10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE FISCAL YEAR ENDED December 31, 2008
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM          TO

COMMISSION FILE NUMBER 000-50988

VNUS MEDICAL TECHNOLOGIES, INC.

Delaware	94-3216535
(State of incorporation)	(I.R.S. ID.)

5799 FONTANOSO WAY, SAN JOSE, CALIFORNIA 95138

(408) 360-7200

Securities registered pursuant to Section 12(b) of the Act:

COMMON STOCK NASDAQ

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

The aggregate market value of the registrant’s common equity held by non-affiliates was approximately $12.9 million on June 30, 2008, the last business day of the registrant’s most recently completed second fiscal quarter. As of March 9, 2009, 16,159,567 shares of the registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this report incorporates information by reference from the registrant’s definitive proxy statement for its annual meeting of stockholders, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2008.

VNUS MEDICAL TECHNOLOGIES, INC.
FORM 10-K

For The Fiscal Year Ended December 31, 2008

INDEX

		Page
PART I
FORWARD LOOKING STATEMENTS			1
Item 1.	Business		1
Item 1A.	Risk Factors		12
Item 1B.	Unresolved Staff Comments		26
Item 2.	Properties		26
Item 3.	Legal Proceedings		26
Item 4.	Submission of Matters to a Vote of Security Holders		28
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		28
Item 6.	Selected Consolidated Financial Data		29
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		40
Item 8.	Consolidated Financial Statements and Supplementary Data		41
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		66
Item 9A.	Controls and Procedures		66
Item 9B.	Other Information		66
PART III
Item 10.	Directors and Executive Officers of the Registrant		67
Item 11.	Executive Compensation		67
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		67
Item 13.	Certain Relationships and Related Transactions		67
Item 14.	Principal Accountant Fees and Services		67
PART IV
Item 15.	Exhibits and Financial Statement Schedules		68
EX-10.1
EX-10.6
EX-10.17
EX-21
EX-23.1
EX-31.1
EX-31.2
EX-32

PART I

NOTE ABOUT FORWARD-LOOKING STATEMENTS

Certain statements either contained in or incorporated by reference into this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “believes,” “plans,” “anticipates,” “projects,” “estimates,” “expects,” “intends,” “strategy,” “future,” “opportunity,” “may,” “will,” “should,” “could,” “potential,” or similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Actual results may differ materially from current expectations based on a number of factors affecting our business, including, among other things, overall economic and market conditions; fluctuating foreign exchange rates; changes in reimbursement levels established by governmental and third-party payors; commercial success of our licensees; changing competitive market, clinical trial data and regulatory conditions; changes in the credit markets impacting the fair value of our investment securities; continued market acceptance of the ClosureFAST catheter; customer and physician preferences; our ability to protect our patent position; and the effectiveness of advertising and other promotional campaigns. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in this report in the sections entitled “Risk Factors” (Part I, Item 1A) and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part II, Item 7). The reader is cautioned not to unduly rely on these forward-looking statements. We expressly disclaim any intent or obligation to update or revise publicly these forward-looking statements except as required by law.

ITEM 1:   BUSINESS

GENERAL

VNUS Medical Technologies, Inc. was incorporated in Delaware in 1995. Our mission is to create innovative products and procedures for the treatment of venous reflux disease in order to significantly improve patients’ lives. We develop, manufacture and license proprietary products used in the minimally invasive treatment of venous reflux disease, including disposable endovenous catheters and radio-frequency, or RF, generators. Our proprietary products primarily consist of the VNUS Closure system, which is made up of our RF generator and single-use disposable catheter which is used to perform the Closure procedure. We also sell sterile supply kits and related accessories used together with our Closure system to perform our Closure procedure. We do business throughout the world and have offices in three countries.

We believe the VNUS Closure system enables the treatment of venous reflux disease, including painful varicose veins, in a minimally invasive manner that allows physicians the option of performing the procedure in an office, outpatient or hospital setting with reduced patient discomfort and recovery time over other venous reflux disease treatment options, and that this ability is key to meeting our customers’ needs and to our future growth. We believe that by delivering new and improved products, through continuing and expanding the acceptance and reimbursement of our Closure procedure by private and government sponsored health insurance plans worldwide, and improving our internal processes, we can lay a foundation for long-term success. We intend to build on this foundation through continued innovation, product excellence, commitment to patients, business efficacy and accountability.

Corporate Background

Our principal offices are located at 5799 Fontanoso Way, San Jose, California 95138 and our telephone number is (408) 360-7200. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as well as our Code of Conduct and Business Ethics, Corporate Governance Guidelines, Insider Trading Policy and Audit Committee, Compensation Committee and Governance and Nominating Committee Charters are available through our website, www.vnus.com, under the “Investor Relations”

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section, free of charge. Our filings with the Securities and Exchange Commission, or SEC, are posted as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

OPERATING SEGMENT INFORMATION

We operate as one segment that encompasses all geographic regions. We provide one group of products and services. The following is a summary of the percentage of our net revenues by geographic region and by revenue source within our single segment:

	Years Ended December 31,
	2008			2007			2006
United States		90	%		93	%		96	%
Europe and other		10			7			4
		100	%		100	%		100	%
Catheters and devices		68	%		73	%		81	%
RF generators		8			14			8
Accessories		11			13			11
Royalty revenues		13			—			—
		100	%		100	%		100	%

Venous Reflux Market

It is estimated that throughout the world approximately 1.3 million vein stripping surgeries and endovenous vein ablation procedures are performed annually in the 40 countries in which our products are sold. These procedures treat people who suffer from symptomatic venous insufficiency, a condition also known as venous reflux disease that occurs when veins in the leg become less functional and become noticeable by varicose veins, swollen ankles, or aching legs. Of these 1.3 million procedures, we estimate that in 2008 approximately 290,000 were performed in the United States, 640,000 in Europe and the remainder in the rest of the world. Endovenous vein ablation is the prevalent treatment method of venous reflux disease in the United States, where approximately 90% of the procedures to treat venous reflux disease are performed using this treatment. Vein stripping surgery is the prevalent treatment method of venous reflux disease in the rest of the world, where it is estimated over 95% of the procedures to treat venous reflux are performed using this treatment.

Current Treatment Alternatives

Patients suffering from venous reflux disease can receive various treatments for relief from the condition. To provide long-term elimination of symptoms as well as the signs of venous reflux disease, including varicose veins, refluxing veins are surgically removed or closed. Three prevalent treatments use this approach: conventional vein stripping and ligation surgery, endovenous laser ablation (“EVL”) and our Closure^® procedure. The following table compares the primary characteristics of the three prevalent treatments.

	VNUS Closure Procedure
	Using ClosureFAST	EVL	Vein Stripping Surgery
Typical anesthesia	Local	Local	General
Typical total procedure time per limb	40-50 minutes	40-50 minutes	60 minutes
Method of treating reflux	Delivery of RF energy to the vein wall	Laser heating and perforating of the vein or boiling blood in the vein	Surgical removal of the saphenous vein
Where performed	Outpatient/hospital, surgery center, or physician’s office	Outpatient/hospital, surgery center, or physician’s office	Outpatient hospital or surgery center
Typical time to return to regular activities	1 day	1-3 days	3 days to several weeks

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The VNUS Closure Procedure

Diseased, superficial veins such as the great saphenous vein with non-functioning vein valves can be ablated using our Closure procedure. This is accomplished by inserting our proprietary catheter into the vein to heat the vein wall using temperature-controlled RF energy. Heating the vein wall causes collagen in the wall to shrink, closing the vein. The blood then naturally reroutes to healthy veins containing functioning vein valves. Physicians generally instruct their patients to take frequent walks throughout the day for several days following our Closure procedure. This stimulates the return to normal blood flow in the legs. Patients return to the physician’s office within 72 hours for an ultrasound follow-up examination.

The Closure procedure is commonly performed in the physician’s office or as a hospital outpatient procedure. In both cases, the procedure can be performed under local anesthesia. We expect to see the trend towards office-based treatments continuing, with the Closure procedure being more commonly performed in the physician’s office.

We believe our Closure procedure provides the following benefits for patients and physicians:

•  Minimally Invasive Outpatient Procedure.  The Closure procedure can be performed in the convenient setting of the physician’s office, or in an outpatient hospital or surgical center, using local anesthesia.

•  Less Post-Operative Pain.  Independent comparative studies of patients treated with the Closure procedure to those treated with vein stripping procedures revealed that the Closure patients returned to work and normal activities significantly faster than those treated by traditional vein stripping. In another trial comparing patients treated with the Closure procedure using the ClosureFAST catheter to those treated with EVL, patients exhibited less pain, tenderness, and bruising when treated with the Closure procedure.

•  Excellent Clinical Outcomes.  Results from a randomized comparative trial of the Closure procedure and vein stripping conducted in 2000 demonstrated the Closure procedure to be as effective as vein stripping at two years following treatment, with fewer side effects and faster recovery. Another comparative trial between our Closure procedure using the ClosureFAST catheter and EVL showed the Closure procedure exhibited fewer complications. More clinical outcomes are provided in the following Clinical Results section.

•  Long-Lasting Results.  Recent reporting of results from an ongoing international multicenter study show vein occlusion rates of 97% at one-year follow-up and 94% at two-year follow-up in a total of 396 treated limbs from 326 patients. A separate reporting of long-term data from the European cohort shows even better vein occlusion rates of 97% in 288 limbs at one year and 96% in 142 limbs at two years follow-up.

•  Safe and Controlled Procedure.  The Closure system includes a number of safety features designed to ensure precise delivery of RF energy. The RFGplus generator continuously monitors the treatment temperature delivered to the vein wall and adjusts energy delivery throughout the procedure to provide a high level of safety and effectiveness, while minimizing the chances of adverse effects.

•  Cosmetically Appealing.  The Closure procedure results in less bruising, pain and skin discoloration than both vein stripping and EVL. Additionally, because the Closure procedure is minimally invasive, it results in little or no scarring compared to vein stripping

Clinical Results

There is a significant body of clinical evidence demonstrating the advantages of the Closure procedure over alternative treatment methods.

Prospective Clinical Trial of our Closure Procedure using the ClosureFAST^tm catheter

An international multicenter prospective clinical trial was initiated in April 2006 using our Closure procedure using the ClosureFAST catheter. Interim results of the ongoing European trial were published in the Journal of Vascular Surgery in January 2008. The publication shows follow-up results of up to six months after treatment with a vein occlusion rate of 99.6% at all follow-up visits involving 164 treated limbs at three months and 62 limbs at six months. There were no reported serious adverse events.

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At the 15^th annual Veith Symposium in November 2008, the two-year follow-up results were presented by Dr. Alan Dietzek of Danbury, Connecticut. The results show vein occlusion rates of 97% in 345 limbs at one-year follow-up and 94% in 101 limbs at two-year follow-up. The results with our ClosureFAST catheter demonstrate a substantial improvement in two-year occlusion and reflux free rates which were 88% with our predecessor product, the ClosurePlus catheter. The complications from the international clinical trial of our ClosureFAST catheter include bruising (ecchymosis) in 5.3%, temporary and localized numbness (paresthesia) in 4.0%, skin pigmentation in 2.5%, redness (erythema) in 2.3%, blood clots (thrombosis) of the deep vein system (DVT) in 1.8%, vein tenderness (phlebitis) in 1.5%, bleeding below the skin (subcutaneous hematoma) in 1.0%, and no skin burns (thermal injury in 0%).

Data representing the European cohort of the international ClosureFast multicenter prospective clinical trial were presented in November 2008 at the American College of Phlebology meeting by Dr. Thomas Proebstle of Mannheim, Germany. The presentation reported on 295 treated limbs with vein occlusion rates of 97% in 288 limbs at the one-year follow-up, and 96% in 142 limbs at the two-year follow-up. The minor complications, commonly observed in the days following vein treatment, had all subsided except for the temporary and localized numbness (paresthesia), and skin pigmentation. No serious adverse events, such as blood clots (thrombosis) of the deep vein system (DVT) or skin burns were reported. The table below shows the percentage of limbs experiencing complications at the follow-up visits.

Complications	3 Day Follow-Up			3 Month Follow-Up			12 Month Follow-Up
Ecchymosis		5.8	%		0.0	%		0.0	%
Paresthesia		3.4	%		2.0	%		0.0	%
Pigmentation		2.7	%		1.4	%		1.0	%
Erythema		2.0	%		0.0	%		0.0	%
Hematoma		1.4	%		0.0	%		0.0	%
Phlebitis		1.0	%		0.0	%		0.0	%
Skin Burn		0.0	%		0.0	%		0.0	%
DVT		0.0	%		0.0	%		0.0	%

Closure procedure using the ClosureFAST catheter versus EVL

In 2007, VNUS sponsored the RECOVERY Trial, a multicenter prospective randomized comparative clinical trial of the Closure procedure using the ClosureFAST catheter and EVL. After treatment, patients were examined at 2, 7, 14, and 30 days after treatment in order to determine how well the patients recovered after treatment. A total of 46 limbs were treated with the ClosureFAST catheter and 41 limbs were treated with EVL in 69 patients. Analysis of the final data showed that vein occlusion was achieved in all treated limbs and that procedure times between the Closure procedure using the ClosureFAST catheter and EVL were similar with catheter-in to catheter-out times averaging 12.6 minutes for patients treated with our ClosureFAST catheter and 16.0 minutes for EVL.

Final results also showed patients treated with the ClosureFAST catheter experienced significantly less post-procedure pain, bruising and tenderness than EVL. Minor complications following treatment were observed in 2 (4.4%) limbs treated with our ClosureFAST catheter and in 9 (22%) limbs treated with EVL. There were statistically fewer complications in limbs treated with our ClosureFAST catheter compared to EVL.

Products

Our VNUS Closure system consists of a proprietary RF generator and proprietary single-use disposable catheters. We also sell sterile supply kits and other accessory supplies used together with our Closure system to perform our Closure procedure. Additionally, we sell disposable devices to treat perforator vein reflux, instruments to remove varicose veins, and compression stockings.

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ClosureFAST Catheter

Our proprietary single-use disposable endovenous ClosureFAST catheter was introduced in 2007 and designed to be a next generation replacement for our previous ClosurePLUS catheter, offering both a faster and simpler endovenous ablation procedure while maintaining the procedural and patient benefits of the original ClosurePLUS catheter.

The design of the ClosureFAST catheter includes a 7 cm heating element or coil which contacts the vein wall and uniformly heats to a localized depth to limit damage to the surrounding tissue. With the ClosureFAST catheter, ‘segmental ablation’ is used to serially treat 7 cm segments using 20 seconds to heat, shrink and occlude the vein, with no energy delivered during the brief ’re-indexing’ or repositioning of the catheter between vein segments to be treated. Based upon the multicenter clinical trial of the Closure procedure using the ClosureFAST catheter, we believe that leaving the catheter stationary while heating and ablating the vein wall provides more consistent therapeutic heating of the vein wall and improved efficacy compared to our previous ClosurePLUS catheter. Also, stationary heating of the vein wall avoids the potential of overly fast pullback of the catheter by the physician, which has been reported in clinical studies to result in lower rates of effectiveness.

A temperature sensor located at the distal portion of the catheter measures and transmits the temperature data to the RF generator, which automatically adjusts its power level. This enables the generator to use the minimum amount of power necessary for the catheter to maintain a consistent temperature and close the vein. The ClosureFAST catheter has a hollow center, or lumen, which allows fluid delivery and the use of a standard guide wire.

ClosurePLUS Catheter

Our proprietary single-use disposable endovenous ClosurePLUS catheter is used to deliver RF energy to heat the walls of the saphenous veins. Each catheter has a set of collapsible electrodes located at the tip. The electrodes expand to contact the inner wall of the vein to be treated and produce uniform heating on all sides of the vein wall as well as a localized depth of heating to limit damage to surrounding tissue. During the procedure, the catheter is slowly withdrawn along the length of the vein in a ‘continuous pullback’ approach. The electrodes collapse as the vein shrinks in response to heating. A temperature sensor located on one of the electrodes measures and transmits the temperature of the vein wall to the RF generator, which automatically adjusts its power level. This enables the generator to use the minimum amount of power necessary for the catheter to deliver a consistent temperature and close the vein. The ClosurePLUS catheter also has a hollow center, or lumen, which allows fluid delivery and the use of a standard guide wire.

Due to strong adoption of our single-use ClosureFAST catheter by our customers, we anticipate ceasing the manufacturing and marketing of our single-use ClosurePLUS catheter in 2009.

ClosureRFS^tm Device

In 2005, we introduced the ClosureRFS device. This device is intended to broaden the clinical applicability of our VNUS Closure System to include the treatment of incompetent perforator veins and tributary veins connected to the greater saphenous vein. This device is compatible with our RF generator, is intended to treat smaller diameter veins, is shorter in length and smaller in diameter than either our ClosureFAST or ClosurePLUS catheters, and the electrodes located at the tip do not expand.

RFGplus^TM Generator

The VNUS RFGplus generator delivers radiofrequency energy to the catheter and continuously monitors the treatment temperature at the vein wall, automatically adjusting the power delivered to the catheter to achieve a target temperature. This feedback system is designed to allow the physician to perform our Closure procedure at a relatively constant temperature over the entire length of the treated vein. The RF generator is controlled by proprietary embedded software which allows it to recognize each catheter model and to automatically select the appropriate algorithm. An operating system software upgrade was distributed in the first quarter of 2007 to allow existing RFGplus generators to recognize and operate all VNUS disposable devices and catheters for the treatment of venous reflux. This includes the new ClosureFAST catheter, as well as our ClosurePLUS catheter and ClosureRFS device. The RF generator is a table top unit with a digital display panel that can be configured for

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multiple languages and provides readings of the temperature of the vein wall at the point where energy is applied and the power used during treatment, as well as advisories to the physician to provide helpful guidance during the procedures, including information that informs the physician if the energy delivery element is maintaining adequate contact with the vein wall.

Accessories and Other Products

Our accessory products include our Closure procedure pack and other ancillary products for inserting catheters and devices into veins. Our Closure procedure pack contains the sterile supplies needed to perform our Closure procedure, consisting of gowns, surgical drapes, scalpels, introducer sheaths and other incidental supplies. Our other ancillary products include reusable phlebectomy instruments for removal of varicose veins, vein access supplies such as introducer sheaths and needles, and products designed to easily administer local anesthesia.

Patent Licensing

We derive our royalty revenues by licensing our patents to certain companies.

Seasonality

Historically, our first quarter of the year has had the lowest net revenues as compared to subsequent quarters within the same year. We believe this seasonality is related in part to the end of the holiday season and the reset of many private insurance policy deductibles. We expect that this historic seasonal trend will continue in 2009.

