Exhibit 10.91

 

RITA MEDICAL SYSTEMS, INC. SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”), is made and entered into
as of August 5, 2005, by and among RITA Medical Systems, Inc., a Delaware
corporation (the “Company”), and the purchasers listed on Schedule A attached
hereto (collectively, the “Purchasers” and individually, a “Purchaser”).

 

1. Authorization of Sale of the Securities. Subject to the terms and conditions
of this Agreement, the Company has authorized the sale of the senior convertible
notes of the Company in the form attached hereto as Exhibit A (together with any
senior convertible notes issued in replacement thereof in accordance with the
terms thereof, the “Notes”), which Notes shall be convertible into shares of the
Company’s Common Stock, par value $0.001 per share (the “Common Stock”) (as
converted, the “Conversion Shares”), in accordance with the terms of the Notes.
The Notes and the Conversion Shares are hereinafter referred to as the
“Securities.”

 

2. Agreement to Sell and Purchase the Securities.

 

2.1 Purchase and Sale. Subject to the terms and conditions of this Agreement,
each Purchaser severally agrees to purchase, and the Company agrees to sell and
issue to each Purchaser, at the Closing (as defined below) a principal amount of
Notes set forth opposite such Purchaser’s name on Schedule A attached hereto
(which aggregate principal amount for all Purchasers shall be $9,700,000).

 

2.2 Purchase Price. The purchase price for each Purchaser (the “Purchase Price”)
of the Notes to be purchased by each such Purchaser at the Closing shall be
equal to $1.00 for each $1.00 of principal amount of Notes being purchased by
such Purchaser at the Closing.

 

2.3 Form of Payment. On the Closing Date, (i) each Purchaser shall pay its
Purchase Price to the Company for the Notes to be issued and sold to such
Purchaser at the Closing, by wire transfer of immediately available funds in
accordance with the Company’s written wire instructions, and (ii) the Company
shall deliver to each Purchaser the Notes (in the principal amounts as such
Purchaser shall request or, if no such request is made, a single Note with a
principal amount equal to the aggregate principal amount of Notes to be
purchased by such Purchaser) which such Purchaser is then purchasing, duly
executed on behalf of the Company and registered in the name of such Purchaser
or its designee.

 

2.4 Closing Date. The Closing shall occur on the date hereof (the “Closing
Date”).

 

2.5 Legends. Certificates evidencing the Securities will contain the following
legend, as applicable, until such time as they are not required:

 

[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION OR
EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT
BEEN REGISTERED] WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN

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EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. [THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
CONVERSION OR EXERCISE OF THESE SECURITIES] [THESE SECURITIES] MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

 

3. Representations, Warranties and Covenants of the Company. The Company hereby
represents and warrants to the Purchasers as follows:

 

3.1 Organization. The Company is duly organized and validly existing in good
standing under the laws of the jurisdiction of its organization. Each of the
Company and its Subsidiaries (as defined in Rule 405 under the Securities Act)
has full power and authority to own, operate and occupy its properties and to
conduct its business as presently conducted and as described in the documents
filed by the Company under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), since the end of its most recently completed fiscal year
through the date hereof (the “Exchange Act Documents”) and is registered or
qualified to do business and in good standing in each jurisdiction in which the
nature of the business conducted by it or the location of the properties owned
or leased by it requires such qualification and where the failure to be so
qualified would have a material adverse effect upon the condition (financial or
otherwise) of the Company and its Subsidiaries, considered as one enterprise (a
“Material Adverse Effect”), and no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.

 

3.2 Due Authorization and Valid Issuance. The Company has all requisite power
and authority to execute, deliver and perform its obligations under the
Transaction Documents, and the Transaction Documents have been duly authorized
and validly executed and delivered by the Company and constitute legal, valid
and binding agreements of the Company enforceable against the Company in
accordance with their terms, except as rights to indemnity and contribution may
be limited by state or federal securities laws or the public policy underlying
such laws, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors’ and
contracting parties’ rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The issuance
of the Notes is duly authorized and, upon issuance of the Notes in accordance
with the terms hereof, the Notes shall be free from all taxes, liens and charges
with respect to the issue thereof. As of the Closing, a number of shares of
Common Stock shall have been duly authorized and reserved for issuance equal to
the maximum number of shares issuable upon conversion of the Notes to be issued
at Closing. Upon conversion or issuance in accordance with the Notes, the
Conversion Shares will be validly issued, fully-paid and nonassessable.

 

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3.3 Non-Contravention. The execution and delivery of the Transaction Documents
and the consummation of the transactions contemplated hereby and thereby will
not (A) conflict with or constitute a violation of, or default (with the passage
of time or otherwise) under, (i) any contract, agreement or other instrument
filed or incorporated by reference as an exhibit to any of the Exchange Act
Documents (any such contract, agreement or instrument, an “Exchange Act
Exhibit”) except for the Note Purchase Agreement by and among the Company,
ComVest Venture Partners, L.P. and the Additional Note Purchasers dated as of
March 1, 2002, as amended (the “ComVest Notes”), (ii) the charter, by-laws or
other organizational documents of the Company or any Subsidiary, or (iii) any
law, administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to the Company or any
Subsidiary or their respective properties, except in the case of clauses (i) and
(iii) for any such conflicts, violations or defaults which are not reasonably
likely to have a Material Adverse Effect or (B) result in the creation or
imposition of any lien, encumbrance, claim, security interest or restriction
whatsoever upon any of the material properties or assets of the Company or any
Subsidiary (except as contemplated hereby) or an acceleration of indebtedness
pursuant to any obligation, agreement or condition contained in any Exchange Act
Exhibit, except that the transactions contemplated by the Transaction Documents
may result in an event of default under the ComVest Notes. Except for (i) the
filing of a Form 8-K in connection with the transactions contemplated by the
Transaction Documents and (ii) the Registration Statement, Form D and any
related state “Blue Sky” filings required to be filed with respect to the
Securities pursuant to Section 6 hereof, no consent, approval, authorization or
other order of, or registration, qualification or filing with, any regulatory
body, administrative agency, or other governmental body in the United States or
any other person is required for the execution and delivery of the Transaction
Documents, and the valid issuance and sale of the Securities to be sold pursuant
to this Agreement, and the valid issuance of the Conversion Shares in accordance
with the Notes, other than such as have been made or obtained, and except for
any post-closing securities filings or notifications required to be made under
federal or state securities laws.

 

3.4 Capitalization. The capitalization of the Company as of March 31, 2005 is as
set forth in the most recent applicable Exchange Act Documents, increased as set
forth in the next sentence. The Company has not issued any capital stock since
that date other than pursuant to (i) employee benefit plans disclosed in the
Exchange Act Documents, or (ii) outstanding warrants, options or other
securities disclosed in the Exchange Act Documents; furthermore there are
warrants to purchase 3,272,724 shares of Common Stock as described in the
Company’s annual report filed on Form 10-K, as amended (the “Warrants”). The
outstanding shares of capital stock of the Company have been duly and validly
issued and are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, and were not issued in violation of any
preemptive rights or similar rights to subscribe for or purchase securities.
Except as set forth in or contemplated by the Exchange Act Documents and for the
Warrants, there are no outstanding rights (including, without limitation,
preemptive rights), warrants or options to acquire, or instruments convertible
into or exchangeable for, any unissued shares of capital stock or other equity
interest in the Company or any Subsidiary, or any contract, commitment,
agreement, understanding or arrangement of any kind to which the Company is a
party or of which the Company has knowledge and relating to the issuance or sale
of any capital stock of the Company or any Subsidiary, any such convertible or
exchangeable securities or any such rights, warrants or options. Without
limiting the foregoing, no preemptive right, co-sale right, right of first
refusal, registration right, or other similar

 

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right exists with respect to the Securities or the issuance and sale thereof. No
further approval or authorization of any stockholder, the Board of Directors of
the Company or others is required for the issuance and sale of the Securities.
The Company owns the entire equity interest in each of its Subsidiaries, free
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than as described in the Exchange Act Documents.
Except as disclosed in the Exchange Act Documents, there are no stockholders
agreements, voting agreements or other similar agreements with respect to the
Common Stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company’s stockholders.

 

3.5 Legal Proceedings. There is no material legal or governmental proceeding
pending or, to the knowledge of the Company, threatened to which the Company or
any Subsidiary is or may be a party or of which the business or property of the
Company or any Subsidiary is subject that is not disclosed in the Exchange Act
Documents, and which proceeding, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect. There are no disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise between the accountants, auditors and lawyers formerly or presently
employed by the Company.

 

3.6 No Violations. Neither the Company nor any Subsidiary is (i) in violation of
its charter, bylaws, or other organizational document, (ii) in violation of any
law, administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to the Company or any
Subsidiary, which violation, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect, or (iii) in default (and
there exists no condition which, with the passage of time or otherwise, would
constitute a default) in any material respect in the performance of any Exchange
Act Exhibit, which would be reasonably likely to have a Material Adverse Effect,
except that the transactions contemplated by the Transaction Documents may
result in an event of default under the ComVest Notes.

 

3.7 Governmental Permits, Etc. With the exception of the matters which are dealt
with separately in Sections 3.1, 3.12, 3.13, and 3.14, each of the Company and
its Subsidiaries has all necessary franchises, licenses, certificates and other
authorizations from any foreign, federal, state or local government or
governmental agency, department, or body that are currently necessary for the
operation of the business of the Company and its Subsidiaries as currently
conducted and as described in the Exchange Act Documents except where the
failure to currently possess could not reasonably be expected to have a Material
Adverse Effect.

 

3.8 Intellectual Property. Except as specifically disclosed in the Exchange Act
Documents (i) each of the Company and its Subsidiaries owns or possesses
sufficient rights to use all material patents, patent rights, trademarks,
copyrights, licenses, inventions, trade secrets, trade names and know-how
(collectively, “Intellectual Property”) described or referred to in the Exchange
Act Documents as owned or possessed by it or that are necessary for the conduct
of its business as now conducted or as proposed to be conducted as described in
the Exchange Act Documents except where the failure to currently own or possess
would not have a Material Adverse Effect, (ii) to the knowledge of the Company,
neither the Company nor any of its Subsidiaries is infringing any rights of a
third party with respect to any Intellectual Property that, individual or in the
aggregate, would have a Material Adverse Effect, (iii) neither the Company nor
any of its Subsidiaries has received any notice of, or has any knowledge of, any
asserted infringement by the Company or any of its

 

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Subsidiaries of, any rights of a third party with respect to any Intellectual
Property that, individually or in the aggregate, would have a Material Adverse
Effect if determined adversely to the Company and (iv) neither the Company nor
any of its Subsidiaries has received any notice of, or has any knowledge of,
infringement by a third party with respect to any Intellectual Property rights
of the Company or of any Subsidiary that, individually or in the aggregate,
would have a Material Adverse Effect.

