Circon Announces Management Changes and Third-Quarter Results.

SANTA BARBARA, Calif.--(BUSINESS WIRE)--0ct. 20, 1998--Circon Corp. (Nasdaq/NM:CCON) announced that Richard A. Auhll has resigned as the company's chief executive officer and chairman.

George Cloutier, a member of the board of directors, has been appointed interim CEO while the company conducts a search for a new CEO. John Blokker, another director, was elected chairman of the board.

Circon also announced that, after a lengthy period of soliciting proposals from other companies, no acceptable acquisition offers have been received. Although Circon, through its financial advisors, Bear Stearns & Co., contacted numerous companies and provided them with extensive nonpublic information about Circon, no acquisition offers were received, except two nonbinding contingent proposals that were at prices far below the $16.50 price of the recently expired tender offer.

Earlier in the year, Circon received various more favorable preliminary indications of interest, but those never ripened into offers.

The Circon board has determined not to continue actively soliciting new acquisition proposals at this time, but may have further discussions with companies that have previously expressed an interest in such transactions. Moreover, the board will evaluate any new unsolicited proposals that may be received in the future.

Acting CEO George Cloutier stated: "We are enthusiastic about Circon's future and look forward to building shareholder value under new leadership. Each member of our board concurs in this sentiment."

Third-Quarter Results

Despite a 6 percent decline in third-quarter 1998 sales from third quarter 1997, net income rose 105 percent, reflecting primarily a 14 percent reduction in operating expenses. Operating income for third quarter 1998 was a record for any quarter in the company's history. Operating income and net income for the nine-month period ended September 1998 were also company records.

Sales by the U.S. sales force in the third quarter 1998 were 8 percent and 6 percent above the first and second quarters of 1998, but 5 percent below the third quarter 1997. Sales by the U.S. sales force dropped significantly in the first quarter 1998 from the fourth quarter 1997 primarily as a result of increased turnover in the sales force, which the company attributes to uncertainties related to the possible sale of the company.

The company is addressing this problem by continuing efforts to stabilize the U.S. sales force, including the hiring of a seasoned vice president of domestic sales from Johnson & Johnson, and by new product releases.

International sales, which were 11.7 percent of total sales in the nine months ended Sept. 30, 1998, were down $4.6 million. Circon's international dealers have been discouraged by the prospect of a takeover and their sales were off by $5.9 million for the nine months from the same 1997 period. Sales by Circon's international direct sales forces in Canada and France were up $1.3 million for the first nine months of 1998 compared with the same period last year.

Operating expenses continue to be reduced. For the third quarter 1998, operating expenses were down $2.5 million or 13.2 percent below the same 1997 period. Expenses have been systematically brought down to 43.4 percent of sales for the current period from 50.7 percent of sales in the third quarter 1997.

Operating income has grown to the highest in Circon's history. For the third quarter 1998, operating income is $4.5 million, up 37 percent, 64 percent and 56 percent over the second quarter 1998, the first quarter 1998 and the third quarter 1997, respectively.

Third quarter EPS were 19 cents, up 44 percent, 102 percent and 100 percent over the second quarter 1998, the first quarter 1998 and the third quarter 1997, respectively.

Circon has been consistently generating very substantial cash flows. Total debt has been reduced by $17.9 million in 1998.

Notice of Proposed Board Nominations

Circon also announced that it has received a notice, pursuant to section 3.2 of the Bylaws, from certain stockholders stating that they beneficially own an aggregate of 1,246,015 shares of Circon common stock and that they intend to nominate two persons for election as directors of the corporation at the annual meeting of stockholders to be held Nov. 24, 1998.

Directors will be elected at the annual meeting for three of the seven seats on the board of directors. The third seat, Auhll's seat, which would not have been open until the 1999 annual meeting, will be open for election at the 1998 annual meeting as a result of his resignation as an executive officer.

Circon is a leading U.S. supplier of products for minimally invasive urological and gynecological surgery, including such hardware products as endoscopes and video systems, and such disposable products as urological stents and laparoscopic suction-irrigation devices.