SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 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, 1996

                        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.   Eployer
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 $172,849,097 at March 11, 1997, when the closing
 sale price of such stock, as reported in NASDAQ National Market System, was
 $15.25.

	The number of shares outstanding of the Registrant's Common Stock, $.01 par
 value, as of March 11, 1997, was 13,243,090 shares.

                        PART I




Item 1.    Business.

	On August 28, 1995 Circon Corporation completed a merger with Cabot
Medical Corporation, creating the 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 ACMI, Circon Cabot, Circon Surgitek and Circon
Video.

	Circon designs, manufactures, markets and services medical endoscope
and electrosurgery 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.

	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),
thoracoscopes (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 electro-surgery 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 a core product group which comprises the
optical-video chain:

	o	Rigid and Flexible Medical Endoscope Systems

	o	Medical Video Systems

	o	Electrosurgery Systems

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

	o	Ureteral Stents

	o	Urinary Diagnostic Products

	o	Gynecological Diagnostic Products

	o	Cryosurgery Products

	o	Tubal Ligation Products

	o	Vacuum Curettage Products

	The Optical-Video Chain

	The optical-video chain combines a medical endoscope system with a
medical video system and 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
system 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 optical-video chain.  In addition, the Company now provides the full
range of 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.
Additional advantages of a broad product line include greater efficiency in
distribution and more flexibility in competitive pricing.

	Medical Endoscope Systems

	The Company manufactures a broad line of rigid and flexible endoscope
systems 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, most rigid endoscopes
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.

	Medical Video Systems

	Circon designs, assembles and markets miniature color video systems for
medical applications in endoscopy.  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.  Circon purchases and modifies video
monitors, printers and video cassette recorders for resale as part of these
color video systems.  Color video systems range in price from approximately
$10,000 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.  In late 1992, Circon introduced the MicroDigital I
medical video camera, the first single chip CCD sensor camera with all digital
signal processing of video images.  In early 1994, Circon began shipping the
second generation Digital RGB Video Camera, the MicroDigital IV and in mid 1994,
the MicroDigital III, a three chip camera, was introduced.  The MicroDigital
family of cameras' enhanced color and resolution greatly assists 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 Circons 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.  In early 1993,
Circon introduced a continuous flow laser cystoscope system which expanded
the USA Series product line and allowed lasers to be utilized along with the
other USA Series products.  In late 1993, Circon introduced the USA Elite
System of resectoscopes and accessories and the new M3 Telescope line.
This system combines the outstanding features of the USA System and the
longest resectoscope currently available with the superior M3 optics.  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
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 percatoneous
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 which 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.  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 and is therefore easier to use than the more
sophisticated flexible ureteroscopes.  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
Percatoneous 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 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 and 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 through the use of 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 tubal ligation systems, endoscopy 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 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.  However, other medical
specialties also use cryosurgery for dermatology, proctology, ophthalmic and
other procedures.

	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.

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

	The patented tubal ligation system, consisting of an applicator and the
Falope-Ring 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.  In late 1990, Circon introduced 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.  This technique eliminates the need
for a six to eight inch incision in the abdominal muscle which is required in
traditional open surgery.  While a conventional cholecystectomy generally
requires a week of hospitalization and four to six weeks for full recovery, the
laparoscopic procedure generally requires only one night of hospitalization and
about a week for full recovery.

	Gall bladder removal is one of a growing number of traditional open
surgical procedures which lend themselves to minimally invasive techniques.
Other procedures include appendectomies, bowel resection, hernia repair and
vagotomies.  The laparoscopic instrumentation currently used for these
procedures is the same as or similar to that used for gall bladder removal.

	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 which, when used in conjunction with the laparoscopy
system, cut and manipulate tissue, coagulate blood vessels and remove tissue
during a procedure.  In late 1993, Circon introduced 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 which are coupled to 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 increasing 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 in arthroscope
systems of other manufacturers.

	Gastroenterology.   Circon's products for gastroenterology (GI) include
video systems and 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 products for non-medical applications.  Sales for these
applications were about 1% of total sales in 1994, 1995 and 1996.

	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 187 employee representatives, including 152 direct sales
personnel, 19 region managers, 4 area managers, 4 national contract
managers, 4 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 65 individuals.

	In international markets, Circon employs approximately 32 individuals and
sells through 70 local dealers.  The international organization includes 4
direct sales representatives in Canada.  Circon's German subsidiary, Circon
GmbH, has 14 employees including sales, service and support personnel.  Circon
France SA, Circons French subsidiary, has 5 sales representatives, a manager
and two administrative support personnel.   International sales are denominated
in U.S. dollars except sales made by Circon GmbH which are denominated in
German Marks.  Circon bears the risk of currency exchange loss from German
dealers although no material losses have occurred in the past.

	The key decision maker for most purchases of the Companys products 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 1996 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 which utilizes approximately 30 independent
representatives and sales organizations who devote a substantial portion of
their time to selling the primary care, cryosurgery and electrosurgery products.

	The Company has established and maintained long-term relationships
with faculty members of leading medical schools as well as with leading
surgeons and endoscopists throughout the world.  The Company's manage-
ment, direct 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 concentra-
tions 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 endoscope and video system businesses have 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 $12,676,000,
$11,393,000 and $11,896,000 in 1994, 1995 and 1996 respectively.

	During 1995 and 1996, Circons development efforts were directed toward
expansion of the endoscope product line for gynecology, office hysteroscopy, a
new flexible cystoscope and ureteroscope, 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 9001 certified.

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.

	European repairs are handled through Circon's GmbH repair facility
located in Tauffkerchen near Munchen, Germany.

	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.  Currently, most of the Company's products
are Class I or II.  Some of the Company's new products require premarket
notification to the FDA under an expedited procedure known as 510(K) that is
available only for products which are substantially equivalent to a device which
was on the market prior to May 28, 1976.  If the FDA rejects the  Company's
claim that there was such a substantially equivalent product, FDA premarket
approval 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.  The Company has on two occasions in 1992
and 1993 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, which both related to
inadequate documentation of compliance with GMP, have been corrected and
that it is in substantial compliance with GMP 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 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.

	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 and to develop additional products.  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, 1996, the Company had 1,177 full-time employees,
of whom 655 were engaged in manufacturing, 132 in research and develop-
ment, 296 in sales and marketing and 94 in administration.  Approximately 365
employees are covered by collective bargaining agreements.  The Company's
collective bargaining agreements covering union workers expire in March 1998
and January 1999.  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 Companys future.  These statements are based on assumptions that the
Company believes are reasonable, but a number of factors could cause the
Companys actual results to differ materially from those expressed or implied by
these statements.  These include, but are not limited to, statements about: 1)
sales increase, particularly in the case of the U.S. sales force; 2) the
continuing improvement of the productivity of the U.S. sales force;
3) anticipated synergies or cost savings to be realized as a result of the
merger with Cabot or other cost saving initiatives; and 4) the anticipated
success of certain recently introduced products or products scheduled to be
released in the near future.

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.  In 1995, the Company negotiated to sublease 47,000 square feet
of this facility.  The sublease expires in June, 1997.

	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 leases and occupies approximately 4,000 square feet of
office and repair space in Munich, Germany.

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

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
Companys 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 state-
ments 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.  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
mended 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 Circons
stockholders by taking steps to resist U.S. Surgicals hostile tender offer.
The Company and its officers and directors filed an answer to the complaint on
November 12, 1996.  The Company believes plaintiffs allegations to be without
merit and intends to vigorously defend the lawsuit.

