10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

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 000-30959

RITA MEDICAL SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	94-3199149
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

967 N. Shoreline Blvd.

Mountain View, CA 94043

(Address of principal executive offices, including zip code)

650-314-3400

(Registrant’s telephone number, including area code)

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

As of October 31, 2003, there were 17,966,210 shares of the registrant’s Common Stock outstanding.

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets – September 30, 2003 and December 31, 2002	3
	Condensed Consolidated Statements of Operations – three and nine months ended September 30, 2003 and 2002	4
	Condensed Consolidated Statements of Cash Flows – nine months ended September 30, 2003 and 2002	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 2.	Changes in Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
Item 5.	Other Information	20
Item 6.	Exhibits and Reports on Form 8-K	20
SIGNATURES		21
EXHIBIT INDEX		22

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PART 1.    FINANCIAL INFORMATION

Item 1.     Financial Statements

RITA MEDICAL SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)

	September 30, 2003			December 31, 2002
Assets
Current assets:
Cash and cash equivalents	$	3,327		$	6,888
Marketable securities		6,132			5,427
Accounts and note receivable, net		2,565			2,798
Inventories, net		2,392			3,521
Prepaid assets and other current assets		1,097			995
Total current assets		15,513			19,629
Long term marketable securities		1,106			520
Long term note receivable, net		372			381
Property and equipment, net		1,268			1,565
Intangibles and other assets		5,001			2,071
Total assets	$	23,260		$	24,166
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	702		$	1,053
Accrued liabilities		1,594			2,510
Total liabilities		2,296			3,563
Stockholders’ equity
Common stock		18			15
Additional paid-in capital		97,675			88,525
Stockholder notes receivable		—			(50	)
Accumulated other comprehensive income		3			7
Accumulated deficit		(76,732	)		(67,894	)
Total stockholders’ equity		20,964			20,603
Total liabilities and stockholders’ equity	$	23,260		$	24,166

The accompanying notes are an integral part of the condensed consolidated financial statements.

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RITA MEDICAL SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Sales	$	3,865		$	4,454		$	12,412		$	13,679
Cost of goods sold		1,253			1,730			4,530			5,773
Gross profit		2,612			2,724			7,882			7,906
Operating expenses:
Research and development		976			1,218			3,395			3,882
Selling, general and administrative		4,182			4,311			13,482			14,837
Total operating expenses		5,158			5,529			16,877			18,719
Loss from operations		(2,546	)		(2,805	)		(8,995	)		(10,813	)
Interest income and other expense, net		32			85			157			368
Net loss	$	(2,514	)	$	(2,720	)	$	(8,838	)	$	(10,445	)
Net loss per share, basic and diluted	$	(0.14	)	$	(0.18	)	$	(0.50	)	$	(0.70	)
Shares used in computing net loss per share, basic and diluted		17,807			14,996			17,538			14,816

The accompanying notes are an integral part of the condensed consolidated financial statements.

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RITA MEDICAL SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Nine Months Ended September 30,
	2003			2002
Cash flows from operating activities:
Net loss	$	(8,838	)	$	(10,445	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,228			1,052
Disposal of property and equipment		158			—
Revaluation of common stock warrants for services received		(101	)		(31	)
Amortization of stock-based compensation		—			308
Allowance for doubtful accounts		56			823
Provision for obsolete inventories		393			517
Changes in operating assets and liabilities:
Accounts and note receivable		82			(147	)
Inventories		736			32
Prepaid and other current assets		(102	)		77
Accounts payable and accrued liabilities		(1,267	)		195
Net cash used in operating activities		(7,655	)		(7,619	)
Cash flows from investing activities:
Purchase of property and equipment		(720	)		(614	)
Purchase of investments		(7,855	)		—
Sales and maturities of investments		6,560			10,420
Capitalization of patent litigation costs		(621	)		(1,245	)
Acquisition of intangibles		(2,650	)		—
Note receivable and other assets		106			4
Net cash provided by (used in) investing activities		(5,180	)		8,565
Cash flows from financing activities:
Proceeds from issuance of common stock		9,274			1,389
Payments on capital lease obligations		—			(148	)
Net cash provided by financing activities		9,274			1,241
Net increase (decrease) in cash and cash equivalents		(3,561	)		2,187
Cash and cash equivalents at beginning of period		6,888			7,297
Cash and cash equivalents at end of period	$	3,327		$	9,484

The accompanying notes are an integral part of the condensed consolidated financial statements.

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RITA MEDICAL SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.    Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by RITA Medical Systems, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information. These principles are consistent in all material respects with those applied in the Company’s financial statements contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2002 and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission. However, interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (all of which are normal and recurring in nature, including the elimination of intercompany accounts) necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods indicated. Interim results of operations are not necessarily indicative of the results to be expected for the full year or any other interim periods. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and footnotes thereto for the year ended December 31, 2002 contained in the Company’s annual report on Form 10-K.

2.    Net loss per share

Basic earnings per share figures are calculated based on the weighted-average number of common shares outstanding during the period less the weighted-average number of any common shares subject to repurchase by the Company. Diluted earnings per share further includes the dilutive effect of potentially dilutive securities consisting of stock options and warrants provided that the inclusion of such securities is not antidilutive; the Company has reported net losses and therefore has excluded such potentially dilutive securities from its calculation of diluted earnings per share.

The reconciliation of total weighted average outstanding common shares to shares used in determining net loss per share is as follows (in thousands):

	Three months ended September 30,			Nine months ended September 30,
	2003	2002		2003		2002
Weighted average shares of common stock outstanding	17,807	15,027		17,543		14,851
Less: weighted-average shares subject to repurchase	—	(31	)	(5	)	(35	)
Weighted average shares used in basic and diluted net loss per share	17,807	14,996		17,538		14,816

The following numbers of shares represented by options and warrants (prior to application of the treasury stock method) and shares subject to repurchase were excluded from the computation of diluted net loss per share as their effect was antidilutive (in thousands):

	September 30,
	2003	2002
Effect of potentially dilutive securities:
Unvested common stock subject to repurchase	—	28
Options	2,307	2,862
Warrants	25	25
Total potentially dilutive securities excluded from the computation of net loss per share as their effect was antidilutive	2,332	2,915

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3.    Balance sheet components—Inventories

The components of the Company’s inventories at September 30, 2003 and December 31, 2002, respectively, were as follows (in thousands):

	September 30, 2003		December 31, 2002
Raw materials	$	853	$	1,039
Work-in-process		10		341
Finished goods		1,529		2,141
	$	2,392	$	3,521

4.    Accounting for stock-based compensation

During the year ended December 31, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and Financial Accounting Standards Board Interpretations (“FIN”) No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.”

Under APB Opinion No. 25, compensation expense is based on the difference, if any, on the date of the grant between the fair value of the Company’s stock and the exercise price. SFAS No. 123 defines a “fair value” based method of accounting for an employee stock option or similar equity instruments.

The following table illustrates the effect on net loss and net loss per share for the three and nine month periods ended September 30, 2003 and 2002, respectively, if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation granted under all of the stock option plans and the Employee Stock Purchase Plan (in thousands, except per share amounts):

	Three months ended September 30,						Nine months ended September 30,
	2003			2002			2003			2002
Net loss, as reported	$	(2,514	)	$	(2,720	)	$	(8,838	)	$	(10,445	)
Add: Stock-based employee compensation expense included in reported net loss		—			56			—			338
Deduct: Total stock-based employee compensation determined under fair value based method for all awards		(349	)		(789	)		(1,436	)		(2,097	)
Pro-forma net loss	$	(2,863	)	$	(3,453	)	$	(10,274	)	$	(12,204	)
Basic and diluted net loss per share:
As reported	$	(0.14	)	$	(0.18	)	$	(0.50	)	$	(0.70	)
Pro-forma	$	(0.16	)	$	(0.23	)	$	(0.59	)	$	(0.82	)

The determination of stock-based employee compensation under the fair value based method used the following weighted average assumptions:

	Three months ended September 30,		Nine months ended September 30,
	2003	2002	2003	2002
Volatility	76%	79%	76%	79%
Risk-free interest rate	3.21%	3.45%	2.74%	3.94%
Expected life	5 years	5 years	5 years	5 years
Expected dividends	0%	0%	0%	0%

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The corresponding assumptions for the Employee Stock Purchase Plan were as follows:

	Three months ended September 30,		Nine months ended September 30,
	2003	2002	2003	2002
Volatility	70%	79%	70%	79%
Risk-free interest rate	2.50%	3.16%	2.95%	3.29%
Expected life	1.4 years	0.9 years	1.3 years	0.7 years
Expected dividends	0%	0%	0%	0%

5.    Comprehensive loss

Comprehensive loss generally represents all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. The Company’s unrealized gains and losses on available-for-sale securities represent the only components of comprehensive loss that are excluded from the Company’s net loss. These components are not significant individually, or in the aggregate, and therefore, no separate statement of comprehensive loss has been presented.

6.    Private placement of securities

In January 2003, the Company issued to SF Capital Partners Ltd., Riverview Group, LLC, Baystar Capital II, L.P., and Baystar International II, L.P., 2,045,453 shares of unregistered common stock at a price of $4.40 per share, netting approximately $8.3 million after issuance fees and expenses. Wells Fargo Securities, LLC served as the lead placement agent for the transaction. The issuance was deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) thereof as transactions by an issuer not involving any public offering. On February 14, 2003, the Company’s Registration Statement on Form S-3, which registered the shares of common stock sold to the purchasers in the private placement transaction, was declared effective by the SEC.

7.    Intangible assets and related amortization

The Company’s intangible assets and related accumulated amortization at September 30, 2003 and December 31, 2002, respectively, were as follows (in thousands):

	September 30, 2003					December 31, 2002
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Capitalized patent defense litigation costs	$	2,755	$	(290	)	$	2,134	$	(111	)
Capitalized patent license agreements		2,650		(160	)		—		—
	$	5,405	$	(450	)	$	2,134	$	(111	)

Aggregate amortization expense for the nine months ended September 30, 2003, and estimated amortization expense for the three months ended December 31, 2003 and each of the five years ended December 31, 2004 through 2008 is as follows (in thousands):

Aggregate amortization expense:
For the nine months ended September 30, 2003	$	339
Estimated amortization expense:
For the three months ended December 31, 2003	$	141
For the twelve months ended December 31, 2004	$	563
For the twelve months ended December 31, 2005	$	563
For the twelve months ended December 31, 2006	$	563
For the twelve months ended December 31, 2007	$	563
For the twelve months ended December 31, 2008	$	563

8.    Recent accounting pronouncements

In November 2002, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. Adoption of this statement has had no material impact on the Company’s financial position or results of operations.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this quarterly report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, and similar expressions identify such forward-looking statements. These statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or forecasted. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled “Factors That May Affect Future Results” and those appearing elsewhere in this quarterly report on Form 10-Q and in our annual report on Form 10-K for the fiscal year ended December 31, 2002. Readers are cautioned not to place undue reliance on these forward-looking statements that reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

Overview

We develop, manufacture and market minimally invasive products that use radiofrequency energy to treat patients with solid cancerous or benign tumors. In 2001, we commercially launched our StarBurst XLi family of disposable devices and expanded our direct domestic sales organization and our international distribution network. In 2002, the XLi family of disposable devices gained acceptance in the United States. Also in 2002, we received regulatory approval from the FDA to use our products to treat pain associated with bone tumors, increasing the potential market for our products.

Our products are sold in the United States through our direct sales force and internationally through distribution partners. For the three months ended September 30, 2003, sales in the United States accounted for 86% of our total sales, compared to 77% in the prior year period, while sales in our international markets accounted for 14% of our total sales compared to 23% in the prior year period. We continue to expect domestic sales to account for the majority of total sales in future periods. Also, we expect that inventory reductions, particularly by our distributor in Japan, coupled with ongoing reimbursement issues in both Japan and Europe, to limit sales growth in these regions for at least the remainder of 2003. We believe that over the next several years, as reimbursement issues are resolved and customer inventories are reduced, growth in international markets should resume. We expect our international operations to continue to represent a material portion of our revenue because of the high incidence of primary liver cancer in Asian and European markets.

All of our revenue is derived from the sale of our disposable devices and radiofrequency generators. For the three months ended September 30, 2003, 91% of our sales were derived from our disposable devices and 9% were derived from the sale of our generators. Disposable product revenue for the quarter was flat compared to the prior year period reflecting reduced sales to international customers offset by higher average selling prices for disposable products in our domestic market. Generator revenue decreased by 62% compared to the third quarter of 2002, as the prior year period included large generator shipments to our Japanese distributor. Going forward, we will continue to focus on expanding our base of customer accounts and on increasing usage of our disposable products in our established accounts. As a result, we expect revenue from the sale of our higher-margin disposable devices to grow faster than revenue from the sale of our generators.

To date, essentially all of our revenue has come from products sold in the treatment of cancerous liver tumors. In 2002, however, we began to see nominal revenue from the use of the RITA system sold for the treatment of patients with metastatic bone tumors. We are conducting research and clinical trials in other organs that may lead to additional sources of revenue in future years, although there can be no assurances that such additional revenue will materialize.

Our manufacturing costs consist of raw materials, including generators and ancillary hardware components produced for us by third-party suppliers, labor to produce our disposable devices and to inspect incoming, in-process and finished goods, sterilization performed by an outside service provider and general overhead expenses. Gross margins are affected by production volumes, average selling prices, the sales mix of higher-margin disposable devices versus generators and the mix of domestic direct sales versus international sales, which provide for distributor discounts. Our gross margin for the three months ended September 30, 2003 was 68%, compared to a 61% margin rate in the prior year period, and compared to a 58% margin rate in the three months ended June 30, 2003. This margin improvement reflects the impact of the growing percentages of higher-margin domestic and disposable products in our sales mix. Improvement compared to the three months ended June 30, 2003 is also partially due to the end of temporary cost increases on vendor-sourced hardware that constrained margins during that period. However, margins in the current three-month period were limited by $0.1 million in amortization of capitalized license fees associated with the settlement of our patent litigation dispute with Boston Scientific Corporation, described below. We expect such amortization charges to continue through 2015. Charges to cost of goods sold during the three months ended September 30, 2003 also included $0.1 million in provision to our reserve for obsolete inventory, compared to only a very modest expense in the prior year period and a $0.2 million expense in the three months ended June 30, 2003. We have, from time to time, recognized relatively high expenses related to obsolete inventory provisions as our product line has undergone several changes, and we may experience pressure on margins in the future due to similar product changes. Despite this possibility, we generally expect stable gross margins over the balance of 2003, reflecting a relatively constant sales mix and stable manufacturing costs, with no immediate expectation of significant additional provisions to our reserve for obsolete inventory.

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Our operating expenses consist of product development costs, clinical trial expenses, patent litigation expenses, sales and marketing expense related to our selling efforts in the United States and Europe, and administrative expenses, including the costs associated with our status as a public company, professional service expenses and our provisions for uncollectible accounts. Growth in these areas is determined by the breadth of our new product development portfolio, the number of headcount we maintain in our selling and administrative functions, the scope of our marketing efforts, the costs we incur in defense of our patents and intellectual property and the extent to which credit issues and economic conditions constrain our ability to collect our receivables. For the three months ended September 30, 2003, $1.0 million of our operating expenses were related to research and development activities, including $0.2 million associated with patent litigation expenses. For the prior year period, we had $1.2 million in research and development expense, including $0.2 million for litigation costs, so expenses for product development and clinical trials were lower for the three months ended September 30, 2003 than such expenses for the same period last year. We expect expenses for product development and clinical trials to remain stable for the remainder of 2003. We believe that ongoing legal expenses associated with patent litigation should be similar to 2003 third quarter results. Total selling, general and administrative costs for the three months ended September 30, 2003, were $4.2 million compared with $4.3 million in the prior year period. This reduction reflects $0.2 million in reduced expenses associated with provisions to our allowance for uncollectible accounts, with no additional charges in the current period. Although the deterioration we experienced in international collections in 2002 has stabilized in 2003, we may encounter new difficulties with international collections that require further increases in our allowance for uncollectible accounts in the future, and we may require specific accounts to post letters of credit or pay in advance to minimize credit risk to the Company. Selling expenses for the current quarter were also $0.2 million lower, on lower headcount. However, recruiting and compensation expenses related to additions to our management team were $0.3 million higher during the three months ended September 20, 2003 than during the prior year period. We expect flat or modestly reduced levels of selling, general and administrative expense for the remainder of 2003.

From 1999 until April 2003, we were involved in patent related disputes before the United States Patent and Trademark Office, the European Patent Office and several patent infringement suits filed in the United States District Court for the Northern District of California. The principal parties in these matters were ourselves, Boston Scientific Corporation, two of its operating divisions and two of its licensors. In April 2003, we signed a definitive agreement with Boston Scientific, its affiliates and its licensors to settle all outstanding patent disputes. Under the terms of the agreement, litigation in the United States, including Boston Scientific’s appeal of a United States Patent and Trademark Office ruling, has been dismissed with prejudice and Boston Scientific has withdrawn its opposition before the European Patent Office. We made one-time payments of $1,325,000 to the University of Kansas and $1,325,000 to the University of Nebraska, the licensors of several of the disputed patents. These amounts were capitalized in April 2003 and are being amortized over the related assets’ useful lives, which range from six to twelve years. The agreement includes a series of licenses and sub-licenses, none of which include our proprietary temperature control technology. We agreed to license to Boston Scientific, on a royalty-bearing basis, our infusion technology for future products. However, Boston Scientific will not market or sell products utilizing licensed infusion technology before October 5, 2004.

Our working capital decreased to $13.2 million at September 30, 2003, from $16.1 million at December 31, 2002. Since December 31, 2002, we have used $7.7 million in cash for operations, $0.7 million in capital expenditures and $0.6 million in capitalized legal costs related to defense of our patent rights. We also paid $2.65 million for licenses acquired in settlement of our patent litigation disputes with Boston Scientific Corporation. Offsetting these amounts were cash inflows of approximately $9.3 million from financing activities. Our January 2003 issuance of 2,045,453 shares of unregistered common stock at $4.40 per share netted approximately $8.3 million after associated fees and expenses, and the balance of the cash inflows from financing resulted from exercise of stock options. We do not expect significantly increased capital expenditures for the remainder of 2003.

We incurred net losses of $2.5 million for the three months ended September 30, 2003. As of September 30, 2003, we had an accumulated deficit of $76.7 million. Due to the costs associated with continued research and development programs, clinical research programs and sales and marketing efforts, we expect to continue to incur net losses for the balance of 2003 and 2004. Profitability depends on our success in expanding product usage in our current market and in developing new markets. To the extent current or new markets do not materialize in accordance with our expectations, our sales and profitability could be lower than expected and we may be unable to achieve or sustain profitability.

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Critical Accounting Policies and Estimates

Our critical accounting policies and estimates were discussed in our annual report on Form 10-K for the fiscal year ended December 31, 2002. No changes in these policies and estimates have occurred during the nine months ended September 30, 2003.

Results of Operations

The following table sets forth the percentage of net revenue represented by certain items in our Condensed Consolidated Statements of Operations for the current quarter ended September 30, 2003 and the four preceding fiscal quarters:

	Q3 2003		Q2 2003		Q1 2003		Q4 2002		Q3 2002
Domestic sales	86	%	81	%	71	%	76	%	77	%
International sales	14	%	19	%	29	%	24	%	23	%
Total sales	100	%	100	%	100	%	100	%	100	%
Cost of goods sold	32	%	42	%	35	%	31	%	39	%
Gross profit	68	%	58	%	65	%	69	%	61	%
Operating expenses:
Research and development	25	%	26	%	30	%	32	%	27	%
Selling, general and administrative	109	%	117	%	102	%	122	%	97	%
Total operating expenses	134	%	143	%	132	%	154	%	124	%
Loss from operations	(66	)%	(85	)%	(67	)%	(85	)%	(63	)%
Interest income and other expense, net	1	%	1	%	2	%	3	%	2	%
Net loss	(65	)%	(84	)%	(65	)%	(82	)%	(61	)%

Three months ended September 30, 2003 and 2002

Sales decreased 13% to $3.9 million for the quarter ended September 30, 2003, down from $4.5 million for the quarter ended September 30, 2002. Domestic sales decreased by 3% and international sales, principally due to large generator shipments to our distributor in Japan in the prior year period, decreased by 46% from the three months ended September 30, 2002. Sales of our disposable products totaled $3.5 million for the quarter, equal to the comparable prior year period, reflecting higher average selling prices in the domestic market, as unit shipments of disposable products decreased 18%. Generator sales for the quarter were 62% lower than sales in the third quarter of 2002, due again to the large generator shipments to our distributor in Japan in the prior year period.

Cost of goods sold for the quarter ended September 30, 2003 was $1.3 million, resulting in a gross margin rate of 68% for the period. This compares to cost of goods sold of $1.7 million for the quarter ended September 30, 2002, and a gross margin rate of 61% for that period. This improvement was primarily due to higher percentages of relatively high-margin domestic and disposable sales in our current period sales compared to prior period sales. However, margins in the current period were limited by $0.1 million in amortization of capitalized license fees associated with the settlement of our patent litigation dispute with Boston Scientific Corporation. We expect such amortization charges to continue through 2015. Charges to cost during the three months ended September 30, 2003 also included $0.1 million in provision to our reserve for obsolete inventory, compared to only a very modest provision in the prior year period. We have, from time to time, recognized relatively high expenses related to obsolete inventory provisions as our product line has undergone several changes, and we may experience pressure on margins in the future due to similar product changes. Despite this possibility, we generally expect stable gross margins over the balance of 2003, reflecting a relatively constant sales mix and stable manufacturing costs, with no immediate expectation of significant additional provisions to our reserve for obsolete inventory.

For the three months ended September 30, 2003, $1.0 million of our operating expenses were related to research and development activities, compared to $1.2 million in the three months ended September 30, 2002, primarily because of reduced expenses for product development and clinical trials. We expect expenses for product development and clinical trials to remain stable for the remainder of 2003.

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Total selling, general and administrative costs for the three months ended September 30, 2003, were $4.2 million compared with $4.3 million in the prior year period. Selling expenses for the current quarter were $0.2 million lower, reflecting organizational changes made during 2003 in our domestic sales group, including headcount reductions. Also, we made no additional provisions to our allowance for uncollectible accounts, compared to $0.2 million in the prior year period, but recruiting and compensation expenses related to additions to our management team offset this savings. Although the deterioration we experienced in international collections in 2002 has stabilized in 2003, we may encounter new difficulties with international collections that require further increases in our allowance for uncollectible accounts in the future, and we may require specific accounts to post letters of credit or pay in advance to minimize credit risk to the Company. We expect stable or modestly reduced levels of selling, general and administrative expense for the remainder of 2003.

Interest income, net of interest and other expenses, was $32,000 for the quarter ended September 30, 2003, down from $85,000 in the corresponding period of 2002. The change was primarily attributable to a smaller portfolio of interest bearing securities, reflecting our use of cash over the past year, and lower interest rates.

Nine months ended September 30, 2003 and 2002

Sales decreased 9% to $12.4 million for the nine months ended September 30, 2003, down from $13.7 million for the nine months ended September 30, 2002. For the nine months ended September 30, 2003, domestic sales decreased by 3% and international sales, due to large generator shipments to our distributor in Japan in the prior year period, decreased by 27% from the nine months ended September 30, 2002. Sales of our disposable products totaled $11.0 million for the year to date period, an increase of 8% over the prior year. This increase reflects higher average selling prices in the domestic market and higher shipments of disposable products to our international distributors. Unit shipments of disposable products in the domestic market decreased 4%. Generator sales for the nine months ended September 30, 2003 were 59% lower than sales in the same period last year, due again to the large generator shipments to our distributor in Japan in the prior year period.

Cost of goods sold for the nine months ended September 30, 2003 was $4.5 million compared to $5.8 million for the nine months ended September 30, 2002, resulting in a 64% margin rate for the current year to date period, compared with a 58% rate in the comparable prior year period. This improvement was primarily due to higher percentages of domestic and disposable sales in our current period sales mix compared to prior period sales. However, in the current nine-month period, these trends were partially offset by $0.2 million in amortization of capitalized license fees associated with the settlement of our patent litigation dispute with Boston Scientific Corporation. We expect such amortization charges to continue to continue through 2015. Also, margins were limited by temporary cost increases, effective through June 2003, on some of our vendor-sourced hardware products. For the nine months ended September 30, 2003, cost of goods sold also included $0.4 million in provision for obsolete inventory, compared with $0.5 million in the comparable prior period. We have, from time to time, recognized relatively high expenses related to obsolete inventory provisions as our product line has undergone several changes, and we may experience pressure on margins in the future due to similar product changes. Despite this possibility, we generally expect stable gross margins over the balance of 2003, reflecting a relatively constant sales mix and stable manufacturing costs, with no immediate expectation of significant additional provisions to our reserve for obsolete inventory.

For the nine months ended September 30, 2003, $3.4 million of our operating expenses were related to research and development activities, compared to $3.9 million in the nine months ended September 30, 2002, primarily because of reduced expenses for product development and clinical trials. We expect expenses for product development and clinical trials to remain stable for the remainder of 2003.

Total selling, general and administrative costs for the nine months ended September 30, 2003, were $13.5 million compared with $14.8 million in the prior year period. Selling expenses for the current period were $0.5 million lower, on lower headcount, reflecting recent organizational changes in our domestic sales group. Also, we have made essentially no additional provisions to our allowance for uncollectible accounts during the nine months ended September 30, 2003, compared to $0.8 million in the prior year period. Although the deterioration we experienced in international collections in 2002 has stabilized in 2003, we may encounter new difficulties with collections that require further increases in our allowance for uncollectible accounts in the future, and we may require specific accounts to post letters of credit or pay in advance to minimize credit risk to the Company. We expect stable or modestly reduced levels of selling, general and administrative expense for the remainder of 2003.

Interest income, net of interest expense and other expenses, was $157,000 for the nine months ended September 30, 2003, down from $368,000 in the corresponding period of 2002. The change was primarily attributable to a smaller portfolio of interest bearing securities, reflecting our use of cash over the past year, and lower interest rates.

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Liquidity and Capital Resources

Prior to August 2000, we financed our operations principally through private placements of convertible preferred stock, raising approximately $37.9 million net of expenses. On August 1, 2000, we completed our initial public offering of 3.6 million common shares at a price of $12 per share, raising approximately $39.0 million net of expenses. All outstanding convertible preferred shares were converted to common shares at that time. In January 2003, we completed a private placement of 2,045,453 common shares at a price of $4.40 per share, raising approximately $8.3 million net of expenses. As of September 30, 2003, we had $3.3 million of cash and cash equivalents, $7.2 million of short and long-term marketable securities and $13.2 million of working capital.

For the nine months ended September 30, 2003, net cash used in operating activities was $7.7 million principally due to our net loss of $8.8 million offset by non-cash charges, including depreciation, amortization and provisions to reserves for uncollectible accounts and inventory, of $1.7 million. Approximately $0.6 million in cash was used by changes in working capital accounts, principally a $1.3 million reduction in accounts payable and accrued liabilities. Our investing activities for the nine months ended September 30, 2003, were limited to the purchase of property and equipment in the amount of $0.7 million, capitalization of certain patent defense litigation costs in the amount of $0.6 million, and capitalization of intangibles associated with settlement of our patent litigation in the amount of $2.65 million. During the nine months ended September 30, 2003, we invested, net of sales and maturities, approximately $1.3 million in short and long-term marketable debt securities. Financing activities for the nine months ended September 30, 2003, provided $9.3 million in cash, all related to issuance of common shares through our January private placement or exercise of stock options.

As of September 30, 2003, future minimum payments due under operating leases were as follows (in thousands):

2003	$	133
2004		356
Total of future minimum operating lease payments	$	489

Our capital requirements depend on numerous factors including our sales, research and development expenditures, expenses related to selling, general and administrative operations and working capital to support business growth. Our net cash used in operating activities was $7.7 million for the nine months ended September 30, 2003, an average of approximately $0.9 million per month, and recently implemented expense reduction programs reduced that rate during the current quarter. Although it is difficult for us to predict future liquidity requirements with certainty, we believe that our reduced rate of cash used in operating activities means our current balances of cash, cash equivalents and marketable securities will satisfy our cash requirements for approximately 18 months. During or after this period, if cash generated by operations is insufficient to satisfy our cash requirements, we may need to sell additional equity or debt securities or obtain an additional credit facility. There can be no assurance that additional financing will be available to us or, if available, that such financing will be available on terms favorable to the Company and our stockholders.

Recent Accounting Pronouncements

In November 2002, the EITF reached a consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. Adoption of this statement has had no material impact on the Company’s financial position or results of operations.

Factors That May Affect Future Results

In addition to the other information in this quarterly report on Form 10-Q and in our annual report on form 10-K for the fiscal year ended December 31, 2002, the following factors should be considered carefully in evaluating our business and prospects.

Due to our dependence on the RITA system, failure to achieve market acceptance in a timely manner could harm our business.

Because all of our revenue comes from the sale of the RITA system, our financial performance will depend upon physician adoption and patient awareness of this system. If we are unable to convince physicians to use the RITA system, we may not be able to generate revenues because we do not have alternative products.

We have a history of losses and may never achieve profitability.

Although operating expenses during the quarter ended September 30, 2003 were lower than in the two preceding quarters, and although we believe that our quarterly operating expenses will stabilize at or below this level for the remainder of 2003 and throughout 2004, to become profitable we must increase our sales and continue to manage our operating expenses. If our sales do not grow, we may not be able to achieve or maintain profitability in the future. In particular, we incurred net losses of $8.8 million in the nine months ended September 30, 2003, $13.5 million in 2002, $13.0 million in 2001, $12.8 million in 2000 and $7.5 million in 1999. At September 30, 2003, we had an accumulated deficit of approximately $76.7 million.

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Because we face significant competition from companies with greater resources than we have, we may be unable to compete effectively.

The market for our products is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants.

We compete directly with two companies in the domestic and international markets: RadioTherapeutics Corporation, a division of Boston Scientific Corporation, and Radionics, Inc., a division of Tyco Healthcare, which is a division of Tyco International. Boston Scientific Corporation and Tyco International are publicly traded companies with substantially greater resources than we have. Both RadioTherapeutics and Radionics sell products that use radiofrequency energy to ablate soft tissue. Furthermore, in April 2003, we entered into a license agreement with Boston Scientific, its affiliates and licensors, pursuant to which we granted Boston Scientific rights to manufacture and sell products using our infusion technology after October 5, 2004. As a result, Boston Scientific may develop and sell some competing products that would, in the absence of this license agreement, infringe our patents.

We are also aware of several companies in international markets which sell products that compete directly with ours. These companies are affecting our international market share and may erode that share in the future. In addition, one of these companies, Berchtold Corporation, has recently received FDA clearance for using radiofrequency energy to ablate soft tissue.

Alternative therapies could prove to be superior to the RITA system, and physician adoption could be negatively affected.

In addition to competing against other companies offering products that use radiofrequency energy to ablate soft tissue, we also compete against companies developing, manufacturing and marketing alternative therapies that address both cancerous and benign tumors. If these alternative therapies prove to offer treatment options that are perceived to be superior to our system, physician adoption of our products could be negatively affected and our revenues could decline.

We currently lack long-term data regarding the safety and efficacy of our products and may find that long-term data does not support our short-term clinical results or that further short or long-term studies do not support the safety and efficacy of our products in various applications.

Our products are supported by clinical follow-up data in published clinical reports or scientific presentations covering periods from five months to five years after radiofrequency ablation. If additional studies in liver cancer or in other applications fail to confirm or demonstrate the effectiveness of our products, our sales could decline. If longer-term patient follow-up or clinical studies indicate that our procedures cause unexpected, serious complications or other unforeseen negative effects, we could be subject to significant liability. Further, because some of our data has been produced in studies that were retrospective, not randomized or included small patient populations and because, in certain circumstances, we rely on clinical data developed by independent third party physicians, our clinical data may not be reproduced in wider patient populations.

If we are unable to protect our intellectual property rights or if we are found to infringe the rights of others, we may lose market share to our competitors and our business could suffer.

Our success depends significantly on our ability to protect our proprietary rights to the technologies used in our products, and yet we may be unable to do so. A number of companies in our market, as well as universities and research institutions, have issued patents and have filed patent applications that relate to the use of radiofrequency energy to ablate soft tissue. That could result in lawsuits against us. Our pending United States and foreign patent applications may not issue or may issue and be subsequently successfully challenged by others. In addition, our pending patent applications include claims to material aspects of our products that are not currently protected by issued patents. Both the patent application process and the process of managing patent disputes can be time consuming and expensive.

In the event a competitor infringes on our patent or other intellectual property rights, enforcing those rights may be difficult and time consuming. Even if successful, litigation to enforce our intellectual property rights or to defend our patents against challenge could be expensive and time consuming and could divert management’s attention. We may not have sufficient resources to enforce our intellectual property rights or to defend our patents against a challenge. In addition, confidentiality agreements executed by our employees, consultants and advisors may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure. If we are unable to protect our intellectual property rights we could lose market share to our competitors and our business could suffer.

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Our dependence on international revenues, which account for a significant portion of our revenues, could harm our business.

Because our future profitability will depend in part on our ability to increase product sales in international markets, we are exposed to risks specific to business operations outside the United States. These risks include:

• the challenge of managing international sales without direct access to the end customer;

• the risk of inventory build-up by our distributors which could negatively impact sales in future periods (for example, our distributor in Japan has built up a significant inventory of product in anticipation of the receipt of product and reimbursement approvals);

• obtaining reimbursement for procedures using our devices in some foreign markets;

• the burden of complying with complex and changing foreign regulatory requirements;

• longer accounts receivable collection time;

• significant currency fluctuations, which could cause our distributors to reduce the number of products they purchase from us because the cost of our products to them could increase relative to the price they could charge their customers;

• reduced protection of intellectual property rights in some foreign countries; and

• contractual provisions governed by foreign laws.

We are substantially dependent on two distributors in our international markets, and if we lose either distributor or if either distributor significantly reduces its product demand, our international and total revenues could decline.

We are substantially dependent on a limited number of significant distributors in our international markets, and if we lose these distributors and fail to attract additional distributors, our international revenues could decline. ITX Corporation, formerly known as Nissho Iwai Corporation, is our primary distributor in Asia. It accounted for 24% of our international revenues in the nine months ended September 30, 2003 and 55% of our international revenues in 2002. M.D.H. s.r.l. Forniture Ospedaliere, our distributor in Italy, accounted for 24% of our international revenues in the nine months ended September 30, 2003 and 17% of our international revenues for 2002. Because international revenues accounted for 21% of our total revenues for the nine months ended September 30, 2003 and these two distributors represented 48% of that total, the loss of either distributor or a significant decrease in unit purchases by either distributor could cause our revenues to decline substantially. If we are unable to attract additional international distributors, our international revenues may not grow.

Our relationships with third-party distributors could negatively affect our sales.

We sell our products in international markets through third-party distributors over whom we have limited control, and, if they fail to adequately support our products, our sales could decline. During the first quarter of 2003, we terminated our agreements with three of our international distributors and although we have contracted with replacement distributors we have expended significant time and resources in doing so, and our sales in the three affected markets have suffered during what we estimated to be a six-month transition period. We believe that transition period should have ended by September 30, 2003. However, if our distributors or we terminate other distributor agreements, we could incur similar or more burdensome expenses, have to expend significant time and resources in finding replacement distributors and our sales could decrease during any related transition period.

We are aware that some of our international distributors have built up inventory of our products. As a result, future sales to these distributors could be negatively impacted and 2003 sales to our Japanese distributor have already been so affected. In addition, while these distributors have no price protection and no right of return relating to purchased products, if we permit the return of any of these products, we will have to adjust our revenues relating to these products which may also impact our revenue recognition policy on future distributor sales.

In 2002, we significantly increased our allowance for uncollectible accounts to address the risk associated with longer collection periods that have arisen principally with our European distributors. Although the deterioration we experienced in international collections in 2002 has stabilized in 2003, we may encounter new difficulties with collections that require further increases in our allowance for uncollectible accounts in the future, and we may require specific accounts to post letters of credit or pay in advance to minimize credit risk to the Company. Additional future increases in our allowance for uncollectible accounts would reduce our profits.

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If customers in markets outside the United States experience difficulty obtaining reimbursement for procedures using our products, international sales could decline.

Certain of the markets outside the United States in which we sell our products require that specific reimbursement codes be obtained before reimbursement for procedures using our products can be approved. As a result, in countries where specific reimbursement codes are strictly required and have not yet been issued, reimbursement has been denied on that basis. For example, ITX Corporation, our distributor in Japan, is seeking to obtain reimbursement coverage in Japan, but to date has not yet received this approval. If we are unable to either obtain the required reimbursement codes or develop an effective strategy to resolve the reimbursement issue, physicians in foreign markets may be unwilling to purchase our products which could negatively impact our international revenues.

If third-party payors do not reimburse health care providers for use of the RITA system, purchases could be delayed and our revenues could decline.

Physicians, hospitals and other health care providers may be reluctant to purchase our products if they do not receive coverage or adequate reimbursement for the cost of procedures using our products from third-party payors, such as Medicare, Medicaid and private health insurance plans. If physicians believe that using our system will add cost to a procedure but will not add sufficient offsetting economic or clinical benefits, physician adoption of our products could be delayed. Even though in February 2002 we were successful in establishing a new liver CPT code assigned by the American Medical Association, some third-party payors still may not cover or reimburse adequately for procedure using our products. We are aware of liver procedures using our system where the patient’s insurance has denied coverage. In addition, there are no assigned CPT codes for radiofrequency ablation of tumors in other organs. Further, we believe the advent of the Medicare fixed payment schedules has made it difficult to receive adequate liver reimbursement for procedures using our products in the outpatient setting. Medicare reimbursement levels for procedures using our products are highest when our products are used in an in-patient setting. If there is a trend toward the use of our products on an outpatient basis or if coverage continues to be denied or reimbursement levels continue to be inadequate, physician use of our products could decline which would cause our revenues to decline.

We depend on key employees in a competitive market for skilled personnel and without additional employees, we cannot grow or achieve profitability.

We are highly dependent on the principal members of our management team, including our Chief Executive Officer and Chief Financial Officer, as well as key staff in the areas of finance, operations and research and development. Our future success will depend in part on the continued service of our staff and our ability to identify, hire and retain additional personnel. The market for qualified management personnel in Northern California, where our offices are located, is competitive and is expected to remain so. Because the environment for good personnel is so competitive, costs related to compensation may increase significantly. If we are unable to attract and retain both the management team and key personnel we need to support and grow our business, our business will suffer.

We may be subject to costly and time-consuming product liability actions.

We manufacture medical devices that are used on patients in both minimally invasive and open surgical procedures and, as a result, we may be subject to product liability lawsuits. To date, we have not been subject to a product liability claim; however, any product liability claim brought against us, with or without merit, could result in the increase of our product liability insurance rates or the inability to secure coverage in the future. In addition, we could have to pay any amount awarded by a court in excess of policy limits. Finally, even a meritless or unsuccessful product liability claim could be time consuming and expensive to defend and could result in the diversion of management’s attention from managing our core business.

Any failure in our physician training efforts could result in lower than expected product sales.

It is critical to our sales effort to train a sufficient number of physicians and to instruct them properly in the procedures that utilize our products. We have established formal physician training programs and rely on physicians to devote adequate time to understanding how and when our products should be used. If physicians are not properly trained, they may misuse or ineffectively use our products. Such use may result in unsatisfactory patient outcomes, patient injury and related liability or negative publicity that could have an adverse effect on our product sales.

-16-

We may incur significant costs related to a class action lawsuit due to the likely volatility of our stock.

Our stock price may fluctuate for a number of reasons including:

• failure of the public market to support the valuation established in our initial public offering or our 2003 private placement transaction;

• our ability to successfully commercialize our products;

• announcements regarding patent litigation or the issuance of patents to us or our competitors;

• quarterly fluctuations in our results of operations;

• announcements of technological or competitive developments;

• regulatory developments regarding us or our competitors;

• acquisitions or strategic alliances by us or our competitors;

• changes in estimates of our financial performance or changes in recommendations by securities analysts; and

• general market conditions, particularly for companies with small market capitalizations.

Securities class action litigation is often brought against a company after a period of volatility in the market price of its stock. If our future quarterly operating results are below the expectations of securities analysts or investors, the price of our common stock would likely decline. Stock price fluctuations may be exaggerated if the trading volume of our common stock is low. Any securities litigation claims brought against us could result in substantial expense and divert management’s attention from our core business.

We have limited experience manufacturing our disposable devices in substantial quantities, and if we are unable to hire sufficient additional personnel or to purchase additional equipment or are otherwise unable to meet customer demand, our business could suffer.

To be successful, we must manufacture our products in substantial quantities in compliance with regulatory requirements at acceptable costs. If we do not succeed in manufacturing quantities of our disposable devices that meet customer demand, we could lose customers and our business could suffer. At the present time, we have limited high-volume manufacturing experience. Our manufacturing operations are currently focused on the in-house assembly of our disposable devices. As we increase our manufacturing volume and the number of product designs for our disposable devices, the complexity of our manufacturing processes will increase. Because our manufacturing operations are primarily dependent upon manual assembly, if demand for our system increases we will need to hire additional personnel and may need to purchase additional equipment. If we are unable to sufficiently staff and equip our manufacturing operations or are otherwise unable to meet customer demand for our products, our business could suffer.

We are dependent on two suppliers as the only sources of a component that we use in our disposable devices, and any disruption in the supply of this component could negatively affect our business.

Until recently, there has been only one supplier available to provide us with a component that we include in our disposable devices. During the quarter ended June 30, 2003, we qualified a second supplier. However, a disruption in the supply of this component is still possible and could negatively affect revenues. If we were unable to remedy a disruption in supply of this component within twelve months, we could be required to redesign the handle of our disposable devices, which could divert engineering resources from other projects or add to product costs. In addition, a new or supplemental filing with applicable regulatory authorities may require clearance prior to our marketing a product containing new materials. This clearance process may take a substantial period of time, and we may be unable to obtain necessary regulatory approvals for any new material to be used in our products on a timely basis, if at all. This could also create supply disruptions that could negatively affect our business.

We are dependent on two suppliers as our only sources of an accessory device used in conjunction with our Starburst XLi line of disposable devices, and any disruption in the supply of these devices could negatively affect our revenues.

Until December 2002, we had only one supplier available to provide us with accessory infusion pumps used in conjunction with our Starburst XLi line of disposable devices. During the quarters ended September 30, 2002 and December 31, 2002, we experienced shortages in the supply of accessory infusion pumps. In December 2002, we qualified a new accessory infusion pump from our existing supplier for which we now have approval from UL and conditional approval from TUV for use in the United States and Europe. Also in December 2002, we qualified a second supplier of an accessory infusion pump, although we have not yet shipped this product to our customers commercially. Although we were able to remedy this supply disruption, future disruptions in the supply of this component are still possible and, in that event, our business could suffer through lower revenues or higher costs. Additionally, we have limited experience with both the primary and alternative pump and if either pump fails to perform as desired, revenues could be negatively affected.

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We are dependent on third-party contractors for the supply of our generators, and any failure to deliver generators to us could result in lower than expected revenues.

We are dependent on two third-party suppliers to produce our generators. While we have agreements with both of these suppliers, any delay in shipments of generators to us could result in our failure to ship generators to customers and could negatively affect revenues.

Complying with the FDA and other domestic and international regulatory authorities is an expensive and time-consuming process, and any failure to comply could result in substantial penalties.

We are subject to a host of federal, state, local and international regulations regarding the manufacture and marketing of our products. In particular, our failure to comply with FDA regulations could result in, among other things, seizures or recalls of our products, an injunction, substantial fines and/or criminal charges against our employees and us. The FDA’s medical device reporting regulations require us to report any incident in which our products may have caused or contributed to a death or serious injury, or in which our products malfunctioned in a way that would be likely to cause or contribute to a death or serious injury if the malfunction recurred.

Sales of our products outside the United States are subject to foreign regulatory requirements that vary from country to country. The time required to obtain approvals from foreign countries may be longer than that required for FDA approval or clearance, and requirements for foreign licensing may differ from FDA requirements. For example, some of our newer products have not received approval in Japan. Any failure to obtain necessary regulatory approvals for our new products in foreign countries could negatively affect revenues.

Product introductions or modifications may be delayed or canceled as a result of the FDA regulatory process, which could cause our revenues to be below expectations.

Unless we are exempt, we must obtain the appropriate FDA approval or clearance before we can sell a new medical device in the United States. Obtaining this approval or clearance can be a lengthy and time-consuming process. To date, all of our products have received clearances from the FDA through premarket notification under Section 510(k) of the Federal Food, Drug and Cosmetic Act. However, if the FDA requires us to submit a new premarket notification under Section 510(k) for modifications to our existing products, or if the FDA requires us to go through a lengthier, more rigorous examination than we now expect, our product introductions or modifications could be delayed or canceled which could cause our revenues to be below expectations. The FDA may determine that future products will require the more costly, lengthy and uncertain premarket approval process. In addition, modifications to medical device products cleared via the 510(k) process may require a new 510(k) submission. We have made minor modifications to our system. Using the guidelines established by the FDA, we have determined that some of these modifications do not require us to file new 510(k) submissions. If the FDA disagrees with our determinations, we may not be able to sell the RITA system until the FDA has cleared new 510(k) submissions for these modifications, or it may require us to recall previously sold products. In addition, we intend to request additional label indications, such as approvals or clearances for the ablation of tumors in additional organs, including lung, uterus and breast, for our current products. The FDA may either deny these requests outright, require additional extensive clinical data to support any additional indications or impose limitations on the intended use of any cleared product as a condition of approval or clearance. Therefore, obtaining necessary approvals or clearances for these additional applications could be an expensive and lengthy process. In addition, in the course of the FDA process leading to clearance or approval for a new indication, FDA may request an advisory panel meeting or meetings to discuss the clinical data, the appropriate study design or other criteria for clearance or approval. In the event that the advisory panel advises FDA that the clinical data are inadequate or the study design or other criteria are inappropriate, and FDA concurs, the FDA clearance or approval process could be lengthened and anticipated revenues from that new indication would be delayed.

We may need to raise additional capital in the future resulting in dilution to our stockholders.

We may need to raise additional funds for our business operations and to execute our business strategy. We may seek to sell additional equity or debt securities or to obtain an additional credit facility. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. If additional funds are raised through the issuance of debt securities, these securities could have rights that are senior to holders of common stock and could contain covenants that would restrict our operations. Any additional financing may not be available in amounts or on terms acceptable to us, if at all.

Our executive officers and directors own a large percentage of our voting stock and could exert significant influence over matters requiring stockholder approval.

Because our executive officers and directors, and their respective affiliates, own approximately 10 percent of our outstanding common stock as of September 30, 2003, these stockholders may, as a practical matter, be able to exert significant influence over matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combinations. This concentration of voting stock could have the effect of delaying or preventing a merger or acquisition or other change of control that a stockholder may consider favorable.

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Our certificate of incorporation, our bylaws, Delaware law and our stockholder rights plan contain provisions that could discourage a takeover.

Provisions of our certificate of incorporation, our bylaws, Delaware law and our stockholder rights plan contain provisions that may discourage, delay or prevent a merger or acquisition or other change of control that a stockholder may consider favorable.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Our market risk disclosures have not changed significantly from those set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2002, filed on March 28, 2003.

Item 4.    Controls and Procedures

Within 90 days prior to the date of this report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934. Based upon that evaluation, the principal executive officer and principal financial officer has concluded that the Company’s disclosure controls and procedures are effective. The Company’s disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching its desired disclosure control objectives and are effective in doing so.

There were no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect these internal controls subsequent to the date of their evaluation.

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PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings.

From 1999 through March, 2003, the Company was involved in patent-related disputes that were settled in April 2003, and are more fully described in our report on Form 10-K filed on March 28, 2003, our report on Form 10-Q filed on May 15, 2003, and our report on Form 10-Q filed on August 13, 2003.

The Company may, from time to time, become a party to legal proceedings arising in the ordinary course of business. Such matters generally involve complex questions of fact and law and could involve significant costs and the diversion of resources to defend. Additionally, the results of litigation are inherently uncertain, and an adverse outcome is at least reasonably possible. We are unable to estimate the range of possible loss from such future litigation or other legal proceedings and no amounts have been provided for such matters in the accompanying unaudited condensed consolidated financial statements.

Item 2.    Changes in Securities and Use of Proceeds. Not applicable.

Item 3.    Defaults Upon Senior Securities. Not applicable.

Item 4.    Submission of Matters to a Vote of Security Holders. Not applicable.

Item 5.    Other Information. Not applicable.

Item 6.    Exhibits and Reports on Form 8-K.

(a)    Exhibits:

#10.37	Amended and Restated Consulting Agreement with Randy Lindholm dated August 5, 2003.
#10.38	Form of Indemnification Agreement between the Company and Joseph DeVivo dated August 18, 2003, Wes Johnson dated August 5, 2003 and Stephen Pedroff dated September 2, 2003.
#10.39	Form of Change of Control Agreement entered into between the Company and Joseph DeVivo dated August 18, 2003 and Stephen Pedroff dated September 2, 2003.
#10.40	Offer letter between the Company and Joseph DeVivo dated July 23, 2003.
#10.41	Offer letter between the Company and Stephen Pedroff dated August 22, 2003.
31.1	Rule 13a-14(a) Section 302 Certification.
31.2	Rule 13a-14(a) Section 302 Certification.
32.1	Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

# Management contract or compensatory plan or arrangement.

(b)    Reports on Form 8-K:

A report on Form 8-K was filed with the SEC on July 7, 2003.

A report on Form 8-K was filed with the SEC on July 22, 2003.

A report on Form 8-K was filed with the SEC on July 31, 2003.

A report on Form 8-K was filed with the SEC on August 19, 2003.

A report on Form 8-K was filed with the SEC on September 10, 2003.

A report on Form 8-K was filed with the SEC on October 7, 2003.

A report on Form 8-K was filed with the SEC on October 23, 2003.

A report on Form 8-K was filed with the SEC on November 5, 2003.

A report on Form 8-K was filed with the SEC on November 13, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

RITA MEDICAL SYSTEMS, INC
By:	/S/    JOSEPH DEVIVO
Joseph DeVivo President and Chief Executive Officer

Date:  November 13, 2003

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EXHIBIT INDEX

#10.37	Amended and Restated Consulting Agreement with Randy Lindholm dated August 5, 2003.
#10.38	Form of Indemnification Agreement between the Company and Joseph DeVivo dated August 18, 2003, Wes Johnson dated August 5, 2003 and Stephen Pedroff dated September 2, 2003.
#10.39	Form of Change of Control Agreement entered into between the Company and Joseph DeVivo dated August 18, 2003 and Stephen Pedroff dated September 2, 2003.
#10.40	Offer letter between the Company and Joseph DeVivo dated July 23, 2003.
#10.41	Offer letter between the Company and Stephen Pedroff dated August 22, 2003.
31.1	Rule 13a-14(a) Section 302 Certification.
31.2	Rule 13a-14(a) Section 302 Certification.
32.1	Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

# Management contract or compensatory plan or arrangement.

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EX-10.37

Exhibit 10.37

RITA MEDICAL SYSTEMS, INC.

AMENDED AND RESTATED CONSULTING AGREEMENT

This Amended and Restated Consulting Agreement (the “Agreement”) is entered into by and between RITA Medical Systems, Inc. (the “Company”), a Delaware corporation and Randy D. Lindholm (“Consultant”).

WHEREAS, Consultant and the Company have previously entered into that certain Consulting Agreement (the “Original Consulting Agreement”) effective as of April 25, 2003 (the “Effective Date”); and

WHEREAS, Consultant and the Company now desire to amend and restate the terms of the Original Consulting Agreement and to supersede it in its entirety with the terms set forth herein.

NOW THEREFORE, in consideration of the mutual promises contained herein, Company and Consultant agree as follows:

1.    Consulting Relationship.    During the term of this Agreement, Consultant will provide consulting services (the “Services”) to the Company as described on Exhibit A attached to this Agreement. Consultant represents that Consultant is duly licensed (as applicable) and has the qualifications, the experience and the ability to properly perform the Services. Consultant shall use Consultant’s best efforts to perform the Services such that the results are satisfactory to the Company. Consultant shall be available to the Company upon the Company’s reasonable request in accordance with the schedule set forth on Exhibit B attached to this Agreement.

2.    Fees.    As consideration for the Services to be provided by Consultant and other obligations, the Company shall pay to Consultant the amounts specified in Exhibit B attached to this Agreement in the manner and at the times specified therein.

3.    Expenses.    Consultant shall not be authorized to incur on behalf of the Company any expenses, without the prior consent of the either a member of the Company’s Board of Directors or the Company’s Chief Executive Officer, which consent shall be evidenced in writing for any expenses in excess of $1,000.00. As a condition to receipt of reimbursement, Consultant shall be required to submit to the Company reasonable evidence that the amount involved was expended and related to Services provided under this Agreement.

4.    Term and Termination.    Consultant shall serve as a consultant to the Company for a period commencing on the Effective Date and terminating on June 30, 2004; provided, however, that the Consulting Relationship shall terminate prior to such date if at any time after July 24, 2003, the Company desires to terminate this Agreement. Such termination shall be effective upon ten days’ prior written notice to Consultant, which notice shall be executed by the Chairman of the Company’s Board of Directors. In the event that this Agreement is terminated by the Company, Consultant shall receive a termination fee (the “Termination Fee”) equal to the greater of (i) the amount owed to Consultant for the remaining term of this Agreement or (ii) the amount owed to Consultant for the provision of an additional three months of Services, each in accordance with the schedule set forth on Exhibit B attached to this Agreement. The Termination Fee shall be paid to Consultant in a lump sum payment. In the event that this Agreement is terminated by Consultant, Consultant shall be paid for any portion of the Services that have been performed prior to the date of such termination.

5.    Independent Contractor.    Consultant’s relationship with the Company will be that of an independent contractor and not that of an employee.

(a)    Method of Provision of Services:    Consultant shall be solely responsible for determining the method, details and means of performing the Services. Consultant may, at Consultant’s own expense, employ or engage the service of such employees or subcontractors as Consultant deems necessary to perform the Services required by this Agreement (the “Assistants”). Such Assistants are not the employees of the Company and Consultant shall be wholly responsible for the professional performance of the Services by his Assistants such that the results are satisfactory to the Company. Consultant shall expressly advise the Assistants of the terms of this Agreement, and shall require each Assistant to execute a Confidential Information and Invention Assignment Agreement substantially in the form attached to this Agreement as Exhibit C (the “Confidentiality Agreement”).

(b)    No Authority to Bind Company.    Neither Consultant, nor any partner, agent or employee of Consultant, has authority to enter into contracts that bind the Company or create obligations on the part of the Company without the prior written authorization of the Company.

(c)    No Benefits.    Consultant acknowledges and agrees that Consultant (or Consultant’s employees, if Consultant is an entity) will not be eligible for any Company employee benefits and, to the extent Consultant (or Consultant’s employees, if Consultant is an entity) otherwise would be eligible for any Company employee benefits but for the express terms of this Agreement, Consultant (on behalf of itself and its employees) hereby expressly declines to participate in such Company employee benefits.

(d)    Withholding; Indemnification.    Consultant shall have full responsibility for applicable withholding taxes for all compensation paid to Consultant, its partners, agents or its employees under this Agreement, and for compliance with all applicable labor and employment requirements with respect to Consultant’s self-employment, sole proprietorship or other form of business organization, and Consultant’s partners, agents and employees, including state worker’s compensation insurance coverage requirements and any US immigration visa requirements. Consultant agrees to indemnify, defend and hold the Company harmless from any liability for, or assessment of, any claims or penalties with respect to such withholding taxes, labor or employment requirements, including any liability for, or assessment of, withholding taxes imposed on the Company by the relevant taxing authorities with respect to any compensation paid to Consultant or Consultant’s partners, agents or its employees.

6.    Supervision of Consultant’s Services.    All of the Services to be performed by Consultant, including but not limited to the Services, will be as agreed between Consultant and the Chairman of the Company’s Board of Directors. Consultant will be required to report to the Chairman of the Company’s Board of Directors concerning the Services performed under this Agreement. The nature and frequency of these reports will be left to the discretion of the Chairman of the Company’s Board of Directors.

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7.    Consulting or Other Services for Competitors.    Consultant represents and warrants that Consultant does not presently perform or intend to perform, during the term of the Agreement, consulting or other services for, or engage in or intend to engage in an employment relationship with, companies who businesses or proposed businesses in any way involve products or services which would be competitive with the Company’s products or services, or those products or services proposed or in development by the Company during the term of the Agreement (except for those companies, if any, listed on Exhibit D attached hereto). If, however, Consultant decides to do so, Consultant agrees that, in advance of accepting such work, Consultant will promptly notify the Company in writing, specifying the organization with which Consultant proposes to consult, provide services, or become employed by and to provide information sufficient to allow the Company to determine if such work would conflict with the terms of this Agreement, including the terms of the Confidentiality Agreement, the interests of the Company or further services which the Company might request of Consultant. If the Company determines that such work conflicts with the terms of this Agreement, the Company reserves the right to terminate this Agreement immediately.

8.    Confidentiality Agreement.    Consultant shall sign, or has signed, a Confidential Information and Invention Assignment Agreement substantially in the form attached to this Agreement as Exhibit C (the “Confidentiality Agreement”), on or before April 25, 2003. In the event that Consultant is an entity or otherwise will be causing individuals in its employ or under its supervision to participate in the rendering of the Services, Consultant warrants that it shall cause each of such individuals to execute a Confidentiality Agreement in the form attached as Exhibit C.

9.    Conflicts with this Agreement.    Consultant represents and warrants that neither Consultant nor any of Consultant’s partners, employees or agents is under any pre-existing obligation in conflict or in any way inconsistent with the provisions of this Agreement. Consultant represents and warrants that Consultant’s performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by Consultant in confidence or in trust prior to commencement of this Agreement. Consultant warrants that Consultant has the right to disclose and/or or use all ideas, processes, techniques and other information, if any, which Consultant has gained from third parties, and which Consultant discloses to the Company or uses in the course of performance of this Agreement, without liability to such third parties. Notwithstanding the foregoing, Consultant agrees that Consultant shall not bundle with or incorporate into any deliveries provided to the Company herewith any third party products, ideas, processes, or other techniques, without the express, written prior approval of the Company. Consultant represents and warrants that Consultant has not granted and will not grant any rights or licenses to any intellectual property or technology that would conflict with Consultant’s obligations under this Agreement. Consultant will not knowingly infringe upon any copyright, patent, trade secret or other property right of any former client, employer or third party in the performance of the Services required by this Agreement.

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10.    Miscellaneous.

(a)    Amendments and Waivers.    Any term of this Agreement may be amended or waived only with the written consent of the parties.

(b)    Sole Agreement.    This Agreement, including the Exhibits hereto, constitutes the sole agreement of the parties and supersedes all oral negotiations and prior writings with respect to the subject matter hereof.

(c)    Notices.    Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, 48 hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, if such notice is addressed to the party to be notified at such party’s address or facsimile number as set forth below, or as subsequently modified by written notice.

(d)    Choice of Law.    The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California, without giving effect to the principles of conflict of laws.

(e)    Severability.    If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.

(f)    Counterparts.    This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

(g)    Arbitration.    Any dispute or claim arising out of or in connection with any provision of this Agreement will be finally settled by binding arbitration in Santa Clara County, California, in accordance with the rules of the American Arbitration Association by one arbitrator appointed in accordance with said rules. The arbitrator shall apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision. This Section 10(g) shall not apply to the Confidentiality Agreement.

(h)    Advice of Counsel.    EACH PARTY ACKNOWLEDGES THAT, IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.

[Signature Page Follows]

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The parties have executed this Agreement on the respective dates set forth below.

RITA MEDICAL SYSTEMS, INC.
By:	/S/    VINCENT BUCCI
Title:	Chairman of the Board

Address:

Date:  August 5, 2003

RANDY D. LINDHOLM

/S/    RANDY LINDHOLM        

Signature

Address:

Date:  August 5, 2003

EXHIBIT A

DESCRIPTION OF CONSULTING SERVICES

Description of Services

Consultant shall provide advice to the Company in his field of expertise and shall introduce the Company to potential employees, consultants, customers and partners.

EXHIBIT B

CONSULTING SCHEDULE AND COMPENSATION

Consultant shall perform the Services upon the Company’s reasonable request in accordance with the following schedule:

Period	Schedule	Fee
4/25/03-7/24/03	An average of three days per week	$125,000
7/25/03-9/30/03	Two days per month	$10,000 per month ($5,000 per day)
10/01/03-12/31/03	Two days per month	$6,000 per month ($3,000 per day)
1/01/03-6/30/04	One day per month	$3,000 per day

All amounts due hereunder shall be paid to Consultant monthly in advance (the “Advance”). In the event that the Company requests that Consultant provide additional Services, Consultant shall be paid a fee of $5,000 per day for the provision of such Services. Any additional amount owed to Consultant for the prior month shall be included in the next Advance paid to Consultant.

The Company will recommend that the Board grant Consultant a non-qualified option to purchase 25,000 shares of the Company’s Common Stock (the “Initial Shares”), at an exercise price equal to the fair market value of the Company’s Common Stock on the date of grant, and which will vest and become exercisable as follows: 1/48^th of the Initial Shares will vest each month following the grant date.

In addition, the Company will recommend that the Board grant Consultant a non-qualified option to purchase 10,000 shares of the Company’s Common Stock (the “Subsequent Shares”), at an exercise price equal to the fair market value of the Company’s Common Stock on the date of grant, and which will vest and become exercisable as follows: 1/24^th of the Subsequent Shares will vest each month following the grant date.

EXHIBIT C

CONFIDENTIAL INFORMATION AND

INVENTION ASSIGNMENT AGREEMENT

EXHIBIT D

LIST OF COMPANIES

EXCLUDED UNDER SECTION 7

____ No conflicts

____ Additional Sheets Attached

Signature of Consultant: _______________________________________

Print Name of Consultant: _______________________________________

Date:

EX-10.38

Exhibit 10.38

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (the “Agreement”) is made as of «Date», by and between RITA Medical Systems, Inc., a Delaware corporation (the “Company”), and «IndemniteeName» (the “Indemnitee”).

RECITALS

The Company and Indemnitee recognize the increasing difficulty in obtaining liability insurance for directors, officers and key employees, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers and key employees to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and agents of the Company may not be willing to continue to serve as agents of the Company without additional protection. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, and to indemnify its directors, officers and key employees so as to provide them with the maximum protection permitted by law.

AGREEMENT

In consideration of the mutual promises made in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Indemnitee hereby agree as follows:

1.    Indemnification.

(a)    Third Party Proceedings.    The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.

(b)    Proceedings By or in the Right of the Company.    The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) and, to the fullest extent permitted by law, amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee’s duty to the Company and its stockholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

(c)    Mandatory Payment of Expenses.    To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by Indemnitee in connection therewith.

2.    No Employment Rights.    Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment.

3.    Expenses; Indemnification Procedure.

(a)    Advancement of Expenses.    The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referred to in Section l (a) or Section 1(b) hereof (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby.

(b)    Notice/Cooperation by Indemnitee.    Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee’s power.

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(c)    Procedure.    Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company’s Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys’ fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3 (a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties’ intention that if the Company contests Indemnitee’s right to indemnification, the question of Indemnitee’s right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.

(d)    Notice to Insurers.    If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

(e)    Selection of Counsel.    In the event the Company shall be obligated under Section 3 (a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee’s expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company.

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4.    Additional Indemnification Rights; Nonexclusivity.

(a)    Scope.    Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s Certificate of Incorporation, the Company’s Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee’s rights and the Company’s obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties’ rights and obligations hereunder.

(b)    Nonexclusivity.    The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company’s Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested members of the Company’s Board of Directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action in Indemnitee’s official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding.

5.    Partial Indemnification.    If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.

6.    Mutual Acknowledgment.    Both the Company and Indemnitee acknowledge that in certain instances, Federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the “SEC”) has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee.

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7.    Officer and Director Liability Insurance.    The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company’s performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent or subsidiary of the Company.

8.    Severability.    Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.

9.    Exceptions.    Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

(a)    Claims Initiated by Indemnitee.    To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate;

(b)    Lack of Good Faith.    To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous;

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(c)    Insured Claims.    To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers’ and directors’ liability insurance maintained by the Company; or

(d)    Claims under Section 16(b).    To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.

10.    Construction of Certain Phrases.

(a)    For purposes of this Agreement, references to the “Company” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(b)    For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

11.    Attorneys’ Fees.    In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys’ fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee’s material defenses to such action were made in bad faith or were frivolous.

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12.    Miscellaneous.

(a)    Governing Law.    This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflict of law.

(b)    Entire Agreement; Enforcement of Rights.    This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

(c)    Construction.    This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto.

(d)    Notices.    Any notice, demand or request required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party’s address as set forth below or as subsequently modified by written notice.

(e)    Counterparts.    This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

(f)    Successors and Assigns.    This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee’s heirs, legal representatives and assigns.

(g)    Subrogation.    In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights.

[Signature Page Follows]

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The parties hereto have executed this Agreement as of the day and year set forth on the first page of this Agreement.

RITA MEDICAL SYSTEMS, INC.

By:

Title:

Address: 967 Shoreline Blvd. Mountain View, CA 94043

AGREED TO AND ACCEPTED:

«IndemniteeName» (Signature)

Address: «IndemniteeAddress1» «IndemniteeAddress2»

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EX-10.39

Exhibit 10.39

CHANGE OF CONTROL AGREEMENT

This Change of Control Agreement (the “Agreement”) is made and entered into effective as of                               , 200    , by and between                              (the “Employee”) and RITA Medical Systems, Inc., a Delaware corporation (the “Company”).

RECITALS

A.    It is understood that another company or other entity may from time to time consider the possibility of acquiring the Company or that a change in control may otherwise occur, with or without the approval of the Company’s Board of Directors (the “Board”). The Board has identified the Employee, an officer of the Company, as a key employee whose continued employment with the Company is critical to the Company’s future success and has determined that it is important to provide Employee with an incentive to continue his or her employment with the Company in the event that the Company consummates a Change of Control transaction. For purposes of this Agreement, this shall include Employee’s employment in a majority-owned subsidiary or other surviving entity of an acquiring Company.

B.    To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by the Employee, to agree to the terms provided in this Agreement.

C.    The Board believes that it is imperative to provide the Employee with certain benefits upon a Change of Control and, under certain circumstances, upon termination of the Employee’s employment in connection with a Change of Control, which benefits are intended to provide the Employee with financial security and provide sufficient income and encouragement to the Employee to remain with the Company notwithstanding the possibility of a Change of Control.

D.    To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by the Employee, to agree to the terms provided in this Agreement.

E.    Certain capitalized terms used in the Agreement are defined in Section 3 below.

In consideration of the mutual covenants contained in this Agreement, and in consideration of the continuing employment of Employee by the Company, the parties agree as follows:

1.    At-Will Employment.    The Company and the Employee acknowledge that the Employee’s employment is and shall continue to be at-will, as defined under applicable law. If the Employee’s employment terminates for any reason, including (without limitation) any termination prior to a Change of Control, the Employee shall not be entitled to any payments or benefits, other than as provided by this Agreement, or as may otherwise be available in

accordance with the terms of the Company’s established employee plans and written policies at the time of termination. The terms of this Agreement shall terminate upon the earlier of (i) the date on which Employee ceases to be employed as an officer of the Company, other than as a result of an involuntary termination by the Company without Cause, (ii) the date that all obligations of the parties hereunder have been satisfied, or (iii) twelve (12) months after a Change of Control. A termination of the terms of this Agreement pursuant to the preceding sentence shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits on account of a termination of employment occurring prior to the termination of the terms of this Agreement.

2.    Change of Control.

(a)    Stock Options and Restricted Stock.    Subject to Section 4 below, in the event of a Change of Control, on the effective date of the transaction, fifty percent (50%) of all unvested options to purchase the Company’s securities held by the Employee (the “Option”) prior to the effective date of the Change of Control transaction shall become fully vested and immediately exercisable and shall be exercisable to the extent so vested in accordance with the provisions of the Option Agreement and Plan pursuant to which such Option was granted and repurchase rights of the Company with respect to fifty percent (50%) of the shares of restricted stock held by the Employee purchased by the Employee pursuant to the terms of a Stock Purchase Agreement shall immediately lapse. In addition, on each one month anniversary of the effective date of the Change of Control transaction 1/12 of all remaining unvested options held by the Employee shall become fully vested and immediately exercisable and repurchase rights of the Company with respect to 1/12 of all remaining shares of restricted stock held by Employee shall lapse.

(b)    Termination Following A Change of Control.    If the Employee’s employment with the Company is involuntarily terminated at any time within twelve (12) months after a Change of Control all unvested options held by the Employee shall become fully vested and immediately exercisable and shall be exercisable to the extent so vested in accordance with the provisions of the Option Agreement and Plan pursuant to which such Option was granted and repurchase rights of the Company with respect to all of the shares of restricted stock held by the Employee purchased by the Employee pursuant to the terms of a Stock Purchase Agreement shall immediately lapse.

(i)    Voluntary Resignation and Termination for Cause.    If the Employee voluntarily resigns from the Company or is terminated for Cause following the Change of Control, then the Employee shall not be entitled to any acceleration of the vesting of his or her unvested options or lapse of repurchase rights with respect to his or her restricted stock.

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3.    Definition of Terms.    The following terms referred to in this Agreement shall have the following meanings:

(a)    Change of Control.    “Change of Control” shall mean the consummation of any of the following events:

(i)    Ownership.    Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities without the approval of the Board of Directors of the Company; or

(ii)    Merger/Sale of Assets.    A merger or consolidation of the Company whether or not approved by the Board of Directors of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

(b)    Cause.    “Cause” shall mean (i) gross negligence or willful misconduct in the performance of the Employee’s duties to the Company where such gross negligence or willful misconduct has resulted or is likely to result in substantial and material damage to the Company or its subsidiaries, (ii) repeated unexplained or unjustified absence from the Company, (iii) a material and willful violation of any federal or state law; (iv) commission of any act of fraud with respect to the Company; or (v) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the Board of Directors of the Company.