 

3.9 Financial Statements. The financial statements of the Company and the
related notes contained in the Exchange Act Documents present fairly, in
accordance with generally accepted accounting principles, the financial position
of the Company and its Subsidiaries as of the dates indicated, and the results
of its operations and cash flows for the periods therein specified consistent
with the books and records of the Company and its Subsidiaries except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which are not expected to be material in amount.
Such financial statements (including the related notes) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods therein specified, except as may be disclosed in
the notes to such financial statements, or in the case of unaudited statements,
as may be permitted by the SEC on Form 10-Q under the Exchange Act and except as
disclosed in the Exchange Act Documents. The other financial information
contained in the Exchange Act Documents has been prepared on a basis consistent
with the financial statements of the Company.

 

3.10 No Material Adverse Change. Except as disclosed in the Exchange Act
Documents, since March 31, 2005, there has not been (i) any event affecting the
Company or its Subsidiaries that has had a Material Adverse Effect, (ii) any
obligation, direct or contingent, that is material to the Company and its
Subsidiaries considered as one enterprise, incurred by the Company, except
obligations incurred in the ordinary course of business, (iii) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or any of its Subsidiaries, or (iv) any loss or damage (whether or not
insured) to the physical property of the Company or any of its Subsidiaries
which has been sustained which has a Material Adverse Effect; provided, however,
that changes in the ordinary course of business, including but not limited to
the use of cash and increases in liabilities in the ordinary course of business,
shall not be deemed to be a material adverse change or to have a Material
Adverse Effect.

 

3.11 Disclosure. The representations and warranties of the Company contained in
this Section 3 and the Other Information (as defined below) as of the date
hereof do not and as of the Closing Date will not, contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except with respect to
(i) the material terms and conditions of the transaction contemplated by the
Transaction Documents, which shall be publicly disclosed by the Company on a
Form 8-K, and (ii) such other information that is being provided to the
Purchasers that the Company covenants it shall publicly disclose no later than
August 9, 2005 (the “Other Information”), the Company confirms that neither it
nor any person acting on its behalf has provided the Purchasers with any
information that the Company believes constitutes material, non-public
information. The Company understands and confirms that the Purchasers will rely
on the foregoing representations in effecting transactions in the securities of
the Company after the public disclosures referenced in (i) and (ii) in the
immediately preceding sentence.

 

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3.12 NASDAQ Compliance. The Company’s Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and is listed on The Nasdaq Stock Market, Inc.
National Market (the “Nasdaq National Market”), and the Company has taken no
action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or de-listing the Common
Stock from the Nasdaq National Market, nor has the Company received any
notification that the SEC or the National Association of Securities Dealers,
Inc. (“NASD”) is currently contemplating terminating such registration or
listing.

 

3.13 Reporting Status. The Company has filed in a timely manner all documents
that the Company was required to file under the Exchange Act during the 12
months preceding the date of this Agreement. Pursuant to General Instruction
I.B.3 of Form S-3, the Company is eligible to use Form S-3 to register the
Conversion Shares to be offered for the account of the Purchasers. The following
documents complied in all material respects with the SEC’s requirements as of
their respective filing dates, and the information contained therein as of the
date thereof did not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under which they were made not
misleading:

 

(a) Annual Report on Form 10-K for the year ended December 31, 2004, as amended,
and Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, and
Forms 8-K filed on January 7, 2005, January 21, 2005, February 16, 2005, April
4, 2005, April 7, 2005, April 20, 2005, May 10, 2005, May 24, 2005, May 26,
2005, May 27, 2005, June 9, 2005, June 24, 2005, July 5, 2005, July 28, 2005,
and Form 8-K/A filed on January 31, 2005, and Proxy Statement on Schedule 14A
filed on May 2, 2005; and

 

(b) all other documents, if any, filed by the Company with the SEC during the
one-year period preceding the date of this Agreement pursuant to the reporting
requirements of the Exchange Act.

 

3.14 Listing. The Company shall comply with all requirements of the NASD with
respect to the issuance of the Conversion Shares, and the listing of the
Conversion Shares on the Nasdaq National Market.

 

3.15 No Manipulation of Stock. The Company has not taken and will not, in
violation of applicable law, take, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Notes or
the Conversion Shares.

 

3.16 Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any corrupt funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or

 

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domestic government officials or employees or to any foreign or domestic
political parties or campaigns from corporate funds, (iii) failed to disclose
fully any contribution made by the Company (or made by any person acting on its
behalf of which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.

 

3.17 Taxes. The Company has filed all necessary federal, state and foreign
income and franchise tax returns and has paid or accrued all taxes shown as due
thereon, except where failure to so file or to so pay would not have a Material
Adverse Effect and the Company has no knowledge of a tax deficiency which has
been or might be asserted or threatened against it which would have a Material
Adverse Effect.

 

3.18 Private Offering. Assuming the correctness of the representations and
warranties of the Purchasers set forth in Section 4 hereof, the offer and sale
of Notes hereunder is and, in accordance with the terms of the Notes, the
issuance of the Conversion Shares will be exempt from registration under the
Securities Act. The Company has not distributed and will not distribute prior to
the Closing Date any offering material in connection with this Offering and sale
of the Securities other than the Transaction Documents of which this Agreement
is a part or the Exchange Act Documents. The Company has not in the past nor
will it hereafter take any action to sell, offer for sale or solicit offers to
buy any securities of the Company which would bring the offer, issuance or sale
of the Securities as contemplated by this Agreement, or the issuance of the
Conversion Shares in accordance with the terms of the Notes, within the
provisions of Section 5 of the Securities Act, unless such offer, issuance or
sale was or shall be within the exemptions of Section 4 of the Securities Act.
Neither the Company nor any person acting on behalf of the Company has offered
or sold any of the Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only to the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.

 

3.19 Transactions With Affiliates. Except as disclosed in the Exchange Act
Documents, none of the current officers or directors of the Company is presently
a party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer or director or, to the knowledge of
the Company, any entity in which any officer or director has a substantial
interest or is an officer, director, trustee or partner.

 

3.20 No Registration Rights. Other than the Purchasers, no person has the right,
which right has not been waived, to require the Company or any Subsidiary to
register any securities for sale under the Securities Act by reason of the
filing of the Registration Statement with the SEC or the issuance and sale of
the Notes or Conversion Shares.

 

3.21 Ranking of Notes. Except for the Senior Debt (as defined in the form of
Note attached as Exhibit A hereto), no indebtedness of the Company is senior to
or ranks pari passu with the Notes in right of payment, whether with respect of
payment of redemptions, interest damages or upon liquidation or dissolution or
otherwise.

 

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3.22 ComVest Notes. The Company covenants that it will repay the ComVest Notes
within 21 days of the date hereof (the “Prepayment”), and the Company represents
that it will have no further obligations under the ComVest Notes after the
Prepayment is complete.

 

4. Representations, Warranties and Covenants of the Purchasers.

 

4.1 Securities Law Representations and Warranties. Each Purchaser severally and
not jointly represents, warrants and covenants to the Company as follows:

 

(a) The Purchaser is knowledgeable, sophisticated and experienced in making, and
is qualified to make, decisions with respect to investments in securities
representing an investment decision like that involved in the purchase of the
Securities, including investments in securities issued by the Company, and has
requested, received, reviewed and considered all information it deems relevant
in making an informed decision to purchase the Securities.

 

(b) The Purchaser is acquiring the principal amount of Notes set forth in
Section 2 above in the ordinary course of its business and for its own account
for investment only and has no present intention of distributing any of the
Securities nor any arrangement or understanding with any other persons regarding
the distribution of such Securities within the meaning of Section 2(11) of the
Securities Act, except as contemplated in Section 6 of this Agreement; provided,
however, that in making such representation, such Purchaser does not agree to
hold the Securities for any minimum or specific term and reserves the right to
sell, transfer or otherwise dispose of the Securities at any time in accordance
with the provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.

 

(c) The Purchaser will not, directly or indirectly, offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) any of the Securities except in
compliance with the Securities Act and the rules and regulations promulgated
thereunder (the “Rules and Regulations”).

 

(d) The Purchaser has completed or caused to be completed the Investor
Questionnaire and the Selling Stockholder Notice and Questionnaire, attached to
this Agreement as Appendices I and II, for use in preparation of the
Registration Statement (the “Investor Questionnaire” and the “Selling
Stockholder Questionnaire,” respectively), and the answers to the Questionnaires
are true and correct in all material respects as of the date of this Agreement
and will be true and correct as of the Closing Date and the effective date of
the Registration Statement; provided that the Purchasers shall be entitled to
update such information by providing notice thereof to the Company before the
effective date of such Registration Statement.

 

(e) The Purchaser has, in connection with its decision to purchase the principal
amount of Notes set forth in Section 2 above, relied solely upon the Exchange
Act Documents and the representations and warranties of the Company contained in
this Agreement.

 

(f) The Purchaser believes it has received all information it considers
necessary or appropriate for deciding whether to purchase the Securities. The
Purchaser further represents that it has had an opportunity to ask questions and
receive answers from the Company

 

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regarding the terms and conditions of the offering of the Securities and the
business, properties, prospects and financial condition of the Company. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 3 of this Agreement or the right of the Purchasers to
rely on such representations and warranties.

 

(g) As of the date hereof, in the event of the conversion of the Notes, each
Purchaser would own that number of shares of Common Stock noted in Schedule A
hereto.

 

(h) The Purchaser is an “accredited investor” within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act.

 

4.2 Resales of Securities. Each Purchaser agrees to the following:

 

(a) If the Purchaser shall propose to sell any Securities, the Purchaser shall
notify the Company of its intent to do so on or before one (1) business day
prior to the date of such sale (the “Notice of Sale”), and the provision of the
Notice of Sale to the Company shall conclusively be deemed to establish an
agreement by such Purchaser to comply with the registration provisions herein
described. The Notice of Sale shall be deemed to constitute a representation
that any information previously supplied by such Purchaser is accurate as of the
date of such Notice of Sale.

 

(b) The Notice of Sale in substantially the form attached as Exhibit I to
Appendix II shall be given in accordance with the provisions of Section 4.2(a)
hereof. However, the Purchaser may give the Notice of Sale orally by telephoning
the current Chief Financial Officer at the Company at 510-771-0400. An oral
Notice of Sale shall be deemed to have been received only at such time as the
selling Purchaser speaks directly with the current Chief Financial Officer. In
addition, an oral Notice of Sale shall only be deemed effective if it is
followed by a written Notice of Sale received by the Company by personal
delivery or facsimile within 24 hours after giving the oral Notice of Sale.