Sales and Marketing

We have focused our sales and marketing efforts on increasing awareness of our Closure system among physicians with an active vein treatment practice and among those looking to establish such a practice. These physicians include vascular and general surgeons, interventional radiologists, cardiovascular surgeons, interventional cardiologists, and phlebologists, among others.

We maintain a direct sales organization in the United States, which, as of December 31, 2008, consisted of 65 employees. Internationally, we have a direct sales presence in the United Kingdom, Germany and France. We market our products in other selected international markets primarily through exclusive distributors. Our international network of distributors currently market and sell our products in eighteen countries in Europe, twelve countries in Asia and eighteen countries in the rest of the world.

Our marketing group supports our sales representatives primarily through four physician-targeted initiatives:

•  We educate and train physicians interested in performing our Closure procedure. We also educate experienced physicians in the use of our Closure procedure for treatments in perforator veins, tributary veins, venous ulcer patients and small saphenous veins through workshops and one-on-one training sessions.

•  We assist physicians in educating their current and potential patients about our Closure procedure. We create and make available an expansive array of support tools for physician use such as patient videos, advertising materials, brochures and patient testimonials designed to help physicians grow their practices and educate both patients and referring physicians on the many benefits of our Closure procedure.

•  We assist physicians by communicating with insurance companies to expand coverage and by providing our clinical data to counter any procedure authorization denials by payors.

•  We seek to add and promote products to leverage our position as the leader in vein treatments and as a single-source supplier for a physician’s vein treatment needs.

Our marketing group also engages in direct-to-consumer initiatives to encourage patients to contact physicians regarding our Closure procedure. We seek to educate potential patients through television and print media advertising, public relations, and the internet. Our website provides information to patients and physicians interested in our Closure procedure and our ClosureFAST catheter and features a physician locator for the United States which facilitates patients being able to locate physicians in their area who offer the Closure procedure.

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Reimbursement

Payment for patient care in the United States is generally made by third-party payors, which include private insurers and governmental insurance programs such as Medicare. We anticipate that sales volumes and prices of our products will continue to be dependent in large part on the availability of reimbursement from these third-party payors. To date, third-party reimbursement for our Closure procedure is well established in the United States. Approximately 120 individual third-party payors have established a policy of coverage encompassing approximately 240 million lives in the United States. All of the top ten health insurers and administrators in the United States cover our Closure procedure, including Blue Cross Blue Shield entities, United Healthcare, Aetna, Cigna, Humana and Kaiser.

We estimate that approximately 10% to 15% of the United States patients who receive treatment with our Closure procedure are covered by or eligible for Medicare coverage. Private healthcare insurers may establish payment rates that are different from Medicare and these rates are typically higher. Below is a table showing the Medicare national reimbursement rates for performing our Closure procedure or an EVL procedure in an outpatient hospital setting, office setting or an ambulatory surgery center. In each location, in each of the most recent two years, a physician would have received greater reimbursement for the treatment of varicose veins if the physician had treated the patient with our Closure system.

		Year
Location	Procedure	2007		2008		2009
	Closure	$	2,135	$	2,714	$	2,893
Hospital outpatient	EVL		1,529		1,646		1,807
	Difference	$	606	$	1,068	$	1,086
	Closure	$	2,071	$	1,900	$	1,699
Office procedure	EVL		1,849		1,645		1,400
	Difference	$	222	$	255	$	299
	Closure	$	1,339	$	1,445	$	1,537
Ambulatory surgery center	EVL		1,339		1,272		1,205
	Difference	$	—	$	173	$	332

Medicare continually evaluates its fee schedules. Medicare takes into consideration the direct and indirect costs associated with performing a procedure when setting its reimbursement levels. These costs, and the weight that Medicare assigns them, have resulted in a reduction in reimbursement for the procedures performed in an office setting in the last three years. Although Medicare payment of physician fees for performing the Closure procedure in the office is projected to decrease through 2010, the decrease in reimbursement is projected to be less for a physician using our Closure system in an office setting as compared to a physician using EVL in an office setting. We believe that reimbursement plays a key role in physician and patient acceptance of our Closure system.

Acceptance of our products in international markets is dependent, in large part, upon the availability and adequacy of reimbursement within prevailing healthcare payment systems. In international markets, reimbursement and healthcare payment systems vary significantly from country to country. International reimbursement and healthcare payment systems include both government sponsored healthcare and private insurance. Currently, the Closure procedure is covered and reimbursed by the five largest private healthcare insurers in the United Kingdom and the British National Health Service. Public reimbursement for our Closure procedure is also available in the Netherlands. Elsewhere in Europe, we continue to seek to achieve third party or national reimbursement. Our Closure procedure was listed in the nomenclature of surgical procedures published in July 2005 in France; reimbursement for the Closure procedure has been approved by the French national health system, and we believe that the Closure procedure will be reimbursed beginning around mid-2009. Public reimbursement which has been available in Belgium is currently under government review. We submitted our product for reimbursement by the German national health system in February 2009. We anticipate submitting our procedure for reimbursement to additional national health systems during 2009.

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Research and Development

In response to physician feedback and our own assessments, we are continually working on enhancements to our product designs and procedures to improve patient outcomes, improve ease-of-use and shorten procedure time. In addition, we are exploring the development of new products and new indications in the treatment of various venous diseases.

We sponsor and conduct clinical research activities with investigators and institutions to measure key clinical outcomes that can influence market adoption of our Closure system. We also conduct clinical studies in support of new products that we are developing. We perform preclinical studies for the development and evaluation of new products and procedural techniques.

In the years ended December 31, 2008, 2007 and 2006, we incurred $10.4 million, $9.4 million and $7.4 million, respectively, in research and development expenses.

Manufacturing

We currently manufacture, package and label our disposable catheters within our facility in San Jose, California. We outsource the manufacture of our RF generators. We believe that our manufacturing facilities are adequate for our current needs and for the foreseeable future.

The manufacturing process for our disposable catheters includes the assembly, testing, packaging, sterilization and inspection of components that have been manufactured by us or to our specifications by suppliers. We purchase components used in our disposable catheters from various suppliers. When practicable, we have established second-source suppliers. However, we rely on sole-source suppliers to manufacture a limited number of the components used in our disposable catheters. In addition, we attempt to mitigate supply shortages through maintaining inventory levels based on the risk associated with a particular supplier. Typically, we have not obtained contractual commitments from our suppliers to continue to supply products to us, nor are we contractually obligated to continue to purchase from a particular supplier.

Our quality assurance group provides an independent inspection at various steps in the manufacturing cycle that is designed to verify that each lot of components and finished products are compliant with our specifications and applicable regulatory requirements. Sterilization testing is validated using a certified third-party laboratory to verify the effectiveness of the sterilization process. Our quality assurance systems are required to be in conformance with the Quality System Regulations as mandated by the Food and Drug Administration or FDA. For sale of products in the European Community, our products and quality structure are required to be compliant to the current standard, ISO 13845:2003 for medical devices. Our products are regulated in the European Union as medical devices per the European Union Directive (93/42/EEC), also known as the Medical Device Directive. An authorized third-party reviewer, a Notified Body, must approve our products for CE marking and certify our compliance to ISO13485:2003. Our Closure system was originally CE marked in 1998.

We rely on Byers Peak, Inc. to manufacture our RF generators to our custom specifications. Under our non-exclusive agreement with Byers Peak, Inc., we provide a rolling 90-day firm commitment order for generators and a six-month rolling forecast. We are required to purchase all inventory of parts and work in progress if we revise our commitment or forecast, cancel orders or terminate the agreement. Byers Peak, Inc. also provides us a warranty on the generators for the shorter of 18 months from the date of shipment to us or 12 months from the date of first use. The agreement can be terminated by either party upon 180 days’ notice.

Patents and Proprietary Technology

We believe that in order to maintain our competitive advantage, we must develop and maintain the proprietary aspects of our technologies. To this end, we file patent applications to protect technology, inventions and improvements that we believe are significant to our business. As of December 31, 2008, we had 36 issued United States patents and 39 pending United States patent applications, many of which relate to our Closure system and procedure, including, among other things, vein shrinkage and occlusion using various forms of energy, including RF, self expanding and collapsing electrodes and use of single and double electrode array devices. We also have other issued United States patents and pending United States patent applications that are not directly related to our Closure system or procedure. Our issued patents related to our Closure system and procedure will expire between 2016 and 2018. As of December 31, 2008, we had 26 foreign patents providing protection in Australia, New

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Zealand, Singapore, Russia, South Korea, China and Europe, and other foreign jurisdictions, and we had 29 pending foreign patent applications, many of which relate to our Closure technology, in Europe, Japan, China, Canada and other foreign jurisdictions.

We require our employees, consultants and advisors to execute confidentiality agreements in connection with their employment, consulting or advisory relationships with us. We also require our employees, consultants and advisors who we expect to work on our products to agree to disclose and assign to us all inventions conceived during their term of employment or contract, using our property, or which relate to our business. Despite measures taken to protect our intellectual property, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. For a discussion of our patent litigation against companies that supply EVL products, see Part I, Item 3 — “Legal Proceedings” below. Finally, our competitors may independently develop similar technologies.

Competition

Within the market for the treatment of venous reflux disease, we compete primarily against companies that market and sell EVL systems, but also against vein stripping surgery. Sclerotherapy and phlebectomy procedures that treat varicose veins at the surface of the skin are complementary to our Closure procedure because, for the most part, they do not treat saphenous vein reflux and may be used in conjunction with treatment using our Closure procedure.

Vein stripping and ligation surgery has historically been the standard of care to address venous reflux disease. This procedure has extensive long-term data, is routinely taught to new surgeons and has remained relatively unchanged for the past 50 years. Vein stripping is declining in usage in the United States due to the acceptance of endovenous vein ablation. However, vein stripping remains the principal treatment for saphenous vein reflux in the rest of the world.

Competitors that have developed and market EVL products include AngioDynamics, Inc., biolitec AG, Dornier MedTech GmbH, New Star Lasers, Inc. doing business as CoolTouch Inc., Sciton, Inc., Total Vein Systems and Vascular Solutions, Inc. These competitors’ EVL products use laser energy and optical fibers to occlude diseased veins by heating the blood and the vein. The optical fiber used in EVL generally has a lower average sales price than our ClosureFAST catheter.

Additionally, physicians have used foam sclerotherapy to treat great saphenous reflux. Similar to sclerotherapy, in this procedure the physician combines air or carbon dioxide with a sclerosant solution to create a foam for injection into the refluxing saphenous vein. The FDA has not approved the marketing of sclerosant solutions for this purpose. In 2006, Provensis, a division of BTG plc, resumed a clinical trial of foam sclerotherapy in the United States after previously having its clinical trial of sclerosant foam placed on clinical hold by the FDA.

We believe that the principal competitive factors in the market for the treatment of venous reflux include:

•  improved patient outcomes;

•  cost effectiveness;

•  ease-of-use and speed of procedure for physicians;

•  product quality;

•  sales and marketing capability;

•  acceptance by leading physicians;

•  the publication of peer-reviewed clinical studies;

•  reimbursement by healthcare payors;

•  patent protection.

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Government Regulation

The products we manufacture and market are subject to regulation by numerous federal, state and foreign governmental agencies, including the FDA and comparable foreign agencies, as well as other federal, state and foreign laws and regulations. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing, and distribution of our medical devices.

Unless specifically exempted by regulation, each medical device we seek to commercially distribute in the United States will require either a 510(k) premarket clearance, or a Pre Market Approval, or PMA, from the FDA. The FDA may also impose restrictions on the sale, distribution or use of devices at the time of their clearance or approval, or subsequent to marketing.

When we are required to obtain a 510(k) premarket clearance for a device that we seek to market, we must submit a premarket notification to the FDA demonstrating that the device is substantially equivalent to a previously cleared 510(k) device. In this process, we must submit data that supports our equivalence claim. If human clinical data is required, it must be gathered in compliance with FDA investigational device exemption regulations. We must receive an order from the FDA finding substantial equivalence to another legally marketed medical device before we can commercially distribute the new medical device. Modifications to cleared medical devices can be made without using the 510(k) process if the changes do not significantly affect safety or effectiveness.

The second, more rigorous PMA process requires us to independently demonstrate that the new medical device is safe and effective. We do this by collecting data, including human clinical data for the medical device. The FDA will authorize commercial release if it determines there is reasonable assurance that the medical device is safe and effective. This process is generally much more time-consuming and expensive than the 510(k) process.

After a device receives 510(k) premarket clearance or PMA approval for a specific intended use, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, will require a new 510(k) premarket clearance or a PMA supplement. The FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination that a new premarket clearance or PMA Supplement is not adequate for a particular modification, the FDA may require the manufacturer to cease marketing and/or recall the modified device until the proper 510(k) premarket clearance or PMA Supplement approval is obtained. Also, in these circumstances, we may be subject to significant regulatory and civil fines or penalties. We have made, and plan to continue to make, additional product enhancements to our Closure system devices that we believe do not require new 510(k) premarket clearances. We have used the Special 510(k) premarket submission option to obtain FDA clearance on products that have undergone minor modifications, as well as the traditional 510(k) premarket clearance process for more substantial changes or for new products.

After a device is placed on the market, numerous FDA regulatory requirements apply, including:

•  Quality System Regulations, which require manufacturers to follow design, testing, control, documentation and other quality assurance procedures during the manufacturing process;

•  labeling regulations, which govern product labels and labeling, prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling and promotional activities;

•  medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur; and

•  FDA notification of product corrections or removal and recalls.

Advertising and promotion of medical devices are also regulated by the Federal Trade Commission and by state regulatory and enforcement authorities. Some promotional activities for FDA-regulated products have been the subject of enforcement actions brought under healthcare reimbursement laws and consumer protection statutes. In addition, under the federal Lanham Act, competitors and others can initiate litigation relating to advertising claims.

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We have registered with the FDA as a medical device manufacturer and we have obtained a manufacturing license from the California Department of Health Services. Compliance with regulatory requirements is assured through periodic, announced or unannounced, facility inspections by the FDA and the Food and Drug Branch of the California Department of Health Services, and these inspections may include the manufacturing facilities of certain subcontractors. Failure to comply with applicable regulatory requirements can result in an enforcement action by the FDA, which may include any of the following sanctions:

•  warning letters or untitled letters;

•  fines, injunctions, and civil penalties;

•  recall or seizure of our products;

•  customer notification, or orders for repair, replacement or refund;

•  operating restrictions, partial suspension or total shutdown of production;

•  refusing our request for 510(k) clearances or premarket approvals of new products;

•  withdrawing 510(k) clearances that are already granted; and/or

•  criminal prosecution.

Our products are regulated in the European Union as medical devices per the European Union Directive (93/42/EEC), also known as the Medical Device Directive. An authorized third party reviewer, known as a Notified Body, reviews our product documentation to permit CE marking. Our Closure system was CE marked in 1998. Our ClosureFAST catheter, ClosurePLUS catheter and RFS family of products and some accessory products are also CE marked. The CE mark is contingent upon our continued compliance with applicable regulations and the Quality System Requirements of the ISO 13485:2003 standard. Maintenance of the CE mark, our license to ship into the European Union and other international jurisdictions, requires us to continually demonstrate that we are in compliance with these regulations and standards.

The European Community has regulations similar to that of the FDA for the advertising and promotion of medical devices, clinical investigations and adverse events.

Most major markets in the rest of the world have different levels of regulatory requirements for medical devices. Our Closure system is currently approved, cleared, licensed, and/or registered in 49 countries. Modifications to the approved products may require new regulatory submission in major markets. The regulatory requirements and the review time vary significantly from country to country. We cannot assure you that we will be able to obtain or maintain the required regulatory approvals in any country. Our Closure system can also be marketed in several other countries that do not regulate medical devices. We cannot assure you of the timing or successes of our efforts to obtain the required approvals for current and future products in international markets.

Federal healthcare laws apply when we or customers submit claims for items or services that are reimbursed under Medicare, Medicaid or other federally-funded healthcare programs. The principal federal laws include: (1) the False Claims Act which prohibits the submission of false or otherwise improper claims for payment to a federally-funded health care program; (2) the Anti-Kickback Statute which prohibits offers to pay or receive remuneration of any kind for the purpose of inducing or rewarding referrals of items or services reimbursable by a Federal healthcare program; (3) the Stark Law which prohibits physicians from referring Medicare or Medicaid patients to a provider that bills these programs for the provision of certain designated health services if the physician (or a member of the physician’s immediate family) has a financial relationship with that provider; and (4) healthcare fraud statutes that prohibit false statements and improper claims with any third-party payor. There are often similar state false claims, anti-kickback, and anti-self referral and insurance laws that apply to claims submitted under state Medicaid or state-funded healthcare programs. In addition, the United States Federal Corrupt Practices Act can be used to prosecute companies in the United States for arrangements with physicians, or other parties outside the United States, if the physician or party is a government official of another country and the arrangement violates the law of that country. These laws are subject to change, and to evolving interpretations. If a governmental authority were to conclude that we are not in compliance with applicable laws and regulations, VNUS, its officers and its

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employees could be subject to severe criminal and civil penalties including substantial penalties, fines and damages, and exclusion from participation as a supplier of product to beneficiaries covered by Medicare or Medicaid.

Privacy and Security

The Health Insurance Portability and Accountability Act, or HIPAA requires certain “covered entities” to comply with established standards regarding the privacy and security of protected health information, or PHI, and to use standardized code sets when conducting certain electronic transactions. HIPAA further requires that covered entities enter into agreements meeting certain regulatory requirements with their “business associates”, which effectively obligate the business associates to safeguard the covered entity’s PHI against improper use and disclosure. While not directly regulated by HIPAA, a business associate may face significant contractual liability pursuant to such an agreement if the business associate breaches the agreement or causes the covered entity to fail to comply with HIPAA. In the course of our business operations, we have become the business associate of one or more covered entities. Accordingly, we incur compliance-related costs in meeting HIPAA-related obligations under business associates agreements to which we are a party. Moreover, if we fail to meet our contractual obligations under such agreements, we may incur significant liability.

Employees

As of December 31, 2008, we had 318 employees, consisting of 54 employees in research and development, clinical research and regulatory affairs, 111 employees in manufacturing and quality control, 106 employees in sales and marketing and 47 employees in general and administrative functions. From time to time we also employ independent contractors.

Financial Information

The additional financial information required to be included in this Item 1 is incorporated herein by reference to Part II, Item 6 — “Selected Consolidated Financial Data” and Part II, Item 8 — “Consolidated Financial Statements and Supplementary Data” of this report.

Item 1A:   Risk Factors

If physicians do not adopt and utilize our Closure system, we will not achieve greater revenue, may not maintain our current revenue, and we may not be profitable.

