance under the Plan but as to which no Options have
yet been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per share of Common Stock covered by
each such outstanding Option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common
Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt
of consideration."  Such adjustment shall be made by the Committee,
whose determination in that respect shall be in final, binding and
conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to an Option.

          In the event of the proposed dissolution or liquidation of
the Company, the Option will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by
the Committee.  The Committee may, in the exercise of its sole
discretion in such instances, declare that any Option shall terminate
as
of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be
exercisable.  In the event of a proposed sale of all or substantially all
of the assets of the Company, or the merger of the Company with or
into another corporation, the Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Committee
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to
exercise the Option as to all of the Optioned Stock, including Shares
as to which the Option would not otherwise be exercisable.  If the
Committee makes an Option fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Committee
shall notify the Optionee that the Option shall be fully exercisable for a
period of ten days from the date of such notice, and the Option will
terminate upon the expiration of such period.

     12.  Time of Granting Options.  The date of grant of an
Option shall, for all purposes, be the date on which the Committee
makes the determination granting such Option.  Notice of the
determination shall be given to each Employee to whom an Option is
so granted within a reasonable time after the date on which the
Committee makes the determination granting such Option.  Notice of
the determination shall be given to each Employee to whom an Option
is so granted within a reasonable time after the date of such grant.

     13.  Amendment and Termination of the Plan.

          (a)  Amendment and Termination.  The Committee
may amend or terminate the Plan from time to time in such respects
as the Committee may deem advisable; provided that, the following
revisions or amendments shall require approval of the holders of a
majority of the outstanding shares of the Company entitled to vote:

               (i)  any increase in the number of Shares
subject to the Plan, other than in connection with an adjustment under
Section 11 of the Plan;

               (ii) any change in the designation of the class
of individuals eligible to be granted Options; or

               (iii)     any material increase in the benefits
accruing to participants under the Plan.

          (b)  Shareholder Approval.  If any amendment
requiring shareholder approval under Section 13(a) of the Plan is
made subsequent to the first registration of any class of equity security
by the Company under Section 12 of the Exchange Act, such
shareholder approval shall be solicited as described in Section 17(a)
of the Plan.

          (c)  Effect of Amendment or Termination.  Any such
amendment or termination of the Plan shall not affect Options already
granted and such Options shall remain in full force and effect as if this
Plan had not been amended or terminated, unless mutually agreed
otherwise between the Optionee and the Committee, which agreement
must be in writing and signed by the Optionee and the Company.

     14.  Conditions Upon Issuance of Shares.  Shares shall not
be issued pursuant to the exercise of an Option unless the exercise of
such Option and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may
be then listed, and shall be further subject to the approval of counsel
for the Company with respect to such compliance.

          As a condition to the exercise of an Option, the Company
may require the person exercising such Option to represent and
warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell
or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned
relevant provisions of law.

          Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of
any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such
requisite authority shall not have been obtained.

     15.  Reservation of Shares.  The Company, during the term
of this Plan, will at all times reserve and keep available such number
of
Shares as shall be sufficient to satisfy the requirements of the Plan.

     16.  Option Agreement.  Options shall be evidenced by
written option agreements in such form as the Committee shall
approve.

     17.  Shareholder Approval.  Continuance of the Plan shall be
subject to approval by the shareholders of the Company within twelve
months before or after the date the Plan is adopted.  If such
shareholder approval is obtained at a duly held shareholders' meeting,
it may be obtained by the affirmative vote of the holders of a majority
of the outstanding shares of the Company present or represented and
entitled to vote thereon.  The approval of such shareholders of the
Company shall comply with Rule 16b-3 under the Exchange Act.

     18.  Termination Following A Change of Control.
Notwithstanding any other provision of this Plan, if an Optionee's
service as a Director terminates at any time within twelve (12) months
after a Change of Control (as such term is defined in the Company's
Retention Plans) and such termination is other than (i) for "Cause" (as
such term is defined in the Company's Retention Plans), (ii) due to the
Optionee's death or Disability, or (iii) due to any voluntary termination
by the Optionee, then such Optionee's outstanding Options hereunder
shall become 100% vested and exercisable as of the date of such
termination of services.



Exhibit 10.4                  CIRCON CORPORATION

                            1993 STOCK OPTION PLAN

                        Amended As of September 26, 1997


     1.   Purposes of the Plan.  The purposes of this 1993 Stock
Option Plan are to attract and retain the best available personnel, to
provide additional incentive to the Employees and Consultants of the
Company and to promote the success of the Company's business.