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

	None.

                              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
                    ------        ------
	1995:

	   First Quarter   	19-1/2       11-3/4
	   Second Quarter  	23-1/4      	16
	   Third Quarter	   21           17
		  Fourth Quarter	  23-1/2       18

	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

	As of December 31, 1996, the Company had 1,052 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.

	SUMMARY FINANCIAL INFORMATION
	(in thousands, except per share data)


Circon Corporation and Subsidiaries


		                             For the years ended  December 31,
                            ------------------------------------------
                         		 1992  		 1993  	 	 1994   	 1995(A)    1996
                           -------  -------   -------  --------   ------
Income Statement Data:

Net Sales	                $138,481  $156,861 	$157,041  $160,447 $153,779

Gross Profit              		73,294 	 	80,972  		88,569 	 	83,640 		85,878
Operating Income (Loss)    		8,238  		(1,454)	 	13,753   		3,820 	 	6,709
Net Income (Loss)          		4,386   	(6,212)   	6,509 	  (5,393)   2,071
Net Income (Loss) per Share	  0.35     (0.50)     0.51     (0.41)    0.16
Fully Diluted Net Income (Loss)
	per Share	                   0.35	    (0.50)     0.51     (0.41)	   0.16

Weighted Average
	Shares Outstanding		       12,525   		12,418 		12,738   		13,237 		13,339
Fully Diluted Weighted
	Average Shares Outstanding	12,525     12,418 		12,739 		  13,332 		13,350


		                                         December 31,
                             --------------------------------------------
                      		     1992 	     1993  	  1994 	     1995  	  1996
                          --------   --------- --------   -------  -------
Balance Sheet Data:

Working Capital	           $77,346    	70,857   	70,811 	  $55,365 	$61,261
Total Assets	              183,648  		177,301 		184,129 	  181,399  169,118
Total Debt                		74,209 	   74,184 		 73,483 	   72,292 		50,935
Total Shareholders' Equity		89,941 		  81,768 		 86,965 		  87,172 		98,901


No cash dividends have been paid during the periods presented.

(A)	See Note 3 to the consolidated financial statements


Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations.

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

Results of Operations

	Overview

	1996 was a year of transition and challenge for Circon.  Faced with the
task of integrating and increasing the productivity of the sales forces of
Circon and Cabot in an effort to fully realize the projected benefits of the
merger of the two entities, the Company was distracted by an unsolicited tender
offer to acquire the outstanding common stock.  Despite the difficulties caused
by this offer, the Company believes it is beginning to realize the benefits of
the contemplated synergies of Circon and Cabot.

	The Cabot merger positions Circon to benefit from the current U.S.
healthcare trends toward providing lower cost solutions to the medical problems
of an aging population.  The Company has now gained the critical mass and
broader product line needed to better serve the larger hospitals and buying
groups.  Circon has gained market share in urology, gynecology
and general surgery due to Cabot's strength in these markets.  Circon and
Cabot had been selling different products to the same doctors.  The doubling
of the force substantially reduces travel time and increases productive
selling time for each sales representative which enables them to better
service their customers.  The elimination of duplicative marketing programs,
administrative functions and manufacturing overhead should result in higher
profit margins.


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

	Sales

	Sales increased sequentially during the last three quarters 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 have grown 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's facility in Langhorne, Pennsylvania was closed at the end
of October.  The full benefit of the closure will begin in the first quarter
1997.  As a result of the Langhorne closure and other measures, fourth
quarter gross profit as a percent of sales reached 56.6%, up from 55.4% for
the same 1995 period.

	Operating Expenses

	Selling, general and administrative expenses were up less than one
percent year to year.  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.

	A special charge of $4.9 million for the fees and other one-time expenses
associated with the Cabot merger is included in the 1995 results and classified
as non-recurring transaction costs.

	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.


             Comparison of the Year Ended December 31, 1995
                   to the Year Ended December 31, 1994

	In this discussion "combined" presents Circon and Cabot for all prior
periods as if they had always been merged which is required under the pooling
of interests accounting rules.  However, where appropriate, to clarify operating
trends, the two companies will be discussed separately and indicated by the
terms "Circon" and "Cabot."

	Sales

	Combined sales for 1995 totalled $160.4 million, up 2% over 1994.  The
23% increase in combined international sales was offset by a 1% decrease in
combined U.S. sales.  Management targeted improving sales growth in
international markets as a major 1995 objective.  A new Circon distribution
agreement in Japan, which included significant initial orders, coupled with
excellent worldwide reception given the Company's new urology and gynecology
products, resulted in excellent international sales growth throughout 1995.

	Circon's total sales were up over 14% during the first nine months in 1995
due in part to the excellent reception of Circon's new VaporTrode Vaporizing
Electrode and Continuous Flow Rotating Resectoscope system.

	Pricing pressures on Cabot's disposable products coupled with the
disruption caused by Cabot's integration of its endoscopy and urology sales
forces during the first part of 1995, caused Cabot's sales decline of 4% during
the first nine months.

	In the fourth quarter combined international sales were up 10%, however,
the combined U.S. sales force sales were down 10% as a result of the
reorganization of the entire U.S. sales force due to the merger of Circon and
Cabot.  During the fourth quarter every U.S. sales representative had to
penetrate a new geographical-customer base and simultaneously learn entirely
new products representing about 50% of their total sales.

	Gross Profit

	The 1995 combined gross profit percentage was 54.8% of sales
compared to 56.4% for 1994.  The second half of 1995 gross profit percentage
improved to 55.5% from 53.9% in the first half.

	Circon's gross profit was up 18% during the first nine months in 1995 and
totalled 54.3% of sales due to increased sales of VaporTrode and related
products which carry higher profit margins.

	Cabot's gross profit was down 14% during the first nine months of 1995
and totalled 54.9% of sales due to lower prices on Cabot disposable products
as well as shifts in sales mix.

	In the fourth quarter, the combined gross profit improved to 55.4% of
sales, up from the comparable 1994 period.

	There was a special charge in the third quarter of 1995 of $4.2 million in
cost of sales to write off inventories of duplicative products and excess
manufacturing equipment as a result of the merger.

	Operating Expenses

	Combined selling and administrative expenses increased $2.1 million to
$64.2 million for the full year 1995, but were down $0.7 million in the
respective fourth quarters.

	The 14% increase in Circon sales caused higher commission expense,
and promotional expenses associated with the introduction of the
VaporTrode Vaporizing Electrode and the Continuous Flow Rotating
Resectoscope resulted in higher sales and marketing expenses during the first
nine months of 1995.

	Cabot's sales and marketing expenses increased due to additional
expenses related to integrating and training their endoscopy and urology sales
forces during the first part of 1995.

	Post merger combined selling and administrative expenses declined $0.5
million in the fourth quarter as some of the duplicative expenses between the
two companies were eliminated.

	Combined 1995 research and development expenses dropped $1.3
million to $11.4 million, yet were 7.1% of combined sales.  The majority of the
R&D expense decrease was due to the elimination of redundant positions when
Cabot's R&D functions were consolidated into the Langhorne, Pennsylvania,
facility in early 1995.

	Fourth quarter 1995 combined operating expenses were $18.7 million,
down $0.7 million or 3% from the fourth quarter 1994.