 

(c) The Company may refuse to permit the Purchaser to resell any Securities for
a period of time not to exceed 30 days; provided, however, that in order to
exercise this right, the Company must deliver a certificate in writing to the
Purchaser to the effect that the Registration Statement in its then current form
contains an untrue statement of material fact or omits to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. During any suspension
period (each a “Suspension”) as contemplated by this Section 4.2(c), of which
there shall be no more than two in any 12-month period, the Company will not
allow any of its officers or directors to buy or sell shares of the Company’s
securities.

 

4.3 Certain Trading Limitations. Each Purchaser represents and warrants that it
has not directly or indirectly, nor has any person or entity acting on behalf of
or pursuant to any understanding with such Purchaser, engaged in any purchases
or sales in the securities of the Company (including, without limitations, any
short sales involving the Company’s securities) since the date on which such
Purchaser entered into a confidentiality or similar agreement or understanding
with the Company in connection with such Purchaser’s participation in the
transactions contemplated by this Agreement.

 

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4.4 Due Execution, Delivery and Performance. Each Purchaser represents and
warrants that:

 

(a) This Agreement has been duly executed and delivered by the Purchaser and
constitutes a valid and binding obligation of the Purchaser and the Company,
enforceable against the Purchaser in accordance with its terms.

 

(b) The execution, delivery and performance of the Transaction Documents and the
consummation of the transactions contemplated hereby and thereby and the
fulfillment of the terms of the Transaction Documents have been duly authorized
by all necessary corporate or LLC action and will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Purchaser pursuant to, any contract, indenture, mortgage, loan agreement, deed,
trust, note, lease, sublease, voting agreement, voting trust or other instrument
or agreement to which the Purchaser is a party or by which it may be bound, or
to which any of the property or assets of the Purchaser is subject, nor will
such action result in any violation of the provisions of the charter or bylaws,
or other organizational documents, of the Purchaser or any applicable statute,
law, rule, regulation, ordinance, decision, directive or order applicable to the
Purchaser or its property or assets.

 

5. Survival of Representations, Warranties and Agreements. Notwithstanding any
investigation made by any party to this Agreement, all representations and
warranties made by the Company and the Purchasers in this Agreement shall
survive for one (1) year from the execution of this Agreement.

 

6. Form D Filing; Registration; Compliance with the Securities Act; Covenants.

 

6.1 Form D Filing; Registration of Shares.

 

6.1.1 Registration Statement; Expenses. The Company shall:

 

(a) file as soon as practicable, but in no event later than 15 days after the
date of the Closing, a Form D relating to the sale of the Securities under this
Agreement, pursuant to Regulation D under the Securities Act.

 

(b) as soon as practicable after the Closing Date, but in no event later than
the 30th day following the Closing Date, prepare and file with the Commission a
Registration Statement on Form S-3 (or, if the Company is ineligible to use Form
S-3, then on Form S-1) relating to the sale of the Conversion Shares (and all
shares issuable in respect thereof, whether as stock dividends, pursuant to
Section 6.1.2 or otherwise) by the Purchasers from time to time on the Nasdaq
National Market (or the facilities of any national securities exchange on which
the Company’s Common Stock is then traded) or in privately negotiated
transactions (the “Registration Statement”);

 

- 10 -

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(c) the Company shall use its best efforts to cause such Registration Statement
to become effective, and, keep such Registration Statement effective for a
period of up to two years from the Closing Date, or such lesser period of time
as all of the Conversion Shares have been sold or can be sold without
restriction under Rule 144;

 

(d) subject to receipt of necessary information from the Purchasers, use its
best efforts to cause the Commission to notify the Company of the Commission’s
willingness to declare the Registration Statement effective on or before 60 days
(or 120 days in the event the Registration Statement is reviewed by the
Commission) after the initial filing of the Registration Statement (the
“Required Effectiveness Date”);

 

(e) notify Purchasers promptly upon the Registration Statement, or any
post-effective amendment thereto, being declared effective by the Commission;

 

(f) prepare and file with the Commission such amendments and supplements to the
Registration Statement and the Prospectus (as defined in Section 6.3.1 below)
and take such other action, if any, as may be necessary to keep the Registration
Statement effective until the earlier of (i) the second anniversary of the
Closing Date and (ii) the date on which the Conversion Shares can be sold by
non-affiliates of the Company without registration under Rule 144(k) under the
Securities Act (such period, the “Effectiveness Period”);

 

(g) promptly furnish to the Purchasers with respect to the Conversion Shares
registered under the Registration Statement such reasonable number of copies of
the Prospectus, including any supplements to or amendments of the Prospectus, in
order to facilitate the public sale or other disposition of all or any of the
Shares by the Purchasers;

 

(h) during the period when copies of the Prospectus are required to be delivered
under the Securities Act or the Exchange Act, will file all documents required
to be filed with the Commission pursuant to Section 13, 14 or 15 of the Exchange
Act within the time periods required by the Exchange Act and the rules and
regulations promulgated thereunder;

 

(i) file documents required of the Company for customary Blue Sky clearance in
all states requiring Blue Sky clearance; provided, however, that the Company
shall not be required to qualify to do business or consent to service of process
in any jurisdiction in which it is not now so qualified or has not so consented;
and

 

(j) bear all expenses of the Company in connection with the procedures in
paragraphs (a) through (i) of this Section 6.1.1 and the registration of the
Conversion Shares pursuant to the Registration Statement.

 

6.1.2 The Company hereby agrees that the following circumstances shall
constitute an Event of Default as set forth in Section 4 of the Form of
Convertible Senior Note attached hereto as Exhibit A and that the Purchaser
shall be entitled to the remedy set forth therein: (a) if the Registration
Statement is not filed by the Company on or prior to 30 days after the Closing
Date (such an event, a “Filing Default”); (b) if the Registration Statement is
not declared effective by the SEC by the Required Effectiveness Date (either
such event, an “Effectiveness Default”); or (c) if

 

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the Registration Statement (after its effectiveness date) ceases to be effective
and available to the Purchaser for any reason without being succeeded within ten
trading days by an amendment to such Registration Statement or by a subsequent
Registration Statement filed with and declared effective by the Commission (such
an event, a “Suspension Default” and together with a Filing Default, an
Effectiveness Default and a Suspension Default, a “Registration Default”);
provided, however, that in the event of a Suspension as contemplated in Section
4.2(c), a Suspension Default shall be deemed to have occurred only once (i) more
than two Suspensions have occurred in any 12-month period, or (ii) any single
Suspension exceeds 30 days. Notwithstanding the foregoing, all periods shall be
tolled in the event of any delays directly caused by the action or inaction of a
Purchaser to return an Investor Questionnaire or Selling Stockholder
Questionnaire, and the Company shall have no liability to any Purchaser in
respect of any such delay. Notwithstanding the foregoing, the Purchaser shall be
entitled to specific performance and any other remedies at law or in equity in
the event the Company fails to comply with the provisions of Section 6.1.1 or
6.2. Additionally, in the event of an Effectiveness Default, the Company hereby
agrees pay a fee to the Purchaser, for each 30-day period of an Effectiveness
Default, in an amount in cash equal to 1% of the aggregate purchase price paid
by the Purchaser for the Securities pursuant to this Agreement (the “Default
Fee”); provided that in no event shall the aggregate amount of cash to be paid
as Default Fees pursuant to this Section 6.1.2 exceed 12% of the aggregate
purchase price paid by the Purchaser for the Securities. Such payments shall be
in partial compensation to the Purchasers and shall not constitute the
Purchaser’s exclusive remedy for such events. The Default Fee payable herein
shall apply on a pro rata basis for any portion of a 30-day period of
Effectiveness Default, and shall be paid by the Company on the 30th day of such
Effectiveness Default or, in the event such Effectiveness Default is cured prior
to the end of a 30-day period, within 3 business days of such cure.

 

6.2 Transfer of Conversion Shares After Registration. Each Purchaser agrees that
it will not effect any disposition of the Securities that would constitute a
sale within the meaning of the Securities Act, except as contemplated in the
Registration Statement referred to in Section 6.1 or as otherwise permitted by,
or exempted by, law (including Rule 144 or any exemption from registration), and
that it will promptly notify the Company of any changes in the information set
forth in the Registration Statement regarding the Purchaser or its plan of
distribution.

 

6.3 Indemnification. For the purpose of this Section 6.3, the term “Registration
Statement” shall include any preliminary or final prospectus, exhibit,
supplement or amendment included in or relating to the Registration Statement
referred to in Section 6.1.

 

6.3.1 Indemnification by the Company. The Company will indemnify and hold
harmless each of the Purchasers and each person, if any, who controls any
Purchaser within the meaning of the Securities Act, against any actual and
direct losses, claims, direct damages, liabilities or reasonable expenses, joint
or several, to which such Purchasers or such controlling person become subject,
under the Securities Act, the Exchange Act, or any other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld),
insofar as such actual and direct losses, claims, direct damages, liabilities or
reasonable expenses (or actions in respect thereof as contemplated below) (i)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the

 

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Registration Statement, including the Prospectus, financial statements and
schedules, and all other documents filed as a part thereof, as amended at the
time of effectiveness of the Registration Statement, including any information
deemed to be a part thereof as of the time of effectiveness pursuant to
paragraph (b) of Rule 430A, or pursuant to Rule 434, of the Rules and
Regulations, or the prospectus, in the form first filed with the Commission
pursuant to Rule 424(b) of the Regulations, or filed as part of the Registration
Statement at the time of effectiveness if no Rule 424(b) filing is required (the
“Prospectus”), or any amendment or supplement thereto, or (ii) arise out of or
are based upon the omission or alleged omission to state in any of them a
material fact required to be stated therein or necessary to make the statements
in any of them, in light of the circumstances under which they were made, not
misleading, or (iii) arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company contained in
this Agreement, or any failure of the Company to perform its obligations under
this Agreement or under law (the events in clauses (i), (ii), or (iii),
collectively are referred to herein as the “Company Indemnification Events”),
and shall reimburse each Purchaser and each such controlling person as the case
may be, for the indemnifiable amounts provided for herein on demand as such
expenses are incurred; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon any Purchaser Indemnification Event (as
defined below).

 

6.3.2 Indemnification by the Purchaser. The Purchaser will indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act, against any actual and direct losses, claims,
direct damages, liabilities or reasonable expenses to which the Company, each of
its directors, each of its officers who signed the Registration Statement or
controlling person become subject, under the Securities Act, the Exchange Act,
or any other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Purchaser, which consent shall not be
unreasonably withheld) insofar as such actual and direct losses, claims, direct
damages, liabilities or reasonable expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon (i) the failure of such
Purchaser to comply with the covenants and agreements contained in Sections 4.2
or 6.2 of this Agreement respecting the sale of the Securities or (ii) the
inaccuracy of any representation made by such Purchaser in this Agreement or the
Questionnaires or (iii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, the Prospectus, or any
amendment or supplement to the Registration Statement or Prospectus, or arise
out of or are based upon the omission or alleged omission to state therein a
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in the Registration Statement, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Purchaser expressly for use
therein (the events in clauses (i), (ii), or (iii), collectively are referred to
herein as the “Purchaser Indemnification Events”), and shall reimburse the
Company or such officer, director or controlling person, as the case may be, for
the indemnifiable amounts provided for herein on demand as such expenses are
incurred; provided, however, that the Purchaser shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon any Company Indemnification Event.
Notwithstanding the foregoing, the Purchaser’s aggregate obligation to indemnify
the Company and such officers, directors and controlling persons shall be
limited to the net amount received by the Purchaser from the sale of the
Securities.