     Options granted hereunder may be either Incentive Stock Options
or Nonstatutory Stock Options, at the discretion of the Board and as
reflected in the terms of the written option agreement.

     2.   Definitions.  As used herein, the following definitions shall
apply:

          (a)  "Applicable Laws" shall mean the requirements
relating to the administration of stock option plans under U. S. state
corporate laws, U.S. federal and state securities laws, the Code, any stock
exchange or quotation system on which the Common Stock is listed or
quoted and the applicable laws of any foreign country or jurisdiction where
Options are, or will be, granted under the Plan.

          (b)  "Board" shall mean the Committee, if one has been
appointed, or the Board of Directors of the Company, if no Committee is
appointed.

          (c)  "Code" shall mean the Internal Revenue Code of
1986, as amended.

          (d)  "Committee" shall mean the Committee appointed by
the Board in accordance with Section 4(a) of the Plan.

          (e)  "Common Stock" shall mean the Common Stock of the
Company.

          (f)  "Company" shall mean Circon Corporation, a
Delaware corporation.

          (g)  "Consultant" shall mean any person who is engaged
by the Company or any Parent or Subsidiary to render consulting services
and is compensated for such consulting services; provided that the term
Consultant shall not include directors who are not compensated for their
services or are paid only a director's fee by the Company.

          (h)  "Continuous Status as an Employee or Consultant"
shall mean the absence of any interruption or termination of service as an
Employee or Consultant, as applicable.  Continuous Status as an
Employee or Consultant shall not be considered interrupted in the case of
sick leave, military leave, or any other leave of absence approved by the
Board.  For purposes of Incentive Stock Options, no such leave may
exceed ninety days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract. If reemployment upon expiration of a
leave of absence approved by the Company is not so guaranteed, on the
181st day of such leave any Incentive Stock Option held by the Optionee
shall cease to be treated as an Incentive Stock Option and shall be treated
for tax purposes as a Nonstatutory Stock Option.

          (i)  "Director" shall mean a member of the Board.

          (j)  "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.

          (k)  "Employee" shall mean any person, including officers
and Directors, employed by the Company or any Parent or Subsidiary of
the Company.  The payment of a director's fee by the Company shall not
be sufficient to constitute "employment" by the Company.

          (l)  "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time.

          (m)  "Incentive Stock Option" shall mean an option
intended to qualify as an incentive stock option within the meaning of
Section 422 of the Code.

          (n)  "Nonstatutory Stock Option" shall mean an Option not
intended to qualify as an Incentive Stock Option.

          (o)  "Option" shall mean a stock option granted pursuant to
the Plan.

          (p)  "Optioned Stock" shall mean the Common Stock
subject to an Option.

          (q)  "Optionee" shall mean an Employee or Consultant
who receives an Option.

          (r)  "Parent" shall mean a "parent corporation," whether
now or hereafter existing, as defined in Section 424(e) of the Code.

          (s)  "Plan" shall mean this 1993 Stock Option Plan, as
amended.

          (t)  "Retention Plans" shall mean the Company's
Management Retention Plan, Sales Force Retention Plan and Managers,
Professionals & Key Contributors Retention Plan.

          (u)  "Rule 16b-3" shall mean Rule 16b-3, as promulgated
by the Securities and Exchange Commission under Section 16(b) of the
Exchange Act, as such rule is amended from time to time and as
interpreted by the Securities and Exchange Commission.

          (v)  "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.

          (w)  "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the
Code.

     3.   Stock Subject to the Plan.  Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of shares issuable
under the Plan is 2,000,000 shares of Common Stock.  The Shares may
be authorized, but unissued, or reacquired Common Stock.

          If an Option should expire or become unexercisable for any
reason without having been exercised in full, then the unpurchased Shares
which were subject thereto shall, unless the Plan shall have been
terminated, become available for future grant or sale 0under the Plan.

     4.   Administration of the Plan.

          (a)  Procedure.

               (i)  Multiple Administrative Bodies.  The Plan may
be administered by different Committees with respect to different groups of
Employees or Consultants.

               (ii) Rule 16b-3.  To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.

               (iii)     Other Administration.  Other than as provided
above, the Plan shall be administered by (A) the Board or (B) a
Committee, which committee shall be constituted to satisfy Applicable
Laws.

