<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
 
(MARK ONE)
 
  /X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934.
 
                    FOR THE FISCAL YEAR ENDED MARCH 31, 1998
 
                                       or
 
  / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
         SECURITIES EXCHANGE ACT OF 1934.
 
                        COMMISSION FILE NUMBER: 0-26890
                            ------------------------
 
                                 PERCLOSE, INC.
 
             (Exact name of registrant as specified in its charter)
 
                  DELAWARE                             94-3154669
      (State or other jurisdiction of        (I.R.S. Employer Identification
       incorporation or organization)                     No.)
    199 JEFFERSON DRIVE, MENLO PARK, CA                   94025
  (Address of principal executive offices)             (Zip code)
 
       Registrant's telephone number, including area code: (650) 473-3100
                            ------------------------
 
        Securities registered pursuant to Section 12(b) of the Act: None
 
          Securities registered pursuant to Section 12(g) of the Act:
 
                         Common Stock, $0.001 par value
 
                                (Title of class)
 
                        Preferred Share Purchase Rights
 
                                (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 (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 / /
 
    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. Yes / /  No /X/
 
    The aggregate value of voting stock held by non-affiliates of the registrant
was approximately $200,059,257 as of April 30, 1998, based upon the closing
price of the Registrant's Common Stock reported for such date on the Nasdaq
Stock Market. Shares of Common Stock held by each executive officer and director
and by each person who owns 10% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be affiliates. The
determination of affiliate status is not necessarily a conclusive determination
for other purposes. As of April 30, 1998, the registrant had outstanding
10,737,150 shares of Common Stock.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    Certain information is incorporated into Part III of this report by
reference to the Proxy Statement for the Registrant's 1998 annual meeting of
stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Form 10-K.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                                              PAGE
                                                                                                             NUMBER
                                                                                                          -------------
<S>                   <C>                                                                                 <C>
PART I..................................................................................................            3
  Item 1.             BUSINESS..........................................................................            3
                        Company Overview................................................................            3
                        Industry Overview...............................................................            4
                        Arterial Access Site Management.................................................            5
                        Perclose Solution...............................................................            6
                        Minimally Invasive CABG Surgery Products........................................            6
                        Business Strategy...............................................................            7
                        Products and Technology.........................................................            8
                        Clinical and Regulatory Status..................................................            9
                        Marketing and Distribution......................................................            9
                        Research and Development........................................................           10
                        Manufacturing...................................................................           10
                        Competition.....................................................................           11
                        Patents and Proprietary Rights..................................................           12
                        Government Regulation...........................................................           13
                        Third-Party Reimbursement.......................................................           16
                        Product Liability and Insurance.................................................           17
                        Employees.......................................................................           17
                        Management......................................................................           18
  Item 2.             PROPERTIES........................................................................           20
  Item 3.             LEGAL PROCEEDINGS.................................................................           20
  Item 4.             SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................           20
 
PART II.................................................................................................           21
  Item 5.             MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............           21
  Item 6.             SELECTED FINANCIAL DATA...........................................................           21
  Item 7.             MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                      OPERATIONS........................................................................           21
  Item 8.             FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................           21
  Item 9.             CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                      DISCLOSURE........................................................................           21
 
PART III................................................................................................           22
  Item 10.            DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................................           22
  Item 11.            EXECUTIVE COMPENSATION............................................................           22
  Item 12.            SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................           22
  Item 13.            CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................           22
 
PART IV.................................................................................................           22
  Item 14.            EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K..................           22
</TABLE>
 
                                       2
<PAGE>
                                     PART 1
 
ITEM 1. BUSINESS
 
COMPANY OVERVIEW
 
    Perclose, Inc. ("Perclose" or the "Company") designs, manufactures and
markets less invasive medical devices that automate the surgical closure or
connection of blood vessels. A first product family, the
Prostar-Registered Trademark- and Techstar-Registered Trademark- products, which
are marketed worldwide, surgically close the arterial access site in the femoral
artery after catheterization procedures such as angioplasty, stenting,
atherectomy and diagnostic angiography. A second group of products, The
Heartflo-TM- System, is under development and is designed to automate the
surgical connection of blood vessels in conventional and minimally invasive
coronary artery bypass surgery.
 
    The Prostar and Techstar percutaneous vascular surgery ("PVS") products are
designed to provide routine, definitive closure that replicates results
previously obtainable only through open surgery, without the associated risks
and costs. Randomized clinical trials of the Prostar and Techstar products have
demonstrated significant clinical and economic advantages over conventional
compression methods of arterial access site closure. These advantages include
achieving rapid hemostasis (the cessation of bleeding), reducing nursing time
required to monitor patients, allowing earlier patient ambulation, enabling more
efficient use of the catheterization laboratory, reducing overall treatment
costs and improving patient comfort. In addition, for certain high risk
patients, such as those who have experienced a heart attack, the Company's
products allow continuation of aggressive anticoagulation, thrombolytic or
anti-restenosis drug therapy without an increased risk of bleeding complications
at the arterial access site.
 
    The Company commenced international shipments of its first Prostar and
Techstar products in December 1994 and July 1995, respectively. In fiscal 1998,
the Company received a FDA premarket approval ("PMA") and several PMA supplement
approvals for commercial sale in the United States of versions of its Prostar
and Techstar PVS products.
 
    The Company is also developing the Heartflo Anastomosis System to allow
cardiac surgeons to automate the rapid placement of sutures in blood vessels
during coronary artery bypass graft ("CABG") surgery. The success of a coronary
artery bypass surgery procedure is largely determined by the quality of the
anastomosis (attachment), which dictates the long-term patency, or blood flow,
through the vein graft to the coronary arteries. While cardiac surgeons have
developed effective surgical techniques to perform hand-sewn anastomoses of
coronary blood vessels in conventional CABG surgeries, the recent emergence of
minimally invasive CABG procedures introduces additional challenges for
performing hand-sewn anastomoses during such procedures. Since the opening to
the chest cavity created by ports or mini-thoracotomies used in minimally
invasive CABG procedures is small, accessing and suturing the bypass graft to
the coronary artery is more difficult, may take longer to perform and may not
achieve the same therapeutic results as in conventional open chest CABG surgery.
The Heartflo Anastomosis System is being designed to deploy an ideal suture
pattern in a rapid, consistent and automated fashion while still allowing the
surgeon ultimate control over the tensioning and tying of the sutures to
complete attachment of the bypass graft. The Heartflo Anastomosis System is
being designed for use with conventional, open chest CABG procedures and the
newer, minimally invasive, beating heart and stopped heart procedures. The
Heartflo system is currently undergoing preclinical testing.
 
    This Report on Form 10-K contains certain forward looking statements
regarding future events with respect to the Company. Actual events and/or future
results of operations may differ materially as a result of the factors described
herein and in the documents incorporated herein by reference, including, in
particular those factors described under "Business--Manufacturing",
"--Competition," "--Patents and Proprietary Rights", "--Government Regulations",
"--Third Party Reimbursement" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors Affecting Future
Operating Results."
 
                                       3
<PAGE>
INDUSTRY OVERVIEW
 
    THERAPEUTIC INTERVENTIONAL CARDIOLOGY MARKET
 
    CORONARY ARTERY DISEASE.  More than 6 million people in the United States
have been diagnosed with coronary artery disease, which is a formation of
atherosclerotic plaque that causes blood flow restrictions, or blockages, within
the coronary arteries. These blockages can occur anywhere within the complex
network of arteries that provide blood to the heart muscle. If left untreated,
coronary artery disease can cause severe chest pain and lead to heart attacks.
The principal means of treating coronary artery disease when diet, exercise or
drug therapy fail to achieve therapeutic results include CABG, a highly invasive
open surgical procedure, and percutaneous transluminal coronary angioplasty
("balloon angioplasty") as well as other percutaneous catheter-based procedures
including stenting and atherectomy. Prior to the late 1970's, CABG was the only
alternative for treating coronary artery disease that did not respond to non-
invasive therapy. Since its clinical introduction in 1978, balloon angioplasty,
either alone or in conjunction with stents, has emerged as the principal less
invasive alternative to CABG. Industry estimates in 1997 indicate that there are
approximately 540,000 CABG procedures performed annually worldwide, with 320,000
of those occurring in the United States. Industry sources estimate that there
are approximately 675,000 balloon angioplasty, stenting and atherectomy
procedures performed annually worldwide, including approximately 425,000 such
procedures in the United States. In addition, minimally invasive forms of CABG
have been recently introduced and continue to be developed. These procedures
attempt to reduce the invasiveness of CABG by minimizing the size of the
incisions required.
 
    BALLOON ANGIOPLASTY AND STENTING PROCEDURES.  At the beginning of a balloon
angioplasty procedure, the physician initiates anticoagulation drug therapy to
prevent formation of blood clots, which can cause arterial blockages.
Anticoagulation therapy is typically continued throughout the procedure. A local
anesthetic is administered and a small incision is made in the groin area to
gain access to the femoral artery, which is punctured to create an access site
for catheterization devices. The cardiologist inserts an introducer sheath into
the femoral artery and places a guiding catheter through the introducer sheath
to create a path from outside the patient to the arteries of the heart. The
cardiologist advances a small guidewire through the inside of the guiding
catheter, into the coronary artery and across the site of the blockage. A
balloon catheter is delivered over the guidewire through the inside of the
guiding catheter into the artery and across the site of the blockage. The
balloon is inflated to compress the blockage against the walls of the artery,
thereby enlarging the diameter of the arterial lumen and increasing blood flow
to the heart muscle. During this procedure, anticoagulation drug therapy is
ordinarily used to prevent clot formation in the coronary arteries. At the
conclusion of the procedure, the cardiologist decides if the benefits of
continued anticoagulation therapy outweigh the increased risk of bleeding at the
femoral artery access site. This decision influences the level of post-procedure
nursing observation and the length of the hospital stay, which is typically one
to three days.
 
    Other catheter-based therapeutic coronary procedures include stenting and
atherectomy. Stents are implantable, metal, tube shaped devices delivered on a
balloon catheter and permanently deployed at a blockage site to maintain
increased lumen diameter by mechanically supporting the artery. Stenting
procedures have been reported to reduce the risk of abrupt coronary artery
closure, thereby creating the possibility for outpatient stenting due to a
reduced need to keep patients under post-procedure nursing observation. The
current potential for outpatient stenting is, however, limited by the inability
to achieve predictable, sustained hemostasis of the arterial access site.
Atherectomy encompasses several types of devices that are designed to remove
atherosclerotic plaque that blocks blood flow in the arteries.
 
    DIAGNOSTIC ANGIOGRAPHY AND OTHER PERCUTANEOUS VASCULAR PROCEDURES
 
    Patients believed to have coronary artery disease typically undergo
diagnostic angiography to determine the extent and location of their arterial
blockages. Angiography is a procedure in which radiopaque dye visible under
x-ray is delivered through a catheter directly into the coronary arteries,
allowing real-time
 
                                       4
<PAGE>
visualization with an x-ray imaging system. Like therapeutic angioplasty,
angiography is also performed using a catheter placed into the vascular system
through a puncture in the femoral artery. Industry estimates in 1997 indicated
that angiography is performed annually on approximately 2.9 million patients
worldwide including approximately 1.7 million patients in the United States.
Angiography procedures represent a significant market opportunity for arterial
closure devices because under conventional treatment protocols many of these
patients are kept under nursing observation for several hours following the
procedure primarily to confirm achievement of hemostasis.
 
    Many other catheterization procedures rely on percutaneous access to the
vascular system through a puncture in the femoral artery. These procedures
include peripheral vascular therapeutic and diagnostic procedures, of which
approximately 1.0 million and 1.3 million, respectively, are performed annually
worldwide. These procedures may represent a significant market opportunity for
arterial closure devices because under conventional treatment protocols, many of
these patients are kept under nursing observation following the procedure
primarily to confirm achievement of hemostasis. Therefore, the availability of
reliable arterial access site closure devices could facilitate early discharge
of these patients. Percutaneous vascular surgery devices could also be used to
close femoral artery access sites in interventional neuroradiology
catheterization procedures, electrophysiology procedures to map and ablate
cardiac arrhythmias and intra-aortic balloon pump procedures. In addition,
emerging percutaneous catheterization procedures and other new interventional
procedures, including catheter-based vascular grafts, cardiopulmonary support
procedures and percutaneous treatment of abdominal aortic aneurysms may also
represent new market opportunities for larger versions of the Company's PVS
products.
 
ARTERIAL ACCESS SITE MANAGEMENT
 
    Following catheter-based coronary procedures such as balloon angioplasty,
stenting, atherectomy or angiography, the physician or nursing staff must close
the arterial access site. With procedures relying on conventional compression
closure techniques, anticoagulation therapy (which is used in all interventional
cases) is discontinued for up to four hours prior to closure of the access site
to allow the patient's clotting function to normalize. During this period, the
introducer sheath is left in place and the patient must remain immobile in bed
to prevent bleeding at the access site. Once the introducer sheath is removed,
intense direct pressure is applied to the puncture site for a period of time
ranging from 15 minutes to over one hour to facilitate formation of a blood clot
in order to seal the arterial access site. This pressure is applied either
manually or with a large C-clamp or other pressure device placed around the
patient's leg. A dislodged clot can result in internal or external bleeding,
which may necessitate transfusions or result in other vascular complications if
not immediately controlled. Because any movement may dislodge the clot, the
patient is required to remain immobile under close nursing observation in a
coronary care unit for an additional four to 24 hours after the procedure,
depending on the amount of anticoagulation drug therapy used and the type of
procedure performed. Conventional closure methods may result in substantial
costs, limit operating efficiencies and constrain the scheduling and usage of
the catheterization laboratory by the number of beds and nursing staff in the
coronary care unit.
 
    The arterial access site can be affected by other complications associated
with conventional compression methods, including a hematoma in which a
coagulated blood mass forms at the access site, a pseudoaneurysm in which blood
continues to flow from the artery into the coagulated blood mass at the access
site, femoral nerve damage from extended compression and a vagal response
characterized by a sharp drop in blood pressure. Patients often experience
significant pain and discomfort during compression of the artery and in the
period in which they are required to be immobile, and may require pain
medication. Many patients report that the pain associated with compression of
the artery and immobilization is the most uncomfortable and difficult aspect of
the catheterization procedure.
 
    In addition to the anticoagulation therapy administered during routine
coronary catheterization procedures, post-procedure anticoagulation or
antiplatelet therapy is necessary in certain patients who are at an elevated
risk of formation of a life-threatening blood clot in the coronary arteries. The
Company
 
                                       5
<PAGE>
believes that this group may represent up to 30% of therapeutic coronary
catheterization patients and includes patients who have experienced a heart
attack or undergone complicated balloon angioplasty characterized by dissection
of the arterial wall during expansion of the balloon. For these patients,
optimal treatment usually requires continued anticoagulation therapy to keep
blood clots from forming, new drugs to reduce the risk of restenosis or
thrombolytic drugs to dissolve existing clots. With conventional arterial access
site closure therapies, the interventional cardiologist is faced with the choice
of discontinuing anticoagulation therapy and closing the arterial access site
using compression or continuing drug therapy and leaving the sheath in place
overnight, which requires the patient to remain immobile and extends the
hospital stay. The cardiologist must therefore manage the difficult balance of
preventing clot formation in the coronary arteries while encouraging a clot
formation to close the arterial access site. In high clinical need patients,
conventional arterial access site management options may lead to a greater risk
of heart attack, higher vascular complication rates, significant patient
discomfort during clamping and immobilization, intensive nursing monitoring,
extended hospitalization and increased costs of care.
 
PERCLOSE SOLUTION
 
    The Company believes that its PVS products, which achieve rapid closure of
arterial access sites following percutaneous catheterization procedures,
overcome the clinical disadvantages of conventional closure methods and enable
catheterization laboratories to achieve increased operating efficiencies and
cost savings. The Company's PVS products enable the physician to suture arterial
access sites percutaneously, providing a means of closure that has previously
been possible only through open vascular surgery. Since the introduction of
catheterization procedures, vascular surgery has been the definitive method used
to close arterial access sites that do not respond to conventional compression
therapy. Open surgery requires a long incision in the patient's groin area,
involves a significant recovery period and increases overall treatment costs.
While surgeons can close the arterial access site with one or two sutures, the
invasive nature of open surgery makes it unsuitable for routine use in
catheterization patients. Perclose PVS products are designed to provide routine,
definitive closure that replicates, through a minimally invasive procedure, the
results previously obtainable only through open surgery without the associated
risks and costs. The products are designed to be easy to use, relying on
standard techniques that are familiar to physicians performing these procedures.
 