Our success depends on whether physicians view our Closure system as safe, effective and economically beneficial. We believe that physicians will not adopt and utilize our Closure system unless they determine, based on experience and other factors, that our Closure procedure is an attractive alternative to other available treatment methods, including vein stripping and EVL. We also believe that recommendations and support of our Closure procedure by influential physicians and other healthcare providers are important for market acceptance and adoption.

In addition, we recommend that a physician performing our Closure procedure use noninvasive ultrasound imaging during the procedure and for preparation and follow-up purposes. The purchase of ultrasound imaging equipment is an additional capital expenditure for many physicians.

After purchasing our RF generator, a physician needs to purchase a new Closure catheter for each procedure. Sales of our disposable Closure catheters are a major component of our overall revenues. If physicians do not continue to utilize our Closure system by reordering catheters at least at current levels, we will not achieve greater revenue, may not maintain our current revenue and our stock price may significantly decline.

Competition from existing and new products and procedures may decrease our market share and cause our revenues to decline.

The medical device industry, including the market for venous reflux disease treatments, is highly competitive, subject to rapid technological change and significantly affected by new product introductions and market activities of other participants.

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Several companies are marketing EVL products for the treatment of venous reflux disease. These companies include AngioDynamics, Inc., biolitec AG, Dornier MedTech GmbH, New Star Lasers, Inc. doing business as CoolTouch Inc., Sciton, Inc., Total Vein Systems and Vascular Solutions, Inc. Most of these companies’ EVL products for the treatment of venous reflux disease include laser fibers that are offered at lower prices than the price of our disposable catheters. These or other competitors may also succeed in developing additional products that are superior to our Closure system or that otherwise render our Closure system obsolete or noncompetitive. Some of these companies are larger than us or may enjoy competitive advantages, including:

•  products and procedures that are less expensive;

•  perceived benefits in product performance and clinical outcomes;

•  established distribution networks;

•  greater experience in launching, marketing, distributing and selling products;

•  established relationships with physicians, healthcare providers and payors; and

•  greater financial and other resources for product development or sales and marketing.

Because of the size of the venous reflux market, we anticipate that new or existing competitors may develop competing products, procedures or clinical solutions. These products, procedures or solutions could prove to be more effective, faster, safer or less costly than our Closure system and procedure. The introduction of new products, procedures or clinical solutions by competitors may result in price reductions, reduced margins or loss of market share and may render our products obsolete. In addition, since the first quarter of 2005, we have discounted the sales price of our catheters to improve our competitive position. Continued discounting in the future could cause our revenue or profit margins to decline and have an adverse effect on our results of operations.

We may experience significant fluctuations in our quarterly and annual results.

As of December 31, 2008, we had an accumulated deficit of approximately $35.0 million. While we were profitable in 2008, we had a net loss in 2006 and 2007. We intend to increase operating expenses in 2009 in areas such as research and development and sales and marketing. Also, fluctuations in our quarterly and annual results of operations have and will continue to result from numerous factors, including:

•  physician and patient acceptance of our products and procedures;

•  cost of manufacturing our Closure system;

•  the effect of competition from existing and new products and procedures;

•  fluctuations in the demand for our products, including seasonal demand, the timing of orders received and the timing of new product introductions;

•  fluctuations in demand in the United States market for our products and those competitor products subject to royalty payments under our licensing agreements as a result of weak market and economic conditions, which may result in decreased revenue, earnings or growth rates and problems with our ability to manage inventory levels and collect customer receivables;

•  our ability to recognize revenue from the sales of our products;

•  our ability to protect our intellectual property rights and defend against third party challenges;

•  our ability to hire and train key personnel, including management, sales and technical personnel;

•  practices of insurance companies and Medicare with respect to reimbursement for our procedure and our products;

•  delays or interruptions in manufacturing and shipping of our products, which may result from our dependence on third-party suppliers;

•  the results of future clinical trial data, including long-term randomized trial data;

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•  litigation, including patent litigation, product liability claims and securities litigation;

•  the quality of products we sell;

•  failure to comply with current government regulations and announcements of changes in government regulations affecting us or our competitors;

•  failure to obtain or maintain regulatory approvals and clearances to market our products;

•  our ability to train physicians in performing our Closure procedure; and

•  fluctuations in demand in the international markets where we sell our products.

These factors, some of which are not within our control, may cause the price of our common stock to fluctuate substantially. If our quarterly or annual operating results fail to meet or exceed the expectations of securities analysts or investors, our stock price could drop suddenly and significantly. We believe the quarterly or annual comparisons of our financial results are not always meaningful and should not be relied upon as an indication of our future performance.

In addition, we anticipate that our operating expenses will increase in the foreseeable future as we continue to expand our sales and marketing, manufacturing and product development activities.

Recent adverse changes in US, global, or regional economic conditions could have an adverse effect on our business.

Recent global market and economic conditions have become increasingly negative with tighter credit conditions and recession in most major economies continuing into 2009. Continued concerns about the systemic impact of potential long-term and wide-spread recession, energy costs, geopolitical issues, the availability and cost of credit, and the global housing and mortgage markets have contributed to increased market volatility and diminished economic expectations. In the second half of 2008, added concerns fueled by the United States government conservatorship of the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, the declared bankruptcy of a large financial institution, United States government financial assistance to major banks, insurance companies, other financial institutions and other federal government interventions in the United States financial system lead to increased market uncertainty and instability in both the United States and international capital and credit markets. These conditions, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, have contributed to volatility of unprecedented levels.

As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. These factors have lead to a decrease in spending by businesses and consumers. Continued turbulence in the United States and international markets and economies and prolonged declines in business and consumer spending could result in lower sales of our products, lower reported royalties from our licensees, longer sales cycles, difficulties in collecting accounts receivable, additional excess and obsolete inventory, gross margin deterioration, slower adoption of new technologies, increased price competition and/or supplier difficulties, any of which may adversely affect our liquidity and financial condition.

Our intellectual property rights may not provide meaningful commercial protection for our products, which could enable third parties to use our technology or methods, or very similar technology or methods, and could reduce our ability to compete.

Our success depends significantly on our ability to protect our proprietary rights to the technologies used in our products. We have in the past, and we may in the future, need to assert claims or engage in litigation to protect our proprietary rights, which could cause us to incur substantial costs, place significant strain on our financial resources, and divert the attention of management from our business. In 2005, we filed a patent infringement lawsuit, which we refer to as the 2005 Patent Lawsuit, in the United States District Court for the Northern District of California against Diomed Holdings, Inc., Diomed, Inc., AngioDynamics, Inc. and Vascular Solutions, Inc. After approximately three years of litigation, the 2005 Patent Lawsuit concluded in 2008 in our Settlement Agreement with AngioDynamics

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and Vascular Solutions, and in a settlement of our claims against Diomed’s bankruptcy estate. In 2008, we filed patent infringement lawsuits, which we refer to as the 2008 Patent Lawsuits, in the United States District Court for the Northern District of California against Biolitec, Inc., Dornier Medtech America, Inc., NewStar Lasers, Inc. d/b/a CoolTouch, Inc., and Total Vein Solutions, LLC d/b/a Total Vein Systems. The 2008 Patent Lawsuits remain pending. For a discussion regarding this litigation, see Part I, Item 3 — “Legal Proceedings” below. We may incur substantial costs in pursuing the 2008 Patent Lawsuits, and the outcome of this litigation is uncertain.

We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws and nondisclosure, confidentiality and other contractual restrictions, to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Our patent applications may not issue as patents in a form that will be advantageous to us. Our issued patents and those that may be issued in the future may be challenged, invalidated or circumvented, in litigation such as the 2008 Patent Lawsuits, or otherwise, which could limit our ability to stop competitors from marketing related products. Although we have taken steps to protect our intellectual property and proprietary technology, there is no assurance that third parties will not be able to design around our patents. In addition, although we have entered into confidentiality agreements and intellectual property assignment agreements with our employees, consultants and advisors, such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements.

Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. Foreign countries generally do not allow patents to cover methods for performing surgical procedures. If our intellectual property does not provide significant protection against competition, our competitors could compete more directly with us, which could result in a decrease in our market share. All of these factors may harm our competitive position.

Inadequate levels of reimbursement for our Closure procedure from governmental or other third-party payors could affect the adoption or use of our Closure system and may cause our revenues to decline.

Continued use of our Closure system by the medical community is unlikely to be maintained if physicians do not receive sufficient reimbursement from payors for performing our Closure procedure. Our Closure procedure is reimbursed by private healthcare insurance, managed care payors and Medicare. Many private payors use reimbursement amounts benchmarked off of amounts determined by the Centers for Medicare and Medicaid Services or CMS which administers the Medicare program, as a guideline in setting their reimbursement policies. CMS reduced the amount of reimbursement for endovenous vein ablation in 2007, 2008 and 2009 for procedures performed in the office. Further actions by CMS or other government agencies may diminish reimbursement payments to physicians, hospitals and outpatient surgery centers. Additionally, some private payors do not follow the Medicare guidelines and those payors may reimburse for only a portion of our procedure, or not at all. Even to the extent our Closure procedure is reimbursed by private and governmental payors, adverse changes in payors’ policies toward reimbursement for the procedure would also harm our ability to market and sell our Closure system.

We are unable to predict all changes to the reimbursement methodologies that will be employed by private or governmental third-party payors. In January 2007, CMS announced its revised payment methodology for Medicare reimbursement of physician fees in the office setting, to be phased in over the next four years. As a result, Medicare payment of physician fees for performing the Closure procedure in the office will decrease through 2010. We are unable to predict whether CMS will make additional revisions to Medicare payments or whether private healthcare insurers will establish payment rates similar to Medicare.

For some governmental payors, such as the Medicaid program, reimbursement differs from state to state, and some state Medicaid programs may not reimburse for our procedure in an adequate amount, if at all. Possible changes in healthcare policy by a new United States government administration could result in either uncertainty about future reimbursement for our closure procedure, or a lowering of payments to providers such as doctors or hospitals. Any lack of private or governmental third-party payor coverage or inadequate reimbursement for procedures performed using our Closure system could harm our business and reduce our revenues.

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Our international success is dependent upon the availability of reimbursement within prevailing foreign healthcare payment systems. Reimbursement and healthcare payment systems in international markets vary significantly from country to country and include both government-sponsored healthcare and private insurance. In addition, healthcare cost containment efforts similar to those we face in the United States are prevalent in many of the other countries in which we sell our Closure system, and these efforts are expected to continue. To the extent our Closure system has historically received reimbursement under a foreign healthcare payment system, such reimbursement has typically been significantly less than the reimbursement provided in the United States. If adequate levels of reimbursement from governmental and third-party payors outside of the United States are not attained and maintained, sales of our Closure system outside of the United States may decrease, and we may fail to achieve or maintain significant international sales.

Our manufacturing operations are dependent upon third-party suppliers, some of whom are sole-source, making us vulnerable to supply problems and price fluctuations, which could harm our business.

Byers Peak, Inc. is, and we expect for the foreseeable future will be, a sole-source supplier of our RF generator. While the initial term of the supply agreement with Byers Peak expired in February 2007, the contract continues indefinitely until terminated by either party upon 180 days’ notice. We and our contract manufacturers also rely on sole-source suppliers to manufacture some of the components used in our products. Our manufacturers and suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to follow specific protocols and procedures, failure to comply with applicable regulations, including the FDA’s Quality System Regulations, equipment malfunction and environmental factors, any of which could delay or impede our ability to meet demand. Our reliance on these outside manufacturers and suppliers also subjects us to other risks that could harm our business, including:

•  our suppliers may make errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in shipment or recalls of our products;

•  we may not be able to obtain adequate supply in a timely manner or on commercially reasonable terms;

•  we may have difficulty locating and qualifying alternative suppliers for our disposable catheter components or RF generators;

•  our suppliers may encounter financial hardships unrelated to our demand for components, which could inhibit their ability to fulfill our orders and meet our requirements;

•  switching components may require product redesign and submission to the FDA which could significantly delay production; and

•  our suppliers manufacture products for a range of customers, and fluctuations in demand for the products those suppliers manufacture for others may affect their ability to deliver components for us in a timely manner.

Any interruption or delay in the supply of components or materials, or our inability to obtain components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive procedures.

To mitigate the risk of supply interruptions from a sole-source supplier, we may determine to maintain excess inventory of the products or components they supply. Managing our inventory levels is important to our cash position and results of operations. An excessive amount of inventory reduces our cash available for operations and may result in excess or obsolete materials. Inadequate inventory levels may make it difficult for us to meet customer product demand, resulting in decreased revenues. An inability to forecast future revenues or estimated life cycles of products may result in inventory-related charges that would negatively affect our gross margins and results of operations.

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Our stock price may be volatile, which may cause the value of our stock to decline or subject us to a securities class action litigation.

The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:

•  general economic, industry and market conditions;

•  actions by institutional or other large stockholders;

•  the depth and liquidity of the market for our common stock;

•  volume and timing of orders for our products;

•  developments generally affecting medical device companies;

•  the announcement of new products or product enhancements by us or our competitors;

•  changes in earnings estimates or recommendations by securities analysts;

•  investor perceptions of us and our business, including changes in market valuations of medical device companies;

•  our results of operations and financial performance.

In particular, if our existing stockholders, for example, institutional or other large stockholders, sell a large number of shares of our common stock or the public market perceives that existing stockholders might sell large numbers of shares of common stock, the market price of our common stock could decline significantly. In addition, the stock market in general, and the NASDAQ Stock Market and the market for medical devices in particular, have experienced substantial price and volume volatility that is often seemingly unrelated to the operating performance of particular companies. These broad market fluctuations may cause the trading price of our common stock to decline. In the past, securities class action litigation has often been brought against a company after a period of volatility in the market price of its common stock. We may become involved in this type of litigation in the future. Any securities litigation claims brought against us could result in substantial expense and the diversion of management’s attention from our business.

If we fail to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting on a consolidated basis, our ability to provide accurate financial reports could be impaired and our stock price and investor confidence in our company could be materially and adversely affected.

As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act (“Section 404”), which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm that both addresses management’s assessments and internal controls. Effective internal controls are necessary for us to provide reliable financial reports and help prevent fraud. To the extent that ineffective internal controls are part of our disclosure controls and procedures, there is also a risk that we would not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not be able or willing to issue a favorable assessment if we conclude that our internal controls over financial reporting are ineffective. We also cannot be certain that the measures we implement will ensure that we maintain adequate controls over our financial processes and reporting in the future. If we reach the conclusion that our controls are ineffective, if we fail to implement required new or improved controls or encounter difficulties in their implementation or our independent registered public accounting firm is unable to provide us with an unqualified report as required by Section 404, our business, results of operations or financial condition could be materially harmed, we could encounter difficulties attracting and retaining quality management personnel or directors to serve on our audit committee, we could be subjected to costly litigation and increased legal and financial compliance costs and our stock price could decline significantly.

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To successfully grow our business, we will need to attract additional qualified personnel and retain key personnel.

To successfully grow our business, we will need to attract additional qualified personnel, including management and technical personnel. To succeed in the implementation of our business strategy, our management team must rapidly execute our sales strategy, achieve continuing market acceptance for our Closure system and further develop products, while managing anticipated growth by implementing effective planning, manufacturing and operating processes. Managing this growth will require us to attract and retain additional management and technical personnel. Our offices are located in San Jose, California, where competition for employees with experience in the medical device industry is intense. We rely on direct sales employees to sell our Closure system in the United States and in portions of Europe. We have expanded our sales team and failure to adequately train our employees in the use and benefits of our products will prevent us from achieving our market share and revenue growth goals. We cannot assure you that we will be able to attract and retain the additional personnel necessary to grow and expand our business and operations. If we fail to identify, attract, retain and motivate these highly skilled personnel, in particular our sales force, we may be unable to grow our business.

We lack published long-term randomized trial data comparing the efficacy of our Closure procedure with vein stripping and EVL. If future data proves to be inconsistent with our clinical results, our revenues may decline.

Currently, there is no randomized trial data beyond two years comparing the long-term efficacy of our Closure procedure to alternative treatments. Additional long-term patient follow-up studies may indicate that our Closure procedure is not as effective as vein stripping or EVL. Currently available published data from a comparative study of our Closure procedure versus vein stripping is limited to the two-year period following treatment. If new studies or comparative studies generate results that are not as favorable as our clinical results, our revenues may decline. Furthermore, physicians may choose not to purchase our Closure system and insurers may choose not to provide reimbursement for our Closure procedure until they receive additional published long-term clinical evidence and recommendations from prominent physicians that indicate our Closure system effectively treats venous reflux disease.

We sell our products internationally and are subject to various risks relating to such international activities, which could harm our international sales and profitability.

During the year ended December 31, 2008, 10% of our net revenues were attributable to international markets. By doing business in international markets, we are exposed to risks separate and distinct from those we face in our domestic operations. Our international business may be adversely affected by changing economic conditions in foreign countries. Because some of our sales are currently denominated in United States dollars, if the value of the United States dollar increases relative to foreign currencies, our revenue could decline or products could become more costly to the international consumer and therefore less competitive in international markets, which could adversely affect our profitability. Furthermore, while currently only a small percentage of our sales are denominated in non- United States currency, this percentage may increase in the future, in which case fluctuations in exchange rates could affect demand for our products. Engaging in international business inherently involves a number of other difficulties and risks, including:

•  export restrictions and controls relating to technology;

•  the availability and level of reimbursement within prevailing foreign healthcare payment systems;

•  difficulties in enforcing single use device labeling;

•  pricing pressure that we may experience internationally;

•  required compliance with existing and new foreign regulatory requirements and laws;

•  laws and business practices favoring local companies;

•  longer payment cycles;

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•  difficulties in enforcing agreements and collecting receivables through foreign legal systems;

•  international political and economic instability;

•  potentially adverse tax consequences, tariffs and other trade barriers;

•  international terrorism and anti-American sentiment;

•  difficulties and costs of staffing and managing foreign operations;

•  changes in foreign currency exchange rates; and

•  difficulties in enforcing intellectual property rights.

Our exposure to each of these risks may increase our costs, lengthen our sales cycle and require significant management attention. We cannot assure you that one or more of these factors will not harm our business.

If we become subject to product liability claims and our product liability insurance coverage is inadequate or inapplicable, we may be required to engage in costly litigation or pay significant damages, and our business may be harmed.