	A special business integration charge of $4.2 million associated with
merging the two companies was part of operating expenses in the third quarter.
These merger expenses related to reorganizing, cross training and providing
the requisite demonstration equipment for the U.S. sales force.

	Combined operating expenses for 1995, excluding the business
integration expense, increased $783,000 or 1% over the comparable 1994
period, but were 47% of sales compared to 48% of sales for the 1994 period.

	Interest and Other Income (Expense)

	Interest income totalled $1.3 million in 1995 compared to $0.9 million in
1994.  The increase resulted from higher rates of return on investments.
Interest expense totalled $5.9 million in 1995 compared to $6.0 million in
1994. Other expense increased in 1995 primarily due to higher franchise taxes.

	The special charges of $4.9 million reflect fees and other one-time
expenses specifically associated with the Cabot merger and are classified as
non-recurring transaction costs.

	Income

	Circon's income before taxes increased substantially during the first half
of 1995, up 42% in the first quarter and up 107% in the second quarter, as a
result of sales growth and margin improvements.

	As noted above, most of Circon's gains were offset by Cabot's transitional
problems during the first half 1995.

	Excluding these one-time charges, combined 1995 income before taxes
totalled $7.4 million, down $1.1 million from 1994, due to lower gross profit
and slightly higher operating expenses discussed above.  The $6.0 million
combined net loss before provision for income taxes in 1995 resulted from the
special business integration and non-recurring transaction costs associated
with the Cabot merger of $13.4 million.

	Combined net income from operations was $4.4 million, excluding special
charges of $13.4 million pretax and $9.8 million after taxes.  A 1995 net loss
of $5.4 million was the result of the factors discussed above partially offset
by an income tax benefit of $574,000.

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

	Circon's financial position remains strong with working capital of $61.3
million, including $6.2 million of cash and equivalents.  Circon's current ratio
is 4.1:1.

	On December 31, 1996, Circon had a $75.0 million secured revolving
credit line with a syndicate of bank's.  Interest on this credit line is indexed
to either LIBOR or the banks base rate at Circon's option.  Circon also has a
letter of credit totalling $5.3 million underlying $7.0 million of the 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.
$50.5 million of Circon's credit facility was used to purchase the Cabot notes.
As a result, cash and temporary investments dropped $11.4 million year to year
and total debt went down $21.4 million.

	Net cash flows from operating activities totalled $1.25 million, primarily
due to $8.6 million of depreciation and amortization being partially offset by
changes in other assets and liabilities.

	Inventories increased $3.5 million due to a build-up for the transition of
products to other manufacturing locations as a result of closing the Langhorne
facility, and introductions of new products.

	Property, plant and equipment increased $6.3 million due in part to
additional sales demonstration equipment, the conversion to a new MIS system
and the buildout of the Santa Barbara facility.

	Cash flow of $7.9 million resulted from the exercise of stock options.

	Combined non-cash charges for depreciation and amortization
aggregated $29.7 million over the three year period 1994 through 1996, and
$28.2 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,
marketable securities, and cash available from bank credit arrangements are
adequate to fund the company's existing operations for the foreseeable future.

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

 Management's Discussion and Analysis contains forward looking statements
relating to benefits of the Circon-Cabot merger, including programs to reduce
production costs and marketing and administrative expenses and to increase
sales productivity.  Those statements are subject to various risks and
uncertainties, and actual results could differ materially.  Some of the factors
that could affect the actual results are discussed below.

	Circon acquired Cabot Medical Corporation ("Cabot") by merger (the
"Merger") in August, 1995 with the expectation that the Merger will result in
beneficial synergies and cost savings for the combined Company.  Critical to
the realization of the benefits of the Merger is the complete and successful
integration of the Companies.  Although the integration is substantially
underway, several important steps are still in progress.  There can be no
assurance that these steps will be completed and result in the expected
benefits and synergies.  Following the Merger, the Company had to cross train
both former sales forces to sell the medical devices carried by the other.
Although some sales personnel have produced significantly increased sales,
others have experienced significantly lower sales productivity.  The failure of
the bottom tier of the sales force to grow sales could adversely impact the
sales synergies the Company realizes as a result of the Merger.  In addition,
the closure of the Langhorne facility involved organizational changes or shifts
in employee responsibilities, as well as other factors, that have resulted and
may continue to result in the loss of the services of qualified employees, some
of whom might be difficult to replace.  The transfer of products previously
manufactured in Langhorne to other facilities may lead to additional costs and
expenses that are currently not anticipated.  Failure to effectively absorb the
Cabot product line and replace former key Cabot employees could also result in
the expected cost savings and sales synergies not being realized.

	Disruptive Effect of Hostile Tender Offer

	On August 2, 1996, a subsidiary of United States Surgical Corporation
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.

	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 fundamental
change.  Although Congress has failed to pass comprehensive health care
reform legislation to date, Circon anticipates that Congress, state legislatures
and the private sector will continue to review and assess alternative health
care 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 health care 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 they believe 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 Companys operations.


ITEM 8.   FINANCIAL STATEMENT AND SUPPLEMENTARY DATA

Report of Independent Public Accountants

Consolidated Financial Statements:

    Balance Sheets - December 31, 1995 and 1996

    Statements of Operations for the years ended December 31, 1994, 1995,
     and 1996

    Statements of Shareholders' Equity for the years ended December 31, 1994,
    1995, and 1996

    Statements of Cash Flows for the years ended December 31, 1994,
    1995 and 1996

    Notes to Consolidated Financial Statements

(All other 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, 1996
and 1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years ended in the period
December 31, 1996.  These financial statements are the responsibilty of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.  We did not audit the financial
statements of Cabot Medical Corporation prior to 1995, a company acquired
during 1995 in a transaction accounted for as a pooling of interests, as
discussed in Note 3. The Cabot Medical Corporation statements for 1994
are included in the consolidated financial statements of Circon Corporation
and reflect revenues of 43% for 1994, of the related consolidated totals,
after those statements reflect adjustments for the pooling of interests as set
forth in Note 3.  The financial statements of Cabot Medical Corporation
for 1994 prior to those adjustments were audited by other auditors whose
report has been furnished to us and our opinion, insofar as it relates to the
amounts included for Cabot Medical Corporation, prior to those adjustments,
is based solely upon the report of the other auditors.

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 and the report of other auditors, provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Circon Corporation and subsidiaries as of
December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended 1996, in conformity
with generally accepted accounting principles.





                                  ARTHUR ANDERSEN LLP

Stamford, Connecticut
March 24, 1997



                 INDEPENDENT AUDITORS' REPORT



The Board of Directors
Cabot Medical Corporation:

We have audited the consolidated statements of operations, shareholders' equity
and cash flows of Cabot Medical Corporation and subsidiaries for the year ended
October 31, 1994 (not separately presented herein). These consolidated financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above (not
separately presented herein) present fairly, in all material respects, the
results of operations and cash flows of Cabot Medical Corporation and
subsidiaries  for the year ended October 29, 1994 in conformity with generally
accepted accounting principles.