 

- 13 -

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6.3.3 Indemnification Procedure.

 

(a) Promptly after receipt by an indemnified party under this Section 6.3 of
notice of the threat or commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying party under
this Section 6.3, promptly notify the indemnifying party in writing of the
claim; but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party for contribution
or otherwise under the indemnity agreement contained in this Section 6.3 or to
the extent it is not prejudiced as a result of such failure.

 

(b) In case any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an indemnifying party,
the indemnifying party will be entitled to participate in, and, to the extent
that it may wish, jointly with all other indemnifying parties similarly
notified, to assume the defense thereof; provided, however, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be a
conflict between the positions of the indemnifying party and the indemnified
party in conducting the defense of any such action or that there may be legal
defenses available to it or other indemnified parties that are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of such
action, the indemnifying party will not be liable to such indemnified party
under this Section 6.3 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless:

 

(i) the indemnified party shall have employed such counsel in connection with
the assumption of legal defenses in accordance with the proviso to the preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel, approved by such
indemnifying party representing all of the indemnified parties who are parties
to such action) or

 

(ii) the indemnifying party shall not have employed Heller Ehrman LLP or other
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of
action, in each of which cases the reasonable fees and expenses of counsel shall
be at the expense of the indemnifying party. Notwithstanding the provisions of
this Section 6.3, the Purchaser shall not be liable for any indemnification
obligation under this Agreement in excess of the amount of net proceeds received
by the Purchaser from the sale of the Securities, unless such obligation has
resulted from the gross negligence or willful misconduct of the Purchaser.

 

6.3.4 Contribution. If a claim for indemnification under this Section 6.3 is
unavailable to an indemnified party (by reason of public policy or otherwise),
then each

 

- 14 -

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indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of any losses, claims, damages, liabilities or expenses referred to in this
Agreement, in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified party in connection with the actions,
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any losses, claims, damages, liabilities or
expenses shall be deemed to include, subject to the limitations set forth in
this Section 6.3, any reasonable attorneys’ or other reasonable fees or expenses
incurred by such party in connection with any proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6.3 were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6.3, no Purchaser shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Purchaser from the sale of
Securities exceeds the amount of any damages that such Purchaser has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No party to this Agreement guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any other party to this Agreement who was
not guilty of such fraudulent misrepresentation.

 

6.4 Termination of Conditions and Obligations. The restrictions imposed by
Section 4 or this Section 6 upon the transferability of the Securities shall
cease and terminate as to any particular number of the Securities upon the
passage of two years from the Closing Date or at such time as an opinion of
counsel satisfactory in form and substance to the Company shall have been
rendered to the effect that such conditions are not necessary in order to comply
with the Securities Act.

 

6.5 Rule 144 Information. For two years after the date of this Agreement, the
Company shall use its best efforts to file all reports required to be filed by
it under the Securities Act, the Rules and Regulations and the Exchange Act and
shall take such further action to the extent required to enable the Purchasers
to sell the Securities pursuant to Rule 144 under the Securities Act (as such
rule may be amended from time to time).

 

6.6 Legend Removal. The Company shall, and shall use its best efforts to cause
its transfer agent to, promptly process requests for transfer or de-legending of
Securities or certificates representing Conversion Shares in compliance with
this Agreement.

 

- 15 -

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7. Notices. All notices, requests, consents and other communications under this
Agreement shall be in writing, shall be mailed by first-class registered or
certified airmail, confirmed facsimile or nationally recognized overnight
express courier postage prepaid, and shall be delivered as addressed as follows:

 

(a) if to the Company, to:

 

RITA Medical Systems, Inc. 46421 Landing Parkway

Fremont, CA 94538

Fax: (510) 771-0460

Attn: Chief Financial Officer

with a copy to:

Heller Ehrman LLP

275 Middlefield Road

Menlo Park, CA 94025-3056

Fax: (650) 324-0638

Attn: Amy Paye

 

or to such other person at such other place as the Company shall designate to
the Purchaser in writing; and

 

(b) if to a Purchaser, at its address as set forth on Schedule A to this
Agreement, or at such other address or addresses as may have been furnished to
the Company in writing.

 

Such notice shall be deemed effectively given upon confirmation of receipt by
facsimile, or two business days after deposit with such overnight courier.

 

8. Modification; Amendment. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and Purchasers
holding at least a majority of the Securities issued and sold pursuant to this
Agreement (excluding Securities that have been resold to the public or otherwise
transferred by the Purchasers).

 

9. Headings. The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.

 

10. Severability. If any provision contained in this Agreement should be held to
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained in this Agreement shall not
in any way be affected or impaired thereby.

 

11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the state of New York, without reference to conflict
of laws, and the federal law of the United States of America.

 

- 16 -

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12. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall constitute an original (whether an actual original or a
facsimile), but all of which, when taken together, shall constitute but one
instrument, and shall become effective when one or more counterparts have been
signed by each party to this Agreement and delivered to the other parties.

 

13. 8-K Filing and Publicity. Following the Closing Date, the Company shall file
a Current Report on Form 8-K with the SEC describing the terms of the
transactions contemplated by this Agreement and attaching this Agreement and the
press release referred to below as exhibits to such filing (the “8-K Filing”).
Neither the Company nor any Purchaser shall issue any press releases or any
other public statements with respect to the transactions contemplated by this
Agreement; provided, however, that the Company shall be entitled, without the
prior approval of any Purchaser, to make any press release or other public
disclosure with respect to such transactions (i) in substantial conformity with
the 8-K Filing and contemporaneously therewith and (ii) as required by
applicable law.

 

14. Stock Splits, Dividends and other Similar Events. The provisions of this
Agreement shall be appropriately adjusted to reflect any stock split, stock
dividend, reorganization or other similar event that may occur with respect to
the Company after the date hereof.

 

[Signature pages follow]

 

- 17 -

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IN WITNESS WHEREOF, the parties to this Agreement have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.

 

RITA MEDICAL SYSTEMS, INC.

By:

 

/s/ Joseph DeVivo

--------------------------------------------------------------------------------

Name:

  Joseph DeVivo

Its:

  President and Chief Executive Officer

Fax No:

  (510) 771-0461

 

[Signature Page to RITA Medical Systems, Inc. Securities Purchase Agreement]

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties to this Agreement have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.

 

ATLAS MASTER FUND, LTD.

By:

 

/s/ Scott H. Schroeder

--------------------------------------------------------------------------------

Name:

  Scott H. Schroeder

Its:

  Authorized Signatory

 

[Signature Page to RITA Medical Systems, Inc. Securities Purchase Agreement]

--------------------------------------------------------------------------------

Schedule A

 

PURCHASERS

 

Name and Address of Purchaser

--------------------------------------------------------------------------------

   Principal Amount of Notes

--------------------------------------------------------------------------------

   Aggregate Purchase Price

--------------------------------------------------------------------------------

Atlas Master Fund, Ltd.*

   $ 9,700,000    $ 9,700,000

c/o Balyasny Asset Management L.P.

             

650 Madison Avenue – 19th Floor

             

New York, NY 10022

             

Attention: Legal Dept.

             

Total

   $ 9,700,000    $ 9,700,000     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

  

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

* As of the date hereof, the total number of shares of Common Stock that will be
owned by the Purchaser upon the Conversion of the Notes is: 3,743,231

--------------------------------------------------------------------------------

Exhibit A

 

FORM OF NOTE

 

FORM OF SENIOR CONVERTIBLE NOTE

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE
OF THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
CONVERSION OR EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

 

ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTIONS 3 AND 14 HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS
NOTE AND, ACCORDINGLY, THE COMMON STOCK ISSUABLE UPON CONVERSION HEREOF MAY BE
LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii)
OF THIS NOTE.

--------------------------------------------------------------------------------

RITA MEDICAL SYSTEMS, INC.

 

SENIOR CONVERTIBLE NOTE

 

Issuance Date: August 5, 2005

  Principal: U.S. $            

 

FOR VALUE RECEIVED, RITA MEDICAL SYSTEMS, INC., a Delaware corporation (the
“Company”), hereby promises to pay to the order of Atlas Master Fund, Ltd. or
registered assigns (“Holder”) the amount set out above as the Principal (as
reduced pursuant to the terms hereof pursuant to redemption, conversion or
otherwise, the “Principal”) when due, whether upon the Maturity Date (as defined
below), acceleration, redemption or otherwise (in each case in accordance with
the terms hereof) and to pay interest (“Interest”) on any outstanding Principal
at the rate of 6.5% per annum, subject to periodic adjustment pursuant to
Section 2 (the “Interest Rate”), from the date set out above as the Issuance
Date (the “Issuance Date”) until the same becomes due and payable, whether upon
an Interest Date (as defined below), the Maturity Date, acceleration,
conversion, redemption or otherwise (in each case in accordance with the terms
hereof). This Senior Convertible Note (including all Senior Convertible Notes
issued in exchange, transfer or replacement hereof, this “Note”) is one of an
issue of Senior Convertible Notes (collectively, the “Notes” and such other
Senior Convertible Notes, the “Other Notes”) issued on the Issuance Date
pursuant to the Securities Purchase Agreement (as defined below). Certain
capitalized terms are defined in Section 23.

--------------------------------------------------------------------------------

1. MATURITY. On the Maturity Date, the Holder shall surrender this Note to the
Company and the Company shall pay to the Holder an amount in cash representing
all outstanding Principal and accrued and unpaid Interest, if any. The “Original
Maturity Date” shall be August 5, 2008, as may be adjusted at the option of the
Holder in the event that, and for so long as, an Event of Default (as defined in
Section 4(a)) shall have occurred and be continuing or any event shall have
occurred and be continuing which with the passage of time and the failure to
cure would result in a Conversion Failure.

