-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MymTAUXk2CyMt4YBkU+HXTZmYhrbSxTcCO5NiEDHu9fPtR30OETGG/Yd3EQsCUI/ 7Ch9vIw37bwqkuLONHv7WA== 0000719727-97-000003.txt : 19970515 0000719727-97-000003.hdr.sgml : 19970515 ACCESSION NUMBER: 0000719727-97-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIRCON CORP CENTRAL INDEX KEY: 0000719727 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 953079904 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12025 FILM NUMBER: 97605283 BUSINESS ADDRESS: STREET 1: 6500 HOLLISTER AVE CITY: SANTA BARBARA STATE: CA ZIP: 93111 BUSINESS PHONE: 8059670404 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED March 31, 1997 COMMISSION FILE NO. 0-12025 CIRCON CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware 95-3079904 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6500 Hollister Avenue, Santa Barbara, California 93117-3019 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (805) 685-5100 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 twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of Common Shares Outstanding at March 31, 1997: 13,243,448 PART I. FINANCIAL INFORMATION Item 1. Financial Statements CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND MARCH 31,1997 ASSETS (In thousands, except for share amounts) (UNAUDITED) December 31, March 31, 1996 1997 --------- --------- CURRENT ASSETS: Cash and temporary cash investments $ 6,234 $ 4,218 Marketable securities 1,074 1,091 Accounts receivable, net of allowance of $1,644 in 1996 and $1,499 in 1997 28,497 29,750 Inventories 35,123 37,636 Prepaid expenses and other assets 1,939 2,393 Deferred income taxes 8,046 8,046 --------- -------- Total current assets 80,913 83,134 --------- -------- DEFERRED INCOME TAXES 831 831 PROPERTY, PLANT, AND EQUIPMENT, NET 53,841 53,725 OTHER ASSETS, at cost net of accumulated amortization 33,533 32,743 --------- --------- Total assets $ 169,118 $ 170,433 ========= ========= The accompanying notes are an integral part of these consolidated balance sheets. CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND MARCH 31,1997 LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands, except for share amounts) (UNAUDITED) December 31, March 31, 1996 1997 ---------- ---------- CURRENT LIABILITIES: Current maturities of long-term obligations $ 429 $ 370 Accounts payable 6,344 6,504 Accrued liabilities 12,000 10,978 Customer deposits 879 765 ---------- --------- Total current liabilities 19,652 18,617 ---------- --------- NONCURRENT LIABILITIES: Long-term obligations 50,565 52,565 ---------- --------- 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 13,239,746 and 13,243,448 issued and outstanding in 1995 and 1996, respectively 132 132 Additional paid-in capital 104,426 104,457 Cumulative translation adjustment (502) (974) Accumulated deficit (5,155) (4,364) ---------- ---------- Total shareholders' equity 98,901 99,251 ========== ========== Total liabilities and shareholders' equity $ 169,118 $ 170,433 ========== ========= The accompanying notes are an integral part of these consolidated balance sheets. CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31, (In thousands, except per share amounts) (UNAUDITED) (UNAUDITED) 1996 1997 ----------- ----------- NET SALES $ 39,962 $ 38,393 Cost of sales 17,764 16,927 ----------- ---------- GROSS PROFIT 22,198 21,466 OPERATING EXPENSES: Research and development 2,975 2,784 Selling, general and administrative 15,645 16,679 ---------- ---------- Total operating expenses 18,620 19,463 INCOME FROM OPERATIONS 3,578 2,003 Interest income 95 141 Interest expense (1,128) (919) Other expense, net (62) (9) ----------- ----------- INCOME BEFORE INCOME TAXES 2,483 1,216 Provision for income taxes 824 425 NET INCOME $ 1,659 $ 791 ========== ============ EARNINGS PER SHARE: $ 0.13 $ 0.06 Weighted Average Number of Shares of Common Stock and Equivalents Outstanding 13,114 13,664 ---------- ------------ The accompanying notes are an integral part of these consolidated statements. CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For Three Months Ended March, 31 (In thousands) (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES 1996 1997 ---------- ----------- Net income $ 1,659 $ 791 Adjustments to reconcile net income to cash used in operating activities: Depreciation and amortization 2,380 2,151 Deferred income taxes 310 - Change in assets and liabilities: Accounts receivable (1,030) (1,253) Inventories (1,003) (2,513) Prepaid expenses and other assets (785) (454) Other assets 123 184 Accounts payable (2,302) 160 Accrued liabilities (172) (1,022) Customer deposits 112 (114) --------- --------- Net cash used in operating activities $ (708) $ (2,070) --------- --------- CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For Three Months Ended March, 31 (In thousands) (UNAUDITED) (UNAUDITED) CASH FLOWS FROM INVESTING ACTIVITIES 1996 1997 ---------- ----------- Disposals of marketable securities, net $ 5,911 $ - Purchase of marketable securities - (17) Purchases of property, plant and equipment (2,365) (1,264) Purchase of intangible - (165) Cumulative translation adjustment 577 (472) ---------- ----------- Net cash provided by (used in) investing activities 4,123 (1,918) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock 82 31 Repayments of capital lease obligations (20) (59) Repayments of long-term obligations (12,783) - Borrowings from long-term obligations - 2,000 Tax benefit from exercise of stock options 12 - ---------- ----------- Net cash provided by (used in) financing activities (12,709) 1,972 ---------- ----------- Net decrease in cash and temporary cash investments (9,294) (2,016) Cash and temporary cash investments, beginning of period 17,586 6,234 ---------- --------- Cash and temporary cash investments, end of period $ 8,292 $ 4,218 ========== ========= SUPPLEMENTAL DISCLOSURES Cash paid for interest $ 66 $ 828 ========= ========= Cash paid for income taxes (net of refunds received) $ 274 $ 17 ========= ========= The accompanying notes are an integral part of these consolidated statements. CIRCON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (In Thousands except Share Information) General - -------- The accompanying condensed consolidated financial statements include the accounts of Circon Corporation (the Company) and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. The condensed consolidated financial statements included herein have been prepared by the Company, without audit, in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. It is suggested that these condenesed consolidated financial statements be read in conjunction with the statements and notes thereto included in the Company's 10K for the year ended December 31, 1996. The Company does not believe any recently issued accounting standards will have a material impact on its financial condition or its operation. (1) 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 charged $3,000 in 1996 primarily for expenses related to the Offer and defending the stockholder litigation. (2) Inventories ----------- Inventories include costs of materials, labor and manufacturing overhead and are priced at the lower of cost (first-in, first-out) or market. Inventories at December 31, 1996 and March 31, 1997 consist of the following: 1996 1997 ------- ------- Raw materials $ 11,995 $ 11,659 Work in process 17,938 19,116 Finished goods 5,190 6,861 ------- ------- $ 35,123 $ 37,636 ======= ======= (3) Long-Term Obligations -------------------- Long-term obligations as of December 31, 1996 and March 31, 1997 consist of the following: 1996 1997 ------- ------- Revolving credit facility $ 46,500 $ 48,500 Industrial development authority bonds due December 2, 2006 4,435 4,435 Other 59 - ------- ------- $ 50,994 $ 52,935 ------- ------- Less: current maturities (429) (370) ------- ------- $ 50,565 $ 52,565 ======= ======= The Company has a $75,000 reducing revolving credit facility (the "Credit Facility") which provides for direct borrowings and a maximum of $5,000 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 March 31, 1997 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 facilities. These facilities had a net carrying value of $4,445 as of March 31, 1997. 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 $50,500 of the Credit Facility and approximately $16,500 of available cash was used to repurchase the notes in 1996. Future principal maturities of the long term obligation are as follows: 1998 $ 390 1999 405 2000 430 2001 48,950 2002 475 Thereafter 2,285 ------- $ 52,935 ======= (4) Ligitation ---------- See Discussion of Legal Proceedings in Part II, Item 1. ITEM 2. Management's Discussion and Analysis of Operations and Financial Condition Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996 Sales ----- The 1997 first quarter sales started slow and ended strong, with March having the highest sales of any month since the Cabot merger. First quarter total sales were $38.4 million compared to $40.0 million for the same period in 1996. Price changes were nominal in the quarter. The U.S. sales force was out of the field for nearly eight working days for a corporate sales/training meeting, which was not the case last year. This 12% reduction in selling time contributed to a 5% decrease in U.S. sales. During the initial two quarter transition period ending March 31, 1996, following the merger with Cabot Medical, the newly combined U.S. sales force had erratic performance due to a number of factors. However, since the second quarter 1996, sales performance and general operating results have progressed and management is striving for even better performance. First quarter 1997 U.S. sales followed the normal seasonal pattern of declining from the preceding fourth quarter as they have in seven of the past ten years. First quarter international sales were up 1% over last year and were the highest of the past four quarters, being up 36% over the average of quarters two through four of 1996. As a result of increased focus, international sales as a percent of total sales, has risen to 18% from the 13% average of the prior three quarters. Gross Profit ------------ Gross profit as a percent of sales was 55.9% for the first quarter 1997, up from 55.5% of the first quarter 1996. Cost improvement efforts initiated in late 1996 are the primary factors in this improvement. Gross profit remained a strong 55.9% of sales, the same as the average of the prior three quarters, even though