(c)    Involuntary Termination.    “Involuntary Termination” shall include any termination by the Company other than for Cause and the Employee’s voluntary termination, upon 30 days prior written notice to the Company, following (i) a material reduction or change in job duties, responsibilities and requirements inconsistent with the Employee’s position with the Company and the Employee’s prior duties, responsibilities and requirements, taking into account the differences in job title and duties that are normally occasioned by reason of an acquisition of one company by another and that do not actually result in a material change in duties, responsibilities and requirements inconsistent with an employee’s prior position with the acquired company; (ii) any reduction of the Employee’s base and cash bonus compensation (other than in connection with a general decrease in base salaries for most similarly situated employees of the successor corporation); or (iii) the Employee’s refusal to relocate to a location more than 50 miles from the Company’s current location.

4.    Limitation on Payments.

(a)    In the event that the severance benefits provided for in this Agreement to the Employee (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then the Employee’s benefits under Section 2 shall be payable either: (i) in full, or (ii) as to such lesser

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amount which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Employee on an after-tax basis, of the greatest amount of benefits under Section 2, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. Unless the Company and the Employee otherwise agree in writing, any determination required under this Section 4 shall be made in writing by the Company’s independent public accountants (the “Accountants”), whose determination shall be conclusive and binding upon the Employee and the Company for all purposes. For purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4.

(b)    The payment of severance benefits provided for in this Agreement shall be subject to all applicable income, employment and social tax rules and regulations.

5.    Successors.    Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of the Employee’s rights hereunder shall inure to the benefit of, and be enforceable by, the Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

6.    Notice.    Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to the Employee shall be addressed to the Employee at the home address which the Employee most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

7.    Miscellaneous Provisions.

(a)    No Duty to Mitigate.    The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor, except as otherwise provided in this Agreement, shall any such payment be reduced by any earnings that the Employee may receive from any other source.

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(b)    Waiver.    No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(c)    Whole Agreement.    No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement supersedes any agreement of the same title and concerning similar subject matter dated prior to the date of this Agreement, and by execution of this Agreement both parties agree that any such predecessor agreement shall be deemed null and void.

(d)    Choice of Law.    The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without reference to conflict of laws provisions.

(e)    Severability.    If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or unenforceable, and a suitable and equitable term or provision shall be substituted therefor to carry out, insofar as may be valid and enforceable, the intent and purpose of the invalid or unenforceable term or provision.

(f)    Arbitration.    Any dispute or controversy arising under or in connection with this Agreement may be settled at the option of either party by binding arbitration in the County of Santa Clara, California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. Punitive damages shall not be awarded.

(g)    Legal Fees and Expenses.    The parties shall each bear their own expenses, legal fees and other fees incurred in connection with this Agreement.

(h)    No Assignment of Benefits.    The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this subsection (h) shall be void.

(i)    Employment Taxes.    All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.

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(j)    Assignment by the Company.    The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Employee.

(k)    Counterparts.    This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

RITA MEDICAL SYSTEMS, INC.	EMPLOYEE
By:
Title:

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EX-10.40

Exhibit 10.40

July 23, 2003

Joseph DeVivo

1030 Ocean Vista Lane

Santa Barbara, CA 93111

Dear Joe:

On behalf of RITA Medical Systems, Inc. (the “Company”), I am pleased to offer you the position of President and Chief Executive Officer of the Company. You will be working out of the Company’s headquarters in Mountain View, California. Your duties and responsibilities shall include general oversight and management of the Company and responsibility for the day-to-day operations of the Company as well as other duties the Company’s Board of Directors may reasonably assign to you consistent with your position with the Company.

1.    Compensation.

a.    Base Wage.    In this exempt position, you will earn a starting salary of $21,666.67 per month, which is equivalent to $260,000 on an annualized basis, subject to applicable tax withholding. Your salary will be payable pursuant to the Company’s regular payroll policy.

b.    Incentive Compensation.    You will be eligible to earn an incentive bonus in 2004 of up to 40% (the “Base Bonus”) (and in certain circumstances to be determined by the Company’s Compensation Committee of the Board of Directors, up to 65% (the “Stretch Bonus”)) of the salary that is paid to you from January 1, 2004 to December 31, 2004, subject to the attainment of Company and individual performance objectives set forth by the Company’s Compensation Committee of the Board of Directors and provided that you are an employee of the Company through December 31, 2004. The Company’s Compensation Committee of the Board of Directors will determine these objectives and the related portion of the bonus attributable to such objectives, in consultation with you, within 60 days after January 1, 2004; provided, however if you are an employee of the Company through December 31, 2004, the Company will pay you $40,000 of the Base Bonus (such amount, the “Minimum 2004 Bonus”) whether or not any of these objectives are obtained. To the extent that the Company’s Compensation Committee of the Board of Directors determines that any or all of these objectives have been attained and provided that you are an employee of the Company through December 31, 2004, the Company will pay to you the related portion of the bonus attributable to such attained objectives (and in any event at least the Minimum 2004 Bonus), less applicable withholding taxes, on or before March 31, 2005.

c.    Signing Bonus.    The Company will pay to you a $100,000 bonus payment, less applicable withholding taxes (the “Signing Bonus”), on the Company’s first regularly scheduled pay period after your Start Date (as defined below). If your employment with the Company is terminated voluntarily by the employee on or before the first anniversary of your Start Date, you shall promptly, and in any event within 5 days, after your date of termination, repay to the Company the Signing Bonus. If the employment with the Company is terminated voluntarily by the employee after the first anniversary and before the second anniversary of your Start Date, you shall promptly pay 50% of the signing bonus, and in any event within 5 days, after your date of termination.

d.    Annual Review.    Your base salary will be reviewed as part of the Company’s normal annual salary review process.

2.    Employee Benefits.

a.    Paid Time Off.    You will be eligible to accrue up to 15 days of paid vacation per calendar year, pro-rated for the remainder of this calendar year. Vacation accrues as follows: five (5) hours accrue per pay period from your Start Date.

b.    Group Plans.    The Company will provide you with the opportunity to participate in the standard benefits plans currently available to other similarly situated employees, including medical, dental, vision, life and long-term disability insurance, subject to any eligibility requirements imposed by such plans.

c.    401K Retirement Plan.    You will be eligible to participate in the Company’s employee-contribution 401K Retirement Plan beginning on October 1, provided that you have been employed with the Company for at least 30 days.

d.    Employee Stock Purchase Plan.    You will be eligible to participate in the Company’s Employee Stock Purchase Plan beginning on the first February 1 or August 1 following commencement of your employment.

e.    Relocation Expenses.    The Company (A) will reimburse you for, or pay directly, your expenses incurred in relocating from Santa Barbara to the San Francisco Bay Area, which reimbursement shall not exceed $27,000 without the prior approval of the Company’s Compensation Committee of the Board of Directors, and (B) will pay to you a full gross-up on any taxes that you are required to pay on such reimbursement of relocation expenses (the “Relocation Package”). You shall be entitled to use the Relocation Package to pay for any rent, moving or home purchase expenses incurred during the first 90 days of your employment with the Company as a result of your personal relocation and/or your family’s relocation to the San Francisco Bay Area. Payment of any amount of the Relocation Package is contingent upon your submission of original receipts to the Company. Any amounts of the Relocation Package owed to you will be paid within 30 days after the Company’s receipt of your substantiated reimbursement request.

3.    Equity Award.

a.    Stock Option.    In connection with the commencement of your employment, the Company will recommend that the Board of Directors grant you a stock option (the “Option”) to purchase 692,175 shares of the Company’s Common Stock with an exercise price equal to the fair market value on the date of the grant. The Option shares will vest and become exercisable at the rate of 25% of the total number of shares on the 12-month anniversary of your Vesting Commencement Date (as defined in the Stock Option Agreement to be executed between you and the Company, which date will be your Start Date) and 1/48^th of the total number of shares each

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month thereafter on the monthly anniversary of the Vesting Commencement Date. Vesting will, of course, depend on your continued employment with the Company. The Option will be an incentive stock option to the maximum extent allowed by the tax code and will be subject to the terms of the Company’s 2000 Incentive Stock Option Plan and the Stock Option Agreement between you and the Company. Furthermore, after a Change of Control (as defined in the COC Agreement), the Option (to the extent vested) shall be exercisable by you for up to 18 months after the date of the termination of your employment with the Company (or its successor), provided that you shall not be able to exercise the Option after the date that is 10 years from the date of grant thereof.

b.    Acceleration Benefit.

i.    Subject to the approval of the Board of Directors, the Option will be subject to the terms and conditions of the Company’s standard form of Change of Control Agreement, a form of which is enclosed for your review (the “COC Agreement”), accelerated vesting upon a Change of Control only as explicitly set forth in the COC Agreement.

ii.    Furthermore, subject to the approval of the Board of Directors, if, prior to the first anniversary of your Start Date, your employment with the Company is terminated without Cause, then as of the date your employment with the Company is terminated without Cause, you shall be vested and able to exercise that number of shares subject to the Option equal to the product of (1) the total shares subject to the Option times (2) the following ratio: (A) the total number of full months from your Start Date to the date your employment is terminated without Cause divided by (B) 48.

4.    Pre-employment Conditions.

a.    Confidentiality Agreement.    Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company’s Confidential Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the “Confidentiality Agreement”), prior to or on your Start Date.

b.    Right to Work.    For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your Start Date, or our employment relationship with you may be terminated.

c.    Verification of Information.    This offer of employment is also contingent upon the successful verification of the information you provided to the Company during your application process, as well as a general background check performed by the Company to confirm your suitability for employment. By accepting this offer of employment, you warrant that all information provided by you is true and correct to the best of your knowledge, and you expressly release the Company from any claim or cause of action arising out of the Company’s verification of such information. You have a right to review copies of any public records obtained by the Company in conducting this verification process unless you check the box below.

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5.    No Conflicting Obligations.    You understand and agree that by accepting this offer of employment, you represent to the Company that your performance will not breach any other agreement to which you are a party and that you have not, and will not during the term of your employment with the Company, enter into any oral or written agreement in conflict with any of the provisions of this letter or the Company’s policies. You are not to bring with you to the Company, or use or disclose to any person associated with the Company, any confidential or proprietary information belonging to any former employer or other person or entity with respect to which you owe an obligation of confidentiality under any agreement or otherwise. The Company does not need and will not use such information and we will assist you in any way possible to preserve and protect the confidentiality of proprietary information belonging to third parties. Also, we expect you to abide by any obligations to refrain from soliciting any person employed by or otherwise associated with any former employer and suggest that you refrain from having any contact with such persons until such time as any non-solicitation obligation expires.

6.    General Obligations.    As an employee, you will be expected to adhere to the Company’s standards of professionalism, loyalty, integrity, honesty, reliability and respect for all. Please note that the Company is an equal opportunity employer. The Company does not permit, and will not tolerate, the unlawful discrimination or harassment of any employees, consultants, or related third parties on the basis of sex, race, color, religion, age, national origin or ancestry, marital status, veteran status, mental or physical disability or medical condition, sexual orientation, pregnancy, childbirth or related medical condition, or any other status protected by applicable law. Any questions regarding this equal employment opportunity statement should be directed to the Company’s Human Resources.

7.    At-Will Employment.    Your employment with the Company will be on an “at will” basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability. The Company also reserves the right to modify or amend the terms of your employment at any time for any reason. This policy of at-will employment is the entire agreement as to the duration of your employment and may only be modified in an express written agreement signed by the Chief Executive Officer of the Company.

8.    Severance Benefits.    In no way limiting the Company’s policy of employment at-will, if your employment is terminated as a result of an Involuntary Termination, and other than as a result of your death or disability, the Company will offer certain severance benefits to you. As a condition to your receipt of such benefits, you are required to comply with your continuing obligations (including the return of any Company property), resign from all positions you hold with the Company, and execute the Company’s standard form of release agreement releasing any claims you may have against the Company.

a.    Cash Payments.    The Company will provide you with severance equal to your then-current regular base salary, paid out over the Company’s regular payroll schedule following the effective date of your release until the earlier of (A) the first anniversary of the date

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of your termination without Cause or (B) the date on which you accept an offer of employment or consulting relationship which constitutes the equivalent of a full-time position or compensates you at a level equal to the level of compensation provided by the Company at the date of your termination by the Company without Cause (the period from the effective date of your release until the earlier of the dates in clauses (A) and (B), the “Severance Period”). This salary continuation is conditioned on your confirmation, to the Company’s satisfaction, that you are actively seeking such an employment or consulting relationship. For purposes of this paragraph, “full-time employment” shall be defined as at least 35 hours per week of compensated labor, including consulting or other contract work. You shall promptly and in any event within three days notify that Company if you accept such an employment or consulting relationship.

b.    Continued Medical Coverage.    As further consideration, if you timely elect continued group medical insurance coverage pursuant to COBRA or Cal-COBRA (as applicable), the Company will reimburse you for the applicable premiums for you and your eligible dependents during the Severance Period.