 

2. INTEREST; INTEREST RATE. Interest on this Note shall commence accruing on the
Issuance Date and shall be computed on the basis of a 365/366-day year and
actual days elapsed and shall be payable in arrears semi-annually and on the
Maturity Date during the period beginning on the Issuance Date and ending on,
and including, the Maturity Date (each, an “Interest Date”) with the first
Interest Date being December 15, 2005. Interest shall be payable on each
Interest Date in cash. Prior to the payment of Interest on an Interest Date,
Interest on this Note shall accrue at the Interest Rate. From and after the
occurrence of an Event of Default, the Interest Rate shall be increased to 12%.
In the event that such Event of Default is subsequently cured, the adjustment
referred to in the preceding sentence shall cease to be effective as of the date
of such cure; provided that the Interest as calculated at such increased rate
during the continuance of such Event of Default shall continue to apply to the
extent relating to the days after the occurrence of such Event of Default
through and including the date of cure of such Event of Default.

 

3. CONVERSION OF NOTES. This Note shall be convertible into shares of the
Company’s common stock, par value $0.001 per share (the “Common Stock”), on the
terms and conditions set forth in this Section 3.

 

(a) Conversion Right. Subject to the provisions of Section 3(d), at any time or
times on or after the Issuance Date, the Holder shall be entitled to convert any
portion of the outstanding and unpaid Conversion Amount (as defined below) into
fully paid and nonassessable shares of Common Stock in accordance with Section
3(c), at the Conversion Rate (as defined below). The Company shall not issue any
fraction of a share of Common Stock upon any conversion. If the issuance would
result in the issuance of a fraction of a share of Common Stock, the Company
shall pay to the Holder an amount in cash equal to the value of such fractional
share based on the closing price of the Common Stock on the last trading day
prior to the conversion. The Company shall pay any and all documentary, stamp
and similar taxes that may be payable with respect to the issuance and delivery
of Common Stock upon conversion of any Conversion Amount. The Company shall not,
however, be required to pay any such tax which may be payable in respect of any
transfer of Securities involved in the issue and delivery of the Common Stock in
any name other than that of the Holder. Upon conversion, the Company shall pay
all accrued and unpaid Interest on the Conversion Amount being converted.

 

(b) Conversion Rate. The number of shares of Common Stock issuable upon
conversion of any Conversion Amount pursuant to Section 3(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price (the
“Conversion Rate”).

 

(i) “Conversion Amount” means the Principal to be converted, redeemed or
otherwise with respect to which this determination is being made.

 

3

--------------------------------------------------------------------------------

(ii) “Conversion Price” means, as of any Conversion Date (as defined below) or
other date of determination, and subject to adjustment as provided herein,
$4.03.

 

(c) Mechanics of Conversion.

 

(i) Optional Conversion. To convert any Conversion Amount into shares of Common
Stock on any date (a “Conversion Date”), the Holder shall (A) transmit by
facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New
York Time, on such date, a copy of an executed notice of conversion in the form
attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if
required by Section 3(c)(iii), deliver this Note to a common carrier for
delivery to the Company as soon as practicable on or following such date (or an
indemnification undertaking with respect to this Note in the case of its loss,
theft or destruction). On or before the close of the business on the first
Business Day following the date of receipt of a Conversion Notice, the Company
shall transmit by facsimile a confirmation of receipt of such Conversion Notice
to the Holder and the Company’s transfer agent (the “Transfer Agent”). On or
before the second Business Day following the date of receipt of a Conversion
Notice (the “Share Delivery Date”), the Company’s transfer agent shall issue and
deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be entitled. If this Note is
physically surrendered for conversion as required by Section 3(c)(iii) and the
outstanding Principal of this Note is greater than the Principal being
converted, then the Company shall as soon as practicable and in no event later
than three Business Days after receipt of this Note and at its own expense,
issue and deliver to the Holder a new Note representing the outstanding
Principal not converted. The Person or Persons entitled to receive the shares of
Common Stock issuable upon a conversion of this Note shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on the
Conversion Date.

 

(ii) Company’s Failure to Timely Convert. If the Company shall fail (other then
by operation of Section 3(d)) to issue a certificate to the Holder or credit the
Holder’s balance account with DTC for the number of shares of Common Stock to
which the Holder is entitled upon conversion of any Conversion Amount on or
prior to the date which is three (3) Business Days after the Conversion Date (a
“Conversion Failure”), then (A) the Company shall pay damages to the Holder for
each day of such Conversion Failure in an amount equal to 5.0% of the product of
(I) the number of shares of Common Stock not issued to the Holder on or prior to
the Share Delivery Date and to which the Holder is entitled, times (II) the
Closing Sale Price of the Common Stock on the Share Delivery Date and (B) the
Holder, upon written notice to the Company, may void its Conversion Notice with
respect to, and retain or have returned, as the case may be, any portion of this
Note that has not been converted pursuant to such Conversion Notice; provided
that the voiding of any conversion notice shall halt the accrual of any claims
for damages pursuant to this Section 3(c)(ii); provided, further, that the
voiding of a Conversion Notice shall not affect the Company’s obligations to
make any payments which have accrued prior to the date of such notice pursuant
to this Section 3(c)(ii) or otherwise.

 

(iii) Book-Entry. Notwithstanding anything to the contrary set forth herein,
upon conversion of any portion of this Note in accordance with the terms hereof,
the

 

4

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Holder shall not be required to physically surrender this Note to the Company
unless (A) the full Conversion Amount represented by this Note is being
converted or (B) the Holder has provided the Company with prior written notice
(which notice may be included in a Conversion Notice) requesting physical
surrender and reissue of this Note. The Holder and the Company shall maintain
records showing the Principal converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Note upon conversion.

 

(d) Limitations on Conversions.

 

(i) Principal Market Regulation. The Company shall not be obligated to issue any
shares of Common Stock upon conversion of this Note if the issuance of such
shares of Common Stock would exceed that number of shares of Common Stock which
the Company may issue upon conversion of the Notes without breaching the
Company’s obligations under the rules or regulations of the Principal Market
(the “Exchange Cap”), except that such limitation shall not apply in the event
that the Company (A) obtains the approval of its stockholders as required by the
applicable rules of the Principal Market for issuances of Common Stock in excess
of such amount (Company shall be required to obtain such approval if the
issuance would exceed that number of shares of Common Stock which the Company
may issue upon conversion of the Notes if it breaches the Company’s obligations
under the Exchange Cap) or (B) obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the holders of the Notes representing at least a
majority of the principal amounts of the Notes then outstanding. Company shall
use its best efforts to obtain such approval or written opinion. Until such
approval or written opinion is obtained, no purchaser of the Notes pursuant to
the Securities Purchase Agreement (the “Purchasers”) shall be issued, upon
conversion of Notes, shares of Common Stock in an amount greater than the
product of the Exchange Cap multiplied by a fraction, the numerator of which is
the principal amount of Notes issued to such Purchaser pursuant to the
Securities Purchase Agreement on the Issuance Date and the denominator of which
is the aggregate principal amount of all Notes issued to the Purchasers pursuant
to the Securities Purchase Agreement on the Issuance Date (with respect to each
Purchaser, the “Exchange Cap Allocation”). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser’s Notes, the transferee shall
be allocated a pro rata portion of such Purchaser’s Exchange Cap Allocation, and
the restrictions of the prior sentence shall apply to such transferee with
respect to the portion of the Exchange Cap Allocation allocated to such
transferee.

 

(e) Mandatory Conversion. If on the Maturity Date the closing price of the
Common Stock has been at or above 102% of the Conversion Price for at least 10
consecutive Business Days immediately preceding the Maturity Date, then the
Holder shall convert any remaining Principal into Common Stock in accordance
with this Section 3; provided that Holder shall not have to complete such
conversion will until such time as (i) the amount of Common Stock outstanding is
equal to the Required Reserve Amount, and (ii) conversion would not be impaired
pursuant to Section 3(d) hereof.

 

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4. RIGHTS UPON EVENT OF DEFAULT.

 

(a) Event of Default. Each of the following events shall constitute an “Event of
Default”:

 

(i) a Registration Default as set forth in the Securities Purchase Agreement;

 

(ii) default in the payment of the Principal and unpaid accrued Interest of this
Note within two (2) Business Days of becoming due and payable;

 

(iii) any other default by the Company of the performance of any of its
obligations or any breach by the Company of any representations or covenants
(provided that a default of any such covenant is not otherwise defined as an
Event of Default under this Section 4(a)) hereunder or under the Securities
Purchase Agreement (provided that the representations and warranties under the
Securities Purchase Agreement shall only survive for one year from the date of
execution of the Securities Purchase Agreement) upon 10 days notice from the
Holder to the Company;

 

(iv) the Company shall make an assignment for the benefit of creditors, file a
petition in bankruptcy, consent to entry of an order for relief against it in an
involuntary case, be adjudicated insolvent or bankrupt, petition or apply to any
tribunal for the appointment of any receiver, trustee or similar official for it
or a substantial part of its assets, or commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; there shall occur the appointment of a receiver, trustee, assignee,
liquidator, custodian or similar official of it or a substantial part of its
assets; or there shall have been filed any such petition or application or any
such proceeding shall have been commenced against it, which remains undismissed
for a period of 60 days or more; the Company by any act or omission shall
indicate its consent to, approval of or acquiescence in any such petition,
application or proceeding or the appointment of any trustee for it or any
substantial part of any of its properties;

 

(v) a court of competent jurisdiction shall enter an order or decree under any
Bankruptcy Law that is for relief against the Company in an involuntary case,
appoints a receiver, trustee, assignee, liquidator or similar official of the
Company or for any substantial part of its property, or orders the liquidation
of the Company; and the order or decree remains unstayed and in effect for 30
days;

 

(vi) if at any time while any of the Notes remain outstanding the Company does
not have a sufficient number of authorized and unreserved shares of Common Stock
to satisfy its obligation to reserve for issuance upon conversion of the Notes
at least a number of shares of Common Stock equal to the Required Reserve Amount
(as defined below);

 

(vii) the Company fails to repay all Senior Debt other than the Remaining Senior
Debt as set forth in Section 11(a) hereof within 21 days of the Issuance Date;
or

 

6

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(viii) the Company fails to comply with Sections 13(a) or (13(b) hereof.

 

(b) Redemption Right Upon Event of Default. Promptly after the occurrence of an
Event of Default with respect to this Note or any Other Note, the Company shall
deliver written notice thereof via facsimile and overnight courier (an “Event of
Default Notice”) to the Holder and the holders of the Other Notes. At any time
after the earlier of the Holder’s receipt of an Event of Default Notice and the
Holder becoming aware of an Event of Default, the Holder may require the Company
to redeem all or any portion of the Notes by delivering written notice thereof
(the “Event of Default Redemption Notice”) to the Company, which Event of
Default Redemption Notice shall indicate the portion of the Notes that the
Holder is electing to cause to be redeemed.