          (b)  Powers of the Board.  Subject to the provisions of the
Plan, the Committee shall have the authority, in its discretion: (i) to grant
Incentive Stock Options or Nonstatutory Stock Options; (ii) to determine,
upon review of relevant information and in accordance with Section 8 of
the Plan, the fair market value of the Common Stock; (iii) to determine the
exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 8 of the Plan; (iv) to
determine the Employees or Consultants to whom, and the time or times at
which, Options shall be granted and the number of shares to be
represented by each Option; (v) to interpret the Plan; (vi) to prescribe,
amend and rescind rules and regulations relating to the Plan; (vii) to
determine the terms and provisions of each Option granted (which need
not be identical) and, with the consent of the holder thereof, modify or
amend any provisions (including provisions relating to exercise price) of
any Option; (viii) to accelerate or defer (with the consent of the Optionee)
the exercise date of any Option; (ix) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of
an Option previously granted by the Committee; (x) to allow Optionees to
satisfy withholding tax obligations by electing to have the Company
withhold from the Shares to be issued upon exercise of an Option that
number of Shares having a Fair Market Value equal to the amount
required to be withheld.  The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be
withheld is to be determined.  All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such
conditions as the Board may deem necessary or advisable; and (xi) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.

          (c)  Effect of Committee's Decision.  All decisions,
determinations and interpretations of the Committee shall be final and
binding on all Optionees and any other holders of any Options granted
under the Plan.

     5.   Eligibility.

          (a)  Nonstatutory Stock Options may be granted only to
Employees and Consultants.  Incentive Stock Options may be granted only
to Employees.  An Employee or Consultant who has been granted an
Option may, if such Employee or Consultant is otherwise eligible, be
granted additional Options.

         (b)  Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option.  However, notwithstanding such designations, to the extent that
the
aggregate fair market value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by
any Optionee during any calendar year (under all plans of the Company)
exceeds $100,000, such Options shall be treated as Nonstatutory Stock
Options.  For purposes of this Section 5(b), Options shall be taken into
account in the order in which they were granted, and the fair market value
of the Shares shall be determined as of the time the Option with respect to
such Shares is granted.

         (c)  The Plan shall not confer upon any Optionee any
right with respect to continuation of employment by or the rendition
of services to the Company or a Subsidiary, nor shall it interfere in
any way with his or her right or the Company's or Subsidiary's right
to terminate his or her employment or services at any time, with or
without cause.

    6.   Term of Plan.  The Plan shall become effective upon its
adoption by the Board of Directors and shall continue in effect for a term of
ten (10) years unless sooner terminated under Section 12 of the Plan.

    7.   Term of Option; Date of Grant.  The term of each Option
shall be ten (10) years from the date of grant thereof or such shorter term
as may be provided in the Option agreement.  However, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Option
is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years
from the date of grant thereof or such shorter time as may be provided in
the Option agreement.  The date of grant of an Option shall, for all
purposes, be the date on which the Committee (or the Chief Executive
Officer if authorized by the Committee) makes the determination granting
such Option.  Notice of the determination shall be given to each Optionee
within a reasonable time after the date of such grant.  Options shall be
evidenced by written Option agreements in such form as the Committee
shall approve.

     8.  Exercise Price and Form of Consideration.

         (a)  The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be such price as is
determined by the Board, but for Incentive Stock Options shall be no less
than 100% of the fair market value per Share on the date of grant, but if
granted to an Employee who, at the time of the grant of such Incentive
Stock Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
fair market value per Share on the date of grant.  In the event that an
Option is amended to reduce the exercise price, the date of grant of such
Option shall thereafter be considered to be the date of such amendment.

         (b)  The fair market value shall be determined by the
Board in its discretion; provided, however, that in the event the Common
Stock is listed on a stock exchange, the fair market value per Share shall
be the closing price on such exchange on the date of grant of the Option
as reported in the Wall Street Journal; or if not listed on an exchange but
quoted on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") National Market System, the fair market value per
Share shall be the closing price per share of the Common Stock for the
date of grant, as reported in the Wall Street Journal (or, if not so reported,
as otherwise reported by the NASDAQ System); or, if the Common Stock
is otherwise publicly traded, the mean of the closing bid price and asked
price, as reported in the Wall Street Journal.

         (c)  The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall
be determined by the Committee (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant), and may consist of (i)
cash, (ii) check, (iii) other shares of Common Stock which (x) either have
been owned by the Optionee for more than six months on the date of
surrender or were not acquired directly or indirectly from the Company,
and (y) have a fair market value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised, (iv) any combination of such methods of payment; or (v) such
other consideration and method of payment for the issuance of Shares to
the extent permitted under applicable laws.

    9.   Exercise of Option.

         (a)  Procedure for Exercise; Rights as a Shareholder.

              (i)  Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Committee and as shall be permissible under the terms of the Plan.  An
Option may not be exercised for a fraction of a Share.

              (ii) An Option shall be deemed to be exercised
when written notice of such exercise has been given to the Company in
accordance with the terms of the Option by the person entitled to exercise
the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company. Full payment
may, as authorized by the Board, consist of any consideration and method
of payment allowable under Section 8 of the Plan.  Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option.  The Company shall issue (or
cause to be issued) such stock certificate promptly upon exercise of the
Option.  In the event that the exercise of an Option is treated in part as the
exercise of an Incentive Stock Option and in part as the exercise of a
Nonstatutory Stock Option pursuant to Section 5(b), the Company shall
issue a separate stock certificate evidencing the Shares treated as
acquired upon exercise of an Incentive Stock Option and a separate stock
certificate evidencing the Shares treated as acquired upon exercise of a
Nonstatutory Stock Option and shall identify each such certificate
accordingly in its stock transfer records.  No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 11 of the Plan.

              (iii)     Exercise of an Option in any manner shall
result in a decrease in the number of Shares which thereafter may be
available, both for purposes of the Plan and for sale under the Option, by
the number of Shares as to which the Option is exercised.

         (b)  Termination of Status as an Employee or Consultant.
In the event of termination of an Optionee's Continuous Status as an
Employee or Consultant for any reason whatever, such Optionee may, but
only within such period of time as provided in the Option Agreement, after
the date of such termination (but in no event later than the date of
expiration of the term of such Option as set forth in the Option agreement),
exercise the Option to the extent that such Employee or Consultant was
entitled to exercise it at the date of such termination.  To the extent that
such Employee or Consultant was not entitled to exercise the Option at the
date of such termination, or if such Employee or Consultant does not
exercise such Option (which such Employee or Consultant was entitled to
exercise) within the time specified therein, the Option shall terminate.

    10.  Non-Transferability of Options.  Unless determined otherwise
by the Board, Options may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws
of descent or distribution or pursuant to a qualified domestic relations
order
as defined by the Code or the rules thereunder.  An Option may be
exercised, during the lifetime of the Optionee, only by the Optionee or a
transferee pursuant to such qualified domestic relations order.  If the
Board
makes an Option transferable, such Option shall contain such additional
terms and conditions as the Board deems appropriate.

    11.  Adjustments Upon Changes in Capitalization or Merger.

         (a)  Subject to any required action by the shareholders of
the Company, the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have
yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, and the number of shares of
Common Stock subject to each outstanding Option, as well as the price
per share of Common Stock covered by each such outstanding option,
shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split,
reverse stock split or reclassification of the Common Stock of the
Company or the payment of a stock dividend with respect to the Common
Stock.  Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option.

         (b)  In the event of the proposed dissolution or liquidation
of the Company, the Option will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee.  The Committee may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date fixed
by the Committee and give each Optionee the right to exercise his or her
Option as to all or any part of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable.

         (c)  In the event of a proposed sale of all or substantially
all of the assets of the Company, or the merger of the Company with or
into another corporation, the Option shall be assumed or an equivalent
option shall be assumed or substituted by such successor corporation or a
parent or subsidiary of such successor corporation.  In the event that the
successor corporation refuses to assume or substitute the Option, the
Optionee shall fully vest in and have the right to exercise the Option as to
all of the Optioned Stock, including Shares as to which it would not
otherwise be vested or exercisable.  If an Option becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Committee shall notify the Optionee in writing or
electronically that the Option shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option
shall terminate upon the expiration of such period.  The Option shall be
deemed to be assumed if, following the sale of assets or merger, the
Option confers the right to purchase, for each share of Optioned Stock
subject to the Option immediately prior to the sale of assets or merger, the
consideration (whether stock, cash or other securities or property)
received
in the sale of assets or merger by holders of Common Stock for each
share of Common Stock held on the effective date of the sale of assets or
merger (and if such holders were offered a choice of consideration, the
type of consideration chosen by the holders of the largest number of the
outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely
common stock of the successor corporation or its Parent, the Committee
may, with the consent of the successor corporation and the Optionee,
provide for the per Share consideration to be received upon exercise of
the
Option to be solely Common Stock of the successor corporation or its
Parent equal in fair market value (as of the effective date of the sale of
assets or merger) to the per share consideration received by holders of
Common Stock in the sale of assets or merger.

    12.  Amendment and Termination of the Plan.

         (a)  Amendment and Termination.  The Committee may
amend or terminate the Plan from time to time in such respects as the
Committee may deem advisable; provided that, to the extent necessary to
comply with Section 422 of the Code (or any other successor or applicable
law or regulation), the Company shall obtain stockholder approval of any
Plan amendment in such a manner and to such a degree as is required by
the applicable law, rule or regulation.

         (b)  Effect of Amendment or Termination.  Any such
amendment or termination of the Plan shall not affect Options already
granted and such Options shall remain in full force and effect as if this
Plan
had not been amended or terminated, unless mutually agreed otherwise
between the Optionee and the Committee, which agreement must be in
writing and signed by the Optionee and the Company.

    13.  Conditions Upon Issuance of Shares.  Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such Shares pursuant thereto
shall comply with all relevant provisions of law, including, without
limitation,
the Securities Act of 1933, as amended, the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

         As a condition to the exercise of an Option, the Company
may require the person exercising such Option to represent and warrant at
the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a
representation
is required by any of the aforementioned relevant provisions of law.

    14.  Reservation of Shares.  The Company, during the term of
this Plan, will at all times reserve and keep available such number of
Shares as shall be sufficient to permit the exercise of all Options
outstanding under the Plan.

         The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder, shall relieve the Company of any liability in respect of
the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

    15.  Stockholder Approval.  Continuance of the Plan shall be
subject to approval by the stockholders of the Company as required by
Section 422 of the Code.

    16.  Termination Following A Change of Control.
Notwithstanding
any other provision of this Plan, if an Optionee's employment terminates at
any time within twelve (12) months after a Change of Control (as such
term is defined in the Company's Retention Plans) including, but only with
respect to participants in the Company's Management Retention Plan, an
"Involuntary Termination" (as such term is defined in the Company's
Management Retention Plan) but not including, with respect to any other
Optionees, any voluntary termination by the Optionee, and not including,
with respect to participants in the Company's Management Retention Plan,
any voluntary termination by the Optionee that does not constitute an
"Involuntary Termination" (as such term is defined in the Company's
Management Retention Plan), and such termination is other than (i) for
"Cause" (as such term is defined in the Company's Retention Plans), or (ii)
due to the Optionee's death or Disability, then such Optionee's
outstanding
Options hereunder shall become 100% vested and exercisable as of the
date of such termination of employment.

"Exhibit 10.5                  CIRCON CORPORATION

                      1995 DIRECTORS STOCK OPTION PLAN

                      Amended as of September 26, 1997


     1.   Purposes of the Plan.  The purposes of this Stock Option
Plan are to attract and retain the best available directors, to provide them
with additional incentive and to promote the success of the Company's
business.

     Options granted hereunder will be "non-statutory stock options" and
will be evidenced by written option agreements.

     2.   As used herein, the following definitions shall apply.

          (a)  "Board" shall mean the Board of Directors of the
Company.

          (b)  "Common Stock" shall mean the Common Stock of the
Company.

          (c)  "Company" shall mean Circon Corporation, a
Delaware corporation.

          (d)  "Committee" shall mean the Committee appointed by
the Board of Directors in accordance with paragraph (a) of Section 4 of the
Plan.

          (e)  "Director"  shall mean a member of the Board.

          (f)  "Option" shall mean a stock option granted pursuant to
the Plan.

          (g)  "Optioned Stock" shall mean the Common Stock
subject to an Option.

          (h)  "Optionee" shall mean a Director who receives an
Option.

          (i)  "Parent" shall mean a "parent corporation," whether
now or hereafter existing, as defined in Section 424(e) of the Internal
Revenue Code of 1986, as amended.

          (j)  "Plan" shall mean this 1995 Directors Stock Option
Plan.

          (k)  "Share" shall mean a share of Common Stock, as
adjusted in accordance with Section 11 of the Plan.

          (l)  "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the
Internal Revenue Code of 1986, as amended.

     3.   Stock Subject to the Plan.  Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of shares which
may be optioned and sold under the Plan is 200,000 shares of Common
Stock.  The Shares may be authorized, but unissued, or reacquired
Common Stock.

     If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan.

     4.   Administration of the Plan.

          (a)  Procedure.

               (i)  Administration.  The Plan shall be administered
by (A) the Board or (B) a Committee, which committee shall be constituted
to satisfy any applicable laws.

               (ii) Rule 16b-3.  To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.

          (b)  Powers of the Committee.  Subject to the provisions of
the Plan, the Committee shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with
Section 8(b) of the Plan, the fair market value of the Common stock; (ii) to
determine the exercise price per share of Options to be granted, which
exercise shall be determined in accordance with Section 8(a) of the Plan;
(iii) to determine to whom, and the time or times at which, Options shall be
granted and the number of shares to be represented by each Option; (iv)
to interpret the Plan; (v) to prescribe, amend and rescind rules and
regulations relating to the Plan; (vi) to determine the terms and provisions
of Options granted (which need not be identical) and, with the consent of
the Optionee, modify or amend an Option; (vii) to accelerate or defer (with
the consent of the Optionee) the exercise date of any Option; (viii) to
authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option previously granted; (ix) to
allow Optionees to satisfy withholding tax obligations by electing to have
the Company withhold from the Shares to be issued upon exercise of an
Option that number of Shares having a fair market value equal to the
amount required to be withheld.  The fair market value of the Shares to be
withheld shall be determined on the date that the amount of tax to be
withheld is to be determined.  All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such
conditions as the Board may deem necessary or advisable; and (x) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.

          (c)  Effect of Committee's Decision.  All decisions,
determinations and interpretations of the Committee shall be final and
binding on all Optionees and any other holders of any Options granted
under the Plan.

     5.   Eligibility.  Options may be granted only to Directors of the
Company, or a Subsidiary, who are not otherwise employed by the
Company or a Subsidiary.

     6.   Term of Plan.  The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its approval by
the stockholders of the Company as described in Section 17 of the Plan.  It
shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 13 of the Plan.

     7.   Term of Option.  The term of each Option shall be ten (10)
years from the date of grant thereof or such shorter term as may be
provided in the Stock Option Agreement.

     8.   Exercise Price and Consideration.

          (a)  The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be no less than 85% of the
fair market value per Share on the date of grant.

          (b)  The fair market value shall be the mean of the bid and
asked prices (or the closing price if listed as a "National Market Issue") of
the Common Stock for the date of grant, as reported in the Wall Street
Journal (or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation (NASDAQ)
System) or, in the event the Common Stock is listed on a stock exchange,
the fair market value per Share shall be the closing price on such
exchange on the date of grant of the Option, as reported in the Wall Street
Journal.

          (c)  The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall
be determined by the Committee and may consist entirely of cash, check,
promissory note, other shares of Common Stock having a fair market
value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said option shall be exercised, or any combination of
such methods of payment, or such other consideration and method of
payment for the issuance of Shares to the extent permitted under
applicable law.

     9.   Exercise of Option.

          (a)  Procedure for Exercise:  Rights as a Stockholder.  Any
Option granted hereunder shall be exercisable at such times and under
such conditions as determined by the Committee, including performance
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan.

          An Option may not be exercised for a fraction of a Share.

          An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is exercised
has been received by the Company.  Full payment may, as authorized by
the Committee, consist of any consideration and method of payment
allowable under Section 8(c) of the Plan.  Until the issuance (as evidenced
by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option.  No adjustment will be made for
a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 11 of the Plan.

          Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both
for the purposes of the Plan and for sale under the Option, by the number
of Shares as to which the Option is exercised.

          (b)  Termination of Status as Director.  If an Optionee's
continuous status as a Director is terminated, he may, but only within such
period of time from the date he ceases to be a Director of the Company
not exceeding seven (7) months as is set forth in his Option Agreement
(but not later than the expiration of the term of the Option), exercise his
Option to the extent that he was entitled to exercise it at the date of such
termination.  To the extent that he was not entitled to exercise the Option
at the date of such termination, or if he does not exercise such Option
(which he was entitled to exercise) within the time specified herein, the
Option shall terminate.

          (c)  Disability of Optionee.  Notwithstanding the provisions
of Section 9(b) above, in the event a Director is unable to continue as a
Director with the Company as a result of his total and permanent disability
(as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended), he may, but only within such period of time from the date of
termination not exceeding twelve (12) months as is set forth in his Option
Agreement (but not later than the expiration of the term of the Option),
exercise his Option to the extent he was entitled to exercise it at the date
of such termination.  To the extent that he was not entitled to exercise the
Option at the date of the termination, or if he does exercise such Option
(which he was entitled to exercise) within the time specified herein, the
Option shall terminate.

          (d)  Death of Optionee.  In the event of the death of an
Optionee during the term of the Option who is at the time of his death a
Director of the Company and who shall have been in continuous status as
a Director since the date of grant of the Option, the Option may be
exercised following the date of death as set forth in the Option Agreement
(but not later than the expiration of the term of the Option), by the
Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living and
remained in continuous status as a Director three months after the date of
death.

     10.  Non-Transferability of Options.  Unless determined otherwise
by the Board, Options may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws
of descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.  If the Board makes an Option
transferable, such Option shall contain such additional terms and
conditions as the Board deems appropriate.

     11.  Adjustments Upon Changes in Capitalization or Merger.
Subject to any required action by the stockholders of the Company, the
number of shares of Common Stock covered by each outstanding Option,
and the number of shares of Common Stock which have been authorized
for issuance under the Plan but as to which no Options have yet been
returned to the Plan upon cancellation or expiration of an Option, as well
as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from
a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration."  Such adjustment shall be made
by the Committee, whose determination in that respect shall be final,
binding and conclusive.  Except as expressly provided herein, no issuance
by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to an Option.

     In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation
of such proposed action, unless otherwise provided by the Committee.
The Committee may, in the exercise of its sole discretion in such
instances, declare that any Option shall terminate as of a date fixed by the
Board and give each Optionee the right to exercise his Option as to all or
any part of the Optioned Stock, including Shares as to which the Option
would not otherwise be exercisable.

     In the event of a merger of the Company with or into another
corporation or the sale of substantially all of the assets of the Company,
outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof
(the "Successor Corporation").  If an Option is assumed or substituted for,
the Option or equivalent option shall continue to be exercisable as
provided in Optionee's Stock Option Agreement for so long as the
Optionee serves as a Director or a director of the Successor Corporation.
Following such assumption or substitution, if the Optionee's status as a
Director or director of the Successor Corporation, as applicable, is
terminated other than upon a voluntary resignation by the Optionee, the
Option or option shall become fully exercisable, including as to Shares for
which it would not otherwise be exercisable.  Thereafter, the Option or
option shall remain exercisable in accordance with Sections 8(b) through
(d) above.
     If the Successor Corporation does not assume an outstanding
Option or substitute for it an equivalent option, the Option shall become
fully vested and exercisable, including as to Shares for which it would not
otherwise be exercisable.  In such event the Board shall notify the
Optionee that the Option shall be fully exercisable for a period of fifteen
(15) days from the date of such notice, and upon the expiration of such
period the Option shall terminate.

     12.  Time of Granting Options.  The date of grant of an Option
shall, for all purposes, be the date on which the Committee makes the
determination granting such Option.  Notice of the determination shall be
given to each Optionee to whom an Option is so granted within a
reasonable time after the date on which the Committee makes the
determination granting such Option.  Notice of the determination shall be
given to each Optionee to whom an Option is so granted within a
reasonable time after the date of such grant.

     13.  Amendment and Termination of the Plan.

          (a)  Amendment and Termination.  The Committee may
amend or terminate the Plan from time to time in such respects as the
Committee may deem advisable; provided that, the following revisions or
amendments shall require approval of the holders of a majority of the
outstanding shares of the Company entitled to vote:

               (i)  any increase in the number of Shares subject to
the Plan, other than in connection with an adjustment under Section 11 of
the Plan;

               (ii) any change in the designation of the class of
individuals eligible to be granted Options; or

               (iii)     any material increase in the benefits accruing
to
participants under the Plan.

          (b)  Stockholder Approval.  If any amendment requiring
stockholder approval under Section 13(a) of the Plan is made subsequent
to the first registration of any class of equity security by the Company
under Section 12 of the Exchange Act, such stockholder approval shall be
solicited as described in Section 17 of the Plan.