9.    Limitation on Payments.

a.    In the event that the severance benefits provided for in this letter (including the COC Agreement) to you (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then the your benefits under this letter (and the COC Agreement) shall be payable either: (i) in full, or (ii) as to such lesser amount which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by you on an after-tax basis, of the greatest amount of benefits under this letter (and the COC Agreement), notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. Unless the Company and you otherwise agree in writing, any determination required under this Section 9 (or Section 4 of the COC Agreement) shall be made in writing by the Company’s independent public accountants (the “Accountants”), whose determination shall be conclusive and binding upon you and the Company for all purposes. For purposes of making the calculations required by this Section 9 (or Section 4 of the COC Agreement), the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and you shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 9 (and Section 4 of the COC Agreement).

b.    The payment of severance benefits provided for in this letter (including the COC Agreement) shall be subject to all applicable income, employment and social tax rules and regulations.

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We are all delighted to be able to extend you this offer and look forward to working with you. To indicate your acceptance of the Company’s offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated original copy of the Confidentiality Agreement, on or before the date that is seven days after the date of this letter. The Company requests that you begin work in this new position on or before August 1, 2003. Please indicate the date (either on or before the aforementioned date) on which you expect to begin work in the space provided below (the “Start Date”). This letter, together with the Confidentiality Agreement, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter will be governed by the laws of California, without regard to its conflict of laws provisions. This letter may not be modified or amended except by a written agreement, signed by an officer of the Company.

Very truly yours, RITA MEDICAL SYSTEMS, INC.
By:	/s/    Vincent Bucci
	Vincent Bucci, Chairman of the Board

ACCEPTED AND AGREED:

JOSEPH DEVIVO

/s/    Joseph DeVivo

Signature

7/23/03

Date

¨    I hereby waive my right to receive any public records as described above.

Anticipated Start Date: 8/1/03

Attachment A: Form of Change of Control Agreement

Attachment B: Confidential Information and Invention Assignment Agreement

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EX-10.41

Exhibit 10.41

August 22, 2003

Steve Pedroff

806 Creekside Place

Solvang, CA 93463

Dear Steve:

On behalf of RITA Medical Systems, Inc. (the “Company”), I am pleased to offer you the position of Vice President, Marketing Communications. Speaking for myself, as well as the other members of the Company’s management team, we are all very impressed with your credentials and we look forward to your future success in this position.

The terms of your new position with the Company are as set forth below:

1.    Position.

a.    You will become the Vice President, Marketing Communications, working out of the Company’s office in Mountain View, California. You will report to the Company’s Chief Executive Officer.

b.    You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company’s Board of Directors, and you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements in exchange for honoraria or from serving on boards of charitable organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange.

2.    Start Date.    Subject to fulfillment of any conditions imposed by this letter agreement, you will commence this new position with the Company on September 2, 2003.

3.    Proof of Right to Work.    For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated.

4.    Compensation.

a.    Base Salary.    You will be paid a monthly salary of $12,500.00 which is equivalent to $150,000.00 on an annualized basis. Your salary will be payable in two equal payments on the 15^th and the last day of the month.

b.    Bonus.    You will be eligible to participate in the Company management cash bonus program at the Vice President level.

c.    Annual Review.    Your base salary will be reviewed as part of the Company’s normal annual salary review process.

5.    Stock Options.

a.    Initial Grant.    In connection with the commencement of your employment, the Company will recommend that the Board of Directors, or a Committee of the Board of Directors, grant you an option (the “Option”) to purchase 100,000 shares of the Company’s Common Stock (“Shares”) with an exercise price equal to the fair market value on the date of the grant. These option shares will vest at the rate of 1/8 of the total after the first six months of employment and then 1/48 of the total per month, such that the options will become fully vested at the end of four years. Vesting will, of course, depend on your continued employment with the Company. The option will be an incentive stock option to the maximum extent allowed by the tax code and will be subject to the terms of the Company’s 2000 Stock Plan and the Stock Option Agreement between you and the Company. The Option is subject to the approval of the Company’s Board of Directors or designated Committee of the Board.

b.    Bonus.    You will be eligible to participate in the Company management stock bonus program at the Vice President level.

c.    Subsequent Option Grants.    Subject to the discretion of the Company’s Board of Directors, you may be eligible to receive additional grants of stock options or purchase rights from time to time in the future, on such terms and subject to such conditions as the Board of Directors shall determine as of the date of any such grant.

6.    Benefits.

a.    Insurance Benefits.    The Company will make available to you medical, dental, vision, life and long-term disability insurance benefits.

b.    Vacation.    You will be entitled to 3 weeks paid vacation per year, pro-rated for the remainder of this calendar year. Vacation accrues as follows: five hours accrue per pay period from your date of hire. With the exception of the days during the month of May that you will be taking as a previously planned vacation without pay, during the first six months following your date of hire, no vacation may be taken unless a special exception has been granted.

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c.    401K Retirement Plan.    You will be eligible to participate in the Company’s employee-contribution 401K Retirement Plan beginning on the first January 1, April 1, July 1, or October 1 following one month of employment.

d.    Employee Stock Purchase Plan.    You will be eligible to participate in the Company’s Employee Stock Purchase Plan beginning on the first February 1 or August 1 following commencement of your employment.

e.    Relocation Expenses.    The Company (A) will reimburse you for, or pay directly, your expenses incurred in relocating from Solvang, CA to the San Francisco Bay Area, which reimbursement shall not exceed $20,000 without the prior approval of the Company’s Compensation Committee of the Board of Directors, and (B) will pay to you a full gross-up on any taxes that you are required to pay on such reimbursement of relocation expenses (the “Relocation Package”). You shall be entitled to use the Relocation Package to pay for any rent, moving or home purchase expenses incurred during the first 90 days of your employment with the Company as a result of your personal relocation and/or your family’s relocation to the San Francisco Bay Area. Payment of any amount of the Relocation Package is contingent upon your submission of original receipts to the Company. Any amounts of the Relocation Package owed to you will be paid within 30 days after the Company’s receipt of your substantiated reimbursement request.

7.    Severance Benefits.    In the event that the Company or its successor in interest terminates your employment without Cause (as defined below), then you will be entitled to receive continuation of your then-current monthly base salary for six (6) months following your termination date. This salary continuation shall be contingent upon confirmation to the Company’s satisfaction that you are actively seeking Full-Time Employment, which for purposes of this Offer Letter shall be defined as at least thirty-five (35) hours per week of compensated labor, including consulting and other work. In the event that you commence Full-Time Employment, your salary continuation will cease. In addition, following the termination of your employment, the Company will pay your COBRA insurance premiums (provided that you elect such coverage) until the earlier of (A) six (6) months following your termination date or (B) the date on which you become eligible for insurance benefits from another employer. Upon termination of your employment with the Company, you will be entitled to receive benefits only as set forth herein or as otherwise provided by applicable law. Your entitlement to these severance benefits will be conditioned upon your execution and delivery to the Company of (i) a general mutual release of all claims (provided that the Company shall not be required to release any claims arising from a material breach by you of the Confidentiality Agreement (as defined below)) and (ii) a resignation from all of your positions with the Company.

For purposes of this Offer Letter, “Cause” shall mean (i) gross negligence or willful misconduct in the performance of the Employee’s duties to the Company where such gross negligence or willful misconduct has resulted or is likely to result in substantial and material damage to the Company or its subsidiaries, (ii) repeated unexplained or unjustified absence from the Company, (iii) a material and willful violation of any federal or state law; (iv) commission of any act of fraud with respect to the Company; or (v) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the Board of Directors of the Company.

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8.    Confidential Information and Invention Assignment Agreement.    Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company’s Confidential Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the “Confidentiality Agreement”), prior to or on your Start Date.

9.    No Conflicting Obligations.    You understand and agree that by accepting this offer of employment, you represent to the Company that your performance will not breach any other agreement to which you are a party and that you have not, and will not during the term of your employment with the Company, enter into any oral or written agreement in conflict with any of the provisions of this letter or the Company’s policies. You are not to bring with you to the Company, or use or disclose to any person associated with the Company, any confidential or proprietary information belonging to any former employer or other person or entity with respect to which you owe an obligation of confidentiality under any agreement or otherwise. The Company does not need and will not use such information and we will assist you in any way possible to preserve and protect the confidentiality of proprietary information belonging to third parties. Also, we expect you to abide by any obligations to refrain from soliciting any person employed by or otherwise associated with any former employer and suggest that you refrain from having any contact with such persons until such time as any non-solicitation obligation expires.

10.    General Obligations.    As an employee, you will be expected to adhere to the Company’s standards of professionalism, loyalty, integrity, honesty, reliability and respect for all. Please note that the Company is an equal opportunity employer. The Company does not permit, and will not tolerate, the unlawful discrimination or harassment of any employees, consultants, or related third parties on the basis of sex, race, color, religion, age, national origin or ancestry, marital status, veteran status, mental or physical disability or medical condition, sexual orientation, pregnancy, childbirth or related medical condition, or any other status protected by applicable law. Any questions regarding this EEO statement should be directed to Human Resources.

11.    Confidentiality of Terms.    You agree to follow the Company’s strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding compensation, or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice.

12.    At-Will Employment.    Your employment with the Company will be on an “at will” basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability.

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We are all delighted to be able to extend you this offer and look forward to working with you. To indicate your acceptance of the Company’s offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the Confidentiality Agreement, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. This offer will expire unless signed by you by August 27, 2003.

Very truly yours, RITA MEDICAL SYSTEMS, INC.
By:	/S/    JOSEPH DEVIVO
Joseph DeVivo President and Chief Executive Officer

STEPHEN PEDROFF

/S/    STEPHEN PEDROFF        

Signature

8/25/03

Date

Enclosure: Confidential Information and Invention Assignment Agreement

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EX-31.1

Rule 13a-14(a) Section 302 Certification

Exhibit 31.1

CERTIFICATIONS

I, Joseph DeVivo, certify that:

1. I have reviewed this report on Form 10-Q of RITA Medical Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [paragraph omitted pursuant to SEC Release 33-8238];

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2003

/S/    JOSEPH DEVIVO        

Joseph DeVivo

President and Chief Executive Officer

EX-31.2

Rule 13a-14(a) Section 302 Certification

Exhibit 31.2

CERTIFICATIONS

I, Donald Stewart, certify that:

1. I have reviewed this report on Form 10-Q of RITA Medical Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [paragraph omitted pursuant to SEC Release 33-8238];

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2003

/S/    DONALD STEWART        

Donald Stewart

Chief Financial Officer and Vice President, Finance and Administration

EX-32.1

Exhibit 32.1

RITA Medical Systems, Inc.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT of 2002

In connection with the Quarterly Report of RITA Medical Systems, Inc. (the “Company”) on Form 10-Q for the three and nine months ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph DeVivo, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/S/    JOSEPH DEVIVO        

Joseph DeVivo

President and Chief Executive Officer

November 13, 2003

EX-32.2

Exhibit 32.2

RITA Medical Systems, Inc.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT of 2002

In connection with the Quarterly Report of RITA Medical Systems, Inc. (the “Company”) on Form 10-Q for the three and nine months ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Donald Stewart, Chief Financial Officer and Vice President, Finance and Administration of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/S/    DONALD STEWART        

Donald Stewart

Chief Financial Officer and

Vice President, Finance and Administration

November 13, 2003