 

5. RIGHTS UPON CERTAIN CORPORATE EVENTS. Prior to the consummation of any
recapitalization, reorganization, consolidation, merger, spin-off or other
business combination (including, without limitation, a Change of Control)
pursuant to which holders of Common Stock are entitled to receive securities or
other assets with respect to or in exchange for Common Stock (a “Corporate
Event”), the Company shall make appropriate provision at the Holder’s option to
insure that the Holder will thereafter have the right to receive upon a
conversion of this Note, (i) in addition to the shares of Common Stock
receivable upon such conversion, such securities or other assets to which the
Holder would have been entitled with respect to such shares of Common Stock had
such shares of Common Stock been held by the Holder upon the consummation of
such Corporate Event (without taking into account any limitations or
restrictions on the convertibility of this Note) or (ii) in lieu of the shares
of Common Stock otherwise receivable upon such conversion, such securities or
other assets received by the holders of Common Stock in connection with the
consummation of such Corporate Event in such amounts as the Holder would have
been entitled to receive had this Note initially been issued with conversion
rights for the form of such consideration (as opposed to shares of Common Stock)
at a conversion rate for such consideration commensurate with the Conversion
Rate. Provision made pursuant to the preceding sentence shall be in a form and
substance satisfactory to the Holders with Notes representing a majority in
interest of the Principal outstanding (the “Required Holders”). The provisions
of this Section shall apply similarly and equally to successive Corporate Events
and shall be applied without regard to any limitations on the conversion or
redemption of this Note. Each of the following events shall constitute a “Change
of Control”:

 

(i) any sale of all or substantially all of the assets of the Company to a third
party;

 

(ii) any merger of the Company with or into another corporation in which holders
of Common Stock immediately prior to the consummation of the merger do not
control 50% of the voting power of the surviving corporation; or

 

(iii) the acquisition by any “person” or “group” of persons (as such terms are
used in Section 13(d) and 14(d) of the Securities and Exchange Act of 1934, as
amended, and the related regulations) who have an expressed intent to control
the affairs of the Company of more than 50% of the outstanding Common Stock of
the Company.

 

7

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6. RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

 

(a) Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock. If the Company at any time on or after the Closing Date subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Company at any time on or after the
Closing Date combines (by combination, reverse stock split or otherwise) one or
more classes of its outstanding shares of Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
will be proportionately increased.

 

(b) Other Events. If any event occurs of the type contemplated by the provisions
of this Section 6 but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Company’s Board of
Directors will make an appropriate adjustment in the Conversion Price so as to
protect the rights of the Holder under this Note; provided that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 6.

 

8

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7. PREPAYMENT. With respect to each Holder, this Note may only be prepaid in
whole or in part upon the consent of such Holder (the “Prepayment Consent”),
which shall be in such Holder’s absolute discretion; provided, however, that if
the Holder consents to such prepayment, the Company shall pay to the Holder a
fee equal to 10% of the Principal then outstanding and prepaid (the “Prepayment
Fee”). Notwithstanding the foregoing, in the event of a Change of Control, no
Prepayment Consent shall be required; provided, however, that in such an event,
the Company shall be entitled to prepay this Note so long as the following
conditions are met (i) the Company provides each Holder with at least 14 days’
notice of its intent to prepay the Note, (ii) the amount of Common Stock
outstanding is equal to the Required Reserve Amount, (iii) conversion would not
be impaired pursuant to Section 3(d) hereof, and (iv) the Company pays the
Prepayment Fee to the Holder upon prepaying the Note.

 

8. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Note, and will at all
times in good faith carry out all of the provisions of this Note and take all
action as may be required to protect the rights of the Holder of this Note.

 

9. RESERVATION OF AUTHORIZED SHARES. The Company shall initially reserve out of
its authorized and unissued Common Stock a number of shares of Common Stock for
each of the Notes equal to 100% of the Conversion Rate with respect to the
Principal of each such Note as of the Issuance Date. Thereafter, the Company, so
long as any of the Notes are outstanding, shall take all action necessary to
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes, 100% of the
number of shares of Common Stock as shall from time to time be necessary to
effect the conversion of all of the Notes then outstanding (the “Required
Reserve Amount”).

 

10. HOLDER’S REDEMPTIONS. In the event that the Holder has sent an Event of
Default Redemption Notice to the Company pursuant to Section 4(b) (a “Redemption
Notice”), the Holder shall promptly submit this Note to the Company. The Company
shall deliver the applicable Event of Default Redemption Price to the Holder
within 10 Business Days after the Company’s receipt of the Holder’s Redemption
Notice. In the event of a redemption of less than all of the Conversion Amount
of this Note, the Company shall promptly cause to be issued and delivered to the
Holder a new Note representing the outstanding Principal which has not been
redeemed. In the event that the Company does not pay the Event of Default
Redemption Price (the “Redemption Price”), to the Holder (or deliver any Common
Stock to be issued pursuant to a Redemption Notice) within the time period
required, at any time thereafter and until the Company pays such unpaid
Redemption Price (and issues any Common Stock required pursuant to a Redemption
Notice) in full, the Holder shall have the option, in lieu of redemption, to
require the Company to promptly return to the Holder all or any portion of this
Note representing the Conversion Amount that was submitted for redemption and
for which the applicable Redemption Price (or any Common Stock required to be
issued pursuant to a Redemption Notice) has not been paid. Upon the Company’s
receipt of such notice, (x) the Redemption Notice shall be null and void with
respect to such Conversion Amount and (y) the Company shall immediately return
this Note, or issue a new Note to the Holder representing such Conversion
Amount.

 

9

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11. STATUS OF DEBT.

 

(a) Agreement to Eliminate Senior Debt to Third Parties. By issuing this Note,
the Company for itself and its successors and assigns, and for its Subsidiaries
and the successors and assigns of such Subsidiaries, agrees, and the Holder, by
its acceptance of this Note, shall be deemed to have agreed, that this Note
shall be subject to the provisions of this Section 11 and, to the extent and in
the manner hereinafter set forth in this Section 11, the indebtedness
represented by this Note and the payment of the Principal and Interest, any
redemption amount, liquidated damages, fees, expenses or any other amounts in
respect of this Note are subordinate in right of payment only to the prior
payment in full in cash of (i) all Senior Debt now outstanding and (ii) the
Future Permitted Senior Debt (as defined below). The Holder shall be entitled to
receive payment in full in cash of all Subordinated Indebtedness or any other
Indebtedness save Senior Debt or Future Permitted Senior Debt (including
interest after the commencement of any proceeding under any Bankruptcy Law at
the agreed upon rate before any other creditor or Credit Party shall be entitled
to receive any payment with respect to any indebtedness other than the Senior
Debt or the Future Permitted Senior Debt (“Holder’s Rights”). The Company shall
promptly (and in no event later than 21 days) repay the currently outstanding
Senior Debt after the Closing Date to remove all outstanding Senior Debt owed to
third parties other than debt pursuant to the Agreement by and among Steven
Picheny, Howard Fuchs and the Company, dated as of March 14, 2002, as amended
(the “Remaining Senior Debt”).

 

(b) Liquidation; Dissolution; Bankruptcy.

 

(i) The holders of Senior Debt and Future Permitted Senior Debt shall be
entitled to receive payment in full in cash of all Senior Debt or Future
Permitted Senior Debt (including interest after the commencement of any
proceeding under any Bankruptcy Law at the rate specified in the documentation
for the applicable Senior Debt or Future Permitted Senior Debt) before the
Holder shall be entitled to receive any payment with respect to any indebtedness
other than the Senior Debt or the Future Permitted Senior Debt (the
“Subordinated Indebtedness”), however, the Holder shall be entitled to the
Holder’s Rights in the event of any distribution to creditors of any of the
Company or its Subsidiaries (each, a “Credit Party”) in (A) any sale,
liquidation, winding-up or dissolution of such Credit Party; (B) any bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to such
Credit Party or its property; (C) any assignment by such Credit Party for the
benefit of its creditors; or (D) any marshaling of any Credit Party’s assets and
liabilities (each a “Bankruptcy Event”).

 

(ii) In the event of any distribution, division or application, partial or
complete, voluntary or involuntary, by operation of law or otherwise, of all or
any part of the assets of any Credit Party or the proceeds thereof to creditors
of any Credit Party upon any Indebtedness of such Credit Party, by reason of any
Bankruptcy Event, then and in any such event, any payment or distribution of any
kind or character, either in cash, securities or other property, which shall be
payable or deliverable to the Holder upon or with respect to any or all
Subordinated Indebtedness shall be paid or delivered directly to an agent for
the Senior Debt or Future Permitted Senior Debt (the “Agent”) for application
against the Senior Debt or Future Permitted Senior Debt, whether due or not due,
in a manner which the Agent, in its sole discretion, shall determine, until such
Senior Debt or Future Permitted Senior Debt shall have been fully paid in cash
and all commitments thereunder have terminated. The Holder hereby

 

10

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irrevocably authorizes and empowers the Agent to ask for, demand, sue for,
collect, and receive for every such payment or distribution and give acquittance
therefor, and to file claims (and proofs of claims) and take such other actions
in the Agent’s own name or in the name of the Holder as the Agent may deem
necessary or advisable for the enforcement of the terms of this Section 11.

 

(iii) The Holder agrees to execute, verify, deliver and file any proofs of claim
in respect of Subordinated Indebtedness requested by the Agent in connection
with any Bankruptcy Event and hereby irrevocably authorizes, empowers and
appoints Agent as its agent and attorney-in-fact to (i) execute, verify, deliver
and file such proofs of claim upon the failure of the Holder promptly to do so
prior to 5 Business Days before the expiration of the time to file any such
proof of claim and (ii) vote such claim in any such Bankruptcy Event upon the
failure of the Holder to do so prior to 5 Business Days before the expiration of
the time to vote any such claim; provided the Agent shall have no obligation to
execute, verify, deliver, file and/or vote any such proof of claim. In the event
that the Agent votes any claim in accordance with the authority granted hereby,
the Holder shall not be entitled to change or withdraw such vote.

 

(c) Redemption upon Event of Default. The Holder shall give the Agent at least 3
Business Days’ prior notice of its intention to exercise its redemption rights
upon the occurrence of an Event of Default.

 

(d) No Amendment of Subordinated Indebtedness. Neither the Holder nor any Credit
Party will, without the prior written consent of the Agent, amend or modify (i)
this Section 11 or the definition of any capitalized term used in this Section
11 or (ii) any provision of the Securities Purchase Agreement or the other
Securities Purchase Documents if such amendment or modification would (A) move
forward the date of any redemption or payment or increase the principal amount
of or the rate of interest applicable to the Subordinated Indebtedness or (B)
result in the covenants contained therein being materially more restrictive in
the aggregate on the Holder or any Credit Party prior to the effectiveness of
such amendment or modification.