    Perclose PVS products are used in the catheterization laboratory to close
the arterial access site as the final step in the catheterization procedure. By
achieving rapid hemostasis, PVS products reduce the need for the patient to
remain immobile under close observation in the coronary care unit. This
minimizes the patient's pain and discomfort and allows the patient to ambulate
shortly after the catheterization procedure. Early ambulation of patients can
also improve utilization of hospital resources. For example, in conventional
practice, angiography is usually performed in the morning to permit same-day
discharge following observation and confirmation of hemostasis. Earlier
ambulation and discharge of these patients may contribute to more efficient
usage of the of catheterization laboratory by allowing scheduling of diagnostic
procedures throughout the day.
 
MINIMALLY INVASIVE CABG SURGERY PRODUCTS
 
    The Company's first application of its core technology and technical
competency outside of the PVS area is the Heartflo Anastomosis System for use in
conventional, open chest CABG procedures and the newer minimally invasive
beating heart and stopped heart procedures. The success of a CABG procedure is
largely determined by the quality of the anastomosis (attachment), which
dictates the long-term patency, or blood flow, through the vein graft to the
coronary arteries. While effective surgical techniques which enable cardiac
surgeons to perform hand-sewn anastomoses of coronary blood vessels in
conventional CABG surgeries exist, the recent emergence of minimally invasive
CABG procedures introduces additional challenges for hand-sewn anastomoses
during such procedures. Since the opening to the chest cavity created by ports
or mini-thoracotomies used in minimally invasive CABG procedures is small,
accessing
 
                                       6
<PAGE>
and suturing the bypass graft to the coronary artery is more difficult, may take
longer to perform and may not achieve the same therapeutic results as in
conventional open chest CABG surgery.
 
    The Heartflo system is being designed to consistently replicate the ideal,
hand-sewn pattern used by cardiac surgeons during a CABG procedure by
automatically deploying needles and sutures in a precise pattern in both the
bypass vein graft and the coronary artery while still allowing the cardiac
surgeon to maintain control over the joining of the bypass grafts to the
coronary artery. When using the Heartflo system, the surgeon would first deploy
needles and sutures through the bypass graft vessel and then through the
coronary artery. Once the sutures have been deployed by the system, the cardiac
surgeon would then tie the two vessels together using standard surgical knots.
 
    The Company believes that by automating the placement of the sutures, the
pattern and positioning of the sutures will be more precise, consistent and
reliable, leading to more clinically efficacious attachments of vein grafts to
coronary arteries (i.e. higher patency rates). In addition, the Company believes
that by automating the suture placement process, the Heartflo system may reduce
the time needed to perform an anastomosis, especially in minimally invasive CABG
procedures. Finally, this procedure also allows the cardiac surgeon to maintain
control of the final suture tensioning and tying which enables the surgeon to
make clinical decisions based upon the anatomy, thickness and calcification of
the vessels to be joined.
 
    Most of the recent product development announcements and introductions for
minimally invasive CABG procedures have focused on improving access to the chest
cavity by reducing the need to perform a medial sternotomy during the CABG
procedure. One of the limitations of minimally invasive CABG is the inability to
bypass all blockages of the arteries of the heart. During these procedures, the
surgeon has a difficult time rotating the heart to access to all coronary
vessels and is often unable to reach the aorta in order to attach the proximal
end of the graft. The Heartflo system is being designed to facilitate the
attachment of bypass grafts for these more difficult attachments in the smaller
working spaces used in minimally invasive CABG procedures. The Company believes
that the Heartflo system will enable surgeons using the newer minimally invasive
CABG procedures to obtain a quality of anastomosis similar to that obtained in
conventional CABG procedures, whether surgeons perform these newer procedures
through ports or mini-thoracotomies and whether on still or beating hearts. The
Company believes that the availability of tools for improving the quality of the
anastomosis for minimally invasive CABG procedures could encourage the adoption
and enhance the long-term effectiveness of these procedures.
 
    The Company plans to develop three types of anastomosis devices: a proximal
device which would attach one end of the graft to the aorta, a distal
end-to-side device which would attach the distal end of the graft to the
coronary artery and a distal side-to-side device that would attach the middle of
the graft to a coronary artery.
 
BUSINESS STRATEGY
 
    The Company's objective is to be a leader in the development, manufacture
and marketing of minimally invasive medical devices that automate the delivery
of needles and sutures in cardiovascular surgical procedures. Key elements of
the Company's strategy include:
 
    EMPHASIZE CLINICAL UTILITY AND COST-EFFECTIVENESS.  In six randomized trials
with over 2,200 patients enrolled, the Company has established that percutaneous
vascular surgical repair of the arterial access site decreases time to
hemostasis and time to ambulation and improves patient comfort. The Company uses
data collected from clinical trials to demonstrate the clinical and cost
advantages of its products to physicians, administrators and health care payors.
 
    APPLY FOCUSED MARKETING, SALES AND PHYSICIAN TRAINING.  The Company's
approved products are currently marketed to interventional cardiologists,
radiologists and catheterization laboratory administrators. These products are
currently marketed in the United States through a direct sales organization and
 
                                       7
<PAGE>
internationally through distributors in Germany, France, Japan and other major
countries, under regulatory approvals where required. The Company believes that
the majority of interventional catheterization procedures in the United States
are performed in high volume catheterization laboratories that can be served
effectively by a relatively small, focused sales force. Perclose develops and
maintains close working relationships with its customers to address their needs
for products and services and to receive input regarding the Company's product
development plans. The Company builds these relationships through focused
physician training, which the Company believes will also be an important factor
in encouraging cardiologists to use the Company's products. Perclose provides a
standardized, in-the-field training course in the markets it enters.
 
    EXTEND THE TECHNOLOGY PLATFORM.  The Company applies its core technology to
other high value cardiovascular surgical areas in which remote and precise
delivery of needles and sutures would improve clinical outcomes and reduce
health care costs. Anastomosis of coronary blood vessels during CABG procedures
represents the first application of the Company's core technology beyond
arterial access site closure. The Company intends to develop new applications
for its technology in other minimally invasive surgical procedures.
 
    EXPAND MARKETS FOR EXISTING PRODUCTS.  The Company believes that several
other minimally invasive catheterization procedures, both currently used and
under development, will be candidates for application of its existing PVS
products. The Company intends to expand its product marketing efforts into these
new clinical applications, including electrophysiology, interventional
neuroradiology and intra-aortic balloon pump procedures, where percutaneous
surgical closure of arterial access sites can meet significant clinical needs
and achieve cost reductions.
 
    MAINTAIN TECHNOLOGICAL LEADERSHIP.  The Company continually evaluates new
developments in percutaneous catheterization procedures and will seek to expand
its product development efforts to address access site closure following these
new procedures, including catheter-based vascular grafts, treatment of abdominal
aortic aneurysms and cardiac pulmonary support procedures. Because the large
diameter catheter devices required for these procedures make closure of the
arterial access site difficult using conventional compression methods, open
surgical procedures are ordinarily used to close the access sites. The Company
believes that larger diameter versions of its current PVS products could be used
to close the arterial access sites in these procedures, making it feasible to
perform such procedures in a less invasive manner. The Company also focuses on
improving the performance and ease of use and reducing the manufacturing costs
of its PVS products.
 
PRODUCTS AND TECHNOLOGY
 
    The Company has introduced two PVS product families, the Techstar and
Prostar. Techstar products are single-suture devices for suturing 6 French ("F")
and 7F arterial access sites. Prostar products provide two sutures for closing
arterial access sites ranging in diameter from 7F to 11F. Products within each
product family can have the added designation of Plus or XL. The Plus and XL
designations signify the second and third generations, respectively, of the
Techstar and Prostar products. The Plus and XL enhancements reduce procedure
time, increase ease of use and reduce manufacturing costs. The XL series, or
third generation design, of both the Techstar and Prostar devices has reduced
procedure time to less than five minutes, compared with over 10 minutes for the
first generation Prostar devices.
 
    PROSTAR PRODUCTS.  The Prostar products are single-use, hand-held medical
devices which consist of a four-needle, two-suture Prostar PVS device and a
Perclose Knot Pusher. Prostar products are currently marketed worldwide in the
8F and 10F sizes and used to close arterial access sites following balloon
angioplasty, stenting and atherectomy procedures.
 
    At the end of the catheterization procedure, the introducer sheath used in
the procedure is removed utilizing a standard over-the-wire exchange technique.
Next, the flexible sheath of the PVS device is
 
                                       8
<PAGE>
inserted in the artery over a guidewire. The unique design of the device allows
the physician to maintain hemostasis throughout the procedure. The device
includes a marker port in the needle guide, proximal to the tips of the needles.
Arterial blood flow into the marker port indicates that the device has been
properly positioned with the needles and sutures inside the arterial lumen. Once
positioned, the pull handle is drawn away from the patient, deploying the
needles and sutures. As the needles advance toward the artery wall, they are
guided by a ramp that precisely positions the needles around the arterial access
site. The needles are captured in the barrel of the device which also positions
the needles for removal. Two needles, each attached to the end of a single
suture, will create one surgical stitch. The needles are removed from the device
and detached from the sutures, which are then tied in a standard surgical square
knot. The device is removed and the knots are advanced to the arterial access
site with the Perclose Knot Pusher. The knots can be further secured with
additional throws, which are also advanced with the Knot Pusher.
 
    TECHSTAR PRODUCTS.  Techstar products consist of a two-needle, single-suture
Techstar PVS device and a Perclose Knot Pusher. Techstar products are currently
marketed worldwide in 6F, 7F and 6FS (short) sizes. The Techstar 6F product is
suitable for closure of arterial access sites in therapeutic and diagnostic
procedures having puncture sites dilated by 6F or smaller introducer sheaths
while the 7F diameter product is suitable for closure of puncture sites dilated
by 7F interventional and diagnostic introducer sheaths. The Techstar 6FS is
shorter in length than the Techstar 6F and is suitable for use after peripheral
diagnostic and interventional procedures for vascular disease of the lower legs.
 
CLINICAL AND REGULATORY STATUS
 
    In April 1997, the Company received PMA approval for commercial sale in the
United States of its Prostar 9F and 11F products. In November 1997, the Company
received PMA supplement approval for commercial sale in the United States of its
Techstar 6F and Techstar XL 6F products. In January 1998 the Company received
PMA supplement approval for the Prostar Plus 8F and 10F and Prostar XL 8F
products for commercial sale in the United States.
 
    Perclose PVS products are currently marketed internationally in Germany,
France, Japan and other major countries under regulatory approvals where
required. The Company obtained CE mark certification in 1996, allowing it to
market its products in all member countries of the European Union and to ship
its products to European Union countries directly from its United States
manufacturing facility.
 
    The Company has received regulatory approval to market the Prostar and
Techstar products in Japan and has commenced a clinical trial in Japan that will
form the basis for an application for reimbursement approvals in the Japanese
health care system. Getz Brothers Company Ltd., the Company's Japanese
distributor, will be responsible for management of clinical trials, obtaining
reimbursement approval for the Company's products and obtaining and holding
regulatory approvals in Japan. There can be no assurance that such reimbursement
approvals will be obtained in a timely manner or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Operating Results--Government Regulation."
 
MARKETING AND DISTRIBUTION
 
    The Company markets its PVS products in the United States through a direct
sales organization. The Company believes that the majority of interventional
catheterization procedures in the United States are performed in high volume
catheterization laboratories, and that these institutions can be effectively
served by a relatively small, focused sales force. The Company develops and
maintains close working relationships with its customers to address their needs
for products and services and to receive input regarding the Company's product
development plans. The Company builds these relationships through focused
physician training, which the Company believes will also be a key factor in
encouraging physicians to use the Company's products. The Company provides a
standardized, in-the-field training course in the markets it enters.
 
                                       9
<PAGE>
    The Company's international sales and marketing strategy for PVS products
focuses on interventional cardiologists and radiologists through established
distributors in major international markets, subject to required regulatory
approvals. The Company generally operates under written distribution agreements
with its distributors, although the Company does not have written agreements
with certain distributors, typically those in smaller markets. Distributors with
which the Company has distribution agreements generally have the exclusive right
to sell the Company's products within a defined territory. These distributors
also typically market other medical products, although the Company generally
seeks to obtain covenants from its distributors prohibiting them from marketing
medical devices that compete directly with the Company's products. The Company's
distributors typically purchase the Company's products at a discount from the
end user list price and resell the products to hospitals and clinics. Sales to
international distributors are denominated in U.S. dollars, except to the
Company's German and French distributors. The distributor and end-user price
varies from country to country. The Company has seven employees directly
involved with physician training and assisting distributors assigned to European
and Asian territories.
 
    In the fiscal year ended March 31, 1998 there was no single customer whose
sales comprised 10% or more of the Company's net revenue. Prior to March 31,
1997 all of the Company's revenues were derived from export sales to
international distributors, primarily in Europe, none of which are affiliated
with the Company. In the fiscal year ended March 31, 1997 sales to A.D. Krauth
GmbH, Medicorp S.A. and Getz Brothers Company Ltd., the Company's German, French
and Japanese distributors accounted for approximately 59%, 15% and 15%,
respectively, of net sales. In the fiscal year ended March 31, 1996 sales to
A.D. Krauth GmbH and Medicorp S.A. accounted for approximately 53% and 25%,
respectively.
 
RESEARCH AND DEVELOPMENT
 
    The Company's research and development activities are performed by an
internal research and development staff. The Company has a three-part strategy
in research and development. First, the Company continues to enhance its
existing PVS products to maintain its technological leadership in percutaneous
vascular surgery. Second, the Company plans to apply its core technology to the
closure of other arterial access sites including those for vascular grafts,
treatment of abdominal aortic aneurysms and cardiac pulmonary support
procedures. Third, the Company is applying its core technology to other high
value surgical areas such as coronary anastomosis with its Heartflo system.
Research and development expenses for fiscal 1996, 1997 and 1998 were $3.1
million, $4.7 million and $5.4 million, respectively.
 
MANUFACTURING
 
    The Company currently manufactures its PVS products in a Class 10,000 clean
room facility in Menlo Park, California. The Company purchases components from
various suppliers and relies on single sources for several parts. To date, the
Company has not experienced any significant adverse affects resulting from
shortages of components. Delays associated with any future part shortages,
particularly as the Company scales up its manufacturing activities in support of
commercial sales in the United States and for international distributor orders,
would have a material adverse effect on the Company's business, financial
condition and results of operations. Manufacturers often encounter difficulties
in scaling up production of new products, including problems involving
production yields, quality control and assurance, component supply and lack of
qualified personnel. Difficulties encountered by the Company in manufacturing
scale-up could have a material adverse effect on its business, financial
condition and results of operations. The Company has only recently begun
manufacturing its products in large-scale commercial quantities.
 
    The Company is also required to register as a medical device manufacturer
with the FDA and to list its products with the FDA. As such, the Company is
subject to inspections by the FDA for compliance with the FDA's good
manufacturing practices ("GMP") and other applicable regulations. In addition,
in connection with international sales, the Company is required to comply with
GMP requirements and ISO 9001 standards. These standards require that the
Company maintain processes and documentation in a
 
                                       10
<PAGE>
prescribed manner with respect to manufacturing, testing and quality control
activities. Failure to either attain or maintain compliance with the applicable
regulatory requirements or standards of various regulatory agencies would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors Affecting Future Operating
Results--Limited Manufacturing Experience and Scale-Up Risk."
 
    In November 1997, Perclose undertook a voluntary manufacturer's recall of
specific lots of Techstar XL 6F PVS products. The Company traced the problem
resulting in the recall to a defective mold which resulted in one part of the
product being out of specification in particular production runs. The problem
was not attributable to a design defect. The Company is not aware of any
increase in adverse patient consequences as a result of these product
performance issues. The Company replaced the recalled Techstar XL 6F units with
Techstar 6F units in inventory at the time of the recall. The recall and
replacement had only an immaterial effect on its results of operations during
the third and fourth quarters of fiscal 1998. However, there can be no assurance
that future product problems necessitating recalls will not arise in the future,
and any such future recall could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
COMPETITION
 
    Competition in the emerging market for arterial access site closure devices
is intense and is expected to continue to increase. The Company believes its
principal competition will come from conventional manual compression devices,
mechanical compression devices and collagen plug closure devices. Conventional
compression products are marketed by several companies that supply C-clamp
closure devices. C.R. Bard markets the Femostop compression arch, a cuff that
imposes pressure on the access site. Several new collagen-based closure devices
have been developed in response to the need for improved methods of arterial
access site closure following catheterization procedures. These collagen plug
devices are delivered through a sheath and placed at the site of the femoral
artery puncture. These collagen plugs rely on the body's clotting function,
which is enhanced by the presence of collagen, and may still require external
pressure to achieve closure of the arterial access site. In contrast, the
Company's percutaneous vascular surgery products provide a mechanical suture
closure which aids in the natural healing process and, like open surgical
repair, do not rely on the body's clotting function. Datascope and Kensey Nash
have received PMA approval from the FDA for products that use collagen plugs to
achieve hemostasis. A subsidiary of Tyco International Ltd. has exclusive
worldwide distribution rights to the Kensey Nash device. Several other companies
are reported to be developing or have tried to develop arterial closure devices,
some of which have an established presence in the field of interventional
cardiology, including Boston Scientific Corporation, C.R. Bard, Schneider (a
subsidiary of Pfizer, Inc.), United States Surgical Corporation and Guidant
Corporation. In addition, several companies are developing fibrin sealants for
use as arterial access site closure devices. The Company believes that the
primary competitive factors in the market for arterial closure devices are
clinical need, complication rates, efficacy, time to patient ambulation and
discharge, ease of use and price. In addition, the length of time required for
products to be developed and to receive regulatory and, in some cases,
reimbursement approvals are important competitive factors.
 
    Competition in the market for conventional and emerging minimally invasive
CABG surgical devices is also intense and is expected to increase. In September
1997 United States Surgical Corporation received FDA approval to market an
anastomosis device. The Company believes that other companies, including major
interventional cardiology device companies focused on both the conventional and
minimally invasive CABG markets, are currently attempting to develop anastomosis
devices.
 
    Many of the Company's competitors have substantially greater name
recognition and financial resources than the Company and also have greater
resources and expertise in the areas of research and development, manufacturing,
marketing and regulatory affairs. There can be no assurance that the Company's
competitors will not succeed in developing and marketing technologies and
products that are
 
                                       11
<PAGE>
more effective than those developed and marketed by the Company or that would
render the Company's technology and products obsolete or noncompetitive.
Additionally, there is no assurance that the Company will be able to compete
effectively against such competitors in terms of manufacturing, marketing and
sales. Also, there can be no assurance that the Company's products will be able
to demonstrate clinical efficacy or cost effectiveness advantages over competing
products, or that clinical trials will demonstrate such advantages.
 
    In addition, the medical device market is generally characterized by rapid
and significant technological change and frequent emergence of new technologies,
products and procedures. There can be no assurance that any such new
technologies, products or procedures will not reduce the number of coronary
catheterization or CABG procedures performed. The Company's success will also
depend in part on its ability to respond quickly to medical and technological
changes through the development and introduction of new products. Product
development involves a high degree of risk and there can be no assurance that
the Company's new product development efforts will result in any commercially
successful products. The Company believes it competes favorably with respect to
these factors, although there is no assurance that it will be able to continue
to do so. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors Affecting Future Operating Results--Competition
and Risk of Technological--Obsolescence."
 
PATENTS AND PROPRIETARY RIGHTS
 
    Perclose's policy is to protect its proprietary position by, among other
methods, filing United States and foreign patent applications to protect
technology, inventions and improvements that are important to its business. The
Company has three issued United States patents covering certain aspects of the
percutaneous suturing technology used in the Company's PVS products and has
exclusive licenses under two additional issued patents relating to a different
method of percutaneous suturing not currently employed by the Company's
products. The Company has seven United States patent applications pending in the
areas of device design, percutaneous suturing for vascular puncture sites and
accessory devices. The Company has also licensed, on a nonexclusive basis,
certain coating technology used in its products. Under the license, the Company
is obligated to pay royalties on sales of products using this coating
technology. The Company has filed two United States patent applications covering
its anastomosis products and intends to file additional patents in the future.
The Company has also filed several international patent applications
corresponding to certain of its United States patent applications.
 
    The patent positions of medical device companies, including those of the
Company, are uncertain and involve complex and evolving legal and factual
questions. The coverage sought in a patent application either can be denied or
significantly reduced before or after the patent is issued. Consequently, there
can be no assurance that any patent applications will result in the issuance of
patents, or that the Company's issued or any future patents will provide
significant protection or commercial advantage or will not be circumvented by
others. Since patent applications are secret until patents are issued in the
United States or corresponding applications are published in international
countries, and since publication of discoveries in the scientific or patent
literature often lags behind actual discoveries, the Company cannot be certain
that it was the first to make the inventions covered by each of its pending
patent applications or that it was the first to file patent applications for
such inventions. There can be no assurance that patents held by or licensed to
the Company or any patents that may be issued as a result of the Company's
pending or future patent applications will be of commercial benefit, afford the
Company adequate protection from competing products or technologies or will not
be challenged by competitors or others or declared invalid. Also, there can be
no assurance that the Company will have the financial resources to defend its
patents from infringement or claims of invalidity.
 
    In March 1998, the Company was sued for patent infringement by a competitor,
Kensey Nash Corporation and that competitor's distributor, Sherwood Medical. For
information regarding this lawsuit, see "Legal Proceedings."
 
                                       12
<PAGE>
    In the event a third party has also filed a patent application relating to
an invention claimed in a Company patent application, the Company may be
required to participate in an interference proceeding declared by the USPTO to
determine priority of invention, which could result in substantial uncertainties
and costs to the Company, even if the eventual outcome is favorable to the
Company. There can be no assurance that any patents issued to the Company would
be held valid by a court of competent jurisdiction.
 
    The Company relies upon trade secret protection for certain unpatented
aspects of other proprietary technology. There is no assurance that others will
not independently develop or otherwise acquire substantially equivalent
proprietary information or techniques, others will not otherwise gain access to
the Company's proprietary technology or disclose such technology, or the Company
can meaningfully protect its trade secrets.
 
    The Company typically requires its employees and consultants to execute
appropriate confidentiality and proprietary information agreements upon the
commencement of an employment or a consulting relationship with the Company.
These agreements generally provide that all confidential information developed
or made known to the individual by the Company during the course of the
individual's relationship with the Company is to be kept confidential and not
disclosed to third parties, except in specific circumstances. The agreements
generally provide that all inventions conceived by the individual in the course
of rendering services to the Company shall be the exclusive property of the
Company; however, certain of the Company's agreements with consultants, who
typically are employed on a full-time basis by academic institutions or
hospitals, do not contain assignment of invention provisions. There can be no
assurance, however, that these agreements will provide meaningful protection or
adequate remedies for the Company in the event of unauthorized use, transfer or
disclosure of such information or inventions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Operating Results--Reliance on Patents and Protection of Proprietary
Technology."
 
GOVERNMENT REGULATION
 
    UNITED STATES REGULATION
 
    The Company's products are regulated in the United States as "medical
devices" by the FDA under the Federal Food, Drug, and Cosmetic Act ("FDC Act")
and require premarket clearance or approval by the FDA prior to
commercialization. In addition, certain material changes or modifications to
medical devices also are subject to FDA review and clearance or approval.
Pursuant to the FDC Act, the FDA regulates the research, testing, manufacture,
safety, labeling, storage, record keeping, advertising, distribution and
production of medical devices in the United States. Noncompliance with
applicable requirements can result in warning letters, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, and criminal prosecution. Medical devices are classified
into one of three classes, Class I, II or III, on the basis of the controls
deemed by the FDA to be necessary to reasonably ensure their safety and
effectiveness. Class I devices are subject to general controls (e.g., labeling,
premarket notification and adherence to GMPs). Class II devices are subject to
general controls and to special controls (e.g., performance standards,
postmarket surveillance, patient registries and FDA guidelines). Generally,
Class III devices are those which must receive premarket approval by the FDA to
ensure their safety and effectiveness (e.g., life-sustaining, life-supporting
and implantable devices, or new devices which have not been found substantially
equivalent to legally marketed devices), and require clinical testing to ensure
safety and effectiveness and FDA approval prior to marketing and distribution.
The FDA also has the authority to require clinical testing of Class I and Class
II devices. A PMA application must be filed if the proposed device is not
substantially equivalent to a legally marketed predicate device or if it is a
preamendment Class III device (i.e. one that has been in commercial distribution
since before May 28, 1976) for which the FDA has called for such applications.
 
                                       13
<PAGE>
    If human clinical trials of a device are required and if the device presents
a "significant risk," the manufacturer or the distributor of the device is
required to file an investigational device exemption ("IDE") application prior
to commencing human clinical trials. The IDE application must be supported by
data, typically including the results of animal and, possibly, mechanical
testing. If the IDE application is approved by the FDA, human clinical trials
may begin at a specific number of investigational sites with a maximum number of
patients, as approved by the agency. Sponsors of clinical trials are permitted
to sell those devices distributed in the course of the study provided such costs
do not exceed recovery of the costs of manufacture, research, development and
handling. The clinical trials must be conducted under the auspices of an
independent institutional review board ("IRB") established pursuant to FDA
regulations.
 
    Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
510(k) notification or approval of a PMA application. If a medical device
manufacturer or distributor can establish that a device is "substantially
equivalent" to a "predicate device" which is a legally marketed Class I or Class
II device or to a preamendment Class III device for which the FDA has not called
for PMAs, the manufacturer or distributor may seek clearance from the FDA to
market the device by submitting a 510(k) notification. The 510(k) notification
may need to be supported by appropriate data, including clinical data,
establishing the claim of substantial equivalence to the satisfaction of the
FDA. The FDA recently has been requiring a more rigorous demonstration of
substantial equivalence.
 
    Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until an order
is issued by the FDA. No law or regulation specifies the time limit by which the
FDA must respond to a 510(k) notification. At this time, the Company believes
that the FDA typically responds to the submission of a 510(k) notification
within 90 to 120 days, although it can take longer. An FDA order may declare
that the device is substantially equivalent to another legally marketed device
and allow the proposed device to be marketed in the United States. The FDA,
however, may determine that the proposed device is not substantially equivalent
or require further information, including clinical data, to make a determination
regarding substantial equivalence. Such determination or request for additional
information could delay market introduction of the products that are the subject
of the 510(k) notification.
 
    If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent to a predicate device, the
manufacturer or distributor must seek premarket approval of the proposed device
through submission of a PMA application. A PMA application must be supported by
extensive data, including preclinical and clinical trial data, as well as
extensive literature to prove the safety and effectiveness of the device.
Following receipt of a PMA application, if the FDA determines that the
application is sufficiently complete to permit a substantive review, the FDA
will "file" the application. Under the FDC Act, the FDA has 180 days to review a
PMA application, although the review of such an application more often occurs
over a protracted time period, and generally takes more than one year or more
from the date of filing to complete.
 
    The PMA application approval process can be expensive, uncertain and
lengthy. A number of devices for which premarket approval has been sought have
never been approved for marketing. The review time is often significantly
extended by the FDA, which may require more information or clarification of
information already provided in the submission. During the review period, an
advisory committee likely will be convened to review and evaluate the
application and provide recommendations to the FDA as to whether the device
should be approved. In addition, the FDA will inspect the manufacturing facility
to ensure compliance with the FDA's GMP requirements prior to approval of an
application. If granted, the approval of the PMA application may include
significant limitations on the indicated uses for which a product may be
marketed.
 
                                       14
<PAGE>
    In April 1997, the Company received PMA approval for commercial sale in the
United States of its Prostar 9F and 11F products. In November 1997, the Company
received PMA supplement approval for commercial sale in the United States of its
Techstar 6F and Techstar XL 6F products. In January 1998 the Company received
PMA supplement approval for the Prostar Plus 8F and 10F and Prostar XL 8F
products for commercial sale in the United States. There can be no assurance
that the Company will be able to obtain further PMA application or PMA
supplement approvals to market its products, or any other products, on a timely
basis, if at all, and delays in receipt or failure to receive such approvals,
the loss of previously received approvals, or failure to comply with existing or
future regulatory requirements could have a material adverse effect on the
Company's business, financial condition and results of operations.
 
    In August 1997 a competitor of the Company petitioned the FDA for review of
the PMA approval granted to the Prostar 9F and 11F products. The petition was
filed pursuant to a provision of the FDC Act permitting any interested party to
initiate a process by which the FDA may review an approval order and may issue
an order affirming, reversing or modifying the approval. To the Company's
knowledge, the FDA has conducted a review pursuant to this provision only twice
since the enactment of the Medical Device Amendments of 1976. No assurance can
be given that the FDA will not conduct a review of the PMA approval granted to
the Prostar 9F and 11F products, nor can assurance be given that the FDA will
not, after such review, issue an order reversing or unfavorably modifying the
original PMA approval under separate FDA regulatory approval. Any such action by
the FDA would have a material adverse effect on the Company. The Company
responded to the petition by submitting comments in September 1997 arguing that
the FDA should deny it. The Company believes that the competitor withdrew the
petition in late 1997. As of January 1998 the Company has superceded the Prostar
9F and Prostar 11F with later versions of the Prostar family on a worldwide
basis.
 
    The Company is also required to register as a medical device manufacturer
with the FDA and state agencies, such as the CDHS, and to list its products with
the FDA. The Company has been inspected by both the FDA and the CDHS for
compliance with the FDA's QS Reg. and other applicable regulations that require
the Company to manufacture its products according to elaborate testing, control
activities documentation and other quality assurance procedures. Further, the
Company is required to comply with various FDA requirements for design, safety,
advertising and labeling. In June 1995, the Company's Menlo Park, California
facility was inspected by the CDHS, and the Company was subsequently granted a
California medical device manufacturing license.
 
    The Company is required to provide information to the FDA on death or
serious injuries alleged to have been associated with the use of its medical
devices, as well as product malfunctions that would likely cause or contribute
to death or serious injury if the malfunction were to recur. In addition, the
FDA prohibits an approved device from being marketed for unapproved
applications. If the FDA believes that a company is not in compliance with the
law, it can institute proceedings to detain or seize products, issue a recall,
enjoin future violations and assess civil and criminal penalties against the
company, its officers and its employees. Failure to comply with the regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
    The advertising of most FDA-regulated products is subject to both FDA and
Federal Trade Commission jurisdiction. The Company also is subject to regulation
by the Occupational Safety and Health Administration and by other governmental
entities. Regulations regarding the manufacture and sale of the Company's
products are subject change. The Company cannot predict what impact, if any,
such changes might have on its business, financial condition or results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors Affecting Future Operating Results-- Government
Regulation."
 
                                       15
<PAGE>
    INTERNATIONAL REGULATION
 
    International sales of the Company's products are subject to the regulatory
agency product registration requirements of each country. The regulatory review
process varies from country to country. The Company's distributors have obtained
regulatory approval in several international markets. At this time, Prostar and
Techstar products are being marketed in Germany, France, Japan and other major
countries under regulatory approvals where required.
 
    Commercial sales of medical devices, including the Company's PVS products,
in member countries of the European Union require the manufacturer to obtain the
right to affix the CE mark, an international symbol of adherence to quality
assurance standards and compliance with applicable European medical device
directives. In July 1996, the Company received CE mark certification for its
Techstar and Prostar PVS products. In connection with CE mark certification, the
Company received ISO 9001 qualification of its manufacturing and quality
assurance processes. Certification under the ISO 9000 series of standards is one
of the CE mark certification requirements.
 
    The Company, through its Japanese distributor, has received regulatory
approval for commercial sale of its products in Japan and has commenced clinical
trials in Japan that will form the basis of an application for reimbursement
approvals in the Japanese health care system. The Company's distributor will be
responsible for management of clinical trials and obtaining reimbursement
approval for the Prostar and Techstar products in Japan. There can be no
assurance such approvals will be obtained in a timely manner or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Operating Results--Government Regulation."
 
THIRD-PARTY REIMBURSEMENT
 
    In the United States, health care providers, such as hospitals and
physicians that purchase medical devices such as the Company's products,
generally rely on third-party payors, principally federal Medicare, state
Medicaid and private health insurance plans, to reimburse all or part of the
cost of therapeutic and diagnostic catheterization procedures. Reimbursement for
catheterization procedures performed using devices that have received FDA
approval has generally been available in the United States. The Company
anticipates that in a prospective payment system, such as the DRG system
utilized by Medicare, and in many managed care systems used by private health
care payors, the cost of the Company's products will be incorporated into the
overall cost of the procedure and that there will be no separate, additional
reimbursement for the Company's products. The Company anticipates that hospital
administrators and physicians will justify the additional cost of an arterial
access site closure device by the attendant cost savings and clinical benefits
derived from the use of the Company's products.
 
    Separate reimbursement for the Company's products is not expected to be
available in the United States and there can be no assurance that reimbursement
for the Company's products will be available in international markets under
either governmental or private reimbursement systems. Furthermore, the Company
could be adversely affected by changes in reimbursement policies of governmental
or private health care payors, particularly to the extent any such changes
affect reimbursement for therapeutic or diagnostic catheterization procedures in
which the Company's products are used. Failure by physicians, hospitals and
other users of the Company's products to obtain sufficient reimbursement from
health care payors for procedures in which the Company's products are used or
adverse changes in governmental and private third-party payors' policies toward
reimbursement for such procedures could have a material adverse effect on the
Company's business, financial condition and results of operations.
 