the normally lower gross profit margin international sales increased as a proportion of total sales. First quarter gross profit of $21.5 million exceeded that of the prior three quarter average. Operating Expenses ------------------ Research and development expenditures totalled $2.8 million, down 6% from the 1996 period, even though new product introductions have accelerated. Consolidating R&D efforts into three centers of excellence as a result of closing Cabot Medical's Langhorne, Pennsylvania, facility has resulted in cost containment and greater effectiveness. During the past several months, Circon introduced numerous new innovative products including three of high interest. First is the ultra small 2.3 mm dual deflecting AUR-7 flexible ureteroscope that allows urologists to easily perform kidney stone removal. Another innovative product is the 5 mm tripolar cutting forceps that gives the laparoscopic surgeon the ability to have fast, bloodless cutting in an ultra-miniature instrument. Also, for hospitals concerned with reducing their disposable instrument costs, we introduced the latest in semi-reusable laparoscopic hand instruments, the Snap-In/Snap-Out II series. Selling, general and administrative expenses were $16.7 million for the quarter, up from $15.6 million for the comparable 1996 quarter. This reflects increased expenses from three areas: the first national sales/training meeting since the sales force merger in October 1995; expenses associated with the new French direct sales force; and a revised U.S. sales incentive compensation program. These expenditures are all strategic investments focused on improving overall sales performance. Income/EPS ---------- As a result of lower sales and factors discussed above, first quarter operating income was $2.0 million, down from the $3.6 million of the comparable 1996 quarter, but exceeding the average of prior three quarters, and down from the preceding fourth quarter as is seasonally normal. Income before taxes and net income were $1.2 million and $0.8 million, respectively, for the quarter, down from the prior year. First quarter 1997 EPS was $0.06, down from the prior year. Liquidity and Capital Resources Circon's financial position remains strong with working capital of $64.5 million, including $5.3 million of cash and equivalents. Circon's current ratio is 4.5:1. Since the first quarter 1996, total assets have risen $1.5 million, total debt decreased $6.6 million, and shareholders equity rose $9.8 million, reflecting a fundamental strengthening of the company. In the quarter, $2.0 million of cash from increased borrowing was used to finance the net $2.0 million of cash used in operating activities. Circon has a $75.0 million reducing secured revolving credit line with a syndicate of banks. $50.5 million of the facility was used to repurchase Cabot notes in January 1996 (see footnote 3). The company believes that cash flow from operations, existing cash and marketable securities and available cash from bank credit facilities are adequate to fund the company's existing operations for the foreseeable future. Forward Looking Statements -------------------------- See Item 5 regarding forward looking statements in Part II and certain important cautionary statements. PART II Item 1. Legal Proceedings. On May 28, 1996, two purported stockholders of the Company, Bart Milano and Elizabeth Heaven, commenced an action in the Superior Court of the State of California for the County of Santa Barbara, Case No. 213476, purportedly on behalf of themselves and all others who purchased the Company's common stock between May 2, 1995 and February 1, 1996, against the Company, Richard A. Auhll, Rudolf R. Schulte, Harold R. Frank, John F. Blokker, Paul W. Hartloff, Jr., R. Bruce Thompson, Jon D. St. Clair, Frederick A. Miller, David P. Zielinski, Winton L. Berci, Jurgen Zobel, Trevor Murdoch and Warren G. Wood. That complaint alleged that defendants violated Sections 11 and 15 of the Federal Securities Act of 1933, as amended, Sections 25400-02 and 25500-02 of the California Corporations Code, and Sections 1709-10 of the California Civil Code, by disseminating allegedly false and misleading statements relating to Circon's acquisition of Cabot Medical Corp. by merger and to the combined companies' future financial performance. In general the complaint alleged that defendants knew that synergies from the merger would not be achieved, but misrepresented to the public that they would be achieved, in order to obtain approval for the merger so they would be executives of a much larger corporation. This alleged conduct allegedly had the effect of inflating the Company's stock price. On July 29, 1996, defendants filed demurrers to the complaint on the ground that plaintiffs' allegations fail to state facts sufficient to constitute a cause of action. On or about August 6, 1996, plaintiffs served their response to defendants' demurrers, stating their intention to file an amended complaint prior to the hearing on defendants' demurrers. On September 20, 1996, plaintiffs voluntarily dismissed Rudolf R. Schulte, Harold R. Frank, John F. Blokker and Paul W. Hartloff, Jr. from the action, without prejudice. On September 30, 1996, plaintiffs, joined by