 

(e) No Impairment of Subordination. No right of the Agent, Holder, any lender or
any future holder of any Senior Debt or Future Permitted Senior Debt to enforce
the subordination as provided in this Section 11 shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Holder or
any Credit Party or any act or failure to act by the Agent, any lender or any
such holder, or by any noncompliance by any Credit Party with the terms of this
Section 11, regardless of any knowledge thereof which the Agent or any lender
may have or with which it may otherwise be charged.

 

(f) Subrogation. Subject to payment in full in cash of all Senior Debt and
Future Permitted Senior Debt and the termination of all commitments thereunder,
the rights of the Holder shall be subrogated to the rights of the holders of
Senior Debt and Future Permitted Senior Debt to receive payments or
distributions of the assets of any Credit Party made on such Senior Debt or
Future Permitted Senior Debt until all principal and interest on this Note shall
be paid in full in cash; and for purposes of such subrogation, no payments or
distributions to the holders of Senior Debt or Future Permitted Senior Debt of
any cash, property or securities to which the Holder would be entitled except
for the subordination provisions of this Section 11

 

11

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shall, as between the Holder and the Company and/or its creditors other than the
holders of the Senior Debt or Future Permitted Senior Debt, be deemed to be a
payment on account of the Senior Debt or Future Permitted Senior Debt.

 

(g) Conversion Rights. Nothing contained in this Section 11 or elsewhere in this
Note is intended to or shall impair, as among the Company, its creditors,
including the holders of Senior Debt and Future Permitted Senior Debt, and the
Holder, the right, which is absolute and unconditional, of the Holder to convert
this Note into shares of Common Stock or rights to acquire shares of Common
Stock in accordance with the terms hereof.

 

(h) Rights of Holder Unimpaired. The provisions of this Section 11 are and are
intended solely for the purposes of defining the relative rights of the Holder
and the holders of Senior Debt and Future Permitted Senior Debt and nothing in
this Section 11 shall impair, as between the Company and the Holder, the
obligation of the Company, which is unconditional and absolute, to pay to the
Holder the Principal (and premium, if any) and Interest, in accordance with the
terms of this Note.

 

(i) Subordination May Not Be Impaired by any Credit Party. No right of any
holder of Permitted Indebtedness to enforce the subordination of the
Subordinated Indebtedness shall be impaired by any act or failure to act by any
Credit Party or the Holder or by the failure of any Credit Party or the Holder
to comply with the terms of this Section 11.

 

(j) Reliance by Holder. Upon any payment or distribution of assets of any Credit
Party referred to in this Section 11, the Holder shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction or upon any
certificate of the Agent or of the liquidating trustee or agent or other Person
making any distribution to the Holder for the purpose of ascertaining the
Persons entitled to participate in such distribution, the holders of the
Permitted Indebtedness and other Indebtedness of the Company, the amount thereof
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Section 11.

 

(k) Reliance by Holders of Senior Debt and Future Permitted Senior Debt. The
Holder acknowledges and agrees that (i) each holder of Senior Debt and Future
Permitted Senior Debt is an intended third-party beneficiary of the terms of the
Section 11 and (ii) the foregoing provisions of this Section 11 are, and are
intended to be, an inducement and consideration to each holder of Senior Debt
and Future Permitted Senior Debt, whether such Senior Debt or Future Permitted
Senior Debt was created or acquired before or after the date hereof, to acquire
or continue to hold such Senior Debt or Future Permitted Senior Debt and such
holder of Senior Debt or Future Permitted Senior Debt shall be deemed
conclusively to have relied on such provisions in acquiring or continuing to
hold such Senior Debt or Future Permitted Senior Debt.

 

(l) Applicability. The terms of this Section 11 shall be applicable both before
and after the filing of any petition by or against any Credit Party under any
Bankruptcy Law, and all allocations of payments between the holders of the
Senior Debt and Future Permitted Senior Debt, on the one hand, and the Holder,
on the other hand, shall continue to be made after the filing thereof in
accordance with this Section 11.

 

12

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12. VOTING RIGHTS. The Holder shall have no voting rights as the holder of this
Note, except as required by law, including but not limited to the General
Corporation Law of the State of Delaware, and as expressly provided in this
Note.

 

13. RANK; ADDITIONAL INDEBTEDNESS.

 

(a) Rank. All payments due under this Note (i) shall be subordinate in right of
payment to the prior payment of all existing Senior Debt and the Future
Permitted Senior Debt, without duplication, and (ii) shall be senior to all
other Indebtedness of the Company and its Subsidiaries. The Holder agrees and
covenants that this Note will be subordinate to the Future Permitted Senior
Debt, as contemplated in Section 13(b) below, and the Holder further agrees and
covenants to enter into a subordination agreement in connection with any such
working capital facility. The Company agrees that other than the Senior Debt,
the Future Permitted Senior Debt, any liens permitted under the Future Permitted
Senior Debt (provided that in no event shall the amount of Future Permitted
Senior Debt plus the amount of liens permitted under the Future Permitted Senior
Debt be greater than $11 million), or as required by law, no current or future
note holder, purchaser or entity has or will have a security interest, lien or
levy upon any assets, intellectual property, real property or any other property
or receivables of the Company which shall be senior to that of the Holder.
Holder acknowledges that it does not currently have a security interest in any
of the assets or property of the Company.

 

(b) Incurrence of Senior Debt. So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to, directly
or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness
which shall rank senior to the Notes other than Senior Debt or any indebtedness
in connection with one or more working capital facilities secured by the
Company’s assets; provided, that the aggregate of all such facilities shall not
exceed $10 million (the “Future Permitted Senior Debt”).

 

13

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14. TRANSFER. This Note may be offered, sold, assigned or transferred by the
Holder in minimum denominations of $250,000 without the consent of the Company,
subject to the Securities Act of 1933, as amended, and the Rules and Regulations
promulgated thereunder and the Securities Purchase Agreement; provided however
that this Note may not be transferred to any person who (a) is a competitor of
the Company or (b) is engaged in or has threatened material litigation against
the Company, in each case as determined by the Board of Directors of the Company
in good faith. Notwithstanding the foregoing, in case of an Event of Default,
this Note may be transferred without regard to any of the foregoing limitations.

 

15. VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a
meeting duly called for such purpose or the written consent without a meeting,
of the Required Holders, shall be required for any change, amendment or waiver
related to this Note or the Other Notes; provided, however, that no such change,
amendment or waiver, as applied to any particular holder of Notes, shall, (i)
without the consent of that particular holder, extend the maturity of the Note,
reduce the interest rate, extend the time of payment of interest thereon, or
reduce the principal amount thereof or premium, if any, thereon, or reduce any
amount payable on redemption or repurchase thereof or affect any amounts due to
any holder or (ii) without the consent of the holders of all Notes then
outstanding, reduce the aforesaid percentage of Notes, the holders of which are
required to consent to any such change, amendment or waiver.

 

16. REISSUANCE OF THIS NOTE.

 

(a) Transfer. If this Note is to be transferred, the Holder shall surrender this
Note to the Company, whereupon the Company will forthwith issue and deliver upon
the order of the Holder a new Note, registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and, if
less then the entire outstanding Principal is being transferred, a new Note to
the Holder representing the outstanding Principal not being transferred. The
Holder and any assignee, by acceptance of this Note, acknowledge and agree that,
by reason of the provisions of Section 3(c)(iii) and this Section 16(a),
following conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note. The Company shall not be obligated to pay any documentary,
stamp or similar taxes that may be payable with respect to any transfer under
this Section 16(a).

 

(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or destruction, of an
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note representing the
outstanding Principal.

 

(c) Note Exchangeable for Different Denominations. This Note is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new Note or Notes (in principal amounts of at least $100,000) representing
in the aggregate the outstanding Principal of this Note, and each such new Note
will represent such portion of such outstanding Principal as is designated by
the Holder at the time of such surrender.

 

14

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(d) Issuance of New Notes. Whenever the Company is required to issue a new Note
pursuant to the terms of this Note, such new Note (i) shall be of like tenor
with this Note, (ii) shall represent, as indicated on the face of such new Note,
the Principal remaining outstanding (or in the case of a new Note being issued
pursuant to Section 16(a) or Section 16(c), the Principal designated by the
Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued Interest on
the Principal and Interest of this Note, from the Issuance Date.

 

15

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17. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies provided in this Note shall be cumulative and in addition
to all other remedies available under this Note and the Securities Purchase
Agreement, at law or in equity (including a decree of specific performance
and/or other injunctive relief), and nothing herein shall limit the Holder’s
right to pursue actual and consequential damages for any failure by the Company
to comply with the terms of this Note. Amounts set forth or provided for herein
with respect to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the Holder and shall not, except as
expressly provided herein, be subject to any other obligation of the Company (or
the performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required. The Company shall pay the
Holder for any costs associated in obtaining such injunction or remedy if the
Holder successfully prevails in obtaining such injunction or other remedy, and
the Holder shall pay the Company for any costs associated in defending such
injunction or remedy if the Company successfully prevails in defending such
injunction or other remedy.

 

18. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is
placed in the hands of an attorney for collection or enforcement or is collected
or enforced through any legal proceeding or the Holder otherwise takes action to
collect amounts due under this Note or to enforce the provisions of this Note or
(b) there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting Company creditors’ rights and involving a claim
under this Note, then the Company shall pay the costs incurred by the Holder for
such collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, but not limited to,
attorneys’ fees and disbursements.

 

19. CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by
the Company and all the Purchasers (as defined in the Securities Purchase
Agreement) and shall not be construed against any person as the drafter hereof.
The headings of this Note are for convenience of reference and shall not form
part of, or affect the interpretation of, this Note.

 

20. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.

 

21. NOTICES; PAYMENTS.

 

(a) Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with Section
8 of the Securities Purchase Agreement. The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Note, including
in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the

 

16

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Company will give written notice to the Holder (i) immediately upon any
adjustment of the Conversion Price (the “Conversion Price Notice”), setting
forth in reasonable detail, and certifying, the calculation of such adjustment,
which shall be conclusive absent manifest error, as commercially reasonably
determined by the Holder in good faith, and provided that if the Holder
determines any manifest error, the Holder shall provide written notice of such
error within two Business Days of receiving the Conversion Price Notice, and
(ii) at least 20 days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of Common
Stock or (C) for determining rights to vote with respect to any Change of
Control, dissolution or liquidation, provided in each case that such information
shall be made known to the public prior to or in conjunction with such notice
being provided to the Holder.

 

(b) Payments. Whenever any payment of cash is to be made by the Company to any
Person pursuant to this Note, such payment shall be made in lawful money of the
United States of America via wire transfer of immediately available funds
pursuant to the Holder’s wire transfer instructions, which are being provided to
the Company on the Issuance Date. Whenever any amount expressed to be due by the
terms of this Note is due on any day which is not a Business Day, the same shall
instead be due on the next succeeding day which is a Business Day and, in the
case of any Interest Date which is not the date on which this Note is paid in
full, the extension of the due date thereof shall not be taken into account for
purposes of determining the amount of Interest due on such date.