                              KPMG Peat Marwick LLP
Princeton, New Jersey
March 27, 1997




                           PART 1.  FINANCIAL INFORMATION

Item 1. Financial Statements


                           CIRCON CORPORATION AND SUBSIDIARIES

                              CONSOLIDATED BALANCE SHEETS

                               DECEMBER 31, 1995 AND 1996

                                        ASSETS

                    (In thousands, except for share amounts)

                                              December 31,   December 31,
                                                     1995           1996
                                              -----------    -----------
CURRENT ASSETS:
     Cash and temporary cash investments        $  17,586      $  6,234
     Marketable securities                          6,496         1,074
     Accounts receivable, net of allowance of
           $1,807 in 1995 and $1,644 in 1996       26,539        28,497
     Inventories                                   31,645        35,123
     Prepaid expenses and other assets              2,627         1,939
     Deferred income taxes                          5,932         8,046
                                              -----------    ----------
          Total current assets                     90,825        80,913
                                              -----------    ----------

DEFERRED INCOME TAXES                                 -             831

PROPERTY, PLANT, AND EQUIPMENT, NET                53,750        53,841


OTHER  ASSETS, at cost net of accumulated
               amortization                        36,824        33,533
                                              -----------    ----------
                      Total assets             $  181,399    $  169,118
                                              ===========    ==========

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



                              CIRCON CORPORATION AND SUBSIDIARIES

                                 CONSOLIDATED BALANCE SHEETS

                                 DECEMBER 31, 1995 AND 1996

                           LIABILITIES AND SHAREHOLDERS' EQUITY

                          (In thousands, except for share amounts)


                                              December 31,    December 31,
                                                   1995           1996
                                               -----------    ------------
CURRENT LIABILITIES:
     Current maturities of long-term           $  15,857        $   429
     Accounts payable                              7,728          6,344
     Accrued liabilities                          10,796         12,000
     Customer deposits                             1,079            879
                                              ------------    -----------
          Total current liabilities               35,460         19,652
                                              ------------    -----------
NONCURRENT LIABILITIES:
     Long-term obligations                        56,516         50,565
     Deferred income taxes                         2,251            -
                                              -----------     -----------
          Total noncurrent liabilities            58,767         50,565
                                              -----------     -----------

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
     12,564,079 and 13,239,746  issued and
     outstanding in 1995 and 1996, respectively      126           132
Additional paid-in capital                        94,928       104,426
Minimum pension liability                           (143)          -
Cumulative translation adjustment                   (513)         (502)
Accumulated deficit                               (7,226)       (5,155)
                                               ----------    ----------
Total shareholders' equity                        87,172        98,901
                                               ----------    ----------
Total liabilities and shareholders'
     equity                                    $ 181,399     $  169,118
                                               ==========    ===========

                   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 31,1994, 1995, and 1996

                            (In thousands, except per share amounts)

<TABLE>



<S>                                                           <C>           <C>         <C>
                                                                     1994       1995           1996
                                                                  ---------   ---------    ----------
NET SALES                                                        $ 157,041    $ 160,447     $ 153,779

    Cost of sales                                                   68,472       72,595        67,901
    Circon/Cabot merger and product integration costs                  -          4,212           -
                                                                   --------   ---------    ----------
GROSS PROFIT                                                        88,569       83,640        85,878


OPERATING EXPENSES:
    Research and development                                        12,676       11,393        11,896
    Selling, general and administrative                             62,140       64,206        64,644
    Circon/Cabot merger, business integration and other costs          -          4,221            -
    Facilities shutdown expense (see note 3 )                          -            -           2,629
                                                                   --------   ---------    -----------
     Total operating expenses                                       74,816       79,820        79,169

INCOME FROM OPERATIONS                                              13,753        3,820         6,709

    Circon/Cabot merger related transaction costs                      -         (4,936)          -
    USSC Tender Offer (see note 4)                                     -            -          (3,000)
    Interest income                                                    884        1,346           347
    Interest expense                                                (5,970)      (5,946)       (4,199)
    Other income (expense), net                                       (212)        (251)          141
                                                                   ---------  ----------   ------------
INCOME  (LOSS) BEFORE INCOME TAXES                                   8,455       (5,967)           (2)


     Provision (benefit) for income taxes                            1,946         (574)           (73)
     Non-recurring tax benefit (see note 10 )                          -            -           (2,000)
                                                                    -------   ----------  ------------
NET INCOME (LOSS)                                                 $  6,509     $ (5,393)      $  2,071
                                                                    =======   ==========  ============

EARNINGS (LOSS) PER SHARE:                                        $    0.51     $ (0.41)      $   0.16
                                                                    ========  ==========  ==============
Weighted Average Number of Shares of Common
Stock and Equivalents Outstanding                                    12,738      13 ,237        13,339
                                                                    --------  ----------  ------------

                                    The accompanying notes are an integral part of
                                                    these consolidated statements.

</TABLE>

<TABLE>




                                                 CIRCON CORPORATION AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                        FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
                                                 (In thousands, except share amounts)


<S>                  <C>       <C>      <C>        <C>           <C>        <C>       <C>         <C>         <C>      <C>
                                                                 Unrealized                       Retained               Total
                                        Additional Notes         Losses on  Minimum   Cumulative  Earnings               Share-
                       Shares  Common   Paid-in    Receivable    Marketable Pension   Translation (Accumulated Treasury holders'
                       Issued  Stock    Capital    From Officers Securities  Liability Adjustment   Deficit)    Stock    Equity
Balance             ---------  ------   -------    ------------- ---------- ---------- ---------- ------------ -------  --------
December 31, 1993   11,757,646 $  118   $82,627            -          -          -        $ (193)     $ 468   $ (1,250) $ 81,770

Tax benefit from
exercise of stock options -        -        692            -          -          -            -          -         -         692

Stock options
exercised              310,363      3     1,220          (272)        -          -            -          -         -         951

Stock dividends        392,678      4     8,955            -          -          -            -        (8,959)     -          -

Unrealized loss on
marketable securities    -         -          -            -        (314)        -            -          -         -        (314)

Culative translation
adjustment               -         -          -            -          -          -           (145)       -         -        (145)

Net income               -         -          -            -          -          -            -         6,509      -        6,509

Purchase of 111,428
shares of
Treasury Stock          -          -          -            -           -         -            -          -      (1,843)    (1,843)

Retirement of
Treasury Stock      (279,296)     (3)      (3,745)         -           -         -            -          -       3,093       (655)
                   ----------    ----     --------      -----        ----     ------      --------   -------    ------      ------

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       -           -       $ -0-        $ (502)  $ (5,155)      -     $98,901
                  ===========   ======      ========    =======     =======   =======        ======   =======     =====   ========

</TABLE>



                             CIRCON CORPORATION AND SUBSIDIARIES

                             CONSOLIDATED STATEMENTS OF CASH FLOWS

                       FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996

                                     (In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES       1994       1995      1996
                                          -------   -------   -------

Net income (loss)                        $ 6,509   $ (5,393)  $ 2,071

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


  Depreciation and amortization          11,492      9,603     8,598
  Deferred income taxes                  (2,710)    (2,582)   (5,196)
  Other                                     -          149       -
  Loss on disposals                         115      2,042        66

Change in assets and liabilities:
  Accounts receivable                   (3,572)        478   (1,958)
  Inventories                             (363)     (2,292)  (3,478)
  Prepaid expenses and other assets        670         514      688
  Other assets                            (520)      2,160      842
  Accounts payable                        (179)      2,709   (1,384)
  Accrued liabilities                    1,379      (1,576)   1,204
  Customer deposits                         81         606     (200)
  Other noncurrent liabilities            (234)        -        -
                                       --------    --------  --------
Net cash provided by operating
   activities                         $ 12,668     $ 6,418   $ 1,253
                                       --------    --------  --------


                         CIRCON CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF CASH FLOWS

                  FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996

                                       (In thousands)



CASH FLOWS FROM INVESTING ACTIVITIES           1994       1995        1996
                                            --------     -------    -------

 Disposals of marketable securities, net    $   195     $ 15,119     $ 5,422
 Purchases of property, plant and equipment (12,409)      (9,519)     (6,306)
 Purchase of intangible                        (160)         -           -
 Cumulative translation adjustment             (148)        (172)         11
                                            --------     --------    --------
 Net cash provided by (used in) investing
 activities                                 (12,522)       5,428        (873)
                                            --------     --------   ---------

CASH FLOWS FROM FINANCING ACTIVITIES

  Proceeds from issuance of common stock       953         4,011       7,861
  Purchase of treasury stock                (2,497)          -           -
  Repayment of long-term obligations          (766)       (1,437)    (21,379)
  Tax benefit from exercise of stock options   692         1,169       1,643
  Other                                         -           (478)        143
                                           --------      --------    --------
  Net cash provided by (used in) financing
  activities                                (1,618)        3,265     (11,732)
                                           --------       --------   --------
  Net increase (decrease) in cash and
  temporary cash investments                (1,472)       15,111     (11,352)

  Cash and temporary cash investments,
  beginning of year                          3,947         2,475      17,586
                                           --------       --------    ------
  Cash and temporary cash investments,
  end of year                             $ 2,475       $ 17,586     $ 6,234
                                           =======       =========    =======

SUPPLEMENTAL DISCLOSURES

    Cash paid for interest               $ 5,354        $ 5,398      $ 3,294
                                          =======        =======      ======

    Cash paid for income taxes
    (net of refunds received)            $ (274)        $ 2,097      $  410
                                          =======        ======       ======

                      The accompanying notes are an integral part of
                                these consolidated statements.



                         CIRCON CORPORATION AND SUBSIDIARIES
                         -----------------------------------

                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         ------------------------------------------

                               DECEMBER 31, 1996
                               -----------------
                (In thousands except share and per share information)

(1)  Background
     -----------

     On August 28, 1995, Circon Corporation ("Circon") merged with Cabot Medical
Corporation ("Cabot"), collectively referred to as "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 product 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.  Net sales by geographic areas are as
follows:

                                     1994                 1995          1996
                                  --------            --------       --------
    Domestic sales                $135,771            $134,262       $131,675
    International sales             21,270              26,185         22,104
                                 ---------            --------       ---------
                                  $157,041            $160,447       $153,779
                                  ========            ========       =========

(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.

   Certain reclassifications have been made to prior financial information to
conform to current year presentation.

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

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

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

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

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

   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 was increased for the
dilutive effect of shares issuable upon the exercise 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            1-3 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.

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

   The Company's 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.  Cabot had an October, 31 year end.  In order to conform Cabot's
year-end, the two month period from November 1, 1994 to December 31, 1994 has
been included as an adjustment to retained earnings.

   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,
relocation and out-placement costs and $455 of cancellation of operating
leases, relocation of product and equipment and other facility closure
related 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 can 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
Investor 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 Stockholders Right 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.  The Company has charged $3,000
primarily for expenses related to the Offer and defending the
stockholder litigation (see Part II, Item (3) Legal Proceedings and note 15.)

(5)  Marketable Securities
     ----------------------

     The Company classifies its investments as held-to-maturity and available-
for-sale and does not hold any trading securities.  Held-to-maturity securities
are recorded at cost.  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,
 1995 and 1996:
                                               1995          1996
       Available-for-sale:                  --------     --------
       -------------------
       Municipal obligations                 $ 3,359       $   -
       Preferred stock in utility companies    3,112           -
       Mutual fund in utility companie             -          1,074
       Other                                      25           -
                                            ---------    ----------
                                             $ 6,496         $1,074
                                             ========     ==========
(6) Inventories
    ------------

  Inventories at December 31, 1995 and 1996 consist of the following:

                                                  1995           1996
                                                -------        -------
    Raw materials                               $11,017        $11,995
    Work in process                              12,243         17,938
    Finished goods                                8,385          5,190
                                                -------        -------
                                                $31,645        $35,123
                                                =======        =======
(7) Property, Plant, and Equipment
    ------------------------------

  Property, plant and equipment consists of the following at December 31,
1995 and 1996:

                                       1995          1996
                                    -------        -------
    Land                            $ 3,380        $ 3,380
    Building                         23,590         24,914
    Manufacturing equipment          19,699         21,135
    Office and other equipment       10,734         11,864
    Platinum used in manufacturing
      equipment                       1,450          1,434
    Demonstration equipment          23,989         25,055
    Construction in progress          2,706          2,677
    Leasehold improvements            1,179          1,199
                                   --------        --------
                                     86,727          91,658
    Less - Accumulated depreciation
              and amortization     (32,977)         (37,817)
                                  ---------        ---------
                                   $53,750          $53,841
                                  =========        =========
(8) Other Assets:
    -------------

  Other assets consist of the following at December 31, 1995 and 1996:

                                      1995        1996
                                   -------      ------
  Goodwill                         $15,542     $15,480
  Patents and Licenses               8,766       9,006
  Trademarks                        20,536      20,536
  Other                              4,373       3,353

  Less - Accumulated amortization  (12,393)    (14,842)
                                  ---------    --------
                                   $36,824     $33,533
                                 =========     ========

(9) Accrued Liabilities
    -------------------

  Accrued liabilities consist of the following at December 31, 1995 and 1996:

                                                    1995           1996
                                                 --------       -------
  Payroll and payroll related                     $ 5,482        $6,433
  Interest                                          1,705           718
  Taxes - other than income                           956           686
  Professional fees                                   -           1,620
  Other                                             2,653         2,543
                                                 --------       -------
                                                  $10,796       $12,000
                                                 =========      ========
(10)     Income Taxes
         -------------

    The components of the provision (benefit) for income taxes applicable to
income (loss) for the three years ended December 31, 1994, 1995 and 1996 are
as follows:

                           1994         1995         1996
                        -------      -------       ------
    Federal
      Current            $1,565       $1,400       $1,100
      Deferred              (51)      (1,877)      (3,164)
                        -------     --------      --------
                          1,514        (477)       (2,064)
                        -------     --------      ---------
    State
      Current               263         497           148
      Deferred              126        (617)         (158)
                       --------    ---------     ---------
                            389        (120)          (10)
                       --------    ---------     ---------
    Foreign
      Current                43          23             1
                      ---------   ---------      --------
    Provision (benefit)
    for income taxes     $1,946      $(574)       $(2,073)
                      ==========  =========      =========

    The income before provision for income taxes includes foreign pretax losses
of $437, $634 and $427 in 1994, 1995 and 1996, 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
$692, $1,669, and $1,643 was credited to additional paid in capital  during
1994, 1995 and 1996, respectively.