    In international markets, market acceptance of the Company's products may be
dependent in part upon the availability of reimbursement within prevailing
health care payment systems. However, in general, hospitals using the Company's
products do not receive specific, cost-based, direct reimbursement for the use
of Perclose PVS products. Reimbursement and health care payment systems in
international markets vary significantly by country. The main types of health
care payment systems in international
 
                                       16
<PAGE>
markets are government sponsored health care and private insurance. Countries
with government sponsored health care, such as the United Kingdom, have a
centralized, nationalized health care system. New devices are brought into the
system through negotiations between departments at individual hospitals at the
time of budgeting. In most foreign countries, there are also private insurance
systems that may offer payments for alternative therapies. Although not as
prevalent as in the United States, health maintenance organizations are emerging
in certain European countries. Currently, users of the Company's products in
Germany have obtained reimbursement from certain private payors. The Company's
products have also been purchased by hospitals in nationalized systems in the
United Kingdom and Canada. The Company received governmental reimbursement
approvals for private hospitals in France that were subsequently withdrawn in
October 1996. The Company is attempting to restore its reimbursement approvals
with the French health care regulatory authorities. In Japan, the Company is
currently undertaking a clinical study to support governmental reimbursement
approvals. The Company may not receive reimbursement approvals in Japan in a
timely manner, or at all. The Company may seek additional international
reimbursement approvals, although there can be no assurance that any such
approvals will be obtained in a timely manner, or at all, and failure to receive
additional international reimbursement approvals could have an adverse effect on
market acceptance of the Company's products in the international markets in
which such approvals are sought. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors Affecting Future
Operating Results--Uncertainty of Third Party Reimbursement."
 
PRODUCT LIABILITY AND INSURANCE
 
    The Company's business involves the risk of product liability claims.
Although the Company maintains product liability insurance, there can be no
assurance that product liability claims will not exceed such insurance coverage
limits, which could have a material adverse effect on the Company, or that such
insurance will be available on commercially reasonable terms or at all.
 
EMPLOYEES
 
    As of March 31, 1998, the Company had 198 full-time employees. Approximately
17 persons were engaged in research and development activities, 97 persons were
engaged in manufacturing and manufacturing engineering, 21 persons were engaged
in quality assurance and regulatory affairs, 48 persons were engaged in sales
and marketing and 15 persons were engaged in general and administrative
functions. No employees are covered by collective bargaining agreements, and the
Company believes it maintains good relations with its employees. The Company is
dependent upon a number of key management and technical personnel, and the loss
of services of one or more key employees could have a material adverse effect on
the Company.
 
                                       17
<PAGE>
MANAGEMENT
 
    The following table sets forth certain information with respect to the
directors and executive officers of the Company:
 
<TABLE>
<CAPTION>
                                                                                            DIRECTOR
NAME                                       AGE              PRINCIPAL OCCUPATION              SINCE
-------------------------------------      ---      -------------------------------------  -----------
<S>                                    <C>          <C>                                    <C>
John B. Simpson, Ph.D., M.D..........          54   Chairman, Perclose, Inc.                     1992
                                                    Professor, Stanford University
 
Henry A. Plain, Jr...................          40   President and Chief Executive                1993
                                                    Officer, Perclose, Inc.
 
Vaughn D. Bryson.....................          60   President, Life Science Advisors, LLC        1995
 
Michael L. Eagle.....................          51   Vice President, Manufacturing,               1996
                                                    Eli Lilly and Company
 
Serge Lashutka.......................          51   Manager of Organizational                    1996
                                                    Development, Unocal Corporation
 
James W. Vetter, M.D.................          41   Staff Cardiologist, Sequoia Hospital         1992
                                                    Associate Professor, Stanford
                                                    University
 
Mark A. Wan..........................          33   General Partner, Three Arch Partners         1992
 
Randolph E. Campbell.................          41   Vice President of Operations               --
 
Ronald W. Songer.....................          41   Vice President of Product Development      --
 
Kenneth E. Ludlum....................          45   Vice President of Finance and              --
                                                    Chief Financial Officer
 
Coy F. Blevins.......................          50   Vice President of U.S. Sales               --
 
John G. McCutcheon...................          37   Vice President of Marketing and            --
                                                    International Sales
</TABLE>
 
    DR. SIMPSON co-founded Perclose in March 1992 and has served as Chairman of
the Board since the Company's inception. Dr. Simpson is a professor of clinical
medicine at Stanford University. He has served as a Staff Cardiologist at
Sequoia Hospital in Redwood City, California since 1981. Dr. Simpson founded
Advanced Cardiovascular Systems, Inc. ("ACS") in 1978 and Devices for Vascular
Intervention, Inc. ("DVI") in 1984, each of which are currently divisions of
Guidant Corporation. Dr. Simpson is a director of several privately held
companies. Dr. Simpson holds a B.S. in Agriculture for Ohio State University, a
Ph.D. in Biomedical Sciences from the University of Texas at Houston and an M.D.
from Duke University.
 
    MR. PLAIN joined Perclose in February 1993 as President and Chief Executive
Officer and a member of the Company's board of directors. Prior to joining
Perclose, Mr. Plain was with Eli Lilly and Company ("Lilly") for twelve years
where he held various management positions in Lilly's pharmaceutical and medical
device units in a variety of functional areas including marketing, sales,
finance, human resources, manufacturing and international operations. Mr. Plain
is a director of several private companies.
 
    MR. BRYSON has served as a Director of Perclose since January 1995. Mr.
Bryson is currently President of Life Science Advisors, LLC. Mr. Bryson was a
thirty-two year employee of Lilly and served as President and Chief Executive
Officer of Lilly from 1991 to 1993. He was Executive Vice President from 1986
until 1991. He served as a member of Lilly's Board of Directors from 1984 until
his retirement in 1993. Mr. Bryson was Vice Chairman of Vector Securities
International from April 1994 to December 1996. Mr. Bryson is also a Director of
Ariad Pharmaceuticals, Chiron Corporation, Fusion Medical Technologies and
Quintiles Transnational Corporation. Mr. Bryson received a B.S. degree in
Pharmacy from the
 
                                       18
<PAGE>
University of North Carolina and completed the Sloan Program at Stanford
University Graduate School of Business.
 
    MR. EAGLE has served as a Director of Perclose since September 1996. He has
held various management positions in Lilly's pharmaceutical and medical device
units since 1983, and currently serves as Vice President, Manufacturing. From
June 1993 until January 1994, he served as Vice President of Pharmaceutical
Manufacturing for Lilly, and from January 1991 until June 1993, he served as
Vice President of the vascular intervention component of the Medical Devices and
Diagnostics Division of Lilly. From 1988 to 1991, Mr. Eagle was President and
Chief Executive Officer of IVAC Corporation, a Lilly subsidiary. From 1983 to
1988, he held various positions with ACS, a former Lilly subsidiary, serving
most recently as Senior Vice President of Manufacturing from 1985 to 1988. Mr.
Eagle is also a Director of Cardiac Pathways, Inc. Mr. Eagle holds a B.S. in
Mechanical Engineering from Kettering University and an M.S. in Industrial
Administration from Purdue University.
 
    MR. LASHUTKA has served as a Director of Perclose since September 1996. He
is currently a Manager of Organizational Development of Unocal Corporation, a
major oil, gas and chemical company. From 1993 to 1996, Mr. Lashutka was
Director, Organization Development and Senior Consultant of Pacific Health
Systems, Inc., a managed health care organization. From 1979 to 1993, he to was
Manager of the Organization Effectiveness Department at the Kaiser Permanente
Medical Care Program, a major managed health care organization operating in
California. Mr. Lashutka holds a B.A. from Ohio State University, an M.A. in
Psychology from the United States International University and an M.B.A. from
the University of California at Berkeley.
 
    DR. VETTER is a co-founder of the Company and has served as a director of
the Company and a consultant and medical advisor to the Company since its
inception. Since 1989, Dr. Vetter has served as a Staff Cardiologist at Sequoia
Hospital in Redwood City, California.
 
    MR. WAN has served as a Director of Perclose since September 1992. He has
been a General Partner of Three Arch Partners, a venture capital firm
specializing in health care investments since October 1993. From 1987 to 1993,
Mr. Wan held various positions at Brentwood Associates, a venture capital firm,
most recently as a General Partner. Mr. Wan has been involved in the formation
of several privately held venture capital-backed health care companies and
serves as a director of several privately held companies. Mr. Wan holds a B.S.
in Electrical Engineering, and a B.A. in Economics from Yale University and an
M.B.A. from Stanford University.
 
    MR. BLEVINS joined Perclose as Director of U.S. Sales in January 1994 and
was promoted to Vice President, U.S. Sales in July 1996. From 1990 through 1993,
Mr. Blevins was a Regional Sales Manager with DVI. Prior to 1990, Mr. Blevins
held various sales and sales management positions at Baxter Healthcare, Inc. Mr.
Blevins holds a B.S. in Accounting from Baylor University.
 
    MR. CAMPBELL joined Perclose in January 1994 as Vice President of
Operations. From 1986 until joining the Company, Mr. Campbell held various
management positions at DVI, serving most recently as Director of Manufacturing
Engineering from 1992 to 1994 and previously as Director of Product Development
from 1990 to 1992. Mr. Campbell holds a B.S. in Chemical Engineering from the
University of California at Berkeley.
 
    MR. LUDLUM joined Perclose as Vice President of Finance and Administration
and Chief Financial Officer in May 1996. From 1995 until joining Perclose, Mr.
Ludlum was an independent business and financial consultant to health care and
high growth companies. From November 1993 to November 1995, Mr. Ludlum was Vice
President, Finance & Administration and Chief Financial Officer of RiboGene,
Inc., a private biopharmaceutical company. From 1991 to 1993, Mr. Ludlum was
Vice President, Finance and Administration, Treasurer, Chief Financial Officer
and Secretary of Alteon Inc., a publicly traded biopharmaceutical company
developing therapies for diabetes. From 1986 to 1991, Mr. Ludlum held
 
                                       19
<PAGE>
various positions with Montgomery Securities in the health care finance group.
Mr. Ludlum holds a B.S. in business from Lehigh University and an M.B.A. from
Columbia Business School.
 
    MR. MCCUTCHEON joined Perclose in January 1994 as Director of Marketing. In
July 1996, Mr. McCutcheon was promoted to Vice President, Marketing and in July
1997 was promoted to Vice President of Marketing and International Sales. From
1992 until joining the Company, Mr. McCutcheon was a Marketing Manager at DVI.
From 1985 to 1992, Mr. McCutcheon held positions in sales and marketing with the
Bentley Laboratories Division of Baxter Healthcare Corporation. Mr. McCutcheon
holds a B.A. in Economics and in Psychology and an M.B.A., both from the
University of California, Los Angeles.
 
    MR. SONGER joined Perclose in April 1993 as Vice President of Research and
Development. From 1990 until joining Perclose, Mr. Songer was Director of
Catheter Systems Research and Development for the Spectranetics Corporation, a
manufacturer of laser atherectomy systems. Prior to joining Spectranetics, Mr.
Songer was Manager of Research and Development for the movable wire systems unit
of ACS. Mr. Songer holds a B.S. in Nuclear Engineering from the University of
California at Santa Barbara and an M.S. in Mechanical Engineering from the
University of California at Berkeley.
 
ITEM 2. PROPERTIES
 
    The Company leases an approximately 31,000 square foot facility in Menlo
Park, California. This facility includes an environmentally controlled, Class
10,000 clean room for device assembly together with warehouse, laboratory and
office space. The facility is leased under three separate leases which expire at
various times between September 1998 and March 1999. The Company has negotiated
an extension of its existing lease and is in the process of securing a larger
facility for occupancy in early 1999. The Company believes it will be able to
satisfy its facility requirements on commercially reasonable terms.
 
ITEM 3. LEGAL PROCEEDINGS
 
    In March 1998, the Company received a patent infringement complaint and is
being sued by Kensey Nash Corporation of Exton, Pennsylvania, and Sherwood
Medical Company of St. Louis, Missouri. Sherwood Medical is Kensey Nash's
marketing partner for its Angioseal product. The suit, filed in U.S. District
Court for the Eastern District of Pennsylvania, asserts that Perclose PVS
devices infringe a recently issued Kensey Nash patent. The Company has responded
to the patent infringement complaint filed by Kensey Nash Corporation and
Sherwood Medical Company.
 
    In its response to the complaint, Perclose denies that its Prostar and
Techstar devices infringe the Kensey Nash patent. In addition, Perclose is
seeking a declaration from the Court that Perclose does not infringe the Kensey
Nash patent, and that the patent is both invalid and unenforceable. Perclose
also filed counterclaims against Kensey Nash Corporation, Sherwood Medical
Company, and Tyco International (U.S.) Inc. for violations of anti-trust and
unfair competition laws. Tyco International (U.S.) is the parent of Sherwood
Medical Company. Management believes the patent infringement complaint is
without merit and intends to defend itself and its intellectual property rights
vigorously.
 
    Based on currently available information, the Company believes that the
resolution of this matter will not have a material adverse effect on the
business, financial condition or results of operations of the Company. However,
there can be no assurance that this matter will not be determined adversely to
the Company and any adverse determination could have such a material adverse
effect. See "Managment Discussion and Analysis of Financial Condition and
Results of Operations--Factors Affecting Future Operations Results--Reliance on
Patents and Proprietory Rights."
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    None
 
                                       20
<PAGE>
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol PERC. The number of record holders of the Company's Common Stock at May
18, 1998 was approximately 254. The approximate number of beneficial owners at
May 18, 1998 was 2,655. The Company has not paid any dividends since its
inception and does not intend to pay any dividends in the foreseeable future.
The following table sets forth, for each quarterly period indicated, the high
and low sales price for the Common Stock as reported by the Nasdaq Stock Market.
 
<TABLE>
<CAPTION>
                                                                         HIGH      LOW
                                                                        -------  -------
<S>                                                                     <C>      <C>
FISCAL YEAR ENDED MARCH 31, 1996
11/7/95-12/31/95....................................................... $19 1/8  $12 3/4
Quarter Ended 3/31/96..................................................  26 1/4   15
 
FISCAL YEAR ENDED MARCH 31, 1997
Quarter Ended 6/30/96..................................................  24 3/4   20 1/2
Quarter Ended 9/30/96..................................................  23 1/4   13
Quarter Ended 12/31/96.................................................  24 1/4   16
Quarter Ended 3/31/97..................................................  27 3/4   19
 
FISCAL YEAR ENDED MARCH 31, 1998
Quarter Ended 6/30/97..................................................  27 1/4   20
Quarter Ended 9/30/97..................................................  27 3/8   20 3/4
Quarter Ended 12/31/97.................................................  27 1/2   18
Quarter Ended 3/31/98..................................................  32 3/8   17 3/4
</TABLE>
 
ITEM 6. SELECTED FINANCIAL DATA
 
    The selected consolidated financial data of the Company appears in a
separate section of this Annual Report on Form 10-K on page F-1.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
    Management's Discussion and Analysis of Financial Condition and Results of
Operations appears in a separate section of this Annual Report on Form 10-K
beginning on page F-2.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    The Financial Statements and Supplementary Data appear in a separate section
of this Annual Report on Form 10-K beginning on page F-9.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
    Not Applicable
 
                                       21
<PAGE>
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    The information required by this item is incorporated by reference to the
information under the captions Directors and Nominees for Director and Section
16(a) Beneficial and Ownership Reporting Compliance in the 1998 Proxy Statement.
 
ITEM 11. EXECUTIVE COMPENSATION
 
    The information required by this item is incorporated by reference to the
information under the caption "Executive Compensation" in the 1998 Proxy
Statement.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The information required by this item is incorporated by reference to the
information under the caption "Share Ownership of Directors, Officers and
Certain Beneficial Owners" in the 1998 Proxy Statement.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    The information required by this item is incorporated by reference to the
information under the caption "Certain Transactions" in the 1998 Proxy
Statement.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
<TABLE>
<S>        <C>        <C>
(A)        1.         FINANCIAL STATEMENTS
 
                      The following Financial Statements of Perclose, Inc. and Report of Ernst & Young
                      LLP, Independent Auditors are included in this Annual Report on Form 10-K starting
                      on page F-9.
 
                        Report of Ernst & Young LLP, Independent Auditors
 
                        Balance Sheets, March 31, 1998 and 1997
 
                        Statements of Operations, Years Ended March 31, 1998, 1997 and 1996
 
                        Statements of Stockholders' Equity, Years Ended March 31, 1998, 1997 and 1996
 
                        Statements of Cash Flows, Years Ended March 31, 1998, 1997 and 1996
 
                        Notes to Financial Statements
 
           2.         FINANCIAL STATEMENT SCHEDULES
 
                        Schedule II--Valuation and Qualifying Accounts is listed on page F-26 of this
                        Annual Report on Form 10-K.
 
                        All other schedules are omitted because they are not applicable or the required
                        information is shown in the Financial Statements or the notes thereto.
 
           3.         EXHIBITS
 
                      Refer to (c) below.
 
(B)        REPORTS ON FORM 8-K
 
           The Company did not file any reports on Form 8-K for the three months ended March 31, 1998.
</TABLE>
 
                                       22
<PAGE>
(C)  EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 EXHIBIT NO.                                                DESCRIPTION
-------------  -----------------------------------------------------------------------------------------------------
<C>            <S>
      3.1 (1)  Restated Certificate of Incorporation.
      3.2 (1)  Bylaws of the Registrant.
      3.3 (2)  Certificate of Designations of Rights, Preferences and Privileges of Series A Participating Preferred
                 Stock.
      3.4 (2)  Preferred Shares Rights Agreement, dated as of January 27, 1997.
      4.1 (1)  Specimen Common Stock Certificate.
     10.1 (1)  Form of Indemnification Agreement between the Company and each of its directors and officers.
     10.2 (1)  1992 Stock Plan and form of Stock Option Agreement thereunder.
     10.3 (1)  1995 Director Option Plan.
     10.4 (1)  1995 Employee Stock Purchase Plan and forms of agreements thereunder.
     10.5 (1)  Lease Agreement (the "Lease Agreement") dated July 6, 1993 between Registrant and the David D.
                 Bohanon Organization for facility located at 199 Jefferson Drive, Menlo Park, California, as
                 amended by First Amendment to Lease dated January 31, 1994.
     10.6 (3)  Second amendment to Lease Agreement dated September 10, 1996.
     10.7 (3)  Third amendment to Lease Agreement dated March 21, 1997.
     10.8 (1)  Loan and Security Agreement dated September 29, 1994 between the Registrant, Silicon Valley Bank and
                 MMC/GATX Partnership No. I, as amended by Loan Modification Agreement.
     10.9 (1)  Shareholder Rights Agreement dated August 23, 1995 between the Registrant and certain holders of the
                 Registrant's securities.
     10.10(3)  Employment Agreement dated May 8, 1996 between the Registrant and Kenneth E. Ludlum.
     10.11(1)  Agreement dated March 30, 1993 between the Registrant and LocalMed, Inc.
     10.12(3)  Promissory Note between the Registrant and John G. McCutcheon dated January 31, 1997.
     10.13(4)  Promissory Note between the Registrant and Kenneth E. Ludlum and Judy M. Wong dated June 26, 1997.
     10.14(5)  1997 Stock plan and Form of Stock Option Agreement.
     10.15(5)  1995 Director Option Plan, as amended to date.
     10.16     Fourth Amendment to Lease Agreement dated March 18, 1998.
     23.1      Consent of Ernst & Young LLP, Independent Auditors.
     24.1      Power of Attorney--(see page 24).
     27.1      Financial Data Schedule--Current Year (Edgar version only).
     27.2      Financial Data Schedule--Restated Periods (Edgar version only).
</TABLE>
 
------------------------
 
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form S-1
    (File No. 33-97128) and incorporated herein by reference.
 
(2) Filed as an Exhibit to the Registrant's Registration Statement on Form 8-A
    filed with the Securities and Exchange Commission on January 28, 1997, and
    incorporated herein by reference.
 
(3) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
    fiscal year ended March 31, 1997 and incorporated herein by reference.
 
(4) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
    the quarter ended June 30, 1997 and incorporated herein by reference.
 
(5) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
    the quarter ended December 31, 1997.
 
                                       23
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) 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.
 
                                PERCLOSE, INC.
 
                                By:           /s/ HENRY A. PLAIN, JR.
                                     -----------------------------------------
                                                Henry A. Plain, Jr.
                                       PRESIDENT AND CHIEF EXECUTIVE OFFICER
 
    KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Henry A. Plain, Jr. and Kenneth E.
Ludlum, jointly and severally, his or her attorneys-in-fact, and each with the
power of substitution, for him or her in any and all capacities, to sign any
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her substitute or substitutes, may do or cause to
be done by virtue thereof.
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
              SIGNATURE                           TITLE                DATE
--------------------------------------  -------------------------  -------------
 
       /s/ HENRY A. PLAIN, JR.          President, Chief           June 15, 1998
--------------------------------------    Executive Officer and
         Henry A. Plain, Jr.              Director (Principal
                                          Executive Officer)
 
        /s/ KENNETH E. LUDLUM           Vice President, Finance    June 15, 1998
--------------------------------------    and Chief Financial
          Kenneth E. Ludlum               Officer (Principal
                                          Financial and
                                          Accounting Officer)
 
         /s/ MICHAEL L. EAGLE           Director                   June 15, 1998
--------------------------------------
           Michael L. Eagle
 
         /s/ VAUGHN D. BRYSON           Director                   June 15, 1998
--------------------------------------
           Vaughn D. Bryson
 
          /s/ SERGE LASHUTKA            Director                   June 15, 1998
--------------------------------------
            Serge Lashutka
 
   /s/ JOHN B. SIMPSON, PH.D., M.D.     Director                   June 15, 1998
--------------------------------------
     John B. Simpson, Ph.D., M.D.
 
      /s/ JAMES W. VETTER, M.D.         Director                   June 15, 1998
--------------------------------------
        James W. Vetter, M.D.
 
           /s/ MARK A. WAN              Director                   June 15, 1998
--------------------------------------
             Mark A. Wan
 
                                       24
<PAGE>
                                 PERCLOSE, INC.
 
                            SELECTED FINANCIAL DATA
 
                      (IN THOUSANDS EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                  YEARS ENDED MARCH 31,
                                                  -----------------------------------------------------
                                                    1998       1997       1996       1995       1994
                                                  ---------  ---------  ---------  ---------  ---------
<S>                                               <C>        <C>        <C>        <C>        <C>
STATEMENTS OF OPERATIONS DATA:
  Net revenues..................................  $  10,631  $   4,456  $   2,457  $     178  $  --
  Loss from operations..........................    (15,131)   (11,293)    (8,860)    (7,192)    (2,676)
  Net loss......................................    (13,796)    (9,658)    (8,084)    (6,993)    (2,624)
  Basic and diluted loss per common share (1)...  $   (1.38) $   (1.02) $   (1.76) $   (1.56) $  --
  Shares used in computing net loss per share
    (1).........................................      9,967      9,471      4,584      4,496     --
</TABLE>
 
<TABLE>
<CAPTION>
                                                                        MARCH 31,
                                                  -----------------------------------------------------
                                                    1998       1997       1996       1995       1994
                                                  ---------  ---------  ---------  ---------  ---------
<S>                                               <C>        <C>        <C>        <C>        <C>
BALANCE SHEETS DATA:
  Cash, cash equivalents and short-term
    investments.................................  $  31,581  $  27,672  $  37,857  $   8,127  $   5,539
  Total assets..................................     40,451     32,514     40,916     10,949      6,386
  Current liabilities...........................      3,509      2,903      1,905      1,315        487
  Long-term obligations.........................     --            228        511        593        174
  Total stockholders' equity....................     36,942     29,383     38,500      9,041      5,725
</TABLE>
 
------------------------
 
(1) Prior to 1995, statements of operations data omit the historical net loss
    per share, as it was not presented in the initial public offering
    registration statement pursuant to SEC guidelines. Pro forma net loss per
    share is presented for 1995. All per share amounts have been adjusted, where
    necessary, to reflect the implementation of Financial Accounting Standards
    Board (FASB) Statement No. 128 and Staff Accounting Bulletin (SAB) No. 98.
 
                                      F-1
<PAGE>
                                 PERCLOSE, INC.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
  OPERATIONS
 
OVERVIEW
 
    Perclose designs, manufactures and markets less invasive medical devices
that automate the surgical closure or connection of blood vessels. A first
product family, the Prostar and Techstar products, which are marketed worldwide,
surgically close the arterial access site in the femoral artery after
catheterization procedures such as angioplasty, stenting, atherectomy and
diagnostic angiography. A second group of products, The Heartflo System, is
under development and is designed to automate the surgical connection of blood
vessels in conventional and minimally invasive coronary artery bypass surgery.
 
    The Company commenced international shipments of its first Prostar and
Techstar products in December 1994 and July 1995, respectively. In fiscal year
1998, the Company received several FDA premarket approval ("PMA") and PMA
supplement approvals for commercial sale in the United States of various
versions of its Prostar and Techstar Percutaneous Vascular Surgery ("PVS")
products.
 
RESULTS OF OPERATIONS
 
    FISCAL YEARS ENDED MARCH 31, 1998 AND 1997
 
    Net revenues increased 139% to $10.6 million in the fiscal year ended March
31, 1998 from $4.5 million in the fiscal year ended March 31, 1997. Domestic
sales comprised 85% of net revenue for the fiscal year ended March 31, 1998.
There were no domestic sales in fiscal 1997. International sales for the fiscal
year ended March 31, 1998 decreased 64% from the fiscal year ended March 31,
1997 primarily as a result of an increased emphasis by the Company on the
commercial launch of the Company's PVS products in the United States. This
involved a diversion of several international sales employees to the United
States sales efforts, a re-organization and termination of sales personnel in
Europe and changes in international sales management. The above factors resulted
in lower sales volume in Europe.
 
    Cost of goods sold increased 65% to $7.8 million in the fiscal year ended
March 31, 1998 from $4.7 million in the fiscal year ended March 31, 1997. Gross
margin for the year ended March 31, 1998 was $2.8 million compared to a negative
gross margin of $200,000 for the year ended March 31, 1997. The increase in
gross margin resulted primarily from higher average selling prices from direct
sales to U.S. customers in fiscal 1998. All sales in fiscal 1997 were to
international distributors at lower prices than direct customer prices in the
U.S. In addition, the increase in units sold also contributed to a favorable
gross margin by spreading manufacturing fixed overhead costs over a larger
volume of units sold.
 
    Research and development expenses increased 15% to $5.4 million in the
fiscal year ended March 31, 1998 from $4.7 million in the fiscal year ended
March 31, 1997. The increase in R&D expense resulted primarily from a higher
allocation of expenses related to engineers shared by the manufacturing and
research departments. This increase was partially offset by a decrease in
clinical trial expense, which was $1.3 million in 1997 but only $64,000 in 1998.
 
    Marketing, general and administrative expenses increased 99% to $12.5
million in the fiscal year ended March 31, 1998 from $6.3 million in the fiscal
year ended March 31, 1997. The increase was primarily due to the hiring of a
sales force in the United States just prior to the start of fiscal 1998.
 
    Net interest income decreased to $1.3 million for the fiscal year ended
March 31, 1998 from $1.6 million for the fiscal year ended March 31, 1997
primarily due to the lower average cash and short-term investments balances in
fiscal year 1998. Investments of the proceeds from a public stock offering which
closed in November 1997 provided the Company with a higher level of interest
income in the remaining four months of the year ended March 31, 1998.
 
                                      F-2
<PAGE>
    FISCAL YEARS ENDED MARCH 31, 1997 AND 1996
 
    Net revenues increased 81% from $2.5 million in the year ended March 31,
1996 to $4.5 million in the year ended March 31, 1997 as a result of increased
volume of Techstar and Prostar Plus shipments to international distributors.
 
    Cost of goods sold decreased slightly to $4.7 million in fiscal year 1997
from $4.8 million in fiscal year 1996 as a result of phasing out of an earlier
version of products that had higher direct material costs in fiscal 1997 and
efficiencies gained in manufacturing during fiscal year 1997.
 
    Research and development expenses increased 55% to $4.7 million in fiscal
year 1997 from $3.1 million in fiscal year 1996. This increase was primarily the
result of costs associated with the Prostar Plus and Techstar U.S. clinical
studies, additional personnel required for continued product development of the
Company's PVS products and the development of new products.
 
    Marketing, general and administrative expenses increased 81% to $6.3 million
in fiscal year 1997 from $3.5 million in fiscal year 1996. The increase was
primarily due to expansion of the Company's European sales forces, initial
hiring of a U.S. sales force, marketing expenditures and, to a lesser degree,
increased administrative personnel costs.
 
    Net interest income increased to $1.6 million for fiscal year 1997 from
$776,000 for fiscal year 1996 due to higher average cash balances resulting from
the Company's initial public offering, which occurred in November 1995.
 
INCOME TAXES
 
    The Company has not generated any taxable income to date and therefore has
not paid any federal income taxes since its inception. No income tax benefit has
been recorded for the net operating losses or other deferred tax assets in the
fiscal years ended March 31, 1998, 1997, and 1996. Accordingly, valuation
allowances in amounts equal to the net deferred tax assets as of March 31, 1998,
1997, and 1996 have been established in each period.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    During the fiscal years ended March 31, 1998, 1997 and 1996 the Company used
cash to fund operations of $15.0 million, $8.5 million, and $7.3 million,
respectively. The increase in cash used in operations during fiscal 1998 was
primarily due to increases in spending on sales and marketing personnel
associated with the introduction of the PVS products in the U.S. These product
introductions also required increased production spending as the Company
expanded its manufacturing capability, hired additional production workers and
added more production lines. The increased sales volume for the fiscal year
ended March 31, 1998 also required the use of cash to support higher levels of
inventory and accounts receivable.
 
    The Company's net cash provided by investing activities was $5.3 million in
fiscal 1998 compared to $1.9 million in fiscal 1997 and net cash used of $24.2
million in fiscal 1996. In fiscal 1998 net proceeds from short-term investments
generated $6.7 million in cash that was offset by $1.7 million used for
purchases of equipment. These equipment purchases were primarily for production
tooling and machinery to produce a new generation of PVS products, as well as to
accommodate increased production volume. In addition, a significant number of
computers were purchased in conjunction with the increased head count. In fiscal
1997, net proceeds from short-term investments generated $3.1 million in cash
versus $23.8 million in cash used in fiscal 1996. Purchases of equipment were
$1.3 million in fiscal 1997 versus $500,000 in fiscal 1996.
 
    Net cash generated from financing activities in fiscal 1998 was $20.3
million, compared to net cash used of $500,000 in 1997, and net cash generated
of $37.6 million in 1996. Net cash provided in 1998 was primarily attributable
to net proceeds of $19.4 million from a public stock offering and $1.5 million
from
 
                                      F-3
<PAGE>
other issuances of common stock. Issuances of common stock provided net proceeds
of $200,000 in fiscal 1997 and $34.3 million in fiscal 1996 of which $34.2
million was from the Company's initial public offering.
 
    The Company's principal source of liquidity at March 31, 1998 consisted of
cash, cash equivalents, and short-term investments of $31.6 million. The Company
completed a public offering of common stock in November 1997. One million shares
of common stock were sold resulting in net proceeds of $19.4 million. In
addition, the Company has borrowed $1.3 million under an equipment credit
facility, of which a balance of approximately $125,000 remained outstanding as
of March 31, 1998.
 
    Although Perclose believes that current cash balances and short-term
investments along with cash generated from the future sales of products will be
sufficient to meet the Company's operating and capital requirements, there can
be no assurance that the Company will not require additional financing. There
can be no assurance that additional financing, if required, will be available on
satisfactory terms or at all. In any event, Perclose may in the future seek to
raise additional funds through bank facilities, debt or equity offerings or
other sources of capital. Perclose's future liquidity and capital requirements
will depend on numerous factors, including progress of the Company's clinical
trials, actions relating to regulatory and reimbursement matters, the costs and
timing of expansion of marketing, sales, manufacturing and product development
activities, the extent to which the Company's products gain market acceptance,
and competitive developments. There can be no assurance that the Company will
achieve or sustain profitability.
 
YEAR 2000 COMPLIANCE
 
    The Company is aware of the software compatibility issues associated with
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex, as virtually every computer operation will be affected
in some way by the rollover of the two-digit year value from 99 to 00. The issue
is whether computer systems will properly recognize date sensitive information
when the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. Management
is in the process of working with its software vendors to ensure that the
Company's internal systems are prepared for the year 2000. Management does not
anticipate that the Company will incur significant operating expenses or be
required to invest heavily in computer systems improvements to be year 2000
compliant. However, significant uncertainty exists concerning the potential
costs and effects associated with any year 2000 compliance. Any year 2000
compliance problem of either the Company, its suppliers, or customers could
materially adversely affect the Company's business, results of operations, cash
flows, financial condition and prospects.
 
NEW ACCOUNTING PRONOUNCEMENTS
 
    In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income" (FASB 130) and Statement No.
131, "Disclosures About Segments of An Enterprise and Related Information" (FASB
131). FASB 130 establishes rules for reporting and displaying comprehensive
income. FASB 131 will require the Company to use the "management approach" in
disclosing segment information. Both statements are effective for the Company
during fiscal 1999. The Company does not believe that the adoption of either
FASB 130 or FASB 131 will have a material impact on the Company's results of
operations, cash flows, financial position or prospects.
 
FACTORS AFFECTING FUTURE OPERATING RESULTS
 
    This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's future results of operations could vary
significantly as a result of the factors described in this section.
 
    DEPENDENCE UPON PROSTAR AND TECHSTAR PRODUCTS.  The Prostar and Techstar
products for percutaneous closure of arterial access sites following
catheterization procedures are currently the Company's only marketed products.
If the Company is unable to commercialize the Prostar and Techstar products
 
                                      F-4
<PAGE>
successfully in the United States--including future generations of products, the
Company's business, financial condition and results of operations will be
materially and adversely affected. In addition, there can be no assurance as to
when or whether the Company will receive FDA clearance or approval for sale of
other PVS products or any other products in the United States. There can be no
assurance that the Company's development efforts will be successful or that any
further PVS products or any other product developed by the Company will be safe
or effective, capable of being manufactured in commercial quantities at
acceptable costs, approved by appropriate regulatory and reimbursement
authorities or successfully marketed.
 