 

22. CANCELLATION. After all Principal, accrued Interest and other amounts at any
time owed on this Note have been paid in full, this Note shall automatically be
deemed canceled, shall be surrendered to the Company for cancellation and shall
not be reissued.

 

23. WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note and the
Securities Purchase Agreement.

 

24. GOVERNING LAW. This Note shall be construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and
performance of this Note shall be governed by, the internal laws of the State of
New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.

 

25. CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall
have the following meanings:

 

(a) “Bankruptcy Code” means Title 11 of the United States Code (11 U.S.C. 101 et
seq.), as amended from time to time (including any successor statute) and all
rules and regulations promulgated thereunder.

 

(b) “Bankruptcy Law” means the Bankruptcy Code of the United States and all
other liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors,

 

17

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moratorium, rearrangement, receivership, insolvency, fraudulent conveyance or
transfer, reorganization, or similar state or Federal debtor relief laws,
statutes, rules, regulations, orders, or ordinances of the United States or
other applicable jurisdictions from time to time in effect and affecting the
rights of creditors generally.

 

(c) “Business Day” means any day other than Saturday, Sunday or other day on
which commercial banks in The City of New York are authorized or required by law
to remain closed.

 

(d) “Equity Interests” means, with respect to any Person, all of the shares of
capital stock of (or other ownership or profit interests in) such Person, all of
the warrants, options or other rights for the purchase or acquisition from such
Person of shares of capital stock of (or other ownership or profit interests in)
such Person, all of the securities convertible into or exchangeable for shares
of capital stock of (or other ownership or profit interests in) such Person or
warrants, rights or options for the purchase or acquisition from such Person of
such shares (or such other interests), and all of the other ownership or profit
interests in such Person (including partnership, member or trust interests
therein), whether voting or nonvoting, and whether or not such shares, warrants,
options, rights or other interests are outstanding on any date of determination.

 

(e) “GAAP” means generally accepted accounting principles in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or such other
principles as may be approved by a significant segment of the accounting
profession in the United States, that are applicable to the circumstances as of
the date of determination, consistently applied.

 

(f) “Guarantee” means, as to any Person, (a) any obligation, contingent or
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other obligation payable or performable by
another Person (the “primary obligor”) in any manner, whether directly or
indirectly, and including any obligation of such Person, direct or indirect, (i)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation, (ii) to purchase or lease property,
securities or services for the purpose of assuring the obligee in respect of
such Indebtedness or other obligation of the payment or performance of such
Indebtedness or other obligation, (iii) to maintain working capital, equity
capital or any other financial statement condition or liquidity or level of
income or cash flow of the primary obligor so as to enable the primary obligor
to pay such Indebtedness or other obligation, or (iv) entered into for the
purpose of assuring in any other manner the obligee in respect of such
Indebtedness or other obligation of the payment or performance thereof or to
protect such obligee against loss in respect thereof (in whole or in part), or
(b) any Lien on any assets of such Person securing any Indebtedness or other
obligation of any other Person, whether or not such Indebtedness or other
obligation is assumed by such Person (or any right, contingent or otherwise, of
any holder of such Indebtedness to obtain any such Lien). The amount of any
Guarantee shall be deemed to be an amount equal to the stated or determinable
amount of the related primary obligation, or portion thereof, in respect of
which such Guarantee is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by the
guaranteeing Person in good faith.

 

18

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(g) “Indebtedness” means, as to any Person at a particular time, without
duplication, all of the following, whether or not included as indebtedness or
liabilities in accordance with GAAP:

 

(i) all obligations of such Person for borrowed money and all obligations of
such Person evidenced by bonds, debentures, notes, loan agreements or other
similar instruments;

 

(ii) all direct or contingent obligations of such Person arising under letters
of credit, bankers’ acceptances, bank guaranties, surety bonds and similar
instruments;

 

(iii) net obligations of such Person under any Swap Contract;

 

(iv) all obligations of such Person to pay the deferred purchase price of
property or services (other than trade accounts payable in the ordinary course
of business);

 

(v) indebtedness (excluding prepaid interest thereon) secured by a Lien on
property owned or being purchased by such Person (including indebtedness arising
under conditional sales or other title retention agreements), whether or not
such indebtedness shall have been assumed by such Person or is limited in
recourse;

 

(vi) capitalized leases and Off-Balance Sheet Obligations;

 

(vii) all obligations of such Person to purchase, redeem, retire, defease or
otherwise make any payment in respect of any Equity Interest in such Person or
any other Person, valued, in the case of a redeemable preferred interest, at the
greater of its voluntary or involuntary liquidation preference plus accrued and
unpaid dividends; and

 

(viii) all Guarantees of such Person in respect of any of the foregoing.

 

For all purposes hereof, the Indebtedness of any Person shall include the
Indebtedness of any partnership or joint venture (other than a joint venture
that is itself a corporation or limited liability company) in which such Person
is a general partner or a joint venturer in an amount proportionate to such
Person’s interest therein, unless such Indebtedness is expressly made
non-recourse to such Person or except to the extent such Indebtedness is owed by
such partnership or joint venture to such Person; provided that the pledge of
any Equity Interest in such joint venture shall not constitute recourse to such
Person for the purposes of this definition. The amount of any net obligation
under any Swap Contract on any date shall be deemed to be the Swap Termination
Value thereof as of such date. The amount of any capitalized lease or
Off-Balance Sheet Obligation as of any date shall be deemed to be the amount of
attributable Indebtedness in respect thereof as of such date.

 

(h) “Issuance Date” means August 5, 2005.

 

(i) “Off-Balance Sheet Obligation” means the monetary obligation of a Person
under (a) a so-called synthetic, off-balance sheet or tax retention lease, or
(b) an agreement for the use or possession of property creating obligations that
do not appear on the balance sheet of such Person but which, upon the insolvency
or bankruptcy of such Person,

 

19

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would be characterized as the indebtedness of such Person (without regard to
accounting treatment). No monetary obligations under true operating leases shall
be included in Off-Balance Sheet Obligations.

 

(j) “Permitted Indebtedness” means (i) this Note, (ii) the Senior Debt and (iii)
the Future Permitted Senior Debt.

 

(k) “Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.

 

(l) “Principal Market” means The Nasdaq National Market.

 

(m) “SEC” means the United States Securities and Exchange Commission.

 

(n) “Securities Purchase Agreement” means that certain securities purchase
agreement between the Company and the Holders of the Notes pursuant to which the
Company issued the Note.

 

(o) “Securities Purchase Documents” means that the Securities Purchase
Agreement, this Note, and all other agreements, documents and instruments
executed from time to time in connection therewith, as the same may be amended,
restated, supplemented or otherwise modified from time to time.

 

(p) “Senior Debt” means all obligations, liabilities and indebtedness of every
nature of the Company from time to time owed to the other parties to the
following agreements: (i) the Note Purchase Agreement by and among the Company,
ComVest Venture Partners, L.P. and the Additional Note Purchasers dated as of
March 1, 2002, as amended; (ii) the Agreement by and among Steven Picheny,
Howard Fuchs and the Company dated as of March 14, 2002, as amended; (iii) the
Promissory Note by and among ComVest Venture Partners, L.P. and Banc of America
Commercial Finance Corporation dated as of March 15, 2002.

 

(q) “Subsidiary” of a Person means a corporation, partnership, joint venture,
limited liability company or other business entity of which a majority of the
shares of securities or other interests having ordinary voting power for the
election of directors or other governing body (other than securities or
interests having such power only by reason of the happening of a contingency)
are at the time beneficially owned by such Person.

 

(r) “Swap Contract” means (a) any and all rate swap transactions, basis swaps,
credit derivative transactions, rate hedging agreements, forward rate
transactions, commodity swaps, commodity options, forward commodity contracts,
equity or equity index swaps or options, bond or bond price or bond index swaps
or options or forward bond or forward bond price or forward bond index
transactions, interest rate options, forward foreign exchange transactions, cap
transactions, floor transactions, collar transactions, currency swap
transactions, cross-currency rate swap transactions, currency options, spot
contracts, or any other similar transactions or any combination of any of the
foregoing (including any options to enter into any of the foregoing), whether or
not any such transaction is governed by or subject to any master agreement, and
(b) any and all transactions of any kind, and the related confirmations, which
are

 

20

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subject to the terms and conditions of, or governed by, any form of master
agreement published by the International Swaps and Derivatives Association,
Inc., any International Foreign Exchange Master Agreement, or any other master
agreement, including any such obligations or liabilities under any Master
Agreement.

 

(s) “Swap Termination Value” means, in respect of any one or more Swap
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or after
the date such Swap Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the
mark-to-market value(s) for such Swap Contracts, as determined based upon one or
more mid-market or other readily available quotations provided by any recognized
dealer in such Swap Contracts (which may include any lender or any affiliate of
a lender).

 

(t) “Trading Day” means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded; provided that
“Trading Day” shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York Time).

 

[Signature Page Follows]

 

21

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the Issuance Date set out above.

 

RITA MEDICAL SYSTEMS, INC.

By:

 

 

--------------------------------------------------------------------------------

Name:

 

Joseph DeVivo

Title:

  President and Chief Executive Officer

--------------------------------------------------------------------------------

EXHIBIT I to

Form of Note

 

RITA MEDICAL SYSTEMS, INC.

CONVERSION NOTICE

 

Reference is made to the Senior Convertible Note (the “Note”) issued to the
undersigned by RITA Medical Systems, Inc. (the “Company”). In accordance with
and pursuant to the Note, the undersigned hereby elects to convert the
Conversion Amount (as defined in the Note) of the Note indicated below into
shares of Common Stock, par value $0.001 per share (the “Common Stock”), of the
Company as of the date specified below.

 

Date of Conversion:
_________________________________________________________________________

Aggregate Conversion Amount to be
converted:____________________________________________________

Please confirm the following information:

Conversion Price:
____________________________________________________________________________

Number of shares of Common Stock to be
issued:____________________________________________________

Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:

Issue
to:___________________________________________________________________________________

_________________________________________________________________________________________

_________________________________________________________________________________________

_________________________________________________________________________________________

Facsimile
Number:___________________________________________________________________________

Authorization:
:_____________________________________________________________________________

By:______________________________________________________________________________________

Title
_____________________________________________________________________________________

Dated:________________________________________________________________________________________

--------------------------------------------------------------------------------

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Conversion Notice and hereby directs U.S.
Stock Transfer Corporation to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions, dated
            , 200    , from the Company and acknowledged and agreed to by U.S.
Stock Transfer Corporation.

 

RITA MEDICAL SYSTEMS, INC.

By:

 

 

--------------------------------------------------------------------------------

Name:

   

Title: