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                                 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, 1997.
 
                                       OR
 
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934.
 
    FOR THE TRANSITION PERIOD FROM          TO          .
 
                        Commission File Number: 0-26890
                            ------------------------
 
                                 PERCLOSE, INC.
 
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                  <C>
             DELAWARE                   94-3154669
  (State or other jurisdiction of    (I.R.S. Employer
  incorporation or organization)      Identification
                                           No.)
 199 JEFFERSON DRIVE, MENLO PARK,          94025
                CAM
  (Address of principal executive       (Zip code)
             offices)
</TABLE>
 
       Registrant's telephone number, including area code: (415) 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 _/X/_
 
    The aggregate value of voting stock held by non-affiliates of the registrant
was approximately $150,584,624 as of May 30, 1997, based upon the closing price
of the Registrant's Common Stock reported for such date on the Nasdaq National
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 May 30, 1997, the registrant had outstanding 9,579,747 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 1997 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. Certain information is incorporated into Parts II and IV of
this report by reference to the Registrant's annual report to stockholders for
the year ended March 31, 1997.
 
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<PAGE>
                                 PERCLOSE, INC.
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                                                           PAGE NUMBER
                                                                                                          -------------
<S>              <C>                                                                                      <C>
PART I..................................................................................................            1
 
  Item 1.        BUSINESS...............................................................................            1
  Item 2.        PROPERTIES.............................................................................           18
  Item 3.        LEGAL PROCEEDINGS......................................................................           18
  Item 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................           18
 
PART II.................................................................................................           18
 
  Item 5.        MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................           18
  Item 6.        SELECTED FINANCIAL DATA................................................................           18
  Item 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                   OPERATIONS...........................................................................           18
  Item 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................           19
  Item 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...           19
 
PART III................................................................................................           19
 
  Item 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....................................           19
  Item 11.       EXECUTIVE COMPENSATION.................................................................           19
  Item 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........................           19
  Item 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................           19
 
PART IV.................................................................................................           20
 
  Item 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.......................           20
</TABLE>
<PAGE>
                                     PART I
 
ITEM 1.  BUSINESS
 
THE COMPANY
 
    Perclose, Inc. ("Perclose" or the "Company") was incorporated in California
in March 1992 and reincorporated in Delaware in October 1995. Perclose designs,
develops, manufactures and markets a family of minimally invasive systems used
to surgically close arterial access sites in catheterization procedures such as
angioplasty and angiography. The Company's proprietary, single-use systems are
inserted through the same tract used during catheterization and enable the
clinician to suture close the access site immediately following the
catheterization. The Company's percutaneous vascular surgery ("PVS") systems are
designed to provide routine, definitive closure by replicating results
previously obtainable only through open surgery, without the associated risks
and costs. The Company believes that its PVS products provide significant
clinical and economic advantages over current compression methods of arterial
access site closure. These advantages include achieving rapid hemostasis,
reducing nursing time required to monitor patients, allowing early patient
ambulation and discharge, enabling more efficient use of the catheterization
laboratory 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 increasing the risk of bleeding
complications at the arterial access site.
 
    The Company commenced international shipments of its products in December
1994 and United States shipments in April 1997. These systems are currently
marketed in Germany, France, the United Kingdom, Italy, Switzerland, Israel,
Japan and the United States under regulatory approvals where required.
 
INDUSTRY OVERVIEW
 
    This Report on Form 10-K contains certain forward looking statements
regarding future events with respect to the Company. Actual events or results
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 "Additional Risk Factors."
 
    THERAPEUTIC INTERVENTIONAL CARDIOLOGY MARKET.  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
include coronary artery bypass grafting ("CABG"), a highly invasive open
surgical procedure, and percutaneous transluminal coronary angioplasty ("balloon
angioplasty") as well as other percutaneous catheter-based procedures including
atherectomy and stenting. Since its clinical introduction in 1978, balloon
angioplasty has emerged as the principal less invasive alternative to CABG.
Industry sources estimate that there are approximately 850,000 balloon
angioplasty, atherectomy, stenting and intra-aortic balloon pump procedures
performed worldwide, including approximately 525,000 such procedures in the
United States.
 
    At the beginning of a balloon angioplasty procedure, the physician initiates
anticoagulation drug therapy, which is 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
 
                                       1
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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. At the conclusion
of the procedure, the cardiologist decides if the benefits of continued
anticoagulation therapy that can prevent clot formation in the coronary arteries
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 atherectomy and
stenting. Atherectomy encompasses several types of devices that are designed to
remove atherosclerotic plaque that blocks blood flow in the arteries. These
procedures include directional coronary atherectomy in which plaque is removed
with a miniature cutting system, rotational atherectomy in which a high speed,
rotating burr is used to grind plaque into microscopic particles, and laser
atherectomy in which laser energy delivered through a fiber optic catheter is
used to ablate plaque. Directional and rotational atherectomy devices often
require introducer sheaths and catheters of greater diameter than balloon
angioplasty catheters.
 
    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 nursing observation post-procedure. The current potential for outpatient
stenting is, however, limited by the inability to achieve predictable, sustained
hemostasis of the arterial access site.
 