    UNCERTAINTY OF MARKET ACCEPTANCE.  The Company's Prostar and Techstar
products represent a new method of closing arterial access sites and there can
be no assurance that these products will gain any significant degree of market
acceptance among physicians, patients and health care payors, even if necessary
international and U.S. regulatory and reimbursement approvals are obtained.
Physicians will not use the Prostar and Techstar products unless they determine,
based on clinical data and other factors, that these products are an attractive
alternative to other means of closing arterial access sites and that the
clinical benefits to the patient and cost savings achieved through use of these
products outweigh the cost of the products. Such determinations will depend, in
part, on the ability of the Company's products to reduce the time to ambulation
and the length of hospital stays associated with coronary catheterization
procedures. Failure of the Company's products to achieve significant market
acceptance will have a material adverse effect on the Company's business,
financial condition and results of operations.
 
    HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES.  The Company has a
limited history of operations. Since its inception in March 1992, the Company
has been primarily engaged in research and development of its percutaneous
arterial access site closure products. The Company has generated limited
revenues from international sales in certain markets, which sales commenced in
December 1994. Since May 1997, the Company has generated limited revenues from
domestic sales. The Company has experienced significant operating losses since
inception and, as of March 31, 1998, had an accumulated deficit of $41.8
million. There can be no assurance that the Company will achieve or sustain
profitability.
 
    FLUCTUATIONS IN OPERATING RESULTS.  The Company anticipates that its results
of operations will fluctuate significantly from quarter to quarter and will
depend upon numerous factors, including actions relating to regulatory and
reimbursement matters, progress and results of clinical trials, the extent to
which the Company's or its competitors' products gain market acceptance,
introduction of alternative means for arterial access site closure and
competitive developments. Due to the elective nature of many coronary
catheterization procedures, patients may defer such procedures during the summer
vacation season. As a result, the Company may experience seasonal fluctuations
in its results of operations, particularly in the second fiscal quarter. Results
of operations will also be affected by the timing of orders received from
distributors, the extent to which the Company is able to expand its
manufacturing capabilities and its international and domestic distribution
networks and the ability of distributors to effectively promote the Company's
products. In addition, depending upon the timing of new product introductions,
warranty claims and product returns, the Company may need to make allowances for
product obsolescence, excess inventory, warranty claims and product returns.
While the Company is currently and will likely continue to make such allowances,
there can be no assurance that such allowances will be adequate to cover all
costs associated with such items.
 
    GOVERNMENT REGULATION.  Clinical testing, manufacture, promotion and sale of
the Company's products are subject to extensive regulation by numerous
governmental authorities in the United States, principally the FDA, and
corresponding foreign regulatory agencies. The Federal Food, Drug, and Cosmetic
Act ("FDC Act"), and other federal and state statutes and regulations govern or
influence the testing, manufacture, labeling, advertising, distribution and
promotion of drugs and devices. Noncompliance with applicable requirements can
result in fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, refusal to authorize the marketing of
new products or
 
                                      F-5
<PAGE>
to allow the Company to enter into government supply contracts, and criminal
prosecution. The Company's Prostar and Techstar PVS products are regulated as
Class III medical devices for which FDA approval of a PMA application must be
obtained prior to U.S. commercial sales. In August 1997, a competitor of the
Company petitioned the FDA for review of the PMA approval granted to the Prostar
9F and 11F products. The competitor subsequently withdrew the petition.
 
    Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain approval for sale internationally may be longer or
shorter than that required for FDA approval, and the requirements may differ.
The Company has obtained the certifications necessary to enable the CE mark to
be affixed to the Company's Prostar and Techstar products for commercial sales
in member countries of the European Union. The Company has not obtained all
other such international certifications and there can be no assurance it will be
able to do so in a timely manner. The Company has received regulatory approval
to market the Prostar and Techstar products in Japan. The Company, through its
Japanese distributor, commenced clinical trials in Japan that will form the
basis of an application for reimbursement approvals in the Japanese health care
system. There can be no assurance Japanese reimbursement approvals will be
obtained in a timely manner or at all.
 
    COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE.  Competition in the
emerging market for arterial access site closure devices is expected to
increase. Most of the Company's competitors have significantly greater name
recognition, experience, financial, technical, research, marketing, sales,
distribution and other resources than the Company. There can be no assurance
that the Company's competitors will not succeed in developing or marketing
technologies and products that are technologically superior, more effective or
commercially attractive than any that are being developed by the Company, or
that such competitors will not succeed in obtaining regulatory approval,
introducing or commercializing any such products prior to the Company. Such
developments could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the medical device
market is generally characterized by rapid and significant technological change
and frequent emergence of new technologies, products and procedures.
Accordingly, the Company's success will also depend in part on its ability to
respond quickly to medical and technological changes.
 
    LIMITED MANUFACTURING EXPERIENCE AND SCALE-UP RISK.  The Company has only
limited experience in manufacturing the Prostar and Techstar products. The
Company currently manufactures the Prostar and Techstar products for domestic
and international commercial sales. There can be no assurance that future
manufacturing difficulties, which could have a material adverse effect on the
Company's business, financial condition and results of operations, will not
occur.
 
    In November 1997, Perclose undertook a voluntary manufacturer's recall of
specific lots of Techstar XL 6 french PVS products. The Company traced the
problem resulting in the recall to a defective mold which resulted in one part
of the product being out of specification in particular production runs. The
problem was not attributable to a design defect. The Company is not aware of any
increase in adverse patient consequences as a result of these product
performance issues. The Company replaced the recalled Techstar XL 6 units with
Techstar 6 units in inventory at the time of the recall. The recall and
replacement had only an immaterial effect on its results of operations during
the third and fourth quarters of fiscal 1998. However, there can be no assurance
that future product problems necessitating recalls will not arise in the future,
and any such future recall could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
    DEPENDENCE UPON KEY SUPPLIERS.  Perclose purchases components used in its
products from various suppliers and relies on single sources for several
components. For certain of these components, there are relatively few
alternative sources of supply. Establishing additional or replacement suppliers
for any of the components used in the Company's products, if required, may not
be accomplished quickly and could involve significant additional costs. Any
supply interruption from vendors or failure of the Company to
 
                                      F-6
<PAGE>
obtain alternative vendors, if required, for any of the components used to
manufacture the Company's products would limit the Company's ability to
manufacture its products and could therefore have a material adverse effect on
the Company's business, financial condition and results of operations.
 
    UNCERTAINTY RELATING TO NEW PRODUCT DEVELOPMENT.  The Company's strategy
involves the design and development of new products designed to allow cardiac
surgeons to automate the rapid placement of sutures in blood vessels during CABG
surgery. The product development process is time-consuming and costly, and there
can be no assurance that product development will be successfully completed,
that necessary regulatory clearances or approvals will be granted by the FDA on
a timely basis, or at all, or that the potential products will achieve market
acceptance. Failure by the Company to develop, obtain necessary regulatory
clearances or approvals for, or successfully market potential new products could
have a material adverse effect on the Company's business, financial condition
and results of operations.
 
    RELIANCE ON PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY.  The Company's
ability to compete effectively will depend in part on its ability to develop and
maintain proprietary aspects of its technology. There can be no assurance that
the Company's issued patents, any patents that may be issued as a result of the
Company's U.S. or international patent applications, or the patent under which
the Company has license rights, will offer any degree of protection. There can
be no assurance that any patents that may be issued or licensed to the Company
or any of the Company's patent applications will not be challenged, invalidated
or circumvented in the future. In addition, there can be no assurance that
competitors, many of which have substantial resources and have made substantial
investments in competing technologies, will not seek to apply for and obtain
patents that will prevent, limit or interfere with the Company's ability to
make, use or sell its products either in the United States or in international
markets.
 
    In March 1998, the Company was sued for patent infringement by a competitor,
Kensey Nash Corporation, and that competitor's distributor, Sherwood Medical.
For information regarding this lawsuit, see "Legal Proceedings."
 
    The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. There can be no
assurance that the Company will not in the future become subject to patent
infringement claims and litigation or interference proceedings declared by the
United States Patent and Trademark Office ("USPTO") to determine the priority of
inventions. Any litigation or interference proceedings, including the proceeding
currently pending against the Company, will result in substantial expense to the
Company and significant diversion of effort by the Company's technical and
management personnel. An adverse determination in the current pending or in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties or require
the Company to seek licenses from third parties. Although patent and
intellectual property disputes in the medical device area have often been
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that necessary licenses would be
available to the Company on satisfactory terms if at all. Adverse determinations
in a judicial or administrative proceeding or failure to obtain necessary
licenses could prevent the Company from manufacturing and selling its products,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
 
    UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT.  In the United States, health care
providers, such as hospitals and physicians that purchase medical devices such
as the Company's products, generally rely on third-party payors, principally
federal Medicare, state Medicaid and private health insurance plans, to
reimburse all or part of the cost of therapeutic and diagnostic catheterization
procedures. Reimbursement for catheterization procedures performed using devices
that have received FDA approval has generally been available in the United
States. The Company anticipates that in a prospective payment system, such as
the disease related group ("DRG") system utilized by Medicare, and in many
managed care systems used by private health care payors, the cost of the
Company's products will be incorporated into the overall
 
                                      F-7
<PAGE>
cost of the procedure and that there will be no separate, additional
reimbursement for the Company's products. Failure by physicians, hospitals and
other users of the Company's products to obtain sufficient reimbursement from
health care payors for procedures in which the Company's products are used or
adverse changes in governmental and private third-party payors' policies toward
reimbursement for such procedures would have a material adverse effect on the
Company's business, financial condition and results of operations.
 
    In international markets, market acceptance of the Company's products may be
dependent in part upon the availability of reimbursement within prevailing
health care payment systems. Failure of the Company to receive international
reimbursement approvals could have an adverse effect on market acceptance of the
Company's products in the international markets in which such approvals are
sought.
 
    PRODUCT LIABILITY AND RECALL RISK; LIMITED INSURANCE COVERAGE.  The
manufacture and sale of medical products entail significant risk of product
liability claims or product recalls. There can be no assurance that the
Company's existing insurance coverage limits are adequate to protect the Company
from any liabilities it might incur in connection with the clinical trials or
sales of its products. In addition, the Company may require increased product
liability coverage as its products are further commercialized. Such insurance is
expensive and in the future may not be available on acceptable terms, if at all.
A successful product liability claim or series of claims brought against the
Company in excess of its insurance coverage, or a recall of the Company's
products, could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
    POSSIBLE VOLATILITY OF STOCK PRICE.  The stock market has recently and from
time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the market price of the Company's
common stock. In addition, the market price of the shares of common stock is
likely to be highly volatile. Factors such as fluctuations in the Company's
operating results, announcements of technological innovations or new products by
the Company or its competitors, FDA and international regulatory actions,
actions with respect to reimbursement matters, developments with respect to
patents or proprietary rights and related litigation to which the Company is or
may become a party, public concern as to the safety of products developed by the
Company or others, changes in health care policy in the United States and
internationally, changes in stock market analyst recommendations regarding the
Company, other medical device companies or the medical device industry generally
and general market conditions may have a significant effect on the market price
of the Common Stock.
 
                                      F-8
<PAGE>
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Board of Directors and Stockholders
 
Perclose, Inc.
 
    We have audited the accompanying balance sheets of Perclose, Inc. as of
March 31, 1998 and 1997, and the related statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1998. Our audits also included the financial statement schedule listed in the
index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Perclose, Inc. at March 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
 
                                                            [LOGO]
 
San Jose, California
April 29, 1998
 
                                      F-9
<PAGE>
                                 PERCLOSE, INC.
 
                                 BALANCE SHEETS
 
                 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                                 MARCH 31,
                                                                            --------------------
                                                                              1998       1997
                                                                            ---------  ---------
<S>                                                                         <C>        <C>
                                             ASSETS
 
Current assets:
  Cash and cash equivalents...............................................  $  13,232  $   2,677
  Short-term investments..................................................     18,349     24,995
  Accounts receivable, net of allowance for returns and doubtful accounts
    of $301 in 1998 and $176 in 1997......................................      3,455      1,530
  Inventories.............................................................      1,619        744
  Prepaid expenses........................................................        628        280
                                                                            ---------  ---------
    Total current assets..................................................     37,283     30,226
 
Equipment and leasehold improvements, net.................................      2,277      1,647
Officer notes receivable..................................................        600        400
Other assets..............................................................        291        241
                                                                            ---------  ---------
Total assets..............................................................  $  40,451  $  32,514
                                                                            ---------  ---------
                                                                            ---------  ---------
 
                              LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
  Accounts payable........................................................  $     782  $     423
  Accrued compensation....................................................      1,202        852
  Accrued license fee.....................................................     --            200
  Accrued warranty........................................................        191        324
  Accrued clinical trial costs............................................     --            310
  Other accrued expenses..................................................        955        420
  Short-term portion of notes payable.....................................        379        374
                                                                            ---------  ---------
    Total current liabilities.............................................      3,509      2,903
Long-term portion of notes payable........................................     --            228
 
Commitments and contingencies
Stockholders' equity:
  Preferred stock, $0.001 par value:
    Authorized shares: 5,000,000
  Common stock, $0.001 par value
    Authorized shares: 30,000,000
    Issued and outstanding shares: 10,731,089 in 1998 and 9,566,069 in
      1997................................................................         11         10
  Additional paid-in capital..............................................     79,433     58,309
  Deferred compensation...................................................       (739)      (892)
  Accumulated deficit.....................................................    (41,763)   (28,044)
                                                                            ---------  ---------
Total stockholders' equity................................................     36,942     29,383
                                                                            ---------  ---------
Total liabilities and stockholders' equity................................  $  40,451  $  32,514
                                                                            ---------  ---------
                                                                            ---------  ---------
</TABLE>
 
                            See accompanying notes.
 
                                      F-10
<PAGE>
                                 PERCLOSE, INC.
 
                            STATEMENTS OF OPERATIONS
 
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                        YEARS ENDED MARCH 31,
                                                                                  ---------------------------------
<S>                                                                               <C>         <C>         <C>
                                                                                     1998        1997       1996
                                                                                  ----------  ----------  ---------
Net revenues....................................................................  $   10,631  $    4,456  $   2,457
 
Operating expenses:
  Cost of goods sold............................................................       7,783       4,703      4,772
  Research and development......................................................       5,449       4,745      3,059
  Marketing, general and administrative.........................................      12,530       6,301      3,486
                                                                                  ----------  ----------  ---------
    Total operating expenses....................................................      25,762      15,749     11,317
                                                                                  ----------  ----------  ---------
  Loss from operations..........................................................     (15,131)    (11,293)    (8,860)
  Interest income...............................................................       1,466       1,753        941
  Interest expense..............................................................        (131)       (118)      (165)
                                                                                  ----------  ----------  ---------
    Net interest income.........................................................       1,335       1,635        776
                                                                                  ----------  ----------  ---------
Net loss........................................................................  $  (13,796) $   (9,658) $  (8,084)
                                                                                  ----------  ----------  ---------
                                                                                  ----------  ----------  ---------
Basic and diluted net loss per common share.....................................  $    (1.38) $    (1.02) $   (1.76)
                                                                                  ----------  ----------  ---------
                                                                                  ----------  ----------  ---------
Shares used in computing basic and diluted net loss per share...................       9,967       9,471      4,584
                                                                                  ----------  ----------  ---------
                                                                                  ----------  ----------  ---------
</TABLE>
 
                            See accompanying notes.
 
                                      F-11
<PAGE>
                                 PERCLOSE, INC.
 
                       STATEMENTS OF STOCKHOLDERS' EQUITY
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                    PREFERRED STOCK         COMMON STOCK      ADDITIONAL                                  TOTAL
                                  --------------------  --------------------   PAID-IN    ACCUMULATED     DEFERRED     STOCKHOLDERS'
                                   SHARES     AMOUNT     SHARES     AMOUNT     CAPITAL      DEFICIT     COMPENSATION      EQUITY
                                  ---------  ---------  ---------  ---------  ----------  ------------  -------------  ------------
<S>                               <C>        <C>        <C>        <C>        <C>         <C>           <C>            <C>
Balance at April 1, 1995........      4,194         $4      1,982         $2     $19,553      $(10,225)         $(293)       $9,041
Issuance of common stock under
  employee stock purchase and
  option plans..................     --         --            125     --             100       --            --                 100
Issuance of Series D convertible
  preferred stock, net of
  issuance costs of $1..........        326          1     --         --           3,256       --            --               3,257
Conversion of preferred stock in
  connection with initial public
  offering......................     (4,520)        (5)     4,520          5      --           --            --             --
Issuance of common stock in
  connection with initial public
  offering, net of issuance
  costs of $570.................     --         --          2,875          3      34,186       --            --              34,189
Deferred compensation related to
  stock options.................     --         --         --         --             277       --                (277)      --
Amortization of deferred
  compensation..................     --         --         --         --          --           --                 125           125
Unrealized loss on short-term
  investments...................     --         --         --         --          --              (128)      --                (128)
Net Loss........................     --         --         --         --          --            (8,084)      --              (8,084)
                                  ---------  ---------  ---------  ---------  ----------  ------------  -------------  ------------
Balance at March 31, 1996.......     --         --          9,502         10      57,372       (18,437)          (445)       38,500
Issuance of common stock under
  employee stock purchase and
  option plans, net of
  repurchases...................     --         --             64     --             227       --            --                 227
Deferred compensation related to
  cancellation of stock
  options.......................     --         --         --         --            (193)      --                 193       --
Deferred compensation related to
  consultants' stock options....     --         --         --         --             903       --                (903)      --
Amortization of deferred
  compensation related to stock
  options.......................     --         --         --         --          --           --                 263           263
Unrealized gain on short-term
  investments...................     --         --         --         --          --                51       --                  51
Net Loss........................     --         --         --         --          --            (9,658)      --              (9,658)
                                  ---------  ---------  ---------  ---------  ----------  ------------  -------------  ------------
Balance at March 31, 1997.......     --         --          9,566         10      58,309       (28,044)          (892)       29,383
Issuance of common stock under
  employee stock purchase and
  option plans..................     --         --            163     --           1,489       --            --               1,489
Issuance of common stock in
  connection with a public
  offering, net of issuance
  costs of $1,583...............     --         --          1,000          1      19,416       --            --              19,417
Issuance of common stock for
  payment of license............     --         --              2     --              48       --            --                  48
Deferred compensation related to
  consultants' stock options....     --         --         --         --             171       --                (171)      --
Amortization of deferred
  compensation related to stock
  options.......................     --         --         --         --          --           --                 324           324
Unrealized gain on short-term
  investments...................     --         --         --         --          --                77       --                  77
Net Loss........................     --         --         --         --          --           (13,796)      --             (13,796)
                                  ---------  ---------  ---------  ---------  ----------  ------------  -------------  ------------
Balance at March 31, 1998.......     --        $ --        10,731        $11     $79,433      $(41,763)         $(739)      $36,942
                                  ---------  ---------  ---------  ---------  ----------  ------------  -------------  ------------
                                  ---------  ---------  ---------  ---------  ----------  ------------  -------------  ------------
</TABLE>
 
                            See accompanying notes.
 
                                      F-12
<PAGE>
                                 PERCLOSE, INC.
 
                            STATEMENTS OF CASH FLOWS
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                      YEARS ENDED MARCH 31,
                                                                 -------------------------------
                                                                   1998       1997       1996
                                                                 ---------  ---------  ---------
<S>                                                              <C>        <C>        <C>
OPERATING ACTIVITIES
  Net loss.....................................................  $ (13,796) $  (9,658) $  (8,084)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation and amortization..............................      1,523        668        673
    Deferred compensation amortization.........................        324        262        125
  Changes in operating assets and liabilities:
    Accounts receivable........................................     (1,838)      (593)      (810)
    Other receivables and prepaid expenses.....................     (1,165)       (18)      (117)
    Inventories................................................       (875)      (214)       427
    Accounts payable...........................................        359        105        (43)
    Accrued warranty...........................................       (133)       245         79
    Accrued clinical trial costs...............................       (310)       310     --
    Other accrued expenses.....................................        887        420        436
                                                                 ---------  ---------  ---------
      Net cash provided by (used in) operating activities......    (15,024)    (8,473)    (7,314)
 
INVESTING ACTIVITIES
  Purchases of short-term investments..........................    (17,864)   (22,443)   (32,180)
  Proceeds from sales and maturities of short-term
    investments................................................     24,587     25,551      8,383
  Purchases of equipment and leasehold improvements............     (1,690)    (1,333)      (455)
  Other assets.................................................        217        109         45
                                                                 ---------  ---------  ---------
      Net cash provided by (used in) investing activities......      5,250      1,884    (24,207)
 
FINANCING ACTIVITIES
  Principal payments under notes payable.......................       (377)      (365)      (299)
  Proceeds from borrowing on notes payable.....................     --         --            334
  Proceeds from issuance of preferred stock....................     --         --          3,257
  Proceeds from issuance of common stock, net of repurchases...     20,906        227     34,289
  Issuance of officer notes receivable.........................       (200)      (400)    --
                                                                 ---------  ---------  ---------
      Net cash provided by (used in) financing activities......     20,329       (538)    37,581
 
  Net increase (decrease) in cash and cash equivalents.........     10,555     (7,127)     6,060
  Cash and cash equivalents at beginning of year...............      2,677      9,804      3,744
                                                                 ---------  ---------  ---------
  Cash and cash equivalents at end of year.....................  $  13,232  $   2,677  $   9,804
                                                                 ---------  ---------  ---------
                                                                 ---------  ---------  ---------
  Supplemental disclosures of cash flows information:
  Cash paid for interest.......................................  $      32  $      68  $      84
  Non-cash financing activities:
  Issuance of common stock for license agreement...............  $      48  $  --      $  --
</TABLE>
 
                            See accompanying notes.
 
                                      F-13
<PAGE>
                                 PERCLOSE, INC.
 
                       NOTES TO THE FINANCIAL STATEMENTS
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
ORGANIZATION
 
    Perclose was incorporated in California in March 1992 and was reincorporated
in Delaware in October 1995. The Company is a medical device company which
develops, manufactures and markets less invasive vascular surgical devices for
closing femoral artery access sites following angioplasty and angiography
procedures. The Company commenced initial sales of its products to customers in
Europe and Canada during the fourth quarter of fiscal 1995. Sales in the United
States began in the first quarter of fiscal 1998.
 
BASIS OF PRESENTATION
 
    The Company's fiscal year ends on the last Friday in March. For ease of
presentation, the accompanying financial statements have been shown as ending on
March 31 of each year.
 
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
CASH EQUIVALENTS
 
    The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    The carrying amounts reported in the balance sheet for cash and cash
equivalents and short-term investments approximate fair value. The fair value of
short-term investments is based on quoted market prices.
 
    The carrying amount of the Company's notes payable approximates their fair
value. The fair values of the Company's notes payable are estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rate for similar types of borrowing arrangements.
 
AVAILABLE-FOR-SALE SECURITIES
 
    At March 31, 1998 and 1997 all short-term investments are designated as
available-for-sale. Available-for-sale securities are carried at fair value with
unrealized gains and losses, net of tax, reported in accumulated deficit. The
amortized cost of available-for-sale debt securities is adjusted for the
amortization of premiums and the accretion of discounts to maturity. Such
amortization is included in interest income.
 
    Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in interest
income. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available-for-sale
are included in interest income.
 
                                      F-14
<PAGE>
                                 PERCLOSE, INC.
 
                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    The following is a summary of available-for-sale securities at March 31,
1998 (in thousands):
 
<TABLE>
<CAPTION>
                                                                       AMORTIZED    GROSS UNREALIZED    ESTIMATED FAIR
                                                                         COST            LOSSES             VALUE
                                                                      -----------  -------------------  --------------
<S>                                                                   <C>          <C>                  <C>
Obligations of federal government agencies..........................   $   2,442        $       2         $    2,444
Corporate obligations, principally commercial paper and corporate
  notes.............................................................      27,915               (2)            27,913
                                                                      -----------           -----            -------
  Total.............................................................   $  30,357        $  --             $   30,357
                                                                      -----------           -----            -------
                                                                      -----------           -----            -------
Amounts included in short-term investments..........................   $  18,349        $  --             $   18,349
Amounts included in cash and cash equivalents.......................      12,008           --                 12,008
                                                                      -----------           -----            -------
  Total.............................................................   $  30,357        $  --             $   30,357
                                                                      -----------           -----            -------
                                                                      -----------           -----            -------
</TABLE>
 
    The following is a summary of available-for-sale securities as of March 31,
1997 (in thousands):
 
<TABLE>
<CAPTION>
                                                                       AMORTIZED   GROSS UNREALIZED  ESTIMATED FAIR
                                                                         COST           LOSSES           VALUE
                                                                      -----------  ----------------  --------------
<S>                                                                   <C>          <C>               <C>
Obligations of federal government agencies..........................   $   6,881      $      (24)      $    6,857
Corporate obligations, principally commercial paper and corporate
  notes.............................................................      20,607             (53)          20,554
                                                                      -----------        -------          -------
  Total.............................................................   $  27,488      $      (77)      $   27,411
                                                                      -----------        -------          -------
                                                                      -----------        -------          -------
Amounts included in short-term investments..........................   $  25,072      $      (77)      $   24,995
Amounts included in cash and cash equivalents.......................       2,416              --            2,416
                                                                      -----------        -------          -------
  Total.............................................................   $  27,488      $      (77)      $   27,411
                                                                      -----------        -------          -------
                                                                      -----------        -------          -------
</TABLE>
 
    During the year ended March 31, 1997, there were sales of available-for-sale
securities with immaterial gross realized losses. Available-for-sale debt
securities at March 31, by contractual maturity, are shown below:
 
<TABLE>
<CAPTION>
                                                            ESTIMATED FAIR VALUE
                                                            --------------------
                                                              1998       1997
                                                            ---------  ---------
                                                                  (000'S)
<S>                                                         <C>        <C>
Due in one year or less...................................  $  24,134  $  24,972
Due between one and two years.............................      6,223      2,439
                                                            ---------  ---------
Total.....................................................  $  30,357  $  27,411
                                                            ---------  ---------
                                                            ---------  ---------
</TABLE>
 
                                      F-15
<PAGE>
                                 PERCLOSE, INC.
 
                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
 
    Inventories are stated at the lower of cost (first-in, first-out method) or
market and are comprised of the following at March 31:
 
<TABLE>
<CAPTION>
                                                                 1998       1997
                                                               ---------  ---------
                                                                     (000'S)
<S>                                                            <C>        <C>
Raw materials................................................  $     409  $     312
Work-in-process..............................................        552        386
Finished goods...............................................        658         46
                                                               ---------  ---------
                                                               $   1,619  $     744
                                                               ---------  ---------
                                                               ---------  ---------
</TABLE>
 
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
 
    Equipment and leasehold improvements are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets, ranging from one to five years, or over the term of the lease, if
shorter.
 
<TABLE>
<CAPTION>
                                                              1998       1997
                                                            ---------  ---------
                                                                  (000'S)
<S>                                                         <C>        <C>
Equipment.................................................  $   3,924  $   2,625
Furniture and fixtures....................................        626        401
Leasehold improvements....................................        193         75
                                                            ---------  ---------
                                                                4,743      3,101
Less accumulated depreciation.............................     (2,466)    (1,454)
                                                            ---------  ---------
                                                            $   2,277  $   1,647
                                                            ---------  ---------
                                                            ---------  ---------
</TABLE>
 
OTHER ASSETS
 
    At March 31, 1998, the Company had approximately $108,000 of restricted
deposits ($217,000 at March 31, 1997) supporting leasehold improvements related
to the Company's facility. At March 31, 1998 the deposits although still
restricted, were reclassified as cash in accordance with the lease expiration
dates.
 
REVENUE RECOGNITION
 
    Revenues from sales of products are recognized at the time of shipment with
allowances provided for estimated returns and warranty costs.
 
ADVERTISING EXPENSES
 
    The Company expenses the costs of advertising as incurred. Advertising
expense was approximately $132,000, $156,000 and $108,000 for the fiscal years
ended March 31, 1998, 1997 and 1996 respectively.
 
                                      F-16
<PAGE>
                                 PERCLOSE, INC.
 
                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
 
    Research and development costs which include clinical and regulatory costs,
are charged to expenses as incurred.
 
ACCOUNTING FOR INCOME TAXES
 
    The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FASB 109"). Under
FASB 109, the liability method is used in accounting for income taxes.
 
NET LOSS PER SHARE
 
    In 1997, the Financial Accounting Standards Board, (the "FASB") issued
Statement No. 128, Earnings per Share. Statement 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to Statement No. 128
requirements.
 
    The Company has adopted Staff Accounting Bulletin (SAB) No. 98, Earnings per
Share which was issued on February 3, 1998. In accordance with SAB No. 98,
common and common equivalent shares (stock options, warrants and convertible
preferred stock) issued during the 12-month period prior to the initial filing
of the registration statement relating to the Company's initial public offering
price are excluded from the calculation of basic and diluted earnings per share.
 
    The Company has securities outstanding that could dilute basic earnings per
share in the future that were not included in the computation of net loss per
share in the periods presented as their effect is antidilutive. For additional
disclosures regarding potential dilutive stock options and convertible stock,
see Notes 4 and 5.
 
NEW ACCOUNTING PRONOUNCEMENTS
 
    In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (FASB 130) and Statement No. 131, "Disclosures About Segments of An
Enterprise and Related Information" (FASB 131). FASB 130 establishes rules for
reporting and displaying comprehensive income. FASB 131 will require the Company
to use the "management approach" in disclosing segment information. Both
statements are effective for the Company during fiscal 1999. The Company does
not believe that the adoption of either FASB 130 or FASB 131 will have a
material impact on the Company's results of operations, cash flows, financial
position or prospects.
 
RECLASSIFICATIONS
 
    Certain prior year amounts have been reclassified to conform with the
current year presentation.
 
                                      F-17
<PAGE>
                                 PERCLOSE, INC.
 
                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
 
2. COMMITMENTS AND CONTINGENCIES
 
    The Company leases its principal facility under an operating lease agreement
expiring in August 1998. The lease on the current premises has been amended such
that the lease period now extends through September 30, 1999. The agreement
requires the Company to pay taxes, insurance, and maintenance expenses. Rental
expense was approximately $514,000, $397,000, and $353,000 in fiscal 1998, 1997
and 1996, respectively.
 
    The annual minimum rental commitments under all non-cancelable operating
lease arrangements are as follows at March 31, 1998 (in thousands):
 
<TABLE>
<S>                                                                    <C>
1999.................................................................  $     569
2000.................................................................        298
                                                                       ---------
Total................................................................  $     867
                                                                       ---------
                                                                       ---------
</TABLE>
 
    In March 1998, the Company received a patent infringement complaint and is
being sued by Kensey Nash Corporation of Exton, Pennsylvania, and Sherwood
Medical Company of St. Louis, Missouri. Sherwood Medical is Kensey Nash's
marketing partner for its Angioseal product. The suit, filed in U.S. District
Court for the Eastern District of Pennsylvania, asserts that Perclose PVS
devices infringe a recently issued Kensey Nash patent. The Company has responded
to the patent infringement complaint filed by Kensey Nash Corporation and
Sherwood Medical Company. The Company believes that the case is without merit.
 
3. FINANCING ARRANGEMENTS
 
    The Company had a $1,750,000 equipment credit and loan agreement with a bank
that expired on March 31, 1996. Loans under the agreement bear interest ranging
from 9.07% to 10.60% and are secured by the equipment purchased. Maturities
under the financing arrangements are $355,000 and $24,000 in the years ended
March 31, 1999 and 2000, respectively. The total value of the lease maturities
have been included in current liabilities.
 
4. STOCKHOLDERS' EQUITY
 
PUBLIC OFFERING OF COMMON STOCK
 
    In November 1997 the Company sold a total of 1,000,000 shares of common
stock at $21.00 per share. The net proceeds (after underwriters' commissions and
fees and other costs associated with the offering) totaled approximately
$19,417,000.
 
INITIAL PUBLIC OFFERING
 
    In November 1995 the Company sold a total of 2,875,000 shares of common
stock at $13.00 per share through its initial public offering. The net proceeds
(after underwriters' commissions and fees and other costs associated with the
offering) totaled approximately $34,189,000. In connection with the offering,
all convertible preferred stock totaling 4,519,427 shares with an aggregate
paid-in value of approximately $22,391,000 were converted into 4,519,427 shares
of common stock of the Company.
 
                                      F-18
<PAGE>
                                 PERCLOSE, INC.
 
                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
 
4. STOCKHOLDERS' EQUITY (CONTINUED)
PREFERRED STOCK
 
    In September 1995 the Board of Directors amended, and the stockholders
subsequently approved, the Company's Articles of Incorporation to authorize
5,000,000 shares of undesignated preferred stock. Preferred stock may be issued
from time to time in one or more series. The Board of Directors is authorized to
determine the rights, preferences, privileges, and restrictions granted to and
imposed upon any wholly unissued series of preferred stock and to fix the number
of shares of any series of preferred stock and the designation of any such
series without any vote or action by the Company's stockholders.
 
COMMON STOCK
 
    Shares of common stock reserved for future issuance under the Company's
stock compensation plans are as follows at March 31, 1998 (in thousands):
 
<TABLE>
<S>                                                                    <C>
Stock plans:
Options outstanding..................................................      1,785
Options reserved for future grants...................................        358
                                                                       ---------
Total stock option plans.............................................      2,143
Employee stock purchase plan.........................................        108
                                                                       ---------
    Total reserved shares............................................      2,251
                                                                       ---------
                                                                       ---------
</TABLE>
 
5. STOCK PLANS
 
STOCK OPTION PLANS
 
    The Company currently has three stock option plans for employees, directors
and others--the 1992 Stock Plan, the 1995 Director Option Plan and the 1997
Stock Plan.
 
    Under the Company's 1992 Stock Plan, the Board of Directors may grant
options for the purchase of up to 2,100,000 shares of common stock by directors,
employees and others. Non-qualified stock options may be granted at an exercise
price of not less than 85% of the estimated fair value of the common stock at
the date of grant, as determined by the Board of Directors. Options are
exercisable at such times and under such conditions as determined by the Board
of Directors. Options granted under this plan generally become exercisable over
a four-year period and generally expire ten years from the date of grant.
Unexercised options are canceled upon termination of employment and become
available under the plan.
 
    Under the Company's 1995 Director Option Plan directors who are not
employees of the Company receive options to purchase up to 15,000 shares of
common stock upon joining the Board of Directors and annual automatic grants to
purchase up to 5,000 shares of common stock. A total of 400,000 shares may be
granted over the term of the plan. Options may only be granted at the estimated
fair value of the common stock at the date of grant. Options under this plan
generally become exercisable over a four-year period and generally expire ten
years from the date of grant. Unexercised options are canceled upon the director
leaving the Board.
 
    The Company's 1997 Stock Plan (the "1997 Plan") was approved by the
stockholders in July 1997 and provides for awards of incentive stock options,
non-qualified stock options and stock rights to employees, directors and
consultants of the Company. The 1992 Plan remains in effect until it expires on
its own terms
 
                                      F-19
<PAGE>
                                 PERCLOSE, INC.
 
                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
 
5. STOCK PLANS (CONTINUED)
and the Company will continue to grant options available thereunder. Upon
adoption of the 1997 Plan, 500,000 shares were reserved for issuance.
Additionally, the 1997 Plan provides for an annual increase on each anniversary
date of the adoption of the plan of 5% of the Company's outstanding shares or
such lesser amount as determined by the Board of Directors. A maximum of
15,000,000 shares may be issued under the 1997 Plan over its ten year term.
Non-qualified stock options are generally granted with an exercise price equal
to the fair market value of the common stock on the date of grant but may be
granted at a lower price as determined by the plan administrator. Options
granted under this plan generally become exercisable over a four-year period and
generally expire ten years from the date of grant. Unexercised options are
canceled upon termination of relationship as a service provider. Stock purchase
rights may be issued alone, in addition to, or in tandem with other awards
granted under this plan.
 
RE-PRICING
 
    In January 1998, the Company offered employees, excluding executive
officers, the option to exchange options to purchase 376,255 shares of common
stock with an aggregate exercise price of $8,747,000 for new options to purchase
376,255 shares with an exercise price of $19.31 per share and an aggregate
exercise price of $7,267,000. All of the re-priced options continue to vest
under the original terms of the option grant. In exchange for the offer to
re-price stock options, employees agreed to a moratorium on exercising re-priced
options until July 1, 1998. Additionally, if an employee voluntarily terminates
employment with the Company prior to July 1, 1998, all vested shares at the date
of termination relating to re-priced stock options will be canceled and
forfeited.
 
                                      F-20
<PAGE>
                                 PERCLOSE, INC.
 
                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
 
5. STOCK PLANS (CONTINUED)
    The following table summarizes all stock option activity for the three years
ended March 31, 1998:
 
<TABLE>
<CAPTION>
                                                                         OUTSTANDING OPTIONS
                                                                --------------------------------------
                                                                                            WEIGHTED
                                                    SHARES                                   AVERAGE
                                                 AVAILABLE FOR   NUMBER OF    PRICE PER     EXERCISE
                                                     GRANT        SHARES        SHARE         PRICE
                                                 -------------  -----------  ------------  -----------
                                                    (000'S)       (000'S)
<S>                                              <C>            <C>          <C>           <C>
Balance at April 1, 1995.......................          102           601   $0.10-$ 1.00   $    0.41
  Shares authorized............................          600        --            --           --
  Options granted..............................         (398)          398   $4.00-$23.50   $   17.46
  Options exercised............................       --              (123)  $0.10-$ 1.00   $    0.65
  Options canceled.............................           34           (34)  $0.10-$23.50   $    1.09
                                                         ---         -----
 
Balance at March 31, 1996......................          338           842   $0.10-$23.50   $    8.57
  Shares authorized............................          450        --            --           --
  Options granted..............................         (681)          681   $15.75-$24.25  $   21.06
  Options exercised............................           47           (95)  $0.10-$15.25   $    0.78
  Options canceled.............................           32           (32)  $0.10-$23.50   $   18.38
                                                         ---         -----
 
Balance at March 31, 1997......................          186         1,396   $0.10-$24.25   $   14.83
  Shares authorized............................          700        --            --           --
  Options granted..............................         (645)          645   $18.84-$29.00  $   21.26
  Options exercised............................           --          (139)  $0.10-$23.50   $    8.23
  Options cancelled............................          117          (117)  $0.18-$24.88   $   20.81
                                                         ---         -----
 
Balance at March 31,1998.......................          358         1,785   $0.10-$29.00   $   16.45
                                                         ---         -----
</TABLE>
 
    The following table summarizes information about stock options outstanding
at March 31, 1998:
 
<TABLE>
<CAPTION>
                                                       OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                                            -----------------------------------------  ----------------------
                                                             WEIGHTED
                                               NUMBER         AVERAGE      WEIGHTED     NUMBER     WEIGHTED
RANGE OF                                     OUTSTANDING     REMAINING      AVERAGE    EXERCISABLE   AVERAGE
EXERCISE                                        AS OF       CONTRACTUAL    EXERCISE      AS OF     EXERCISE
PRICES                                         3/31/98         LIFE          PRICE      3/31/98      PRICE
------------------------------------------  -------------  -------------  -----------  ---------  -----------
                                               (000'S)                                  (000'S)
<S>                                         <C>            <C>            <C>          <C>        <C>
$ 0.10--$ 4.00............................          281           5.81     $    0.44         254   $    0.39
$ 6.00--$13.00............................          133           7.58     $   10.72          82   $   10.47
$13.75--$19.31............................          613           8.82     $   18.63         146   $   18.32
$19.44--$22.75............................          573           9.28     $   20.65         103   $   21.18
$22.88--$29.00............................          185           8.72     $   24.64          52   $   23.37
                                                  -----                                ---------
$ 0.10--$24.25............................        1,785           8.39     $   16.45         637   $   11.02
                                                  -----                                ---------
</TABLE>
 
                                      F-21
<PAGE>
                                 PERCLOSE, INC.
 
                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
 
5. STOCK PLANS (CONTINUED)
    At March 31, 1997 and 1996, 355,581 and 220,458 shares were exercisable at
weighted average exercise prices of $5.87 and $0.89, respectively.
 
1995 EMPLOYEE STOCK PURCHASE PLAN
 
    In September 1995, the 1995 Employee Stock Purchase Plan ("ESPP") was
adopted by the Company. An aggregate of 150,000 shares of the Company's common
stock have been reserved for issuance under this plan. This plan permits
eligible employees to purchase common stock through payroll deductions (which
cannot exceed 15% of the employee's compensation) at 85% of its fair market
value on specified dates. For the years ended March 31, 1998, 1997 and 1996,
23,699, 16,689 and 1,859 shares, respectively, were issued under the ESPP.
 
DEFERRED COMPENSATION
 
    During fiscal year 1996, the Company recorded $277,000 of deferred
compensation for certain stock options granted for the excess of the deemed
value for accounting purposes of the common stock issuable upon exercise of such
options over the aggregate exercise price of such options.
 
    During the fiscal years ended March 31, 1998 and 1997, the Company recorded
deferred compensation with respect to stock options granted to consultants of
$171,000 and $903,000, respectively. Additionally, during fiscal 1997, the
Company repurchased 47,396 shares of common stock resulting from the exercise of
unvested stock options and reduced related unamortized deferred compensation by
$193,000.
 
    Deferred compensation recorded is amortized ratably over the period that the
options vest and is adjusted for options which have been cancelled. Deferred
compensation expense was $324,000, $262,000 and $125,000 for the years ended
March 31, 1998, 1997 and 1996, respectively.
 
STOCK-BASED COMPENSATION
 
    As permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) in accounting for stock-based awards to employees and directors. Under APB
25, the Company generally recognizes no compensation expense with respect to
such awards.
 
    Pro forma information regarding net income and earnings per share is
required by FASB 123 for awards granted after March 31, 1995 as if the Company
had accounted for its stock-based awards to employees under the fair value
method of FASB 123. The fair value of the Company's stock-based awards to
employees was estimated using the minimum value model for awards prior to the
Company's initial public offering on November 7, 1995 and the Black-Scholes
model subsequent to the initial public offering. The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, the Black-Scholes model requires the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
stock-based awards to employees have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards to employees. The fair value
of the Company's stock-
 
                                      F-22
<PAGE>
                                 PERCLOSE, INC.
 
                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
 
5. STOCK PLANS (CONTINUED)
based awards to employees was estimated assuming no expected dividends and the
following weighted-average assumptions:
 
<TABLE>
<CAPTION>
                                                    OPTIONS                           ESPP
                                        -------------------------------  -------------------------------
                                          1998       1997       1996       1998       1997       1996
                                        ---------  ---------  ---------  ---------  ---------  ---------
<S>                                     <C>        <C>        <C>        <C>        <C>        <C>
Expected life (years).................       5.00       5.00       5.00        .50        .50        .38
Expected volatility...................        .62        .70        .70        .45        .77        .69
Risk-free interest rate %.............       5.52       6.49       5.45       5.40       5.47       5.28
</TABLE>
 
    For pro forma purposes, the estimated fair value of the Company's
stock-based awards to employees is amortized over the options' vesting period
(for options) and the purchase period (for stock purchases under the ESPP). The
Company's pro forma information follows (in thousands except for loss per share
information):
 
<TABLE>
<CAPTION>
                                                                 1998        1997       1996
                                                              ----------  ----------  ---------
<S>                                                           <C>         <C>         <C>
Net loss....................................................  $  (17,662) $  (11,538) $  (8,258)
Basic and diluted net loss per share........................  $    (1.77) $    (1.22) $   (1.80)
</TABLE>
 
    Because FASB 123 is applicable only to awards granted subsequent to March
31, 1995, its pro forma effect will not be fully reflected until approximately
fiscal 1999.
 
    The weighted average fair value of options granted during 1998, 1997 and
1996 was $11.96, $13.50 and $10.91 per share, respectively.
 
    The weighted average fair value of shares issued under the ESPP during 1998,
1997, and 1996 was $8.49, $10.79, and $8.22 per share, respectively.
 
6. INCOME TAXES
 
    Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets for federal and state income taxes are as
follows:
 
<TABLE>
<CAPTION>
                                                          YEARS ENDED MARCH 31
                                                          --------------------
                                                            1998       1997
                                                          ---------  ---------
                                                                (000'S)
<S>                                                       <C>        <C>
Deferred tax assets:
Net operating loss carry forward........................  $  13,700  $   8,600
Tax credit carry forwards...............................        370        390
Other, net..............................................      2,100      1,900
                                                          ---------  ---------
  Total.................................................     16,170     10,890
Valuation allowance.....................................    (16,170)   (10,890)
                                                          ---------  ---------
  Net...................................................  $  --      $  --
                                                          ---------  ---------
</TABLE>
 
                                      F-23
<PAGE>
                                 PERCLOSE, INC.
 
                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
 
6. INCOME TAXES (CONTINUED)
 
    Realization of deferred tax assets is dependent on future earnings, if any,
the timing and amount of which are uncertain. Accordingly, a valuation
allowance, in an amount equal to the net deferred tax asset at March 31, 1998
and 1997, has been established to reflect these uncertainties. The change in the
valuation allowance was a net increase of $5,280,000, $3,660,000 and $3,280,000
for the fiscal years 1998, 1997 and 1996, respectively.
 
    At March 31, 1998 the Company had net operating loss carry forwards for
federal and California tax purposes of approximately $38,000,000 and
$15,000,000, respectively, which will expire from 1998 through 2012, if not
utilized. At March 31, 1998, the Company also had research and development tax
credit carry forwards of approximately $250,000 and $130,000, respectively, for
federal and California tax purposes expiring from 2007 through 2013, if not
utilized. Utilization of net operating loss and tax credit carry forwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in expiration of net
operating loss and tax credit carry forwards before full utilization.
 
    The reconciliation of income tax expense (benefit) attributable to
continuing operations computed at the U.S. federal statutory rates to income tax
expense (benefit) is as follows:
 
<TABLE>
<CAPTION>
                                                         YEARS ENDED MARCH 31,
                                                    -------------------------------
                                                      1998       1997       1996
                                                    ---------  ---------  ---------
                                                                (000'S)
<S>                                                 <C>        <C>        <C>
Tax provision (benefit) at U.S. statutory rates...  $  (4,828) $  (3,284) $  (2,749)
Loss for which no tax benefit is currently
  recognizable....................................      4,828      3,284      2,749
                                                    ---------  ---------  ---------
                                                    $  --      $  --      $  --
                                                    ---------  ---------  ---------
</TABLE>
 
7. EMPLOYEE BENEFIT PLAN
 
    The Company adopted the Perclose 401(k) Retirement Plan to provide
retirement benefits for its employees in December 1994. As allowed under Section
401(k) of the Internal Revenue Code, the plan provides tax-deferred salary
deductions for eligible employees. Full time employees who are at least 21 years
of age are eligible to participate in the next quarter enrollment period (or up
to ninety days of service). Participants may make voluntary contributions to the
plan up to 15% of their compensation. The Company does not provide a matching
contribution at this time.
 
8. CONCENTRATIONS OF CREDIT AND OTHER RISKS
 
    The Company operates in a single industry segment and sells its products
primarily to hospitals. The Company markets its products in foreign countries
(mainly Europe and Japan) through its sales organizations and distributors. In
the fiscal year ended March 31, 1998 the Company received FDA approvals for
commercial sale in the United States for the Prostar and Techstar family of
products. Sales are made to U.S. hospitals through the Company's sales
organization. In the fiscal year ended March 31, 1998 there was no single
customer whose sales made up 10% or more of the Company's net revenue. In the
fiscal year ended March 31, 1997, 82% and 15% of the Company's net revenues were
attributable to Europe and
 
                                      F-24
<PAGE>
                                 PERCLOSE, INC.
 
                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
 
8. CONCENTRATIONS OF CREDIT AND OTHER RISKS (CONTINUED)
Japan, respectively. Sales to significant customers as a percentage of total
revenues are as follows for the years ended March 31, 1997 and March 31, 1996:
 
<TABLE>
<CAPTION>
                                                                   YEARS ENDED MARCH 31,
                                                                       -------------
                                                                     1997         1996
                                                                     -----        -----
<S>                                                               <C>          <C>
German distributor..............................................          59%          53%
Japanese distributor............................................          15%           8%
French distributor..............................................          15%          25%
</TABLE>
 
    The Company performs ongoing credit evaluations of its customers but does
not require collateral. There have been no material losses on customer
receivables.
 
DEPENDENCE ON PROSTAR AND TECHSTAR PRODUCTS
 
    The Prostar and Techstar products are currently the Company's only marketed
products. There can be no assurance as to when or whether the Company will
receive FDA clearance or approval for sale of other PVS products or any other
products in the United States. There can be no assurance that the Company's
development efforts will be successful or that any further PVS products or any
other product developed by the Company will be safe or effective, capable of
being manufactured in commercial quantities at acceptable costs, approved by
appropriate regulatory and reimbursement authorities or successfully marketed.
 
DEPENDENCE ON KEY SUPPLIERS
 
    The Company purchases certain key components from single source suppliers.
Any significant component supply delay or interruption could require the Company
to qualify new sources of supply, if available, and could have a material
adverse effect on the Company's financial condition and results of operations.
 
                                      F-25
<PAGE>
                                 PERCLOSE, INC.
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                                           BALANCE AT
                                          BEGINNING OF                            BALANCE AT
                                             PERIOD     ADDITIONS   DEDUCTIONS   END OF PERIOD
                                          ------------  ----------  -----------  -------------
<S>                                       <C>           <C>         <C>          <C>
(Year Ended March 31)
1996....................................   $   40,000   $   20,000   $  40,000    $    20,000
1997....................................   $   20,000   $  761,000   $ 605,000    $   176,000
1998....................................   $  176,000   $  683,000   $ 558,000    $   301,000
</TABLE>
 
                                      F-26