a third purported stockholder of the Company, Adam Zetter, filed a first amended complaint against the remaining defendants. Plaintiffs' amended complaint is substantially similar to the original complaint, but adds a new purported cause of action under the unfair business practices provisions of the California Business & Professions Code, Sections 17200, et seq. and 17500, et seq. Like the original complaint, the amended complaint seeks compensatory and/or punitive damages, attorneys fees and costs, and any other relief (including injunctive relief) deemed proper. On December 2, 1996, defendants filed demurrers to the amended complaint again on the grounds that plaintiffs' allegations fail to state facts sufficient to constitute a cause of action. On April 17, 1997, a hearing was held regarding the defendants demurrers to the first amended complaint. No decision has been rendered at this time. The Company believes plaintiffs' allegations to be without merit and intends to vigorously defend the lawsuit. On August 15, 1996, an action captioned Steiner v. Auhll, et al., No. 15165 was filed in the Court of Chancery of the State of Delaware. Shortly thereafter, three substantially similar actions were filed by three other individuals claiming to be stockholders of Circon. All four actions allege that Circon and certain of its officers and directors breached their fiduciary duties to Circon's stockholders by taking steps to resist the hostile tender offer by U.S. Surgical Corporation announced on August 2, 1996. All four of these actions purport to be brought as class actions on behalf of all Circon stockholders. On August 16, 1996, a separate action captioned Krim v. Circon Corp., et al., No. 153767, was filed in the Superior Court of California in Santa Barbara. The plaintiff in that action also claims to be a Circon stockholder and purports to bring his claim as a class action. On September 27, 1996, that action was stayed by the Court in favor of the actions pending in Delaware; the Court also encouraged the plaintiff to refile his action in Delaware. On or about August 30, 1996, the Chancery Court consolidated the four Delaware complaints into a single action, and plaintiffs filed an amended complaint. The Company and its officers and directors filed an answer to the amended complaint on November 12, 1996. The Company believes plaintiffs' allegations to be without merit and intends to vigorously defend the lawsuits. On September 17, 1996, an action captioned U.S. Surgical Corporation v. Auhll, et al., No. 15223NC was filed in the Court of Chancery of the State of Delaware. The complaint in this action also alleges that Circon and certain of its officers and directors breached their fiduciary duties to Circon's stockholders by taking steps to resist U.S. Surgical's hostile tender offer. The Company and its officers and directors filed an answer to the complaint on November 12, 1996. The Company believes plaintiff's allegations to be without merit and intends to vigorously defend the lawsuit. Item 5. Other Information Additional Cautionary Statements No Assurance of Synergies or Cost Savings from Integration of Operations 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 healthcare reform measures, private sector reform or market forces may have on its business. However, pricing pressure is expected to continue to adversely affect profit margins. Product Liability Risk Circon's products involve a risk of product liability. Although Circon maintains product liability insurance at coverage levels which 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 Company's operations. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit Index 3.2A Bylaws of Circon Corporation, as amended. (b) The Company filed no reports on Form 8-K in the First Quarter of 1997 with the Securities and Exchange Commission. RESOLUTION OF THE BOARD OF DIRECTORS OF CIRCON CORPORATION (Unanimously adopted on February 12, 1997) WHEREAS, the Board of Directors of the Corporation have determined that it is in the best interest of the Corporation to amend Section 3.7.4 of the Bylaws of the Corporation to provide that special meetings of the Board may only be called by a majority of the directors rather than one-third of the directors. NOW, THEREFORE, BE IT RESOLVED, that Section 3.7.4, subsection A, of the Bylaws of the Corporation is deleted its entirety and replaced with the following: 3.7.4 Special Meetings; Notices. A. Special meetings of the Board of Directors may be called for any purpose at any time by the Chairman of the Board, the President, or by a majority of the directors then in office (rounded up to the nearest whole number). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CIRCON CORPORATION Registrant May 14, 1997 - ------------- ------------------ Date RICHARD A. AUHLL President Chief Executive Officer May 14, 1997 - ------------ ------------------ Date R. BRUCE THOMPSON Executive Vice President Chief Financial Officer EX-27 2 ART. 5DS FOR 1ST QUATER 10-Q
5 1,000 3-MOS DEC-31-1997 MAR-31-1997 4,218 1,091 31,249 1,499 37,636 83,134 92,922 39,197 170,433 18,617 0 0 0 132 99,119 170,433 38,393 38,393 16,927 19,463 9 0 919 1,216 425 791 0 0 0 791 .06 .06
-----END PRIVACY-ENHANCED MESSAGE-----