    DIAGNOSTIC CARDIOLOGY MARKET AND OTHER PERCUTANEOUS VASCULAR
PROCEDURES.  Patients believed to have coronary artery disease typically undergo
angiography to determine the extent and location of their arterial blockages.
Angiography is a diagnostic procedure in which dye is delivered through a
catheter directly into the coronary arteries. The patient's coronary arteries
can be visualized using an x-ray imaging system that produces a real-time image.
Similar to therapeutic interventional procedures, angiography is performed using
a catheter placed into the vascular system through a puncture in the femoral
artery. Industry sources estimate that angiography is performed annually on
approximately 3.1 million patients worldwide including over 1.8 million patients
in the United States. Angiography procedures represent a significant market
opportunity for arterial closure devices because 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 285,000 and 2.7 million, respectively, are performed annually
worldwide. These procedures may represent a significant market opportunity for
arterial closure devices because 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,
cardiac pulmonary support procedures and percutaneous treatment of abdominal
aortic aneurysms, may also represent new market opportunities for the Company's
products.
 
    ARTERIAL ACCESS SITE MANAGEMENT.  Following catheter-based coronary
procedures such as balloon angioplasty, atherectomy, stenting and angiography,
the physician must close the arterial access site. In current practice,
anticoagulation therapy is discontinued for up to four hours prior to closure of
the
 
                                       2
<PAGE>
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
at least 20 minutes to over one hour to facilitate formation of a blood clot in
order to seal the arterial access site. This pressure is applied 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 4 to 24 hours after the procedure, depending on the
amount of anticoagulation drug therapy used and the type of procedure performed.
Current 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 current 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, the Company believes that post-procedure
anticoagulation 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 believes these patients may represent up to 30% of therapeutic coronary
catheterization patients and include patients who have experienced a heart
attack, received stents that may lead to clot formation, or undergone
complicated balloon angioplasty characterized by dissection of the arterial wall
during expansion of the balloon. For these patients, optimal therapy usually
requires continued anticoagulation therapy to keep blood clots from forming, new
drugs to reduce the risk of restenosis or thrombolytics to dissolve existing
clots. In current practice, 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,
current arterial access site management options may lead to a greater risk of
heart attack, higher vascular complication rates, significant patient discomfort
during immobilization, intensive nursing monitoring, extended hospitalization
and increased health care costs.
 
PERCLOSE SOLUTION
 
    The Company believes that its percutaneous vascular surgery systems, which
achieve rapid closure of arterial access sites following percutaneous
catheterization procedures, overcome the clinical disadvantages of current
closure methods and will enable catheterization laboratories to achieve
increased operating efficiencies and cost savings. The Company's products enable
the physician to suture arterial access sites percutaneously, providing a means
of closure that has been possible only through open vascular surgery. Since the
introduction of catheterization procedures, open 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. The Perclose systems are designed to
provide routine, definitive closure by replicating through a minimally
 
                                       3
<PAGE>
invasive procedure the results previously obtainable only through open surgery
without the associated risks and costs. The ease of use of the Perclose systems
is enhanced by the design of the products which relies on standard
cardiovascular catheterization techniques.
 
    The Perclose systems are used in the catheterization laboratory to close the
arterial access site as the final step in the procedure. By achieving rapid
hemostasis, the Perclose systems reduce the need for the patient to remain
immobile under close observation in the coronary care unit. This result
minimizes pain and discomfort to the patient 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 current
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.
 
    The Perclose systems, which surgically close the access site and do not rely
on the body's clotting process to achieve hemostasis, are ideally suited for use
in patients who would benefit from aggressive anticoagulation or other drug
therapy. Therefore, cardiologists can optimize drug therapy independent of
arterial access site management requirements.
 
OTHER CLOSURE DEVICES
 
    Several new closure devices have been developed in response to the need for
improved methods of arterial access site closure following catheterization
procedures. These devices include the Company's systems as well as collagen plug
devices manufactured by two other companies. These collagen plug devices are
delivered through a sheath and placed at the site of the femoral artery
puncture. Both collagen plug devices have received PMA approval from the FDA.
The Company believes that collagen plug devices do not fully and satisfactorily
address the current need for an improved closure method. These collagen plugs
still 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. The Company's percutaneous vascular surgery systems
provide a mechanical suture closure which aids in the natural healing process
and, like open surgical repair, does not rely on the body's clotting function.
The Perclose systems should therefore allow more aggressive anticoagulation and
other drug therapy following catheterization.
 
BUSINESS STRATEGY
 
    The Company's is the leader in the design, development and commercialization
of suture-based closure devices; its primary objective is to establish
percutaneous vascular surgery using the Company's products as the standard of
care for post-catheterization arterial access site management. The following are
key elements of the Company's strategy:
 
      -  DEMONSTRATE CLINICAL UTILITY AND COST-EFFECTIVENESS.  The Company
believes that percutaneous vascular surgical repair of arterial access sites
decreases time to ambulation and discharge with lower treatment costs and
improved comfort for all patients, and can reduce complication rates in high
clinical need patients. The Company uses data collected from clinical trials to
demonstrate the clinical and cost advantages of its products to physicians and
health care payors.
 
      -  FOCUSED MARKETING, SALES AND PHYSICIAN TRAINING.  The Company's
products are currently marketed to interventional cardiologists, radiologists
and catheterization laboratory administrators. The Company commenced
international shipments of its products in December 1994. These systems are
currently marketed internationally in Germany, France, the United Kingdom,
Italy, Switzerland, Israel and Japan under regulatory approvals where required.
The Company markets its 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 served by a
relatively small, focused sales force. The
 
                                       4
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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 cardiologists to use the Company's products. The
Company will continue to provide a standardized, in-the-field training course in
the markets it enters.
 
      -  ACCESS NEW MARKET OPPORTUNITIES.  The Company believes that several
other minimally invasive catheterization procedures, both currently used and
under development, will be candidates for the Company's products. The Company
intends to expand its product marketing efforts to new clinical applications,
including electrophysiology and interventional neuroradiology catheterization
procedures and intra-aortic balloon pump procedures, where percutaneous surgical
closure of arterial access sites can meet significant clinical needs or achieve
cost reductions.
 
      -  TECHNOLOGICAL LEADERSHIP.  The Company intends to position itself at
the forefront of technological leadership and innovation in percutaneous
vascular surgery. 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. The large diameter
catheter devices required for these procedures make closure of the arterial
access site difficult using conventional compression methods. The Company
believes that larger diameter versions of its current products could be used to
close the arterial access sites in these procedures, making it feasible to
perform such procedures in a minimally invasive manner. The Company also intends
to continue to focus on improving the ease of use and reducing the manufacturing
costs of its products. In order to protect its proprietary position, the Company
will continue to pursue an aggressive patent filing and prosecution strategy.
 
      -  EXTENDING THE TECHNOLOGY PLATFORM.  The Company intends to supply its
core technology to other high value surgical areas that could benefit by
remotely fixturing vascular tissue and precisely delivering needles and sutures
to sites that are currently operated on using conventional surgical techniques.
 
    Two of the Company's products have been approved in the United States. The
remainder of the Company's products cannot be sold commercially in the United
States unless and until FDA approvals or clearances are obtained, and FDA
approvals or clearances may not be received for several years, if at all. The
Company's business is also subject to additional significant risks, including
the dependence of the Company on the Prostar, Prostar Plus, Techstar and
Techstar XL products, the lack of extensive clinical data demonstrating that
certain of the Company's products are safe and effective and the risk that the
Company's products will not gain market acceptance.
 
PRODUCTS AND TECHNOLOGY
 
    The Company currently has two product families, the Prostar and Techstar
systems. The Prostar systems provide two sutures for closing arterial access
sites ranging in diameter from 7 French (7F) to 11 French (11F). One French size
is equal to one-third of a millimeter in diameter (3F=1mm). The Techstar systems
use single-suture devices for suturing 6F and 7F arterial access sites. 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 Prostar and Techstar systems evolution. The Plus and XL enhancements have
reduced procedure time, increased ease of use, increased patient comfort and
reduced
 
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manufacturing cost. The following table summarizes the markets addressed by and
current status of each of the Company's products:
<TABLE>
<CAPTION>
                                                     PRODUCT
                                                    FAMILY(1)
             TARGETED APPLICATIONS                -------------                       STATUS(2)
------------------------------------------------     PROSTAR     ----------------------------------------------------
               HIGH CLINICAL NEED                  (2 SUTURE)            UNITED STATES              INTERNATIONAL
------------------------------------------------  -------------  ------------------------------  --------------------
<S>                                               <C>            <C>                             <C>
Anticoagulated Stents                                      8F    PMA Supplement Filed            Commercial Sales
Complicated Angioplasty
Atherectomy                                                9F    Commercial Sales                Not Marketed
Intra-aortic Balloon Pump
Electrophysiology Ablation                                10F    PMA Supplement Filed            Commercial Sales
Thrombolytic Drugs
Anti-Restenosis Drugs                                     11F    Commercial Sales                Not Marketed
 
<CAPTION>
 
                                                    TECHSTAR
           EARLY AMBULATION/DISCHARGE              (1 SUTURE)            UNITED STATES              INTERNATIONAL
------------------------------------------------  -------------  ------------------------------  --------------------
<S>                                               <C>            <C>                             <C>
Stents                                                     6F    PMA Supplement Filed            Commercial Sales
Angioplasty
Peripheral Radiology                                       7F    PMA Supplement Planned          Commercial Sales
Interventional Neuroradiology
Diagnostic Angiography
Peripheral Radiology                                      6FS    PMA Supplement Planned          Commercial Sales
</TABLE>
 
------------------------
 
(1) "F" refers to French size. 1 French is equal to 1/3 millimeter in diameter.
    "6FS" refers to a 6F short length Perclose system.
 
(2) Commercial sales occur in Germany, France, the United Kingdom, Italy,
    Switzerland, Israel, Japan and the United States.
 
    PROSTAR AR SYSTEMS AND PROCEDURE.  Prostar systems are sterile, single-use
systems which, as currently configured, consist of a four-needle, two-suture
Prostar Percutaneous Vascular Surgical Device, a Prostar Pre-Dilator (for the 9F
and 11F sizes only), a Perclose Knot Pusher, and a Prostar Guidewire (sizes 9F
and 11F only). The Prostar system is currently marketed internationally in 8F
and 10F sizes and is marketed in the United States in the 9F and 11F sizes. The
8F, 9F and 10F systems are suitable for arterial access sites dilated by 7F to
10F introducer sheaths used during balloon angioplasty, stenting, and rotational
atherectomy procedures. The 11F system is used to close puncture sites dilated
by 10F or 11F introducer sheaths used during directional coronary atherectomy
and intra-aortic balloon pump 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.
For the Prostar 9F and 11F systems, the Prostar Pre-Dilator is inserted to
expand the tract from the skin incision to the artery to assist in positioning
the Prostar Percutaneous Vascular Surgical Device. Once the pre-dilation of the
tract from the skin incision to the artery is complete, another over-the-wire
exchange is performed. Next, the flexible sheath of the Prostar Percutaneous
Vascular Surgical Device is 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 two marker ports in the needle guide, proximal to
the tips of the needles. Arterial blood flow into the marker ports 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
 
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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 SYSTEMS.  Techstar systems are sterile, single-use systems which
consist of a two-needle, single-suture Techstar Percutaneous Vascular Surgical
Device and a Perclose Knot Pusher. The Techstar system is currently marketed
internationally in 6F, 7F and 6FS (short) sizes. The 6F diameter system 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 system is suitable for closure of puncture sites dilated
by 7F interventional and diagnostic introducer sheaths. The Techstar 6FS
diameter system 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.
 
    Significant differences of the configuration of the second generation
designs include a rotating barrel that eliminates the need for a separate
pre-dilator and a monorail configuration that eliminates the need for an
additional guidewire. These features, together with several other design
changes, improve ease of use and ease of manufacturability and reduce
manufacturing cost. The XL, or third generation, design further increases the
operator's ease of use of the device and reduces the procedure time to less than
five minutes.
 
CLINICAL AND REGULATORY STATUS
 
    Perclose systems are currently being marketed in internationally in Germany,
France, the United Kingdom, Italy, Switzerland, Israel and Japan under
regulatory approvals where required. The Company obtained CE mark certification
in 1996 which allows it to market its products in all member European Union
countries without obtaining country specific approvals and to ship its products
to European Union countries directly from its United States manufacturing
facility.
 
    In April 1997 the Company received approval from the United States Food and
Drug Administration for clearance of its Prostar systems for commercial sale in
the United States under the Pre-Market Approval regulatory pathway. In May 1997
the Company filed an application with the FDA for clearance of its Techstar
systems for commercial sale in the United States under the Pre-Market Approval
Supplement regulatory pathway and in June 1997 the Company submitted a PMA
Supplement application for clearance of the Prostar Plus and Prostar XL systems
for sale in the United States.
 
    The Company, through Getz Brothers Company Ltd., its Japanese distributor,
has received regulatory approval to market the Prostar, Prostar Plus, Techstar
and Techstar XL systems in Japan and intends to commence clinical trials in
Japan that will form the basis for 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
Company's products in Japan, and there can be no assurance that such
reimbursement approvals will be obtained in a timely manner or at all.
 
MARKETING AND DISTRIBUTION
 
    The Company's international sales and marketing strategy is to focus on
interventional cardiologists and radiologists through established distributors
in major international markets, subject to required regulatory approvals.
Perclose systems are marketed internationally in Germany, France, the United
Kingdom, Italy, Switzerland, Israel and Japan through independent distributors.
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
 
                                       7
<PAGE>
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 United States dollars. The end-user price is
determined by the distributor and varies from country to country. The Company
also has eight persons directly involved with physician training and assisting
distributors that are assigned to European and Asian territories.
 
    All of the Company's revenues through March 31, 1997 were derived from
export sales to international distributors, primarily in Europe, none of which
are affiliated with the Company. Sales to A.D. Krauth & Co. GmbH, Medicorp and
Getz Brothers Company Ltd., the Company's German, French and Japanese
distributors, respectively, accounted for approximately 59%, 15% and 15%,
respectively, of net sales for the fiscal year ended March 31, 1997.
 
    The Company markets its 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 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 cardiologists to
use the Company's products. The Company provides a standardized, in-the-field
training course in the markets it enters.
 
    As the Company expands existing product lines and introduces systems for new
applications, the Company will broaden its marketing and sales activities to
reach key practitioners, clinicians and administrators in markets targeted by
the Company.
 
RESEARCH AND DEVELOPMENT
 
    The Company's research and development activities are performed internally
by a 14 person research and development staff. Future research and development
efforts are expected to involve application of the Company's core arterial
access site closure technology to other catheterization procedures, including
vascular grafts, treatment of abdominal aortic aneurysms and cardiac pulmonary
support procedures. The large diameter catheter devices used in these procedures
make closure of the arterial access site difficult with conventional compression
methods. The Company believes that larger diameter versions of its current
products could be used for closure of arterial access sites in these procedures,
making it feasible to perform such procedures in a minimally invasive manner. In
addition, the Company intends to apply its core technology to other high value
surgical areas that could benefit by remotely fixturing vascular tissue and
precisely delivering needles and sutures where current conventional surgical
techniques are used.
 
    Research and development expenses for fiscal 1995, 1996 and 1997 were $3.1
million, $3.1 million and $4.7 million respectively.
 
MANUFACTURING
 
    The Company currently manufactures its products for the United States market
in its class 10,000 clean room facility in Menlo Park, California. The Company
has also entered into an agreement with AorTech Europe, a contract manufacturer
located in Glasgow, Scotland. For international markets, the Company
manufactures subassemblies of its products at its Menlo Park facility with final
assembly occurring at AorTech. AorTech performs final assembly, packaging, and
ships the Company's products to distributors outside the United States. AorTech
Europe is ISO 9002 certified and operates a class 10,000 clean room. The Company
has received the CE Mark from the European Union and plans to reduce its
reliance on AorTech in the future and consolidate its manufacturing activity at
its Menlo Park, California facility in fiscal 1998.
 
                                       8
<PAGE>
    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 international distributor orders and
commercial sales in the United States, would have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company does not have experience in manufacturing its products in large scale
commercial quantities. 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.
 
COMPETITION
 
    Competition in the emerging market for arterial access site closure devices
is expected to be intense and to increase. The Perclose systems compete against
conventional manual compression devices, mechanical compression devices and
newer collagen plugs. Several companies supply C-clamp devices and C.R. Bard
markets the Femostop compression arch. Datascope and Kensey Nash have received
PMA approval from the FDA for products that use collagen plugs to achieve
hemostasis. American Home Products has exclusive distribution rights to the
Kensey-Nash device in the United States and internationally. 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,
Global Therapeutics Inc. and Guidant Corporation. 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, obtaining regulatory approvals, manufacturing and
marketing. There can be no assurance that the Company's competitors will not
succeed in developing and marketing technologies and products that are 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.
 
    The Company believes that the primary competitive factors in the market for
arterial closure devices are clinical need, complications, 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 approval is an important competitive factor. The
medical device industry is characterized by rapid and significant technological
change. Accordingly, the Company's success will 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.
 
    In addition, the medical device market is generally characterized by rapid
change and by 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 procedures performed.
 
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
 
                                       9
<PAGE>
percutaneous suturing technology used in the Company's 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 six 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 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 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 employment or 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.
 
GOVERNMENT REGULATION
 
    UNITED STATES REGULATION.  The Company's systems 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
 
                                       10
<PAGE>
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
Class II device for which the FDA has called for such applications.
 
    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 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 legally marketed Class I or Class II device, or to a Class II
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 filing a
510(k) notification. The 510(k) notification may need to be supported by
appropriate 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 FDA typically
responds to the submission of a 510(k) notification within 150 to 200 days. 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 legally marketed 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"
 
                                       11
<PAGE>
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 approximately two years 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.
 
    The Company received approval of a PMA application with the FDA to sell the
Prostar systems commercially in the United States and has filed PMA Supplement
applications for the Techstar, Techstar XL, Prostar Plus and Prostar XL systems.
There can be no assurance that the Company will be able to obtain further PMA
application approvals to market its systems, 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.
 
    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 and been approved by both the FDA and
the CDHS for compliance with the FDA's GMP and other applicable regulations.
These regulations require that the Company manufacture its products and maintain
its documents in a prescribed manner with respect to manufacturing, testing and
control activities. 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 to change. The Company cannot predict what impact, if any, such changes
might have on its business, financial condition or results of operations.
 
    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, the 8F and 10F Prostar systems and the 6F,
7F and 6FS Techstar systems are being marketed in Germany, France, the United
Kingdom, the Italy, Switzerland, Israel and Japan under regulatory approvals
where required.
 
                                       12
<PAGE>
    The Company has implemented policies and procedures to allow the Company to
receive ISO 9001 qualification of its processes. The ISO 9000 series of
standards for quality operations has been developed to ensure that companies
know the standards of quality to which they must adhere to receive
certification. The European Union has promulgated rules which require that
medical products receive by mid-1998 the right to affix the CE mark, an
international symbol of adherence to quality assurance standards and compliance
with applicable European medical device directives. ISO 9000 certification is
one of the CE mark certification requirements. In July 1996 the Company received
the CE mark certification.
 
    The Company, through its Japanese distributor, has received regulatory
approval for commercial sale of its products in Japan and intends to commence
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 systems in Japan. There can
be no assurance such approvals will be obtained in a timely manner or at all.
 
THIRD-PARTY REIMBURSEMENT
 
    Market acceptance of the Company's products in international markets may be
dependent in part upon the availability of reimbursement within prevailing
health care payment systems. However, in general, the Company's customers do not
receive specific, cost based direct reimbursement for the use of Perclose
products.
 
    Reimbursement and health care payment systems in international markets vary
significantly by country. The main types of health care payment systems in
international 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 was
subsequently withdrawn in October 1996. The Company is attempting to restore its
reimbursement with the French health care regulatory authorities. Through its
local distributor, the Company intends to undertake clinical studies in Japan 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.
 
    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.
 
                                       13
<PAGE>
    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 would have a material adverse effect on the
Company's business, financial condition and results of operations.
 
PRODUCT LIABILITY AND INSURANCE
 
    The Company's business involves the risk of product liability claims. The
Company has not experienced any product liability claims to date. Although the
Company maintains product liability insurance with coverage limits of $1.0
million per occurrence and an annual aggregate maximum of $1.0 million, 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 May 31, 1997, the Company had 132 full-time employees. Approximately
14 persons were engaged in research and development activities, 57 persons were
engaged in manufacturing and manufacturing engineering, nine persons were
engaged in quality assurance and regulatory affairs, 41 persons were engaged in
sales and marketing and 11 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 would have a material adverse effect on
the Company.
 
ADDITIONAL RISK FACTORS
 
    LIMITED OPERATING HISTORY.  The Company has a limited history of operations.
Since its inception in March 1992 through 1994, the Company was primarily
engaged in research and development of its percutaneous arterial access site
closure products. Since December 1994, the Company has generated limited
revenues from international sales in certain markets and since May 1997 has
generated limited revenues from the United States. The Company does not have
experience in manufacturing, marketing or selling its products in quantities
necessary for achieving profitability. There can be no assurance that the
Company's product systems will be further commercialized or that the Company
will achieve significant revenues from either international or United States
sales. In addition, there can be no assurance that the Company will achieve or
sustain profitability in the future.
 
    HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES.  The Company has
experienced significant operating losses since inception and, as of March 31,
1997, had an accumulated deficit of $28.0 million. The development and further
commercialization of the Company's current products and other new products, if
any, will require substantial development, clinical, regulatory, manufacturing
and other expenditures. The Company expects its operating losses to continue for
at least the next year as it continues to expend substantial resources in
funding clinical trials in support of regulatory and reimbursement approvals,
expansion of manufacturing, marketing and sales activities and research and
development.
 
    FLUCTUATIONS IN OPERATING RESULTS.  The Company's results of operations may
fluctuate significantly from quarter to quarter and will depend upon numerous
factors, including actions relating to
 
                                       14
<PAGE>
regulatory and reimbursement matters, progress of clinical trials, the extent to
which the Company's products gain market acceptance, introduction of alternative
means from arterial access site closure and competition. Results of operations
will also be affected by the timing of orders received from distributors, the
extent to which the Company expands its international distribution network and
the ability of distributors to effectively promote the Company's products.
 
    DEPENDENCE UPON INTERNATIONAL OPERATIONS AND SALES.  Prior to May 1997 all
of the Company's product sales were outside the United States. The Company
currently relies on contract manufacturers in Europe for final assembly,
sterilization, testing, packaging and shipment of products sold internationally.
The Company markets and sells its products outside the United States primarily
through a network of international distributors, and the Company's international
sales are largely dependent on the marketing efforts of, and sales by, these
distributors. Sales through distributors and use of international contract
manufacturers are subject to several risks, including the risk of financial
instability of distributors or contract manufacturers, the risk of manufacturing
and quality control problems with contract manufacturers and the risk that
distributors will not effectively promote the Company's products. Loss or
termination of distribution relationships could have a material adverse affect
on the Company's international sales efforts and could result in the Company
repurchasing unsold inventory from former distributors by virtue of local laws
applicable to distribution relationships, provisions of distribution agreements
or negotiated settlements entered into with such distributors.
 
    A number of risks are inherent in international operations and transactions.
International sales and operations may be limited or disrupted by the imposition
of government controls, export license requirements, political instability,
trade restrictions, changes in tariffs, difficulties in staffing and
coordinating communications among and managing international operations.
Additionally, the Company's business, financial condition and results of
operations may be adversely affected by fluctuations in international currency
exchange rates as well as increases in duty rates, difficulties in obtaining
export licenses, constraints on its ability to maintain or increase prices, and
competition. There can be no assurance that the Company will be able to
successfully commercialize the Prostar or Techstar system or any future product
in any international market.
 
    LIMITED SALES AND MARKETING EXPERIENCE.  The Company has only limited
experience marketing and selling its products and does not have experience
marketing and selling its products in commercial quantities. The Company
currently has a limited network of distributors that cover certain European
countries, Japan and Israel. The Company has established a direct sales force in
the United States. Establishing marketing and sales capability sufficient to
support sales in commercial quantities will require significant resources, and
there can be no assurance that the Company will be able to retain direct sales
personnel or that future sales efforts of the Company will be successful.
 
    RISK OF INADEQUATE FUNDING.  The Company plans to continue to expend
substantial funds for clinical trials in support of regulatory and reimbursement
approvals, expansion of sales and marketing activities, research and
development, and establishment of commercial-scale manufacturing capabilities.
The Company may be required to expend greater-than-anticipated funds if
unforeseen difficulties arise in the course of clinical trials of the Perclose
systems, in connection with obtaining necessary regulatory and reimbursement
approvals or in other aspects of the Company's business. Although the Company
believes that its current cash balances and cash generated from the future sale
of products will be sufficient to meet the Company's operating and capital
requirements through calendar 1998, there can be no assurance that the Company
will not require additional financing within this time frame. The Company's
future liquidity and capital requirements will depend upon numerous factors,
including the progress of the Company's
 
                                       15
<PAGE>
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. Any additional required financing may
not be available on satisfactory terms, if at all. Future equity financings may
result in dilution to the holders of the Company's Common Stock.
 
    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 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.
 
    DEPENDENCE UPON KEY PERSONNEL.  The Company is dependent upon a number of
key management and technical personnel. The loss of the services of one or more
key employees would have a material adverse effect on the Company. The Company's
success will also depend on its ability to attract and retain additional highly
qualified management and technical personnel. The Company faces intense
competition for qualified personnel, many of whom are often subject to competing
employment offers, and there can be no assurance that the Company will be able
to attract and retain such personnel. Furthermore, the Company relies on the
services of several medical and scientific consultants, all of whom are employed
on a full-time basis by hospitals or academic or research institutions. Such
consultants are therefore not available to devote their full time or attention
to the Company's affairs.
 
    POSSIBLE VOLATILITY OF STOCK PRICE.  The stock market has 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, 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.
 
    The executive officers of the Registrant, who are elected by the board of
directors, are as follows:
 
<TABLE>
<CAPTION>
NAME                                 AGE                                      POSITION
--------------------------------     ---     --------------------------------------------------------------------------
<S>                               <C>        <C>
Henry A. Plain, Jr..............  39         President, Chief Executive Officer and Director
 
Randolph E. Campbell............  40         Vice President, Operations
 
Jeffrey M. Closs................  36         Vice President, International Sales and Marketing
 
Ronald W. Songer................  39         Vice President, Research and Development
 
Kenneth E. Ludlum...............  44         Vice President, Finance and Administration and Chief Financial Officer
 
Coy F. Blevins..................  49         Vice President, U.S. Sales
 
John G. McCutcheon..............  36         Vice President, Marketing
</TABLE>
 
                                       16
<PAGE>
    MR. PLAIN joined Perclose in February 1993 as President and Chief Executive
Officer and a member of the Company's board of directors. From 1981 until
joining the Company, Mr. Plain held various management positions in the
pharmaceutical, agricultural and medical device units of Eli Lilly and Company
("Lilly"), a diversified pharmaceutical and medical products company, serving
most recently as Director of Worldwide Manufacturing Human Resources from
November 1992 to February 1993. Mr. Plain served as Director of Marketing at
Devices for Vascular Intervention ("DVI"), then a subsidiary of Lilly, from June
1991 to November 1992 and as Human Resource Manager at DVI from February 1990
through June 1991. Mr. Plain holds a B.S. in Finance from the University of
Missouri.
 
    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. CLOSS joined Perclose in January 1994 as Vice President of International
Sales and Marketing and General Manager, Europe. From 1991 until joining the
Company, Mr. Closs was Director of Sales and Marketing, Europe, Middle East and
Africa for DVI. From June 1985 to May 1991, Mr. Closs held positions in sales
and marketing with the Bentley Laboratories Division of Baxter Healthcare
Corporation. Mr. Closs holds a B.A. in Psychology from the University of
California at Los Angeles and an M.B.A. from Emory University.
 
    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.
 
    MR. LUDLUM joined Perclose as Vice President of Finance and Administration
and Chief Financial Officer in May 1996. From November 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 biopharmaceutical company. From December 1991 to November
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
December 1991, Mr. Ludlum held various positions with Montgomery Securities,
most recently as a Partner 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. 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.
 
    MR. MCCUTCHEON joined Perclose in January 1994 as Director of Marketing. In
July 1996 Mr. McCutcheon was promoted to Vide President, Marketing. From 1992
until joining the Company, Mr. McCutcheon was Marketing Manager at DVI. Form
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.
 
                                       17
<PAGE>
ITEM 2.  PROPERTIES
 
    The Company leases approximately 31,000 square feet consisting of two
adjacent facilities in Menlo Park, California. One of these facilities has an
environmental controlled, class 10,000 clean room for medical device assembly
together with warehouse, laboratory and office space. The facility leases have
terms expiring in August 1998 and February 1999. The Company believes its
facilities are adequate to meet its immediate requirements but is planning to
relocate to a larger facility in calendar 1998.
 
ITEM 3.  LEGAL PROCEEDINGS
 
    The Company is not party to any legal proceedings.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    Not applicable.
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    The Company's Common Stock is traded on the Nasdaq National Market (ticker
symbol PERC). The approximate number of record holders of the Company's Common
Stock at May 30, 1997 was 289. The Company has not paid any dividends since its
inception and does not intend to pay any dividends in the foreseeable future.
 
    The Company completed an initial public offering of 2,500,000 shares of
Common Stock in November 1995. Prior to the initial public offering, the
Company's Common Stock was not publicly traded.
 
    Quarterly high and low bid prices of the Company's Common Stock are as
follows:
 
<TABLE>
<CAPTION>
QUARTER ENDED                                                                  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
</TABLE>
 
ITEM 6.  SELECTED FINANCIAL DATA
 
    The information required by this item is incorporated by reference to the
portion of the Registrant's 1997 annual report to stockholders entitled
"Selected Financial Data" and is included in Exhibit 13.1 to this report.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
    The information required by this item is incorporated by reference to the
portion of the Registrant's 1997 annual report to stockholders entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and is included in Exhibit 13.1 to this report.
 
                                       18
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    The information required by this item is incorporated by reference to the
portion of the Registrant's 1997 annual report to stockholders entitled
"Financial Statements" and is included in Exhibit 13.1 to this report.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
    Not applicable.
 