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

                                              1994       1995      1996
                                            ------     ------    -------
 Federal statutory provision (benefit)      $2,875    $(2,029)     $ (1)
 State tax, net of federal income
    tax benefit                                254        (60)       (10)
 Addition (reduction) in valuation allowance  (930)       716      (2,000)
 Non-deductible goodwill and amortization       85        (60)         20
 Tax exempt income                            (338)      (239)          -
 Benefit of foreign sales corporation          (51)      (102)        (350)
 Loss of foreign subsidiaries for
    which no benefit is currently
    available                                  169        179          145
 Non-deductible merger costs                    -       1,074           -
 Other                                        (118)       (53)         123
                                           --------  ---------   ----------
                                            $1,946    $  (574)     $(2,073)
                                           ========  =========  ===========

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

                                                     1995             1996
                                                   -------         --------
       Inventory reserves                          $4,229            $3,739
       Accrued vacation                               574               591
       Net operating loss carryforwards             2,719             4,534
       Income tax credit carryforwards              1,569             1,620
       Depreciation                                (4,317)           (4,128)
       Other reserves                               1,446             2,371
       Other                                          180               856
                                                    ------          -------
                                                    6,400             9,583
         Valuation allowance                       (2,719)             (706)
                                                   -------          --------
       Net deferred tax asset                      $3,681           $ 8,877
                                                   =======          ========


  During the second quarter of 1996, Cabot Medical was liquidated and merged
into Circon.  Prior to the merger, the Cabot net operating loss carryforwards
(NOLS) 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 NOLS became more probable than not and the Company recognized a
non-recurring tax benefit by reducing the valuation allowance by $2,000 in 1996.



  At December 31, 1995 and 1996, the Company has recorded a deferred tax asset
of $1,569 and $1,620, respectively, consisting of  research and development
credits not previously utilized and alternative minimum tax credit
carryforwards. The Company has recorded a valuation allowance, which
at December 31, 1995, includes Cabot pre-pooling losses subject to separate
income tax return limitations.  The valuation allowance at December 31, 1996
represents Cabot losses subject to separate state income tax return limitations
and capital loss carryfowards.  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.




(11)   Long-Term Obligations
       ---------------------

 Long-term obligations as of December 31, 1995 and December 31, 1996 consist
of the following:
                                                 1995            1996
                                              --------        --------
    Revolving credit facility                   $   -          $46,500
    7.5% convertible subordinated notes          67,000            -
    Industrial development authority bonds
      due December 2, 2006                        5,180          4,435
    Other                                           193             59
                                               --------       --------
                                                 72,373         50,994
                                               --------       --------
    Less-current maturities                     (15,857)          (429)
                                               --------        -------
                                                $56,516        $50,565
                                                ========       =======

 The Company has a $75 million revolving credit facility (the "Credit Facility")
which provides for direct borrowings and a maximum of $5 million in letters of
credit. 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 $5,327 as of
December 31, 1996 underlying $7,000 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 judgment and
prevailing market conditions at the time.  The Bonds and the letter of credit
facility are collateralized by the Company's two Langhorne, Pennsylvania
operating facilities.  These facilities had a net carrying value of
$4,487 as of December 31, 1996.



  The Company repurchased at par, 99.94% of the 7.5% convertible notes pursuant
to a vote of bondholders taken on November 20, 1995.  Approximately $50.5
million of the Credit Facility and approximately $16.5 million of available
cash was used to repurchase the notes in 1996. Accordingly, $50.5 million was
classified as a long-term obligation at December 31, 1995.

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

      1997        $   429
      1998            390
      1999            405
      2000            430
      2001         46,950
      Thereafter    2,390
                  -------
                  $50,994
                  =======
(12)  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:

                                        1994             1995         1996
                                      ------           ------       ------
  Service cost - benefits
     earned during the year           $   38           $   46       $   73
  Interest cost on projected
     benefit obligation                   55               73           91
  Actual return on plan assets           (12)             (38)         (40)
  Deferred loss on net assets            (36)             (29)         (45)
  Amortization of prior service cost       9               14           24
  Amortization of net loss (gain)
    from earlier periods                  (3)               3           15
                                     --------          ------        ------
   Net pension expense                 $  51           $   69        $ 118
                                     ========          ======        ======

  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:
                                                       1995            1996
                                                     ------           -----
    Actuarial present value of
    accumulated benefit obligation,
    including vested benefits of
      $1,064  in 1995 and $1,246 in 1996          $  (1,161)        $ (1,368)
                                                     =======          =======
    Projected benefit obligation for
      service rendered to date                       (1,161)          (1,368)

    Plan assets at market value,
      primarily fixed income securities                 818              951
                                                     -------          -------
    Projected benefit obligation in
      excess of plan assets                            (343)            (417)

    Unrecognized net loss                               340              322


    Unrecognized prior service cost                     128              232

    Adjustment required to recognize
      minimum liability                                (472)            (557)

    Unrecognized net obligation at
      January 1, 1989 being amortized
      over 15 years                                      3                 3
                                                     -------          -------
    Pension liability                                $ (344)          $ (417)
                                                     ========         ========

  The discount rate assumed in determining the actuarial present value of
benefit obligations was 7.25% for 1995 and 1996.  The expected long term rate
of return on assets was 10% for 1995 and 1996. There were no plan amendments
during 1995 or 1996.

  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 $74, $196
and $313 in 1994, 1995 and 1996, respectively.

  The Company maintains a 401(k) savings plan for all U.S. based employees.
The Company matches 50% of the first 3% of employee contributions, except
those excluded by collective bargaining agreements.  The amounts charged
to income for the Company match were $247, $257 and $332 in 1994, 1995 and
1996, respectively.  Beginning January 1, 1996, Cabot employees became
eligible to participate in the 401(k) savings plan.

(13)   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
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             1995
                            ----------    ------------
Net Income: As Reported     $2,072,000    $(5,386,000)
            Pro Forma        1,416,646     (5,608,723)


Primary EPS: As Reported          0.16           (0.41)
             Pro Forma            0.11           (0.46)


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 shall be 2,000,000 shares.
As of December 31, 1996, 704,251 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, 1996, no options have been issued or
granted.

Option activity during 1996, 1995 and 1994 are summarized as follows:

<TABLE>


<S>                                <C>       <C>        <C>      <C>         <C>        <C>   <C>
                                         1996                1995                     1994
                                  -------------------   -----------------     ----------------------
                                             Weighted             Weighted
                                              Average              Average                  Option
                                             Exercise             Exercise                   Price
                                  Shares        Price    Shares      Price    Shares         Range
                                 ---------   --------   --------   -------   ---------  -------------
Outstanding at beginning of year 1,669,649    $10.740   1,873,705  $10.823   1,468,044 $2.89 - 19.125

Granted                            176,402     10.304     330,625   12.201     960,772  8.50 - 13.200

Exercised                          675,667     11.596     384,624   10.442     319,517  2.89 - 15.090

Adjustment for Cabot Stock
Dividends                              -          -            -        -      102,505  2.89 - 16.600

Forfeited                         (129,066)    11.186    (150,057)  12.254    (338,099) 2.89 - 18.750
                                 ----------   --------  ---------- --------   --------- -------------
Outstanding at end of year       1,041,318     10.054   1,669,649   10.740   1,873,705  2.89 - 19.125

Exercisable at end of year         428,737     10.451     836,825   11.267     596,675  2.89 - 19.125

Weighted average fair value of
options granted                                 6.270                5.82


</TABLE>




The following table summarizes information about stock options outstanding at
December 31, 1996:

<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 at    Average
Exercise Prices    12/31/96      Contractual Life  Exercise Price       12/31/96    Exercise Price
---------------   -------------  ----------------  --------------   --------------  --------------
$2.89 - $6.25         59,835            2.350            $4.009         56,627           $3.929

6.23 - 12.75         872,450            5.733             9.733        293,103           10.310

12.76 - 18.75        109,033            5.789            15.937         79,007           15.649
                  -----------                                       --------------
$2.89 - $18.75     1,041,318            5.544           $10.054        428,737          $10.451

</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 1995 and 1996, respectively:  risk-free interest rates of 6.29 and
6.05 percent; expected lives of 4.17 and 7 years; expected dividend rate of
zero; and expected volatility of 50.98 and 51.94 percent.



(14)   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 Argument.  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 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 at an exercise price of $18.75 per share, of which
2,000 are still outstanding.

(15)   Commitments and Contingencies
       -----------------------------
  Leases
  ------

  The Company leases five facilities, one each in Connecticut, Germany, and
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, 1994, 1995 and 1996 was $2,027, $1,543, and $1,497,
respectively.

  The minimum lease payments at December 31, 1996 are as follows:

         1997                                          $ 1,804
         1998                                            1,786
         1999                                            1,652
         2000                                            1,664
         2001                                            1,709
         2002  and thereafter                            5,340
                                                       -------
                                                       $13,955
                                                       =======
    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.


(16)     Quarterly Financial Information (Unaudited)
         -------------------------------------------

    The following is a summary of unaudited selected quarterly financial data
for the years ended December 31, 1995 and 1996:

                                             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              3,578     (1,166)           1,857        2,440
Net income                    1,659        705           (1,525)       1,232
Net income per share       $   0.13  (B)$ 0.05     (C)$  ( 0.11)     $  0.09

1995
--------------------
Net sales                 $ 37,921     $41,833       (A)$42,113      $38,580
Gross profit                20,523      22,478           19,266       21,373
Operating income             2,251       2,261           (3,378)       2,686
Net income                     621         345           (7,374)       1,015
Net income per share      $   0.05     $  0.03          $( 0.56)      $ 0.08

(A) Includes special charges - see Note 3
(B) Includes facility shut down expense and non-recurring income tax benefit-
    see Notes 3 and 10
(C) Includes USSC tender offer charges - see Note 4





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 1997 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 1996 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,
                   President, and Chief
                   Executive Officer of
                   the Company                 I    55    1969
John F. Blokker	   President and Chief Executive
                   Officer, Luxcom, Inc.     III    67    1991
Harold R. Frank	   Investor	                 III   	72    1984
Paul W. Hartloff,  Partner, law firm of Jarvis,
Jr.                Hartloff & Simon, LLP       I    63    1991
Rudolf R. Schulte	 Rancher, Investor        	 II    65    1977


	Mr.Auhll has been the Chairman of the Board of Directors, President
and Chief Executive Officer of the Company since 1969.  Mr.Auhll has a
Bachelor of Science degree in Engineering from the University of Michigan, a
Master of Science degree in Engineering from Stanford University, and a
Master of Business Administration degree from Harvard University.  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
Foundations 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., a
telecommunications company.  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. 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 also 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.

	Mr.Hartloff is a partner of the law firm of Jarvis, Hartloff & Simon, LLP
founded in 1996.  He was a senior partner of the law firm of Schramm&
Raddue from 1964 to 1996.  Mr. Hartloff serves as a member of the Board of
Directors of Mehl Biophile International Corporation.

	Mr.Schulte was a founder of Heyer-Schulte Corporation and served as
President and Chairman of its Board of Directors from 1963 until it was
acquired by American Hospital Supply Corporation in 1974.  From 1978 to 1995
Mr. Schulte served as Chairman of the Board of Directors of Pudenz-Schulte
Medical Research Corporation, a manufacturer of medical products acquired by
Medtronic, Inc. In 1995.  Mr. Schulte has been an independent investor since
1974.



Executive Officers of the Registrant

		                                                First Year
			                                                Elected
 Name         	     Position with Company    Age    Office
-----------------   ---------------------   ----  ---------
Richard A. Auhll 	   President and Chief	     55	    1969
	                    Executive Officer

Winton L. Berci	     Vice President,          41	    1989
	                    Marketing and Sales

Frank D. D'Amelio	   Vice President, Chief    38	    1989
	                    Manufacturing Officer

Richard L. Devine	   Vice President	           49	    1994
	                    International Sales

David M. Piggin	     Vice President	           49	    1994
	                    International Sales

Andrew D. Simons	    Vice President    	       36	    1996
	                    Secretary, General Counsel

R. Bruce Thompson	   Executive Vice President	 52	    1982
	                    Chief Financial Officer

Frederick L. Wallach	Vice President	          45	    1996
	                    Corporate Controller

David P. Zielinski	  Vice President, General	 54	    1994
 	                   Manager ACMI Division

	For certain information concerning the business experience of Mr. Auhll
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.

	Richard Devine joined the Company in 1974.  He served as International
Sales Manager until 1986 at which time he became Director of International
Sales.  In 1993, Mr. Devine was appointed Vice President of International
Sales.

	David Piggin joined the Company in 1983 as International Sales Manager.
He became Director of International Sales in 1986.  Mr. Piggin was appointed
Vice President of International Sales in 1993.

	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.

	Bruce Thompson has been Executive Vice President and Chief Financial
Officer since 1985, and Vice President since 1982.  He joined the Company in
1977 as Controller. Prior to 1977, Mr. Thompson held positions with Heyer-
chulte Corporation, a subsidiary of American Hospital Supply Corporation and
Cutter Laboratories, Inc.

	Fred Wallach joined the Company in 1983 as Assistant Controller.  In
1990, he was promoted to Corporate Controller.  Mr. Wallach was appointed
Vice President  in 1996 and retains his position as the Company's Corporate
Controller.

	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 in 1996:
<TABLE>
<S>
<C>                       <C>    <C>         <C>       <C>      <C>       <C>        <C>      <C>
                                Annual Compensation  (1)           Long-Term Compensation
                                --------------------------------  ---------------------------
                                                                 			 Awards          Payouts
                                                                 -----------------  ---------
                                                      Other              Securities
                                                      Annual  Restricted Underlying   LTIP         All Other
Name and                                			           Compen-    Stock    Options     Payouts    Compen-
Principal Position        Year  Salary ($)  Bonus ($) sation ($)   ($)       (#)       ($)      sation ($)
------------------       -----  ----------  --------  ----------  ------  --------  --------   ------------
R. Auhll		                1996   $316,500     n/a (2)      -         -         -      -         $10,538 (3)
 President, CEO and       1995   $298,000   $136,739       -         -         -      -         $10,408
 Chairman of the Board    1994   $237,930   $107,475       -         -         -      -         $10,210

R.B. Thompson             1996   $176,000    n/a (2)       -         -         -      -         $ 5,312 (4)
 Executive Vice President 1995   $166,000   $64,840        -         -         -      -         $ 4,192
 Chief Financial Office   1994   $140,080   $52,202        -         -       20,000   -         $ 3,977

F. D'Amelio               1996   $181,000       n/a (2)    -          -        -      -         $ 4,432 (5)
 Vice President           1995   $169,000   $58,000        -          -        -      -         $ 3,672
 Chief Manufacturing      1994   $143,000   $48,310        -          -      23,750   -         $ 3,303
 Officer

W. Berci                  1996   $163,240      n/a (2)     -          -        -      -         $ 3,621 (6)
 Vice President           1995   $154,000   $45,500        -          -        -      -         $ 3,283
 Marketing and Sales      1994   $132,000   $36,073        -          -      20,000   -         $ 2,567

D. Zielinski              1996   $150,431       n/a (2)    -          -        -      -         $ 2,819 (7)
 Vice President           1995   $141,916   $56,526        -          -        -      -         $ 4,279
 ACMI Division            1994   $136,000   $51,790        -          -      23,750   -         $ 3,559
 General Manager


  (1) Includes amounts earned in fiscal year, whether or not deferred.
  (2) Bonus amounts for 1996 have not yet been calculated or paid.  Such amounts
      will be filed in the Company's 1997 proxy statement
  (3) Reflects $4,750 Company match of employee contributions to 401(k) plan and
      $5,788 premium on life insurance paid by the Company.
  (4) Reflects $3,948 Company match of employee contributions to 401(k) plan and
      $1,364 premium on life insurance paid by the Company.
  (5) Reflects $3,739 Company match of employee contributions to 401(k) plan and
      $693 premium on life insurance paid by the Company.
  (6) Reflects $3,107 Company match of employee contributions to 401(k) plan and
      $514 premium on life insurance paid by the Company.
  (7) Reflects $2,819 premium on life insurance paid by the Company.


</TABLE>







	Option/SAR Grants in Last Fiscal Year. None of the executive officers
named in the Summary Compensation Table received a grant of stock options
during the year ended December 31, 1996. The Company has never granted
stock appreciation rights (SARs).

	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, 1996 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 Options
		                Shares                        Fiscal Year End 1996        at Fiscal Year End 1996
               	Acquired on     Value        --------------------------  ------------------------------
Name            Exercise(#)  Realized($)(1)  Exercisable  Unexercisable  Exercisable(2)  Unexerable (2)
--------------  -----------  --------------  -----------  -------------  --------------  --------------
R. Auhll         		 n/a     	     n/a  	      30,000 (3)      10,000       $150,000 (3)    $50,000

R.B. Thompson     	 n/a           n/a          5,714          14,286        $34,284        $85,716

F. D'Amelio       	 n/a           n/a         24,817          22,812       $238,561       $141,584

W. Berci          		n/a           n/a         16,914          14,286       $160,284        $85,716

D. Zielinsk      		 n/a           n/a          6,786          16,964        $40,716       $101,784



(1) Excess of market price over exercise price, on the date of exercise.
(2) Excess of $15.25 (market price at year end) over exercise price.
(3) 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
    (2), was $1,064,000.  The warrants were issued in 1990 in connection with
    Mr. Auhll's guarantee of certain indebtedness of Company and not in
    connection with his performance of services to the Company.


</TABLE>











Compensation of Directors

	Directors, other than officers of the Company, receive a retainer fee of
$2,500 annually for service on the Board, including service on any Board
Committees.  There directors also 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.  No options were granted to directors in 1996.

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 participants Annual
Compensation (as defined in the Plan) in the case of Mr. Auhll and 2.0 times
the participants Annual Compensation in the case of Mr. Thompson, Mr. DAmelio,
Mr. Berci and Mr. Zielinski.  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, 1998 unless extended by the Board of
Directors or a change in control occurs prior to that time.  The Boad of
Directors of the Company has discretionary authority to amend the Plan in any
respect and also to terminate the Plan unless a change in control has occurred.


	"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 substantial 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 Securites 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 or 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 Schulte comprise the Compensation Committee.
Mr. Auhll also serves as President and Chief Executuve 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 11, 1997,
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)
----------------------------------   ------------   ----------
Richard A Auhll
6500 Hollister Avenue
Santa Barbara, CA 93117               1,548,142(2)       11.5%

Chancellor LGT Asset Management, Inc.
1166 Avenue of the Americas
New York, NY 10036                    1,333,600(3)        9.9%

US Surgical Corporation
150 Glover Avenue
Norwalk, CT 06856                     1,000,100(3)        7.4%

Franklin Resources, Inc
777 Mariners Island Blvd.
San Mateo, Ca 94404                     855,900(3)        6.3%

Rudolf R. Schulte                       409,270(4)        3.0%

R. Bruce Thompson                        39,060(5)          *

Harold R. Frank                          35,848(6)          *

Paul W. Hartloff, Jr.                    27,531(7)          *

John F. Blokker                          26,531(8)          *

Frank D. D'Amelio                        24,817(9)          *

Winton L. Berci                          17,414(10)         *

David P. Zielinski                       12,286(11)         *

All directors and executives officers
as a group (13 persons)               2,162,091(12)       16.0%

-------------------------
* Less than 1%

(1)	Percent of the outstanding shares of Common Stock, treating as outstanding
    all shares issuable	upon exercise of options held by particular beneficial
    owners that are included in the first column.
(2)	Includes 130,000 shares subject to warrants and option exercisable currently
    or within 60 days.
(3)	Information is given as of December 31, 1996, and is based on a Schedule
    13D or Schedule 13G	filed by this shareholder.
(4)	Includes 2,858 shares subject to options exercisable currently or within
    60 days.
(5)	Includes 5,714 shares subject to options exercisable currently or within
    60 days.
(6)	Includes 1,429 shares subject to options exercisable currently or within
    60 days.
(7)	Includes 26,531 shares subject to options exercisable currently or within
    60 days.
(8)	Includes 26,531 shares subject to options exercisable currently or within
    60 days.
(9)	Includes 24,817 shares subject to options exercisable currently or within
    60 days.
(10)	Includes 16,914 shares subject to options exercisable currently or
     within 60 days.
(11)	Includes 6,786 shares subject to options exercisable currently or within
     60 days.
(12)	Includes 257,368 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 Statements 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 1996 with the Securities and Exchange Commission.

     c.     Exhibit Index

            3.1.     Certificate of Incorporation of Circon Corporation,
                     (incorporated by reference to Exhibit 3.1 of the Form 10-K
                     filed by the Company for 1986).

            3.1A.    Certificates of Amendment of Certificate of Incorporation
                     of Circon Corporation (incorporated by reference to Exhibit
                     3.1A of 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 Exhibit
                     3.1B of 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
                     maybe taken without a meeting or by written consent
                     (incorporated by reference to Exhibit 3.1C of 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-K filed by the
                     Company for 1993).

              4.1    Warrant Agreement between Richard A. Auhll and the Company
                     dated May 7, 1990 (incorporated by reference to Exhibit 4.5
                     of the 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 (incorporated by reference to the
                     Form S-8 filed by the Company on November 14, 1991).

              10.2.  1984 Directors Stock Option Plan (incorporated by reference
                     to the Form S-8 filed by the Company on November 14, 1991).

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

              10.4   1993 Stock Option Plan (incorporated by reference to the
                     Form S-8 filed by the Company on August 18, 1993).

              10.5   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 Exhibit 10.12 of the form 10-K filed by the
                     Company for 1995).

              10.6   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).

              10.7   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.

















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:  March 28, 1997
        --------------        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
                         Board (Principal Executive      3/28/97
------------------       Officer)                       ---------------
Richard A. Auhll
                         Executive Vice President and
                         Chief Financial Officer
                         (Principal Financial and        3/28/97
-------------------      Accounting Officer)            ---------------
R. Bruce Thompson

                                                          3/26/97
-------------------      Director                        --------------
Harold R. Frank

                                                          3/26/97
-------------------      Director                        ---------------
Rudolf R. Schulte

                                                          3/27/97
--------------------     Director                        ---------------
Paul W. Hartloff, Jr.


--------------------     Director                        ---------------
John Blokker

____________________________________________________________________________