          (c)  Effect of Amendment or Termination.  Any such
amendment or termination of the Plan shall not affect Options already
granted and such Options shall remain in full force and effect as if this
Plan
had not been amended or terminated, unless mutually agreed otherwise
between the Optionee and the Committee, which agreement must be in
writing and signed by the Optionee and the Company.

     14.  Conditions Upon Issuance of Shares.  Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such Shares pursuant thereto
shall comply with all relevant provisions of law, including, without
limitation,
the Securities Act of 1933, as amended, the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Shares may be then listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

     As a condition to the excise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment
and without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by
any of the aforementioned relevant provisions of law.

     Inability of the Company to obtain authority form any regulatory
body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the
failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

     15.  Reservation of Shares.  The Company, during the term of
this Plan, will at all times reserve and keep available such number of
Shares as shall be sufficient to satisfy the requirements of the Plan.

     16.  Option Agreement.  Options shall be evidenced by written
option agreements in such form as the Committee shall approve.

     17.  Stockholder Approval.  Continuance of the Plan shall be
subject to approval by the stockholders of the Company within twelve
months before or after the date the Plan is adopted.  If such stockholder
approval is obtained at a duly held stockholders' meeting, it may be
obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present or represented and entitled to
vote thereon.  The approval of such stockholders of the Company shall
comply with any applicable laws or regulations.

     18.  Termination Following A Change of Control.  Notwithstanding
any other provision of this Plan, if an Optionee's service as a Director
terminates at any time within twelve (12) months after a Change of Control
(as such term is defined in the Company's Retention Plans) including, but
only with respect to participants in the Company's Management Retention
Plan, an "Involuntary Termination" (as such term is defined in the
Company's Management Retention Plan) but not including, with respect to
any other Optionees, any voluntary termination by the Optionee, and not
including, with respect to participants in the Company's Management
Retention Plan, any voluntary termination by the Optionee that does not
constitute an "Involuntary Termination" (as such term is defined in the
Company's Management Retention Plan), and such termination is other
than (i) for "Cause" (as such term is defined in the Company's Retention
Plans), or (ii) due to the Optionee's death or Disability, then such
Optionee's outstanding Options hereunder shall become 100% vested and
exercisable as of the date of such termination of services.

EXHIBIT 23.      CONSENT OF INDEPENDENT PUBLIC
                          ACCOUNTANTS



As independent public accountants, we hereby consent
to the incorporation of our report dated March 6, 1998
included in this Form 10-K, into the Company's previously
filed Registration Statements File Nos. 333-34555
Employee Stock Option Plan and 1995 Director's Stock
 Option Plan, and 1991 Employee Stock Purchase Plan
(Form S-8 filed by the Company on November 14, 1991).





Stamford, Connecticut
March 27, 1998


SIGNATURES

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

DATED: 3/31/98
      ----------                      CIRCON CORPORATION
                                         (Registrant)

                                      By
                                        -----------------
                                        Richard A. Auhll
                                        President, Chief Executive Officer
                                        Chairman of the Board

         Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed
below by the following persons, which include the Chief
Executive Officer, the Chief Financial Officer, the Chief
Accounting Officer and a majority of the Board of
Directors, on behalf of the Registrant and in the
capacities and on the dates indicated:

 Signatures                           Title                        Date
------------                        --------------------------     ----------
                                    President, Chief Executive
                                    Officer and Chairman of the
/S/ Richard A. Auhll                Board (Principal Executive        3/31/98
--------------------                Officer)                       ----------
Richard A. Auhll

                                    Director, Executive Vice President
                                    and Chief Financial Officer
/S/ R. Bruce Thompson              (Principal Financial and          3/31/98
---------------------               Accounting Officer)             ---------
R. Bruce Thompson

/S/ John Blokker                                                     3/31/98
----------------                    Director                        ---------
John Blokker

/S/ George A. Cloutier                                               3/31/98
----------------------              Director                        ---------
George A. Cloutier

/S/ Charles M. Elson                                                 3/31/98
--------------------                Director                        ---------
Charles M. Elson

/S/ Harold R. Frank                                                  3/31/98
-------------------                 Director                        ---------
Harold R. Frank

/S/ Victor H. Krulak                                                  3/31/98
--------------------                Director                        ---------
Victor H. Krulak