                                    PART III
 
    Certain information required by Part III is omitted from this Report on Form
10-K in that the Registrant will file a definitive proxy statement within 120
days after the end of its fiscal year pursuant to Regulation 14A with respect to
the 1997 Annual Meeting of Stockholders (the "Proxy Statement") to be held July
15, 1997 and certain information included therein is incorporated herein by
reference.
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    The information required by this item relating to directors is incorporated
by reference to the information under the caption "Proposal No. 1 -- Election of
Directors" in the 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 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 "Record Date and Stock Ownership" in the 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 Proxy Statement.
 
                                       19
<PAGE>
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
(A) 1.  FINANCIAL STATEMENTS
 
       The following Financial Statements of Perclose, Inc. and Report of Ernst
       & Young LLP, Independent Auditors are incorporated by reference in the
       respective portions of the Registrant's 1997 annual report to
       stockholders included in Exhibit 13.1 to this report:
 
           Report of Ernst & Young LLP, Independent Auditors
 
           Balance Sheets, March 31, 1997 and 1996
 
           Statements of Operations, Years Ended March 31, 1997, 1996 and 1995
 
           Statements of Stockholders' Equity, Years Ended March 31, 1997, 1996
           and 1995
 
           Statements of Cash Flows, Years Ended March 31, 1997, 1996 and 1995
 
           Notes to Financial Statements
 
    2.  FINANCIAL STATEMENT SCHEDULES
 
       The financial statement schedule entitled "Valuation and Qualifying
       Accounts" is included at page S-1 of this 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 was not required to and did not file any reports on Form 8-K
    during the three months ended March 31, 1997.
 
(C) EXHIBITS
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                   DESCRIPTION
---------  -------------------------------------------------------------------------------------------------------
<S>        <C>
 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.
</TABLE>
 
                                       20
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                   DESCRIPTION
---------  -------------------------------------------------------------------------------------------------------
<S>        <C>
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       Second amendment to Lease Agreement dated September 10, 1996.
 
10.7       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      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      Promissory Note between the Registrant and John G. McCutcheon dated January 31, 1997.
 
11.1       Statement Re: Computation of Per Share Losses.
 
13.1       Portions of Annual Report to Stockholders Incorporated by Reference.
 
23.1       Consent of Ernst & Young LLP, Independent Auditors.
 
24.1       Power of Attorney (See page 22).
 
27.1       Financial Data Schedule.
</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.
 
                                       21
<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 Executive    June 18, 1997
 ---------------------------------     Officer and Director
        Henry A. Plain, Jr.            (Principal Executive
                                       Officer)
 
      /s/ KENNETH E . LUDLUM         Vice President, Finance and   June 18, 1997
 ---------------------------------     Administration and Chief
         Kenneth E. Ludlum             Financial Officer
                                       (Principal Financial and
                                       Accounting Officer)
 
       /s/ MICHAEL L. EAGLE          Director                      June 18, 1997
 ---------------------------------
         Michael L. Eagle
 
       /s/ VAUGHN D. BRYSON          Director                      June 18, 1997
 ---------------------------------
         Vaughn D. Bryson
 
        /s/ SERGE LASHUTKA           Director                      June 18, 1997
 ---------------------------------
          Serge Lashutka
 
 /s/ JOHN B. SIMPSON, PH.D., M.D.    Director                      June 18, 1997
 ---------------------------------
   John B. Simpson, Ph.D., M.D.
 
     /s/ JAMES W. VETTER, M.D.       Director                      June 18, 1997
 ---------------------------------
       James W. Vetter, M.D.
 
          /s/ MARK A. WAN            Director                      June 18, 1997
 ---------------------------------
            Mark A. Wan
 
                                       22
<PAGE>
                                 PERCLOSE, INC.
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                                 MARCH 31, 1997
 
<TABLE>
<CAPTION>
                                                               BALANCE AT                               BALANCE AT
                                                                BEGINNING                                 END OF
                                                                OF PERIOD   ADDITIONS(1) DEDUCTIONS(2)    PERIOD
                                                               -----------  -----------  -------------  ----------
<S>                                                            <C>          <C>          <C>            <C>
March 31, 1995
  Allowance for doubtful accounts............................   $       0    $  40,000    $         0   $   40,000
March 31, 1996
  Allowance for doubtful accounts............................   $  40,000    $  20,000    $    40,000   $   20,000
March 31, 1997
  Allowance for returns and doubtful accounts................   $  20,000    $ 761,000    $   605,000   $  176,000
</TABLE>
 
------------------------
 
(1) Amounts charged to expense during fiscal year, including a $500,000 reserve
    for sales returns relating to one distributor in fiscal year 1997.
 
(2) Doubtful accounts written off and, in fiscal year 1997, sales returns of
    $540,000 relating to one distributor and $65,000 relating to miscellaneous
    sales returns.
 
                                      S-1
<PAGE>
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                   DESCRIPTION
---------  -------------------------------------------------------------------------------------------------------
<S>        <C>
 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       Second amendment to Lease Agreement dated September 10, 1996.
 
10.7       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      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      Promissory Note between the Registrant and John G. McCutcheon dated January 31, 1997.
 
11.1       Statement Re: Computation of Per Share Losses.
 
13.1       Portions of Annual Report to Stockholders Incorporated by Reference.
 
23.1       Consent of Ernst & Young LLP, Independent Auditors.
 
24.1       Power of Attorney (See page 22).
 
27.1       Financial Data Schedule.
</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.