The manufacture and sale of our products may expose us to product liability claims and product recalls, including those that may arise from the misuse or malfunction of, or design flaws in, our products, or use of our products with components not manufactured by us. Our Closure procedure may result in a variety of complications, some of which are potentially serious. The most serious potential complications include a pulmonary embolism, which is a blood clot that travels to the lungs and may cause shortness of breath or even death, blood clots in deep veins, skin burns and nerve inflammation. Successful results using our Closure system are dependent upon physician technique. Although we inform physicians of the risks associated with failing to follow the proper technique when performing our Closure procedure, we cannot assure you that these efforts will prevent complications.

We carry product liability insurance that is limited in scope and amount and may not be adequate to fully protect us against product liability claims. We could be required to pay damages that exceed our insurance coverage. Any product liability claim, with or without merit, could result in an increase in our product liability insurance rates or our inability to secure coverage on reasonable terms, if at all. Even in the absence of a claim, our insurance rates may rise in the future to a point where we decide not to carry this insurance. Even a meritless or unsuccessful product liability claim would be time consuming and expensive to defend and could result in the diversion of management’s attention from our business. In addition, product liability claims that call into question the safety or efficacy of our products could cause injury to our reputation and may potentially result in customers seeking alternative treatment methods. Any of these events could negatively affect our earnings and financial condition.

The medical device industry is characterized by patent litigation, and we could become subject to litigation that could be costly, result in the diversion of management’s attention and require us to pay damages and discontinue selling our products.

The medical device industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. Our competitors may assert that our system or the methods we employ in the use of our system are covered by United States or foreign patents held by them. This risk is exacerbated by the fact that there are numerous issued and pending patents relating to the use of RF energy in catheter-based procedures in the medical technology field. Because patent applications can take many years to issue, there may be applications now pending of which we are unaware that may later result in issued patents that our Closure system may infringe. There could also be existing patents of which we are unaware that one or more components of our system may inadvertently infringe. As the number of competitors in the market for the treatment of venous reflux disease grows, the possibility of inadvertent patent infringement by us or a patent infringement claim against us increases.

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Any litigation or claim against us may cause us to incur substantial costs, could place a significant strain on our financial resources, divert the attention of management from our business and harm our reputation. If the relevant patents were upheld as valid and enforceable and we were found to infringe them, we could be prevented from selling our Closure system unless we can obtain a license to use the technology or ideas covered by such patent or are able to redesign our Closure system to avoid infringement. A license may not be available on terms acceptable to us, or at all, and we may not be able to redesign our products to avoid any infringement. Modification of our products or development of new products could require us to conduct additional clinical trials and to revise our filings with the FDA and other regulatory bodies, which would be time-consuming and expensive. If we are not successful in obtaining a license or redesigning our products, we may be unable to sell our products and our business would suffer. In addition, our patents are vulnerable to various invalidity attacks (in litigation including the 2008 Patent Lawsuits, or otherwise), such as those based upon earlier patent applications, patents, publications, products or processes, which might invalidate or limit the scope of the protection that our patents afford.

If we are unable to manufacture an adequate supply of our products, we could lose customers and revenues and our growth could be limited or halted.

In order for us to maintain and expand our business successfully within the United States and internationally, we must manufacture commercial quantities of components that comprise our Closure system in compliance with regulatory requirements at an acceptable cost and on a timely basis. Our anticipated growth may strain our ability to manufacture an increasingly large supply of our products. Manufacturing facilities often experience difficulties in scaling up production, including problems with production yields, process changes and quality control and assurance. In addition, precision manufacturing, as is required to manufacture our products, is subject to human error and it is possible that we may not follow our own internal controls when manufacturing our products. If we cannot scale or maintain our manufacturing operations appropriately, maintain control over expenses or otherwise adapt to anticipated growth, or if we have underestimated our future growth, we may not have the capability to satisfy market demand, which would harm our business.

If we fail to comply with the extensive government regulations relating to our business, we may be subject to fines, injunctions and penalties.

Our products are classified as medical devices. Medical devices are subject to extensive regulation in the United States by the FDA and numerous other federal, state and foreign governmental authorities. FDA regulations specific to medical devices are wide-ranging and govern, among other things:

•  design, development and manufacturing;

•  testing;

•  clinical trials in humans;

•  electronic product safety;

•  labeling;

•  storage;

•  marketing;

•  premarket clearance or approval;

•  record keeping procedures;

•  advertising and promotion;

•  post-market surveillance and reporting of deaths, serious injuries or malfunctions; and

•  export.

Our manufacturing processes are required to comply with the FDA’s Quality System Regulations, which cover the procedures and documentation of the design, testing, production, control, quality assurance, labeling,

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packaging, sterilization, storage and shipping of our devices. The FDA enforces its Quality System Regulations through periodic unannounced inspections. If our manufacturing facility fails a Quality System inspection, our operations and manufacturing could be interrupted. Failure to take adequate and timely corrective action in response to an adverse Quality System inspection could force a shutdown of our manufacturing operations or a recall of our products.

Compliance with these regulations can be complex, expensive and time-consuming. If we fail to comply with such regulations, we could be subject to the imposition of injunctions, suspensions or loss of regulatory approvals, product recalls, orders for repair, replacement or refund, customer notifications, termination of distribution, product seizures or civil penalties. In the most egregious cases, criminal sanctions or closure of our manufacturing facilities or those of our suppliers are possible. If we are required to shut down our manufacturing operations or recall any of our products, we may not be able to provide our customers with the quantity of products they require, and we could lose customers and suffer reduced revenue. If we are unable to obtain sufficient quantities of high quality products to meet customer demand on a timely basis, we could lose customers, our growth could be limited or halted and our business could be harmed.

We are also subject to medical device reporting regulations that require us to report to the FDA if our products cause or contribute to a death or serious injury or if they malfunction. It is possible that claims could be made against us alleging that our products are defective or unsafe. Our failure to comply with applicable regulatory requirements could result in an enforcement action by the FDA. The identification of serious safety risks could result in product recalls or withdrawal of our clearance or approval. The imposition of any one or more of these penalties could have a negative effect on our business, product sales and profitability.

Our third party component manufacturers may also be subject to the same sanctions and, as a result, may be unable to supply components for our products. Any failure to retain governmental clearances or approvals that we currently hold or to obtain additional similar clearances or approvals could prevent us from successfully marketing our products and technology and could harm our operating results. Furthermore, changes in the applicable governmental regulations could prevent further commercialization of our products and technologies and could harm our business.

We depend on our officers, and if we are not able to retain them or recruit additional qualified personnel, our business will suffer.

We are highly dependent on our President and Chief Executive Officer, Brian E. Farley, and other officers. Due to the specialized knowledge each of our officers possesses with respect to our Closure system and our operations, the loss of service of one or more of these individuals could significantly affect our ability to operate and manage our business. We do not have any insurance in the event of the death or disability of any of these key personnel. Each of our officers may terminate their employment without notice and without cause or good reason. During 2007, five of our officers resigned. We cannot assure you that we will be able to retain other qualified personnel or recruit other qualified personnel in the event of any future terminations.

If we fail to manage our exposure to global financial and securities market risk successfully, our operating results and financial statements could be materially impacted.

The primary objective of most of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, a majority of our marketable investments are investment grade, liquid, fixed-income securities and money market instruments denominated in United States dollars. If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments, which could materially harm our results of operations and financial condition. Moreover, the performance of certain securities in our investment portfolio correlates with the credit condition of United States government agencies and corporate issuers. If the current unstable credit environment and market conditions continue or worsen, we may incur significant realized, unrealized or impairment losses associated with these or other investments, which could materially adversely impact our financial condition and results of operations.

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If we choose to acquire new and complementary businesses, products or technologies instead of developing them ourselves, we may be unable to complete these acquisitions or to successfully integrate them in a cost-effective and non-disruptive manner.

Our success depends on our ability to continually enhance and broaden our product offerings in response to changing customer demands, competitive pressures and technologies. Accordingly, we may in the future pursue the acquisition of complementary businesses, products or technologies instead of developing them ourselves. We do not know if we will be able to successfully complete any acquisitions, or whether we will be able to successfully integrate any acquired business, product or technology or retain any key employees. Integrating any business, product or technology we acquire could be expensive and time consuming, disrupt our ongoing business and distract our management. If we are unable to integrate any acquired businesses, products or technologies effectively, our business will suffer. In addition, any amortization or charges resulting from the costs of acquisitions could increase our expenses.

Any failure in our efforts to train physicians could reduce the market acceptance of our products and reduce our revenues.

There is a learning process involved for physicians to become proficient in the use of our products. It is critical to the success of our sales efforts to adequately train a sufficient number of physicians and to provide them with adequate instruction in the use of our Closure system and ClosureRFS devices. Following completion of training, we rely on the trained physicians to advocate the benefits of our products in the broader marketplace. Convincing physicians to dedicate the time and energy necessary for adequate training is challenging, and we cannot assure you that we will be successful in these efforts. If physicians are not properly trained, they may misuse or ineffectively use our products. This may also result in unsatisfactory patient outcomes, patient injury, negative publicity or lawsuits against us, any of which could negatively affect our reputation and sales of our Closure system or ClosureRFS devices.

We spend considerable time and money complying with federal, state and foreign regulations and, if we are unable to fully comply with such regulations, we could face substantial penalties.

We are directly or indirectly through our customers, subject to extensive regulation by both the federal government and the states and foreign countries in which we conduct our business. The laws that directly or indirectly affect our ability to operate our business include, but are not limited to, the following:

•  the Federal Food, Drug, and Cosmetic Act, which regulates the design, testing, manufacture, labeling, marketing, distribution and sale of prescription drugs and medical devices;

•  state food and drug laws;

•  the Sarbanes-Oxley Act of 2002;

•  the federal Anti-Kickback Law, which prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual, or furnishing or arranging for a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid Programs;

•  Medicare laws and regulations that prescribe the requirements for coverage and payment, including the amount of such payment, and laws prohibiting false claims for reimbursement under Medicare and Medicaid;

•  the federal physician self-referral prohibition, commonly known as the Stark Law, which, in the absence of a statutory or regulatory exception, prohibits the referral of Medicare patients by a physician to an entity for the provision of designated healthcare services, if the physician or a member of the physician’s immediate family has a direct or indirect financial relationship, including an ownership interest in, or a compensation arrangement with, the entity and also prohibits that entity from submitting a bill to a federal payor for services rendered pursuant to a prohibited referral;

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•  state laws that prohibit the practice of medicine by non-physicians and fee-splitting arrangements between physicians and non-physicians, as well as state law equivalents to the Anti-Kickback Law and the Stark Law, which may not be limited to government reimbursed items; and

•  the Federal Trade Commission Act and similar laws regulating advertising and consumer protection.

If our past or present operations are found to be in violation of any of the laws described above or the other governmental regulations to which we or our customers are subject, we may be subject to the applicable penalty associated with the violation, including civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations. If we are required to obtain permits or licenses under these laws that we do not already possess, we may become subject to substantial additional regulation or incur significant expense. Any penalties, damages, fines, or curtailment or restructuring of our operations would adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by applicable regulatory authorities or the courts, and their provisions are open to a variety of interpretations and additional legal or regulatory change. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and damage our reputation.

Product sales or introductions may be delayed or canceled as a result of the FDA’s regulatory process, which could cause our sales or profitability to decline.

The process of obtaining and maintaining regulatory approvals and clearances to market a medical device from the FDA and similar regulatory authorities abroad can be costly and time consuming, and we cannot assure you that such approvals and clearances will be granted. Pursuant to FDA regulations, unless exempt, the FDA permits commercial distribution of a new medical device only after the device has received 510(k) clearance or is the subject of an approved premarket approval application. The FDA will clear marketing of a medical device through the 510(k) process if it is demonstrated that the new product is substantially equivalent to other 510(k)-cleared products. The premarket approval application process is more costly, lengthy and uncertain than the 510(k) process, and must be supported by extensive data, including data from preclinical studies and human clinical trials. Because we cannot assure you that any new products, or any product enhancements, that we develop will be subject to the shorter 510(k) clearance process, significant delays in the introduction of any new products or product enhancement may occur. We cannot assure you that the FDA will not require a new product or product enhancement go through the lengthy and expensive premarket approval application process.

Delays in obtaining regulatory clearances and approvals may:

•  delay or eliminate commercialization of products we develop;

•  require us to perform costly procedures;

•  diminish any competitive advantages that we may attain; and

•  reduce our ability to collect revenues or royalties.

Although we have obtained 510(k) clearance from the FDA to market our Closure system, we cannot assure you that the clearance of our Closure system will not be withdrawn or that we will not be required to obtain new clearances or approvals for modifications or improvements to our products.

Modifications to our products may require new marketing clearances or approvals or require us to cease marketing or recall the modified products until such clearance or approvals are obtained.

Any modification to a 510(k) cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, approval of a premarket approval application. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision. We have made modifications to elements of our Closure system and RFS devices for which we have not sought additional 510(k) clearance. The FDA may not agree with our decisions regarding whether new clearances or approvals are

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required. If the FDA disagrees with us, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval. In addition, we could be subject to significant regulatory fines or penalties. Furthermore, our products could be subject to recall if the FDA determines, for any reason, that our products are not safe or effective. Delays in receipt or failure to receive clearances or approvals, the loss of previously received clearances or approvals, or the failure to comply with existing or future regulatory requirements could reduce our sales, profitability and future growth prospects.

We may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or “off-label” uses.

If we are incorrect in our belief that our promotional materials and training methods regarding physicians are conducted in compliance with regulations of the FDA and other applicable regulations, and the FDA determines that our promotional materials or training constitutes promotion of an unapproved use, the FDA could request that we modify our training or promotional materials or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Some of our employees were previously employed at universities or other medical device companies. Although there are no claims currently pending against us, we may be subject to future claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of these former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research or sales personnel or their work product could hamper or prevent us from improving our products or selling our existing products, which would harm our business.

Our business may be harmed by a natural disaster, terrorist attacks or other unanticipated problems.

Our manufacturing and office facilities are located in a single building in San Jose, California. Despite precautions taken by us, a natural disaster such as fire or earthquake, a terrorist attack or other unanticipated problems at this building could interrupt our ability to manufacture our products or operate our business. These disasters or problems may also destroy our product inventories. Any prolonged or repeated disruption or inability to manufacture our products or operate our business could result in losses that exceed the amount of coverage provided by this insurance, and in such event could harm our business.

Our future capital needs are uncertain; we may need to raise additional funds in the future and such funds may not be available on acceptable terms, if at all.

We believe that our current cash, cash equivalents and investments, will be sufficient to meet our projected capital requirements for at least the next 12 months. Our capital requirements will depend on many factors, including:

•  the revenues generated by sales of our products and licensing;

•  the number and timing of acquisitions and other strategic transactions;

•  the costs associated with expanding our manufacturing, marketing, sales and distribution efforts;

•  the rate of progress and cost of our research and development activities;

•  the costs of obtaining and maintaining FDA and other regulatory clearance of our products and products in development; and

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•  the cost of litigation and other legal actions.

As a result of these factors, we may need to raise additional funds, and we cannot be certain that such funds will be available to us on acceptable terms, if at all. The cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads resulting from weak global market and economic conditions. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. Continued turbulence in the United States and international markets and economies may adversely affect our liquidity and financial condition, including our ability to obtain external debt or equity financing to meet our liquidity needs. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our future products or proprietary technologies, or grant licenses on terms that are not favorable to us. If we cannot raise funds on acceptable terms, we may not be able to expand our operations, develop new products, take advantage of future opportunities or respond to competitive pressures or unanticipated customer requirements.

Concentration of ownership among our existing directors, executive officers and principal stockholders may prevent new investors from influencing significant corporate decisions.

Our executive officers, directors and greater than 10% stockholders directly or indirectly beneficially own or control a significant portion of our outstanding shares of common stock. These executive officers, directors and significant stockholders, acting as a group, have substantial control over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. Some of these persons or entities may have interests different than our other stockholders. For example, these stockholders may delay or prevent a change of control of us, even if such a change of control would benefit our other stockholders, and these persons or entities may pursue strategies that are different from the wishes of other investors.

Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could cause our stock price to decline and prevent attempts by our stockholders to replace or remove our current management.

In addition to the effect that the concentration of ownership by our officers, directors and significant stockholders may have, our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that may enable our management to resist a change in control. These provisions may discourage, delay or prevent a change in the ownership of our company or a change in our management. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. Such provisions include:

•  our board of directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock;

•  advance notice requirements for stockholders to nominate individuals to serve on our board of directors or for stockholders to submit proposals that can be acted upon at stockholder meetings;

•  our board of directors is classified so that not all members of our board of directors are elected at one time, which may make it more difficult for a person who acquires control of a majority of our outstanding voting stock to replace our directors;

•  stockholder action by written consent is prohibited;

•  special meetings of our stockholders are permitted to be called only by a majority of our board of directors, the chairman of our board of directors or our president;

•  stockholders are not permitted to cumulate their votes for the election of directors;

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•  newly created directorships resulting from an increase in the authorized number of directors or vacancies on our board of directors are to be filled only by majority vote of the remaining directors, even though less than a quorum is then in office;

•  our board of directors is expressly authorized to modify, alter or repeal our bylaws; and

•  stockholders are permitted to amend our bylaws only upon receiving at least 75% of the votes entitled to be cast by holders of all outstanding shares then entitled to vote generally in the election of directors, voting together as a single class.

We are also subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delaying or impeding a merger, tender offer or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

Item 1B:   Unresolved Staff Comments

Not applicable.

Item 2:   Properties

Our principal corporate office and manufacturing facility is located in a 93,650 square foot facility in San Jose, California. The Company’s lease will expire in February of 2014. We believe that this facility is adequate for our current and future needs. The Company also leases sales offices with leases that expire on various dates through 2014.

Item 3:   Legal Proceedings

In 2005, the Company filed a patent infringement lawsuit (the “2005 Patent Lawsuit”) in the United States District Court for the Northern District of California against Diomed Holdings, Inc. and Diomed, Inc. (collectively, “Diomed”), AngioDynamics, Inc. (“AngioDynamics”) and Vascular Solutions, Inc. (“Vascular Solutions”) for infringement of certain United States Patents owned by the Company. The 2005 Patent Lawsuit is entitled VNUS Medical Technologies, Inc. v. Diomed Holdings, Inc., et al., N.D. Cal. Case No. C05-02972 MMC. The defendants market endovenous laser ablation products for use in methods which the Company believes are covered by several of its patents. On March 14, 2008, Diomed filed a petition for Chapter 11 Bankruptcy protection (in the United States Bankruptcy Court for the District of Massachusetts). As a result, an automatic stay was imposed on the 2005 Patent Lawsuit with respect to Diomed only.

In June 2008, the Company settled and resolved the 2005 Patent Lawsuit against AngioDynamics and Vascular Solutions by entering into a Settlement Agreement (the “Agreement”) with those two defendants. The Agreement results in the Company granting to AngioDynamics and Vascular Solutions a non-exclusive, non-sublicensable patent license that covers certain products such as disposable endovenous laser fiber kits, laser fibers, and lasers used in the field of endovenous laser ablation. As part of the Agreement, AngioDynamics and Vascular Solutions stipulated that the Company’s patents-in-suit are valid, enforceable, and were infringed by the licensees.

As a result of the Diomed bankruptcy and the Settlement Agreement, the 2005 Patent Lawsuit remained pending, but stayed, against Diomed only. In June 2008, most of the assets of Diomed were acquired by AngioDynamics. On or about June 20, 2008, the Company filed claims against the Diomed bankruptcy estate for monetary damages attributable to Diomed’s alleged patent infringement, both prior to and since its bankruptcy petition date. The Company’s claims comprised an administrative expense claim of $2.6 million and a general unsecured claim of $40.7 million.

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In September 2008, the Massachusetts bankruptcy court approved a stipulation entered into by the Company and Diomed, under which the two parties settled the Company’s claims against the Diomed bankruptcy estate. The stipulation provided for settlement of the Company’s administrative expense claim for $300,000 and the Company’s general unsecured claim for $3,000,000. In September 2008, the Company received a payment of $300,000 from Diomed for the settled administrative expense claim. Due to the nature of bankruptcy proceedings the Company cannot presently estimate how much, if any, of the $3,000,000 settled general unsecured claim will eventually be paid to the Company.

In June 2008, the Company filed a patent infringement lawsuit (the “First 2008 Patent Lawsuit”) in the United States District Court for the Northern District of California against biolitec Inc. (“Biolitec”), Dornier MedTech America, Inc. (“Dornier”) and NewStar Lasers, Inc. d/b/a CoolTouch, Inc. (“CoolTouch”). The First 2008 Patent Lawsuit is entitled VNUS Medical Technologies, Inc. v. Biolitec, Inc. et al., N.D. Cal. Case No. C08-03129 MMC. Biolitec, CoolTouch and Dornier market endovenous laser ablation products for use in procedures which VNUS believes infringe several of its patents. VNUS is seeking an injunction prohibiting these companies from selling these products, in addition to monetary damages.

In September and November 2008, the defendants filed answers to the First 2008 Patent Lawsuit in which the defendants deny that they infringe, allege that the asserted patents are invalid and unenforceable, and assert counterclaims seeking declarations that the patents are not infringed, invalid and unenforceable.

In September 2008, the Company filed a patent infringement lawsuit (the “Second 2008 Patent Lawsuit”) in the United States District Court for the Northern District of California against Total Vein Solutions LLC d/b/a Total Vein Systems (“TVS”). The Second 2008 Patent Lawsuit is entitled VNUS Medical Technologies, Inc. v. Total Vein Solutions, LLC d/b/a Total Vein Systems, N.D. Cal. Case No. C08-04234 MMC. In the Second 2008 Patent Lawsuit the Company has sued TVS for infringement of the same patents as have been asserted in the First 2008 Patent Lawsuit.

In December 2008 and January 2009, TVS filed answers to the Second 2008 Patent Lawsuit. In its answers TVS denies that it infringes, alleges that the asserted patents are invalid and unenforceable, and asserts counterclaims seeking declarations that the patents are not infringed, invalid and unenforceable. TVS also asserted antitrust and unfair competition counterclaims against the Company relating to the Company’s enforcement of its patents against TVS. In January 2009 TVS and the Company agreed to bifurcate and stay TVS’s antitrust and unfair competition counterclaims pending resolution of the threshold issue of patent enforceability.

In November 2008, the Court consolidated the First and Second 2008 Patent Lawsuits. As a result, the two lawsuits will be effectively treated as one proceeding by the Court for the remainder of their pendency. As of December 31, 2008, both the First and Second 2008 Patent Lawsuits remained pending.

If any of the defendants in the 2008 Patent Lawsuits succeeds in obtaining a declaration or order from the Court that one or more of the patents asserted in the Lawsuits (or one or more of the claims of such patents) is invalid, not infringed, or significantly narrowed in scope, or that one or more of the patents asserted in the Lawsuits is unenforceable, such a result could adversely affect the strength of the Company’s patent portfolio and the Company’s ability to exclude competitors from the endovenous ablation market. In addition, under some circumstances such a result, if sustained on appeal, could affect the Company’s ability to recover future royalties due under the June 2008 Settlement Agreement.

Due to the inherently unpredictable nature of litigation, the Company cannot provide any assurances regarding the eventual outcome of the 2008 Patent Lawsuits.

The Company is also involved in other legal proceedings arising in the ordinary course of business. While there can be no assurances as to the ultimate outcome of any litigation involving the Company, management does not believe any such other pending legal proceeding will result in a judgment or settlement that would have a material adverse effect on the Company’s financial position, results of operations or cash flows.

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Item 4:   Submission of Matters to a Vote of Security Holders

There were no submissions of matters to a vote of security holders during the quarter ended December 31, 2008.

PART II

Item 5:   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock has been traded on The NASDAQ Stock Market under the symbol “VNUS” since our initial public offering on October 20, 2004. The following table sets forth the intra-day high and low per share bid prices of our common stock from January 1, 2007 through December 31, 2008, as reported by The NASDAQ Stock Market.

	High		Low
Year Ended December 31, 2008
First Quarter	$	19.49	$	12.60
Second Quarter	$	21.50	$	15.06
Third Quarter	$	24.44	$	18.30
Fourth Quarter	$	20.99	$	10.81
Year Ended December 31, 2007
First Quarter	$	10.71	$	8.38
Second Quarter	$	15.54	$	9.92
Third Quarter	$	16.03	$	12.24
Fourth Quarter	$	16.19	$	12.90

As of February 27, 2009, there were approximately 194 holders of record of our common stock.

Dividend Policy

We have never paid cash dividends on our stock and currently anticipate that we will continue to retain any future earnings to finance the growth of our business.

Securities Authorized for Issuance Under Equity Compensation Plans

See the information incorporated by reference into Part III, Item 12 — “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this report for information regarding securities authorized for issuance under our equity compensation plans.

Issuer Purchases of Equity Securities

Neither we, nor any affiliated purchaser of ours, acquired any of our equity securities during the year ended December 31, 2008.

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Item 6:   Selected Consolidated Financial Data

The following table sets forth our selected financial data. This information should be read together with the consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included under Part II, Item 7 of this Annual Report on Form 10-K. The consolidated statements of operations data for the years ended December 31, 2008, 2007 and 2006 and the consolidated balance sheet data as of December 31, 2008 and 2007 are derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations data for the years ended December 31, 2005 and 2004, and the consolidated balance sheet data as of December 31, 2006, 2005, and 2004 are derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K. The historical results are not necessarily indicative of our future consolidated operating results or financial position.

	Years Ended December 31,
	2008		2007			2006			2005		2004
	(In thousands, except per share data)
Consolidated Statements of Operations Data:
Net revenues	$	101,151	$	70,904		$	51,681		$	49,170	$	38,166
Gross profit	$	71,823	$	45,198		$	34,397		$	36,859	$	28,624
Total operating expenses	$	58,484	$	54,095		$	45,167		$	33,013	$	25,975
Income (Loss) from operations	$	13,339	$	(8,897	)	$	(10,770	)	$	3,846	$	2,649
Basic net income (loss) per share	$	0.85	$	(0.36	)	$	(0.48	)	$	0.37	$	0.73
Diluted net income (loss) per share	$	0.81	$	(0.36	)	$	(0.48	)	$	0.35	$	0.23

	December 31,
	2008		2007		2006		2005		2004
	(In thousands)
Consolidated Balance Sheet Data:
Total assets	$	108,437	$	86,182	$	85,833	$	85,339	$	77,972
Other long term liabilities	$	1,868	$	1,996	$	1,544	$	36	$	111

Item 7:   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of VNUS Medical Technologies, Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to the consolidated financial statements (“Notes”).

Business Overview

We develop, manufacture and sell our proprietary products used in the minimally invasive treatment of venous reflux disease. We also generate revenue from licensing our intellectual property to companies that sell minimally invasive products for the treatment of venous reflux disease in the United States. For the year ended December 31, 2008, we generated net revenues of $101.2 million and net income of $13.5 million. As of December 31, 2008, we have incurred cumulative losses of approximately $35.0 million. We incurred net losses in 2006 and through the third quarter of 2007. During the fourth quarter of 2007, we were profitable. We incurred a net loss for the fiscal year ended 2007.

We market our Closure system through a direct sales organization in the United States, France, Germany and the United Kingdom. We also market and sell our products through distributors throughout the world.

Most of our United States customers are reimbursed by governmental and third-party payors, and that reimbursement is subject to periodic review and adjustment. Currently, our Closure procedure is covered by the policies of approximately 120 health insurers, representing over 240 million covered lives in the United States.

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Internationally, our Closure procedure is accepted by several national health systems and many third-party private health insurance policies.

We manufacture, package and label our disposable endovenous catheters and devices and outsource the manufacture of our RF generators and accessory packs.

We have a diverse customer base of hospitals, physicians and physician groups, with no single customer accounting for 10% or more of our net revenues or accounts receivable in the years ended December 31, 2008, 2007, and 2006.

We intend to sustain our long term growth through delivering new and improved products, through continued acceptance and reimbursement of our procedure by private and government sponsored health insurance plans, creating new opportunities, and improving our internal processes.

Financial Operations Overview

Net Revenues.  We derive our net revenues from net product revenues and royalty revenues. Net product revenues are derived from the sale of disposable endovenous catheters and devices, RF generators and accessory products. Our large installed base of RF generators facilitates a recurring revenue stream from the sale of disposable catheters. Royalty revenues are derived from licensing our patents which describe methods of vein ablation.

Cost of Revenues.  Our cost of revenues represents the cost of materials, overhead, direct labor and delivery charges associated with the manufacture of disposable catheters, the purchase and delivery of RF generators, the purchase and delivery of accessory products, warranty, inventory reserves and share-based compensation.

Sales and Marketing Expenses.  Sales and marketing expenses consist primarily of sales and marketing personnel expenses, sales force incentive compensation, travel, promotional materials, advertising, patient education materials, other expenses incurred to provide reimbursement services, clinical training and share-based compensation.

Research and Development Expenses.  Research and development expenses consist primarily of personnel expenses, supplies, materials and other expenses associated with product development, expenses associated with preclinical and clinical studies and share-based compensation.

General and Administrative Expenses.  General and administrative expenses consist primarily of personnel expenses for accounting, human resources, information technology and corporate administration, professional fees and share-based compensation.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we re-evaluate our judgments and estimates. We base our estimates and judgments on our historical experience, knowledge of current conditions and our belief of what could occur in the future considering available information, including assumptions that are believed to be reasonable under the circumstances. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these policies.

We believe the following critical accounting policies reflect our most significant estimates, judgments and assumptions used in the preparation of our consolidated financial statements:

•  Revenue recognition;

•  Valuation of inventory;

•  Allowance for doubtful accounts;

•  Income taxes; and

•  Share-based compensation expense.

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Revenue Recognition.  We sell our disposable catheters RF generators to end-users in the United States and in international markets. Catheters and RF generators are also sold through distributors in international markets. We also sell RF generators to third-party leasing companies in the United States. These third party leasing companies provide long-term lease financing to end-users. We do not provide such long-term lease financing to end-users. The Company also licenses its proprietary technology to third parties in exchange for royalties.

We recognize revenues in accordance with Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, when persuasive evidence of an arrangement exists, title has transferred, our price is fixed or determinable and collectability is reasonably assured. For an arrangement with multiple deliverables, we recognize revenue in accordance with Emerging Issues Task Force (“EITF”) No. 00-21, Revenue Arrangements with Multiple Deliverables with revenues allocated among the different elements, and in accordance with EITF No. 03-05, Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software.

For product revenues, we generally use contracts and customer purchase orders to determine the existence of an arrangement. We use shipping documents and third-party proof of delivery to verify delivery. We assess whether the fee is fixed or determinable based on the terms of the agreement associated with the transaction. In order to determine whether collection is reasonably assured, we assess a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. If we determine that collection is not reasonably assured, we defer the recognition of revenue until collection becomes reasonably assured, which is generally upon receipt of payment.

Our domestic and international return policy allows customers to return unused products for a period of 30 and 60 days, respectively, subject to restocking fees. We make provisions for estimated returns and allowances based on historical levels. To date, returns and allowances have been insignificant.

For royalty revenues, we use negotiated royalty licensing agreements to determine the existence of an arrangement and transfer of title. Royalty licensing agreements typically cover products shipped by the licensee after the date that the license agreement has been entered into and until the patent has expired or when the agreement expires, whichever is shorter. The Company’s royalties are computed at a fixed price per unit shipped, are paid quarterly in arrears and recognized as revenue at the time the amount of the quarterly royalty payment becomes determinable and collection is reasonably assured.

Valuation of Inventory.  We value our inventory at the lower of cost or market, cost being determined on a first in first out basis. We calculate an inventory reserve for estimated obsolescence or excess inventory based upon historical demand and assumptions about future demand for our products and market conditions. The allowance is measured as the difference between the current cost of the inventory and estimated market value and is charged to the provision for inventory obsolescence, which is a component of our cost of revenues. At the point of recognition of the loss, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Allowance for Doubtful Accounts.  We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We estimate the allowance based on the aging of account balances, collection history, credit quality of the customer and current economic conditions that may affect a customer’s ability to pay.

Income Taxes.  We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions, realization and carrying amounts of deferred tax assets and determining our provision for income taxes. Effective January 1, 2007, we adopted Financial Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 contains a two step approach to recognizing and measuring uncertain tax positions accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of

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related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.

The Company maintained a full valuation allowance for deferred tax assets as of December 31, 2008. The determination to maintain an allowance is highly subjective. The factors we considered in making this determination include, but are not limited to (i) the Company’s historical cumulative net losses, after adjustment for permanent tax differences, over the previous three years through 2008; (ii) the dependence on continued high growth rates in achieving forecasted profitability; (iii) operation in an industry subject to rapid technological changes; and (iv) the unknown impact of current negative macroeconomic factors on forecasted results of operations. Based on our consideration of these factors, we believe there is sufficient uncertainty regarding our ability to generate future taxable income. We will retain a full valuation allowance until such time that we determine it is more likely than not that we will recognize the benefit of the deferred tax assets. Throughout 2009, we will continually evaluate these, and other, factors, and the impact any changes in these factors has on our judgment regarding the realization of the deferred tax assets.

Share-Based Compensation Expense.  We account for share-based compensation expense in accordance with SFAS No. 123R “Share-Based Payment,” or SFAS 123R. Under the provisions of SFAS No. 123R, share-based compensation expense is estimated at the grant date based on the award’s fair value. Fair value for restricted stock units is determined by the stock’s closing price on the grant date. For options the fair value is calculated by using the Black-Scholes option-pricing model. The instruments fair value is recognized as expense over the requisite service period. The Black-Scholes model requires various highly judgmental assumptions including expected volatility, forfeiture rates and expected option life.

Recent Accounting Pronouncements

In 2008, the following new accounting pronouncements, discussed in“Item 8— “Financial Statements,” Note 1. “Accounting Policies, Recent Accounting Pronouncements,” have been considered and evaluated for required application and their impact:

•  SFAS No. 157, Fair Value Measurements

•  SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities

•  SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities

•  SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles

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Results of Operations

The following table sets forth our results of operations expressed as percentages of net revenues, for the years ended December 31, 2008, 2007, and 2006:

	Years Ended December 31,
	2008			2007			2006
Net revenues		100	%		100.0	%		100.0	%
Cost of revenues		29			36			33
Gross profit		71			64			67
Operating expenses:
Sales and marketing		28			36			43
Research and development		10			13			14
General and administrative		20			27			30
Total operating expenses		58			76			87
Income (loss) from operations		13			(12	)		(20	)
Interest income and other, net		1			5			7
Income (loss) before provision for income taxes		14			(7	)		(13	)
Provision for income taxes		1			1			0
Net income (loss) before cumulative effect of change in accounting principle		13			(8	)		(13	)
Cumulative effect of change in accounting principle, net of tax		—			—			1
Net income (loss) after cumulative effect of change in accounting principle		13	%		(8	)%		(14	)%

Known Trends and Uncertainties Impacting Future Results of Operations: Global Market and Economic Conditions.  Recent global market and economic conditions have been unprecedented and challenging with tighter credit conditions and recession in most major economies continuing into 2009. As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. These factors have lead to a decrease in spending by businesses and consumers alike, and a corresponding decrease in global infrastructure spending. Continued turbulence in the United States and international markets and economies and prolonged declines in business and consumer spending may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our customers, including our ability to obtain external debt or equity financing to meet our liquidity needs.

Net Revenues by Period

The following table sets forth our net revenues for the fiscal years ending 2008, 2007 and 2006, and the percentage change between periods.

	Years Ended December 31,
	2008		2007		% Change			2007		2006		% Change
	(In thousands except percentages)
Net Revenues	$	101,151	$	70,904		43	%	$	70,904	$	51,681		37	%

Net revenues increased in 2008 as compared to 2007 primarily due to the following:

•  increased catheter sales in both units and dollars due to increased demand for the ClosureFAST catheter, offset by a lower average sales price;

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•  increased accessory product sales in both dollars and units directly related to products used in the performance of our Closure procedure; and

•  royalty revenues of $12.9 million dollars of which $8.7 million relates to periods prior to 2008.

Net revenues increased in 2007 as compared to 2006 primarily due to the following:

•  increased catheter sales in both units and dollars due to increased demand for the ClosureFAST catheter, offset by a lower average sales price;

•  increased RF generator sales in both units and dollars, primarily due to international expansion and recognition of $1.9 million of generator sales due to the undelivered software upgrade promoted in 2006 and delivered in 2007; and

•  increased accessory sales in both units and dollars.

We expect net revenues to continue to increase in 2009 as a result of continued domestic and international market demand for our Closure system.

Net Product Revenues by Product

The following table sets forth the percentage of net product revenues derived from the sale of disposable endovenous catheters and devices, RF generators and accessories for the years ended December 31, 2008, 2007 and 2006:

	Years Ended December 31,
	2008			2007			2006
Catheters and devices		78	%		73	%		81	%
RF generators		8			14			8
Accessories		14			13			11
		100	%		100	%		100	%

We derive our net product revenues from the sale of disposable endovenous catheters and devices, RF generators and accessory products. Our large installed base of RF generators facilitates a recurring revenue stream from the sale of disposable catheters. We manufacture, package and label our disposable endovenous catheters and devices. We do not manufacture our RF generators and accessory products. We have several competitors selling a laser-based alternative to our Closure system.

Net Revenues by Geographic Region as a Percentage of Net Revenues

The following table sets forth the percentage of net revenues from domestic and international sales for the years ended December 31, 2008, 2007, and 2006:

	Years Ended December 31,
	2008			2007			2006
United States		90	%		93	%		96	%
Europe and other		10			7			4
		100	%		100	%		100	%

We market our Closure system through a direct sales organization in the United States, France, Germany and the United Kingdom. We also market and sell our products through distributors throughout the world. We continue to see increases in our sales outside the United States, primarily due to the addition of a direct sales presence in the United Kingdom in 2007. Excluding the $8.7 million of royalty revenue received in 2008 but related to periods prior to 2008, Europe and other accounted for 11% of total net revenues. We expect our net revenues derived from sales outside the United States to increase in 2009 primarily related to international expansion.

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Gross Profit by Period

The following table sets forth our gross profit for the fiscal years ending 2008, 2007 and 2006, and the percentage change between periods:

	Years Ended December 31,
	2008			2007			% Change			2007			2006			% Change
	(In thousands except percentages)
Gross profit	$	71,823		$	45,198			59	%	$	45,198		$	34,397			31	%
Gross profit margin		71	%		64	%					64	%		67	%

The overall increase in gross profit margin in 2008 compared to 2007 was primarily due to:

•  the recognition of $12.9 million of royalty revenues with no associated cost of revenues increased gross profit margin by 4.3%; and

•  higher margin of ClosureFAST catheters in 2008 as compared to 2007. This is the result of reductions in the initial manufacturing inefficiencies in 2007 associated with launching a new product.

The overall decrease in gross profit margin in 2007 compared to 2006 was primarily due to:

•  lower margin of ClosureFAST catheters, which were introduced by the Company in the first quarter of 2007, as compared to ClosurePLUS catheters, due to initial manufacturing inefficiencies associated with launching a new product; and

•  increases in inventory reserves primarily related to inventory balances on hand in excess of forecasted demand.

Assuming we do not experience reductions in average sales price or experience unexpected manufacturing inefficiencies, we expect gross margins for 2009 to range from 68% to 70%.

Operating Expenses by Period

	Years Ended December 31,
	2008		2007		% Change			2007		2006		% Change
	(In thousands except percentages)
Sales and marketing	$	28,369	$	25,311		12	%	$	25,311	$	22,343		13	%
Research and development		10,443		9,444		11	%		9,444		7,422		27	%
General and administrative		19,672		19,340		2	%		19,340		15,402		26	%
	$	58,484	$	54,095		8	%	$	54,095	$	45,167		20	%

Operating Expense Summary

Overall operating expenses increased $4.4 million in 2008 as compared to 2007, primarily due to:

•  an increase of $4.5 million due to increased headcount;

•  an increase of $3.0 million due to increased share-based compensation expense;

•  an increase of $471,000 in trade show and travel related expenses;

•  an increase of $308,000 in international expenditures related to our international expansion, and;

•  an increase of $307,000 in general business expenses; partially offset by

•  a decrease of $2.5 million in legal fees, primarily associated with resolution of certain on-going patent litigation;

•  a decrease of $834,000 in clinical studies and consulting fees; and

•  a decrease of $325,000 in advertising relating to our direct marketing and advertising expenses.

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Overall operating expenses increased $8.9 million in 2007 as compared to 2006, primarily due to:

•  an increase of $6.2 million due to increased headcount and related expense (including share-based compensation);

•  an increase of $2.5 million in legal expense related to our on-going patent litigation;

•  an increase of $476,000 in trade show and travel related expenses;

•  an increase of $400,000 in direct marketing and advertising expenses, and;

•  an increase of $225,000 in spending on clinical studies expenses; partially offset by

•  a decrease of $861,000 in facility-related expenses due to the termination of the lease agreement for our previous facility in the second quarter of 2007; and

•  a decrease of $300,000 in legal and other professional fees, primarily associated with filings, patent and trademark registration.

Sales and Marketing Expenses

Sales and marketing expenses increased $3.1 million in 2008 as compared to 2007, primarily due to:

•  an increase of $3.0 million due to increased commissions from higher sales and increased headcount and related expense (including share-based compensation);

•  an increase of $471,000 in trade show and travel related expenses; and

•  an increase of $308,000 in international expenditures; partially offset by

•  a decrease of $325,000 in advertising expenditures.

Sales and marketing expenses increased $3.0 million in 2007 as compared to 2006, primarily due to:

•  an increase of $2.1 million due to increased commissions from higher sales and increased headcount and related expense (including share-based compensation);

•  an increase of $476,000 in trade show and travel related expenses; and

•  an increase of $400,000 in direct marketing and advertising expenses.

We expect sales and marketing expenses to increase in absolute dollars in 2009 but to decrease as a percentage of net revenues as compared to 2008.

Research and Development Expenses

Research and development expenses increased $1.0 million in 2008 as compared to 2007, primarily due to:

•  an increase of $2.3 million due to increased headcount and related expense (including share-based compensation); partially offset by,

•  a decrease of $575,000 in spending on consultants; and

•  a decrease of $477,000 in spending on clinical studies.

Research and development expenses increased $2.0 million in 2007 as compared to 2006, primarily due to:

•  an increase of $1.8 million due to increased headcount and related expense (including share-based compensation); and

•  an increase of $225,000 in spending on clinical studies.

We expect research and development expenses to be flat in absolute dollars in 2009 but to decrease as a percentage of net revenues as compared to 2008.

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General and Administrative Expenses

General and administrative expenses increased $0.3 million in 2008 as compared to 2007, primarily due to:

•  an increase of $2.2 million due to increased headcount and related expense (including share-based compensation);

•  an increase of $307,000 million in general business expenses, and;

•  an increase of $218,000 in consulting fees related to software upgrades; partially offset by

•  a decrease of $2.5 million in legal and other professional fees, primarily associated with the resolution of certain on-going patent litigation.

General and administrative expenses increased $3.9 million in 2007 as compared to 2006, primarily due to:

•  an increase of $2.3 million due to increased headcount and related expense (including share-based compensation);

•  an increase of $2.5 million in legal expense related to on-going patent litigation, and;

•  an increase of $378,000 in bank fees and bad debt expenses; partially offset by

•  a decrease of $861,000 in facility related expenses due to the termination of the lease agreement for our previous facility in the second quarter of 2006; and

•  a decrease of $300,000 in legal and other professional fees, primarily associated with filing patent and trademark registration.

We expect general and administrative expenses to increase in absolute dollars but to decrease as a percentage of net revenues in 2009 as compared with 2008.

Interest Income and Other, Net

Interest income and other, net, decreased by $2.2 million in 2008 as compared to 2007. The changes in interest income and other, net, in 2008 as compared to 2007, were primarily the result:

•  a decrease of $1.2 million in interest income primarily related to declining cash and investment interest rates; coupled with,

•  a decrease of $971,000 in currency losses primarily due to the strengthening dollar against the Euro and the British Pound.

Interest income and other, net, remained relatively unchanged in 2007 when compared to 2006 at $3.5 million. The changes in interest income and other, net, in 2007 as compared to 2006, were primarily the result of:

•  a decrease of $208,000 in interest income primarily related to lower cash and short-term investment balances and declining interest rates; partially offset by

•  an increase of $168,000 in currency related gains primarily due to the weakening dollar against the Euro and the British Pound.

We expect interest income and other, net, to be relatively flat in 2009 due to lower rates of return being earned on our cash, cash equivalents and investment balances as a result of continued economic issues in the global economy.

Provision for Income Taxes

We have significant net operating loss (“NOL”) and tax credit carryforwards. The provision for income taxes of $1,068,000 in 2008 primarily represents alternative minimum taxes for federal and state purposes, and estimated foreign and state income taxes payable which could not be offset by NOL and tax credit carryforwards. In September of 2008 the State of California enacted a two year suspension of use of California net operating loss carryforwards. The provisions for income taxes in 2007 and 2006 primarily represent the estimated foreign and state

37

income taxes payable which could not be offset by NOL and tax credit carryforwards. We expect to use NOL and other tax carryforward amounts to the extent taxable income is earned in the future. At December 31, 2008, we had federal and state NOL carryforwards of approximately $24.3 million and state NOL carryforwards of approximately $12.1 million. The federal NOL carryforwards expire in various periods through 2028 and the state NOL carry forwards expire in various periods through 2028. We have federal and state research tax credit carryforwards of approximately $1.0 million and $1.0 million, respectively. The federal research credits expire in various periods through 2029 and the state research credits can be carried forward indefinitely. We also have federal AMT credit carryforwards of approximately $475,000. The AMT credits carry forward indefinitely. The amounts of and the benefits from NOL and credit carryforwards may be impaired in some circumstances. Events that may cause such limitations include, but are not limited to, sale of equity securities and other changes in ownership.

We maintained a full valuation allowance for deferred tax assets as of December 31, 2008. The determination to maintain an allowance is highly subjective. The factors we considered in making this determination include, but are not limited to, (i) our historical cumulative net losses, after adjustment for permanent tax differences, over the previous three years through 2008, (ii) the dependence on continued high growth rates in achieving forecasted profitability, (iii) we operation in an industry subject to repaid technological changes, and (iv) the unknown impact of current negative macroeconomic factors on forecasted results of operations. Based on our consideration of these factors, we believe there is sufficient uncertainty regarding our ability to generate future taxable income to utilize deferred tax assets. We will retain a full valuation allowance until such time that we determine it is more likely than not that we will recognize the benefit of the deferred tax assets. Throughout 2009, we will continually evaluate these, and other, factors, and the impact any changes in these factors has on our judgment regarding the realization of the deferred tax assets.

Prior to the release of the valuation allowance, to the extent that we are profitable, our effective tax rate should continue to be substantially less than the applicable statutory rates. Following the release of our valuation allowance, our effective tax rate will approximate the applicable statutory rates.

Liquidity and Capital Resources

	December 31,
	2008			2007			$ Change			2007			2006			$ Change
	(In thousands)
Cash and cash equivalents	$	34,898		$	39,269		$	(4,371	)	$	39,269		$	38,917		$	352
Short-term investments	$	40,927		$	24,067		$	16,860		$	24,067		$	28,996		$	(4,929	)
Long-term investments	$	9,294			—		$	9,294			—			—			—
Working capital	$	81,426		$	71,001		$	10,425		$	71,001		$	70,859		$	142
Net cash provided by (used in) operating activities	$	22,106		$	(5,727	)	$	27,833		$	(5,727	)	$	(165	)	$	(5,562	)
Net cash (used in) provided by investing activities	$	(27,319	)	$	3,940		$	(31,259	)	$	3,940		$	(7,912	)	$	11,852
Net cash provided by financing activities	$	1,013		$	2,156		$	(1,143	)	$	2,156		$	197		$	1,959

We currently invest our cash and cash equivalents in several money market funds consisting of debt instruments of the United States government, its agencies and high-quality corporate issuers with original maturities of less than three months. Investments designated as short-term consist of cash invested in debt instruments of the United States government and its agencies, high-quality corporate issuers with original maturities greater than three months and remaining maturities less than one year, commercial paper and certificates of deposit. Investments designated as long-term consist of cash invested in debt instruments of the United States government and its agencies and high-quality corporate issuers with remaining maturities greater than one year. Since inception, we have financed our operations primarily through private sales of convertible preferred stock and common stock, and cash generated from operations. In addition, we raised approximately $54.0 million, net of issuance costs, from our initial public offering of common stock in October 2004.

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Cash flows from operating activities

Net cash provided by operating activities increased $27.8 million in 2008 as compared to 2007 primarily due to:

•  cash received for royalty revenues during the year of $12.3 million;

•  a decrease in days sales outstanding as compared to 2007 of 8 days combined with an increase in net product revenues of $17.4 million;

Net cash used in operating activities increased $5.6 million in 2007 as compared to 2006 primarily due to:

•  an increase of $3.4 million in inventories, as the Company continues to build inventory in response to increased customer demand;

•  an increase of $1.7 million in accounts receivable primarily due to increased sales offset by improved customer collections;

•  a decrease of $3.8 million in deferred revenue primarily due to deferral of RF generators sales in 2006 relating to the software upgrade promoted at the end of 2006, but not delivered until 2007; and

•  a decrease of $433,000 in deferred share-based compensation; partially offset by

•  an increase of $3.9 million in accrued compensation and benefits.

Cash flows from investing activities

Net cash used by investing activities increased $31.3 million in 2008 as compared to 2007 primarily due to:

•  an increase of cash placed in short term investments of $23.2 million as compared to the 2007 balance sheet; and

•  placement of $9.3 million in long-term investments.

Net cash provided by investing activities increased $11.9 million in 2007 as compared to 2006 primarily due to:

•  a decrease of $4.2 million in cash used to purchase of short-term investments;

•  an increase of $4.0 million in proceeds from the sale of short-term investments; and

•  a decrease of $3.6 million from the purchase of property and equipment.

Cash flows from financing activities

Net cash provided by financing activities decreased by $1.1 million in 2008 as compared to 2007 primarily due to a decrease in the proceeds from the exercise of stock options.

Net cash provided by financing activities increased by $2.0 million in 2007 as compared to 2006 primarily due to:

•  an increase of $2.3 million in the proceeds from the exercise of stock options; and

•  an increase of $345,000 in the amount of employee payroll taxes withheld and paid on behalf of employees related to the release of restricted stock units on a net issuance basis.

Other Factors Affecting Liquidity and Capital Resources

We expect that operating expenses will increase in absolute dollars in connection with the growth of our business. We expect to fund these increased costs and expenditures from our cash flows from operations and our existing cash balances. However, our future capital requirements depend on numerous forward-looking factors. These factors include, but are not limited to, the following: the revenues generated by sales of our products; the number and timing of acquisitions and other strategic transactions; the costs associated with expanding our manufacturing, marketing, sales and distribution efforts; the rate of progress and cost of our research and development activities; patent litigation; the costs of obtaining and maintaining FDA and other regulatory

39

clearances of our products and products in development; the effects of competing technological and market developments; and the costs associated with being a public company.

We believe that our current cash and investment balances, and cash we expect to generate from operations, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. However, we may require additional funds in order to further develop the marketplace, complete clinical studies and deliver new products to our customers. We may seek financing of future cash needs through the sale of equity securities and debt. We cannot assure you that additional financing will be available when needed or that, if available, such financing will be obtained on terms favorable to us or our stockholders. The cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads resulting from weak global market and economic conditions. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. Continued turbulence in the United States and international markets and economies may adversely affect our liquidity and financial condition, including our ability to obtain external debt or equity financing to meet our liquidity needs. Insufficient funds may require us to delay, scale back or eliminate some or all of our business operations or may adversely affect our ability to operate as a going concern. If additional funds are obtained by issuing equity or debt securities, substantial dilution to existing stockholders may result.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31, 2008.

Contractual Obligations and Capital Expenditure Requirements

The following table summarizes our contractual obligations as of December 31, 2008:

	Payments Due by Period
Contractual Obligations and Capital			Less Than		2 - 3		4 - 5		More Than
Expenditure Requirements	Total		1 Year		Years		Years		5 Years
	(In thousands)
Operating lease obligations	$	6,325	$	1,196	$	2,483	$	2,439	$	207
Inventory purchase commitments		3,806		3,806		—		—		—
Other purchase commitments		806		806		—		—		—
Total	$	10,937	$	5,808	$	2,483	$	2,439	$	207

Item 7A:   Quantitative and Qualitative Disclosures about Market Risk

To date, substantially all of our sales have been denominated in United States dollars. Approximately 8% of net product revenues for 2008 was denominated in currencies other than United States dollars. Accordingly, we believe that there is currently no material exposure of our net product revenues to risk from changes in foreign currency exchange rates.

While our reporting currency is the United States dollar, a portion of our assets (primarily deposit accounts and accounts receivable) are denominated in foreign currency. As a result, we are exposed to foreign exchange risk as our results of operations may be affected by fluctuations in the exchange rate between United States dollars and foreign currencies. If a foreign currency depreciates against the United States dollar, the value of a portion of our earnings and assets as expressed in our United States dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk. The impact of an aggregate decline of 10% in foreign currency exchange rates relative to the United States dollar on our results of operations and financial position would not be material.

Our exposure to interest rate risk at December 31, 2008 is related to our investment of our excess cash in debt instruments of the United States government and its agencies, and in high-quality corporate issuers via several money market funds. Due to the nature of these investments, we believe that there is currently no material exposure to interest rate risk arising from our investments. Additionally, an immediate 10% change in interest rates would not have a material adverse impact on our future operating results and cash flows.

40

Item 8:   Consolidated Financial Statements and Supplementary Data

VNUS MEDICAL TECHNOLOGIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm		42
Consolidated Balance Sheets at December 31, 2008 and 2007		43
Consolidated Statements of Operations for each of the years in the three year period ended December 31, 2008		44
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for each of the years in the three year period ended December 31, 2008		45
Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31, 2008		46
Notes to Consolidated Financial Statements		47

41

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of VNUS Medical Technologies, Inc. and subsidiaries:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of VNUS Medical Technologies, Inc. and its subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/  PricewaterhouseCoopers LLP

San Jose, California

March 13, 2009

42

VNUS MEDICAL TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2008			2007
	(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	34,898		$	39,269
Short-term investments		40,927			24,067
Accounts receivable, net of allowance for doubtful accounts of $470 and $355		12,152			11,456
Inventories		4,506			5,485
Prepaid expenses and other current assets		2,073			1,421
Total current assets		94,556			81,698
Property and equipment, net		4,457			4,354
Long-term investments		9,294			—
Other assets		130			130
Total assets	$	108,437		$	86,182
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,926		$	2,366
Accrued compensation and benefits		8,016			6,040
Other accrued liabilities		1,362			1,571
Deferred revenue, net		826			720
Total current liabilities		13,130			10,697
Other long term liabilities		1,868			1,996
Total liabilities		14,998			12,693
Commitments and contingencies (Note 7)
Stockholders’ equity:
Common stock, $0.001 par value; 56,666,666 authorized, 16,074,895 and 15,702,880 issued and outstanding at December 31, 2008 and 2007, respectively		16			15
Additional paid-in capital		128,284			122,009
Deferred share-based compensation		—			(23	)
Accumulated other comprehensive income		163			21
Accumulated deficit		(35,024	)		(48,533	)
Total stockholders’ equity		93,439			73,489
Total liabilities and stockholders’ equity	$	108,437		$	86,182

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

43

VNUS MEDICAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2008		2007			2006
	(In thousands, except per share data)
Net product revenues	$	88,283	$	70,904		$	51,681
Royalty revenues		12,868		—			—
Net revenues		101,151		70,904			51,681
Cost of revenues		29,328		25,706			17,284
Gross profit		71,823		45,198			34,397
Operating expenses:
Sales and marketing		28,369		25,311			22,343
Research and development		10,443		9,444			7,422
General and administrative		19,672		19,340			15,402
Total operating expenses		58,484		54,095			45,167
Income (loss) from operations		13,339		(8,897	)		(10,770	)
Interest and other income, net		1,238		3,451			3,471
Income (loss) before provision for income taxes		14,577		(5,446	)		(7,299	)
Provision for income taxes		1,068		78			33
Net income (loss) before cumulative effect of change in accounting principle		13,509		(5,524	)		(7,332	)
Cumulative effect of change in accounting principle, net of tax		—		—			73
Net income (loss) after cumulative effect of change in accounting principle	$	13,509	$	(5,524	)	$	(7,259	)
Net income (loss) per share (see Note 2)
Basic net income (loss) per share	$	0.85	$	(0.36	)	$	(0.48	)
Diluted net income (loss) per share	$	0.81	$	(0.36	)	$	(0.48	)
Basic weighted average number of shares		15,897		15,390			15,047
Diluted weighted average number of shares		16,595		15,390			15,047

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

44

VNUS MEDICAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND

COMPREHENSIVE INCOME (LOSS)

	Years Ended, December 31,
	2008			2007			2006
	(In thousands except share data)
Common stock and additional paid in capital
Balance, beginning of period	$	122,024		$	117,979		$	117,939
Common stock issued		1,013			2,156			70
Share-based compensation expense		4,983			1,930			2,008
Deferred share-based compensation		(11	)		(41	)		(2,038	)
Stock option income tax benefits		291			—			—
Balance, end of period	$	128,300		$	122,024		$	117,979
Deferred share-based compensation
Balance, beginning of period	$	(23	)	$	(144	)	$	(2,544	)
Deferred share-based compensation		7			41			2,048
Amortization of deferred share-based compensation		16			80			425
Cumulative effect of change in accounting principle		—			—			(73	)
Balance, end of period	$	—		$	(23	)	$	(144	)
Accumulated deficit
Balance, beginning of period	$	(48,512	)	$	(43,087	)	$	(35,873	)
Cumulative adjustment for FIN 48		—			73			—
Net income (loss)		13,509			(5,524	)		(7,259	)
Components of other comprehensive income (loss)
Net unrealized gains on investments		313			43			45
Translation adjustments and other		(171	)		(17	)		—
Other comprehensive income (loss)		13,651			(5,498	)		(7,214	)
Balance, end of period	$	(34,861	)	$	(48,512	)	$	(43,087	)
Total stockholders’ equity	$	93,439		$	73,489		$	74,748
Common stock outstanding
Balance, beginning of period		15,702,880			15,130,598			14,899,989
Exercise of stock options		233,700			484,029			164,883
Exercise of warrants		—			—			21,928
Restricted stock units issued		138,315			88,253			43,798
Balance, end of period		16,074,895			15,702,880			15,130,598

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

45

VNUS MEDICAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2008			2007			2006
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	13,509		$	(5,524	)	$	(7,259	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		1,504			1,199			1,103
Provision for excess & obsolete inventory		191			565			298
Impairment of long-lived assets		—			—			181
Tax benefit related to share-based compensation		291			—			—
Stock-based compensation and amortization of deferred stock-based compensation		4,995			2,010			2,443
Cumulative effect of change in accounting principle		—			—			(73	)
Allowance for doubtful accounts		245			205			44
Change in operating assets and liabilities:
Accounts receivable		(941	)		(3,414	)		(1,672	)
Inventories		788			(3,594	)		(132	)
Prepaid expenses and other current assets		(652	)		22			(209	)
Other long-term assets		—			652			51
Accounts payable		560			1,026			107
Accrued compensation and benefits		1,976			3,804			(112	)
Other accrued liabilities		(270	)		(1,810	)		875
Warranty reserve		61			3			283
Deferred revenue		106			(1,452	)		2,292
Other long-term liabilities		(257	)		581			1,615
Net cash provided by (used in) operating activities		22,106			(5,727	)		(165	)
Cash flows from investing activities:
Purchases of short-term investments		(75,274	)		(52,101	)		(56,261	)
Purchases of long-term investments		(9,294	)		—			—
Proceeds from maturities of short-term investments		58,727			57,073			53,028
Purchases of property and equipment		(1,478	)		(1,032	)		(4,679	)
Net cash (used in) provided by investing activities		(27,319	)		3,940			(7,912	)
Cash flows from financing activities:
Proceeds from the exercise of stock options for common stock		1,921			2,628			324
Employees’ taxes withheld and paid for restricted stock and options		(908	)		(472	)		(127	)
Net cash provided by financing activities		1,013			2,156			197
Net (decrease) increase in cash and cash equivalents		(4,200	)		369			(7,880	)
Effect of foreign exchange rates		(171	)		(17	)		—
Cash and cash equivalents at the beginning of the period		39,269			38,917			46,797
Cash and cash equivalents at the end of the period	$	34,898		$	39,269		$	38,917

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

46

VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies

The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America.

Principles of consolidation and basis of presentation.  The consolidated financial statements include the accounts of VNUS Medical Technologies, Inc. and its subsidiaries. Intercompany transactions and balances have been eliminated.

Foreign Currency Translation.  We transact business in various foreign currencies. In general, the functional currency of a foreign operation is the local country’s currency except for our German subsidiary, whose functional currency is the United States dollar. Non-functional currency monetary balances are re-measured into the functional currency of the subsidiary with any related gain or loss recorded in other income, net, in the accompanying consolidated statements of operations. Assets and liabilities of operations outside the United States, for which the functional currency is the local currency, are translated into United States dollars using fiscal year-end exchange rates. Revenue and expenses are translated at the average exchange rates in effect during each fiscal month during the year. The effects of foreign currency translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets. Foreign currency gains or losses included in other income, net, in the accompanying consolidated statements of operations were a loss of $580,000 in 2008, and gains of $376,000 and $208,000 in 2007 and 2006, respectively.

Use of Estimates.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Reclassifications.  Certain balance sheet amounts in the 2007 and 2006 financial statements have been reclassified to conform with the 2008 presentation.

Cash and Cash Equivalents.  The Company considers all highly-liquid investment instruments with an original maturity of three months or less to be cash equivalents. As of December 31, 2008, 2007 and 2006, the Company held its cash and cash equivalents in checking accounts, money market accounts and investment accounts with several financial institutions. Some accounts exceeded FDIC insurance limits. Certain accounts were held with financial institutions outside the United States of America in Western European countries.

Short-term and Long-term Investments.  Short-term and long-term investments, which include money market instruments, debt instruments of the United States government and its agencies and high-quality corporate issuers, are reported at fair value using the specific identification method. Unrealized gains and losses are excluded from earnings and reported as a component of other comprehensive income (loss). Additionally, the Company assesses whether an other-than-temporary impairment loss on its investments has occurred due to declines in fair value or other market conditions. The Company has not identified any such impairment losses to date.

Fair Value of Financial Instruments.  The Company’s financial instruments, including cash, cash equivalents not accounted for under SFAS No. 157, prepaid expenses and other current assets, accrued liabilities and accounts payable are carried at cost, which approximates fair value because of the nature of those instruments. Cash equivalents not carried at cost and short-term and long-term investments are carried at fair value (see Note 5).

Inventories.  Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method. Lower of cost or market is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other factors.

47

VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Shipping and Handling Costs.  In accordance with the Emerging Issues Task Force (“EITF”) issue 00-10, Accounting for Shipping and Handling Fees and Costs, the Company includes shipping and handling revenues in net sales and shipping and handling costs in cost of goods sold.

Property and Equipment.  Property and equipment are stated at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, or the lease term of the respective assets, if applicable. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the lease.

The depreciation and amortization period for property and equipment categories are as follows:

Furniture and fixtures	3 years
Computer and office equipment	3 years
Laboratory equipment	5 years
Software	3 to 5 years

Upon retirement or sale, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations. Repairs and maintenance are charged to operations as incurred.

Revenue Recognition.  The Company sells its disposable catheters and radio frequency, or RF, generators, to end-users in the United States and in international markets. Catheters and RF generators are also sold through distributors in certain international markets. The Company also sells RF generators to third-party leasing companies in the United States. These third-party leasing companies provide long-term lease financing to end-users. The Company does not provide such long-term lease financing to end-users. The Company also licenses its proprietary technology to third parties in exchange for royalties.

The Company recognizes revenues in accordance with SAB No. 104, Revenue Recognition (“SAB 104), when persuasive evidence of an arrangement exists, title has transferred, the seller’s price is fixed or determinable and collectability is reasonably assured. For an arrangement with multiple deliverables, the Company recognizes product sales in accordance with EITF No. 00-21, Revenue Arrangements with Multiple Deliverables, with revenues allocated among the different elements, and in accordance with EITF No. 03-05, Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software.

For product revenues, we generally use contracts and customer purchase orders to determine the existence of an arrangement. We use shipping documents and third-party proof of delivery to verify delivery. We assess whether the fee is fixed or determinable based on the terms of the agreement associated with the transaction. In order to determine whether collection is reasonably assured, we assess a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. If we determine that collection is not reasonably assured, we defer the recognition of revenue until collection becomes reasonably assured, which is generally upon receipt of payment.

The Company’s domestic sales return policy allows customers to return unused products for a period within 30 days subject to restocking fees. The Company’s international sales return policy allows customers to return unused products for a period within 60 days subject to restocking fees. The Company makes provisions for estimated returns and allowances based on historical levels. To date, returns and allowances have not been significant.

For royalty revenue, we use negotiated royalty licensing agreements to determine the existence of an arrangement and transfer of title. Royalty licensing agreements typically cover products shipped by the licensee after the date that the license agreement has been entered into and until the patent has expired or when the agreement expires, whichever is shorter. The Company’s royalties are computed per unit shipped, are paid quarterly in arrears and recognized as revenue at the time the amount of the quarterly royalty payment becomes determinable and collection is reasonably assured.

48

VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred revenue, net.  Deferred revenue, net, consists of (i) deferred revenue on sales related to distributors pending sell-through information or sales where collectability was not reasonably assured at the time of shipment, offset by deferred cost of revenue, and (ii) deferred warranty and training revenue.

Warranty.  The Company generally provides a one year limited warranty on its RF generator which is included in the sales price of the generator. The Company provides for the estimated future costs of repair, upgrade or replacement upon shipment of the product. The warranty accrual is based upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment. In addition, from time to time, specific warranty accruals are made for specific technical problems.

Research and Development Costs.  Costs related to research, design and development of products are charged to research and development expense as incurred.

Advertising Expenses.  Advertising costs are expensed as incurred. Advertising expenses incurred in the years ended December 31, 2008, 2007 and 2006 were $558,000, $664,000, and $262,000 respectively.

Cumulative Effect of a Change in Accounting Principle.  Upon the adoption of SFAS No. 123R on January 1, 2006, the Company elected to adopt the modified prospective transition method of SFAS No. 123R, except for those options that were measured using the minimum value method under SFAS No. 123, Accounting for Stock-Based Compensation, for which the Company applied the prospective transition method. The impact of the adoption has resulted in an adjustment for the cumulative effect of a change in accounting principle.

Accordingly, during the year ended December 31, 2006, the Company recorded stock-based compensation cost totaling the amount that would have been recognized had the fair value method been applied since the effective date of SFAS No. 123. Previously reported amounts have not been restated. The cumulative effect, through December 31, 2005, was a decrease in share-based compensation expense and a corresponding increase to equity of $73,000 to reflect the application of the estimated forfeiture rates to deferred share-based compensation related to the intrinsic value of restricted stock units granted in 2005.

Comprehensive Income (Loss).  Comprehensive income (loss) is defined as the change in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners, and is to include unrealized gains and losses that have historically been excluded from net income and loss and reflected instead in equity. Unrealized gains and losses on short-term and long-term investments and foreign currency translation gains and losses are recorded in other comprehensive income (loss) as a component of equity.

Income Taxes.  The Company accounts for income taxes under the liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Recent Accounting Pronouncements

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. FASB Staff Position (“FSP”) FAS 157-2 — Effective Date of FASB Statement No. 157 (“FSP FAS 157-2”), delayed the effective date for all nonfinancial assets and liabilities until January 1, 2009, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of SFAS 157 on January 1, 2008 did not have a material effect on the Company’s consolidated financial statements. See Note 5 for further discussion and disclosure.

49

VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS 159”), which is effective for fiscal years beginning after November 15, 2007. This statement permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The adoption of SFAS 159 did not have a material effect on the Company’s consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”), which is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for the Company in the second quarter of fiscal year 2009. The Company does not expect the adoption of SFAS 161 to have a material effect on its consolidated financial position, results of operations and cash flows.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”), which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with Generally Accepted Accounting Principles (“GAAP”). SFAS 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not expect the adoption of SFAS 162 to have a material effect on its consolidated financial position, results of operations and cash flows.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

Note 2 — Net Income (Loss) Per Share

The Company computes basic net income (loss) per share by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Basic net income (loss) per share excludes the dilutive effect of potential stock including stock options and restricted stock units(“RSU’s”). Diluted income per share reflects the dilution of potential common shares outstanding during the period. In computing diluted income per share, the Company adjusts share count by assuming that all in-the-money options are exercised and that the Company repurchases shares with the proceeds of these hypothetical exercises. The Company further assumes that any unamortized deferred stock-based compensation for in-the-money options and RSU’s is also used to repurchase shares. In determining the hypothetical shares repurchased, the Company uses the average stock price for the period.

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VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth the computation of basic and diluted net income (loss) attributable to common stockholders per common share (in thousands, except per share data):

	Years Ended December 31,
	2008		2007			2006
Net Income (loss)	$	13,509	$	(5,524	)	$	(7,259	)
Denominator:
Basic weighted average number of shares		15,897		15,390			15,047
Effect of dilutive securities:
Stock options and restricted stock units		698		—			—
Diluted weighted average number of shares		16,595		15,390			15,047
Net income (loss) per share:
Basic net income (loss) per share	$	0.85	$	(0.36	)	$	(0.48	)
Diluted net income (loss) per share	$	0.81	$	(0.36	)	$	(0.48	)

The following outstanding employee stock options were excluded from the computation of diluted net income per share as they had an antidilutive effect (in thousands):

	Years Ended December 31,
	2008		2007		2006
Stock Options		262		1,179		1,634
RSU’s		35		538		398
Total		297		1,717		2,032

Note 3 — Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, short-term and long-term investments and accounts receivable. Cash and cash equivalents are deposited in demand and money market accounts in several financial institutions in the United States and internationally. Deposits held with financial institutions may exceed the amount of insurance provided on such deposits. The Company has not experienced any material losses on its deposits of cash and cash equivalents.

Concentrations of credit risk with respect to short-term and long-term investments are limited due to the Company’s cash investment policies which limit cash investments to low-risk investments and limit concentration of investments with any one issuer. Short-term and long-term investments include money market instruments, certificates of deposits, debt instruments of the United States government and its agencies and high-quality corporate issuers, all with maturity dates less than three years.

Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers comprising the Company’s customer base and their dispersion across many geographies. The Company performs ongoing credit evaluations of its customers and generally does not require collateral from its customers. The Company maintains an allowance for doubtful accounts based upon the expected collectability of all accounts receivable. No single customer represents more than 10% of the accounts receivable amount or revenues for any period presented.

Note 4 — Patent Litigation Settlement

In June 2008, the Company entered into a Settlement Agreement (the “Agreement”) with AngioDynamics, Inc. (“AngioDynamics”) and Vascular Solutions, Inc. (“Vascular Solutions”). The Agreement settles and resolves the

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VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

patent infringement lawsuit between the parties as more fully described in Note 7 of the Notes to Consolidated Financial Statements. The Agreement results in the Company granting to AngioDynamics and Vascular Solutions, a non-exclusive, non-sublicensable patent license that covers certain products such as disposable endovenous laser fiber kits, laser fibers, and lasers used in the field of endovenous laser ablation. The Agreement requires the licensees to pay a royalty on shipments of these products until September 2017. Through December 31, 2008, the licensees reported $12.6 million of royalties due for shipments through that date. This amount has been reflected as royalty revenues in the accompanying consolidated statements of operations.

In September 2008, the Company also received a negotiated payment of $0.3 million from Diomed Holdings, Inc. and Diomed, Inc. (collectively, “Diomed”) for royalties relating to Diomed’s post-bankruptcy patent infringement through the date of acquisition by AngioDynamics (Note 7).

Note 5 — Fair Value Measurements

On January 1, 2008, the Company adopted the methods of fair value described in SFAS 157 to value its financial assets and liabilities. As defined in SFAS 157, fair value is the price that would be received for asset when sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best information available to it. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs and minimizes the use of unobservable inputs to the extent possible, and considers the security issuers’ and the third-party insurers’ credit risk in its assessment of fair value.

SFAS 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy defined by SFAS 157 are as follows:

Level 1:  Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide the most reliable pricing information and evidence of fair value on an ongoing basis.

Level 2:  Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3:  Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant. Instruments subject to Level 3 measurements include those that may be more structured or otherwise tailored to customers’ needs. At each balance sheet date, the Company performs an analysis of all instruments subject to SFAS No. 157 and includes in Level 3 all of those whose fair value is based on significant unobservable inputs. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets.

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VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s cash equivalents and marketable investments are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The Company has no cash equivalents or marketable investments classified with Level 3.

Assets measured at fair value on a recurring basis using the levels described above are summarized below:

Fair Value Measurements at December 31, 2008 using

			Quoted Prices in
			Active Markets for		Significant Other
	December 31,		Identical Assets		Observable Inputs
	2008		(Level 1)		(Level 2)
	(In thousands)
Assets:
Cash equivalents	$	21,750	$	21,350	$	400
Available for sale investments		40,927		26,083		14,844
Long-term investments		9,294		9,294		—
	$	71,971	$	56,727	$	15,244

The Company chose not to elect the fair value option as prescribed by SFAS 159 for its financial assets and liabilities that had not been previously reported at fair value. Therefore, financial assets and liabilities not reported at fair value, such as the Company’s accounts receivable, notes receivable, and accounts payable are still reported at their carrying values which approximates fair value.

The following table summarizes the Company’s investments at December 31, 2008 and 2007:

	December 31, 2008
	Gross		Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
			(In thousands)
Short-term investments:
Corporate debt securities	$	25,958	$	144		—	$	26,102
Certificates of deposit		5,873		19		—		5,892
Commercial paper		8,899		34		—		8,933
Total	$	40,730	$	197	$	—	$	40,927
Long-term investments:
Corporate debt securities	$	9,140		154		—	$	9,294

	December 31, 2007
	Gross		Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(In thousands)
Short-term investments:
Corporate debt securities		8,704		1		—	$	8,705
Commercial paper		15,325		37		—	$	15,362
Total	$	24,029	$	38	$	—	$	24,067

Gross realized gains and gross realized losses on available-for-sale securities were immaterial during the twelve months ended December 31, 2008, 2007 and 2006. The estimated fair values of short-term investments were based on their contractual maturity of one year or less at December 31, 2008.

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VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 6 — Balance Sheet Components

	December 31,
	2008			2007
	(In thousands)
Inventories
Raw material and sub-assemblies	$	2,652		$	3,007
Finished goods and other		1,854			2,478
	$	4,506		$	5,485
Property and equipment, net(1)
Leasehold improvements	$	3,140		$	2,999
Laboratory equipment		2,510			1,934
Computer and office equipment		1,854			1,427
Software		1,219			1,036
Furniture and fixtures		402			390
Assets not ready to be placed in service		289			150
		9,414			7,936
Less accumulated depreciation and amortization		(4,957	)		(3,582	)
Total property and equipment, net	$	4,457		$	4,354
Other accrued liabilities
Accrued expenses	$	561		$	520
Accrued taxes		305			392
Accrued warranty		73			72
Other accrued liabilities		423			587
	$	1,362		$	1,571
Other long term liabilities
Accrued rent	$	1,797		$	1,905
Other long term liabilities		71			91
	$	1,868		$	1,996

(1) Substantially all long-lived assets are located in the United States of America.

Note 7 — Commitments and Contingencies

Product Warranty Commitment.  The Company generally provides a one year limited warranty on its RF generator which is included in the sales price of the generator. The Company provides for the estimated future costs of repair, upgrade or replacement upon shipment of the product. The warranty reserve is based upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment. In addition, from time to time, specific warranty accruals are made for specific technical problems including software bugs, component or other manufacturing defects. Costs are estimated and accrued for specific warranty issues in the period in which the warranty issue becomes known to management and the costs are reasonably estimable. The increase in the warranty reserve during the year ended December 31, 2006 was for the estimated costs of a field update of the RF generator’s embedded software for use with existing catheters and devices which was provided in

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VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

early 2007. The Company’s warranty reserve is included in other accrued liabilities and changes during the reporting periods are as follows:

	Balance at		Additions		Warranty			Balance at
	Beginning of		to Warranty		Liability			End of
	Period		Liability		Utilized			Period
	(In thousands)
Year ended December 31, 2008	$	72	$	61	$	(60	)	$	73
Year ended December 31, 2007	$	204	$	3	$	(135	)	$	72
Year ended December 31, 2006	$	34	$	283	$	(113	)	$	204

Legal Proceedings.  In 2005, the Company filed a patent infringement lawsuit (the “2005 Patent Lawsuit”) in the United States District Court for the Northern District of California against Diomed, AngioDynamics and Vascular Solutions, for infringement of certain United States Patents owned by the Company. The 2005 Patent Lawsuit is entitled VNUS Medical Technologies, Inc. v. Diomed Holdings, Inc., et al., N.D. Cal. Case No. C05-02972 MMC. The defendants market endovenous laser ablation products for use in methods which the Company believes are covered by several of its patents. On March 14, 2008, Diomed filed a petition for Chapter 11 Bankruptcy protection (in the United States Bankruptcy Court for the District of Massachusetts). As a result, an automatic stay was imposed on the 2005 Patent Lawsuit with respect to Diomed only.

In June 2008, the Company settled and resolved the 2005 Patent Lawsuit against AngioDynamics and Vascular Solutions by entering into a Settlement Agreement (the “Agreement”) with those two defendants. The Agreement results in the Company granting to AngioDynamics and Vascular Solutions a non-exclusive, non-sublicensable patent license that covers certain products such as disposable endovenous laser fiber kits, laser fibers, and lasers used in the field of endovenous laser ablation. As part of the Agreement, AngioDynamics and Vascular Solutions stipulated that the Company’s patents-in-suit are valid, enforceable, and were infringed by the licensees.

As a result of the Diomed bankruptcy and the Settlement Agreement, the 2005 Patent Lawsuit remained pending, but stayed, against Diomed only. In June 2008, most of the assets of Diomed were acquired by AngioDynamics. On or about June 20, 2008, the Company filed claims against the Diomed bankruptcy estate for monetary damages attributable to Diomed’s alleged patent infringement, both prior to and since its bankruptcy petition date. The Company’s claims comprised an administrative expense claim of $2.6 million and a general unsecured claim of $40.7 million.

In September 2008, the Massachusetts bankruptcy court approved a stipulation entered into by the Company and Diomed, under which the two parties settled the Company’s claims against the Diomed bankruptcy estate. The stipulation provided for settlement of the Company’s administrative expense claim for $300,000 and the Company’s general unsecured claim for $3,000,000. In September 2008, the Company received a payment of $300,000 from Diomed for the settled administrative expense claim. Due to the nature of bankruptcy proceedings the Company cannot presently estimate how much, if any, of the $3,000,000 settled general unsecured claim will eventually be paid to the Company. As such, no amount related to the potential gain, if any, from this claim has been recorded in the accompanying consolidated statements of operations.

In June 2008, the Company filed a patent infringement lawsuit (the “First 2008 Patent Lawsuit”) in the United States District Court for the Northern District of California against biolitec Inc. (“Biolitec”), Dornier MedTech America, Inc. (“Dornier”) and NewStar Lasers, Inc. d/b/a CoolTouch, Inc. (“CoolTouch”). The First 2008 Patent Lawsuit is entitled VNUS Medical Technologies, Inc. v. Biolitec, Inc. et al., N.D. Cal. Case No. C08-03129 MMC. Biolitec, CoolTouch and Dornier market endovenous laser ablation products for use in procedures which VNUS believes infringe several of its patents. VNUS is seeking an injunction prohibiting these companies from selling these products, in addition to monetary damages.

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VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In September and November 2008, the defendants filed answers to the First 2008 Patent Lawsuit in which the defendants deny that they infringe, allege that the asserted patents are invalid and unenforceable, and assert counterclaims seeking declarations that the patents are not infringed, invalid and unenforceable.

In September 2008, the Company filed a patent infringement lawsuit (the “Second 2008 Patent Lawsuit”) in the United States District Court for the Northern District of California against Total Vein Solutions LLC d/b/a Total Vein Systems (“TVS”). The Second 2008 Patent Lawsuit is entitled VNUS Medical Technologies, Inc. v. Total Vein Solutions, LLC d/b/a Total Vein Systems, N.D. Cal. Case No. C08-04234 MMC. In the Second 2008 Patent Lawsuit the Company has sued TVS for infringement of the same patents as have been asserted in the First 2008 Patent Lawsuit.

In December 2008 and January 2009, TVS filed answers to the Second 2008 Patent Lawsuit. In its answers TVS denies that it infringes, alleges that the asserted patents are invalid and unenforceable, and asserts counterclaims seeking declarations that the patents are not infringed, invalid and unenforceable. TVS also asserted antitrust and unfair competition counterclaims against the Company relating to the Company’s enforcement of its patents against TVS. In January 2009 TVS and the Company agreed to bifurcate and stay TVS’s antitrust and unfair competition counterclaims pending resolution of the threshold issue of patent enforceability.

In November 2008, the Court consolidated the First and Second 2008 Patent Lawsuits. As a result, the two lawsuits will be effectively treated as one proceeding by the Court for the remainder of their pendency. As of December 31, 2008, both the First and Second 2008 Patent Lawsuits remained pending.

If any of the defendants in the 2008 Patent Lawsuits succeeds in obtaining a declaration or order from the Court that one or more of the patents asserted in the Lawsuits (or one or more of the claims of such patents) is invalid, not infringed, or significantly narrowed in scope, or that one or more of the patents asserted in the Lawsuits is unenforceable, such a result could adversely affect the strength of the Company’s patent portfolio and the Company’s ability to exclude competitors from the endovenous ablation market. In addition, under some circumstances such a result, if sustained on appeal, could affect the Company’s ability to recover future royalties due under the June 2008 Settlement Agreement.

Due to the inherently unpredictable nature of litigation, the Company cannot provide any assurances regarding the eventual outcome of the 2008 Patent Lawsuits.

The Company is also involved in other legal proceedings arising in the ordinary course of business. While there can be no assurances as to the ultimate outcome of any litigation involving the Company, management does not believe any such other pending legal proceeding will result in a judgment or settlement that would have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Leases.  The Company leases office space and equipment under non-cancelable operating leases with various expiration dates through 2014. Rent expense for the years ended December 31, 2008, 2007 and 2006 was $1.2 million, $1.2 million, and $1.4 million, respectively. The Company recognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid.

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VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At December 31, 2008, future minimum lease payments are as follows (in thousands):

	Operating
Years Ending December 31,	Leases
2009	$	1,196
2010		1,230
2011		1,253
2012		1,205
2013		1,234
2014		207
	$	6,325

Under the terms of the Fontanoso lease, the landlord provided an allowance for the planning and construction of tenant improvements in the amount of $1.0 million, which were recorded as deferred rent at the inception of the lease term. Rent expense associated with future minimum lease payments on the Company’s new facility will be reduced by amortization of the tenant improvement allowance over the life of the lease. An offsetting amount was recorded as leasehold improvements at the inception of the lease term. Leasehold improvements are depreciated over the lease term, or the estimated lives of the improvements, whichever is shorter.

Costs of $847,000 associated with exiting the Zanker facility, including an impairment charge of $179,000 for the value of leasehold improvements and furniture and fixtures which were abandoned at the old facility, were recorded in general and administrative expenses as a restructuring accrual during the year ended December 31, 2006.

Changes to the Company’s restructuring accrual in 2007 and 2006 are as follows (in thousands):

							Write-offs of
	Accrued Lease			Accrued			Impaired Leasehold
	Payments, Net of			Realtor			Improvements and			Total Facility
	Rent Deferral			Commission			Other Fixed Assets			Exit Charge
Facility exit charge recorded in 2006	$	650		$	18		$	179		$	847
Payments		(298	)		(18	)		(179	)		(495	)
Balance, December 31, 2006		352			—			—			352
Payments		(352	)		—			—			(352	)
Balance, December 31, 2007	$	—		$	—		$	—		$	—

The fair value of the liability for the Zanker facility was determined based on the remaining lease payments due under the contract, less the portion that would still be used by the Company for storage for the remainder of the lease period. The Company did not offset these lease payments by estimated sublease rental income. Management concluded that subleasing the Zanker facility was not probable.

Purchase Commitments.  At December 31, 2008, the Company had approximately $4.6 million in purchase commitments for the next twelve months with suppliers, of which $3.8 million was inventory related.

The Company relies on Byers Peak, Inc. to manufacture its RF generators. The initial term of the supply agreement with Byers Peak expired in February 2007, however, the contract continues indefinitely until terminated by either party upon 180 days’ notice. The Company expects that Byers Peak, Inc. will be a sole-source supplier of the RF generators for the foreseeable future. The Company also relies on sole-source suppliers to manufacture some of the components used in its disposable catheters. The Company’s manufacturers and suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to follow specific protocols and

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VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

procedures, failure to comply with applicable regulations, including the FDA’s Quality System Regulations, equipment malfunction and environmental factors, any of which could delay or impede its ability to meet demand.

Indemnifications.  In the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations, and accordingly, the Company has not accrued any amounts for such indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

Note 8 — Share-Based Compensation

Effective January 1, 2006, the Company adopted the provisions of SFAS 123R which establishes accounting for share-based awards exchanged for employee services. Accordingly, share-based compensation expense is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period. The Company has no awards with market conditions. The Company previously applied Accounting Principles Board (APB) Opinion 25, Accounting for Shares Issued to Employees, and related Interpretations and provided the required pro-forma disclosures of SFAS 123.

The Company awards a limited number of stock options and restricted stock units to non-employees. Non-cash share-based expense from instruments issued to non-employees is accounted for in accordance with the provisions of EITF 96-18, Accounting for Equity Investments that are Issued to Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services In 2008, 2007 and 2006, the Company recorded non-employee share-based compensation expense of $83,000, $0, and $10,000, respectively.

Impact of the adoption of SFAS No. 123R

The Company elected to adopt the modified prospective application method as provided by SFAS 123R, except for those options that were measured using the minimum value method under SFAS 123, for which the Company has adopted the prospective transition method. Under the modified prospective application, prior periods are not revised for comparative purposes. The valuation provisions of SFAS 123R apply to new awards and to awards that are outstanding on the effective date and subsequently modified or cancelled. Estimated compensation expense, net of estimated forfeitures, for awards outstanding at the effective date will be recognized over the remaining service period.

On November 10, 2005, the FASB issued FASB Staff Position No. FAS No. 123R-C, Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards. The Company has elected to adopt the alternative transition method provided in this FASB Staff Position for calculating the tax effects of share-based compensation pursuant to SFAS 123R. The alternative transition method includes a simplified method to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee share-based compensation, which is available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123R.

During the year ended December 31, 2006, the Company recorded a cumulative adjustment for share-based compensation costs to expense the amount that would have been recognized had the fair value method been applied since the effective date of SFAS 123, to adjust for application of a forfeiture rate to restricted stock unit awards granted during 2005. The previously reported amounts were not restated.

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VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth the total share-based compensation expense included in the Company’s Consolidated Statements of Operations since the adoption of SFAS 123R:

	Years Ended December 31,
	2008		2007		2006
	(In thousands)
Cost of revenues	$	364	$	124	$	182
Sales and marketing		1,284		467		886
Research and development		965		336		276
General and administrative		2,382		1,083		1,099
Total	$	4,995	$	2,010	$	2,443

As of December 31, 2008, $7.4 million of total unrecognized share-based compensation expense net of forfeitures related to non-vested options and awards is expected to be recognized over the respective vesting terms of each award through 2009 to 2012.

Valuation Assumptions

The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables.

The weighted average estimated fair value of options granted during the twelve month periods ended December 31, 2008, 2007 and, 2006, were calculated under the Black-Scholes model, using the following weighted-average assumptions:

	Years Ended December 31,
	2008	2007	2006
Risk free interest rates	1.73%-3.02%	3.52%-4.84%	4.55%-5.00%
Expected life in years	4.85-5.6	4.85-5.25	5.25-6.25
Dividend yield	—	—	—
Volatility	76.7%-79.0%	79.7%-86.9%	63.8%-96.2%

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model, consistent with the provisions of SFAS 123R, SAB 107 and the Company’s prior period pro forma disclosures of net earnings, including share-based compensation. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. In connection with the adoption of SFAS 123R, the Company reassessed its valuation technique and related assumptions.

Expected volatility was determined using the historical volatility of the Company’s common stock and the historical volatility of a number of peer companies to approximate expected volatility over the expected term of the options.

The Company determined the expected term of employee options granted based upon a blended average of the Company’s historical experience and historical experience of a number of peer companies. Prior to the adoption of SFAS No. 123R, the Company was estimating the expected term based on its historical exercise and post-vesting cancellation experience.

The risk-free interest rate for periods within the contractual life of the option is based on the monthly average risk-free zero-coupon interest rate that corresponds to the expected term.

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VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future.

The Company has used forfeiture rates in its calculation of share-based compensation expense for the twelve months ending December 31, 2008, 2007 and 2006, depending on the stratification of the optionees, based on historical experience over the term. Share-based compensation expense recognized in the Consolidated Statement of Operations for the twelve month period ending December 31, 2008, 2007 and 2006 is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. If pre-vesting forfeitures occur in the future, the Company will true up expense related to such forfeitures as the forfeitures occur.

The fair value of each restricted stock unit award is estimated on the date of grant based on the closing price of the Company’s stock on the grant date. Share-based compensation expense related to RSUs is recognized over the requisite service period, adjusted for forfeiture rates depending on the stratification of the awardees as described above.

Equity Incentive Program

The Company grants incentive and nonqualified stock options and RSU’s to employees, directors and consultants under the Amended and Restated 2000 Equity Incentive Plan (“the 2000 Plan”). This plan replaces the 1995 Stock Option Plan. Stock options expire 10 years from the date they are granted and generally vest over service periods that range from three months to four years. RSU’s give the recipient the right to receive shares upon the lapse of the instruments related restrictions. Restrictions on RSU’s lapse, in various increments and on various dates, beginning on the date of grant through four years. Employees may surrender a portion of their RSU shares to pay for related employee payroll taxes.

The Company annually increases the number of shares issuable under the 2000 Plan using a predetermined formula. The maximum number of shares that can be issued by the 2000 Plan is 6,378,666. As of December 31, 2008 the 2000 Plan had issued 4,836,912 shares.

60

VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the combined activity under the equity incentive plans for the indicated periods:

									Weighted					Weighted
	Shares						Weighted		Average					Average
	Available			Number of			Average		Grant-Date					Grant-date
	for Future			Options			Exercise Price		Fair Value		Number of			Fair Value
	Grant			Outstanding			per Share		per Share		RSUs			per Share
Balances at December 31, 2005		672,678			1,719,645		$	6.60				242,259
Authorized		605,223
Expired		(3,118	)
Granted		(539,843	)		228,666		$	7.52	$	5.06		311,177		$	7.98
Options Exercised					(164,883	)	$	1.19
Restricted Stock Unit Releases												(43,798	)
RSU Release surrendered for tax		18,098										(18,098	)
Terminated/cancelled		242,758			(149,336	)	$	10.19				(93,422	)
Balances at December 31, 2006		995,796			1,634,092		$	6.94				398,118
Authorized		628,033
Expired		(3,431	)
Granted		(778,157	)		278,017		$	12.27	$	8.48		500,140		$	12.18
Options Exercised					(484,029	)	$	5.44
Restricted Stock Unit Releases												(88,253	)
RSU Release surrendered for tax		37,963										(37,963	)
Terminated/cancelled		482,917			(248,934	)	$	9.89				(233,983	)
Balances at December 31, 2007		1,363,121			1,179,146		$	8.20				538,059
Authorized		648,421
Expired		(701	)
Granted		(597,120	)		231,160		$	17.02	$	10.89		365,960		$	17.83
Options Exercised					(233,700	)	$	8.18
Restricted Stock Unit Releases												(138,315	)
RSU Release surrendered for tax		49,886										(49,886	)
Terminated/cancelled		88,852			(48,833	)	$	12.14				(40,019	)
Balances at Dec 31, 2008		1,552,459			1,127,773		$	9.84				675,799

The intrinsic value of in-the-money options and RSU’s was approximately $7.4 million and $10.9 million respectively, as of December 31, 2008. The intrinsic value of exercisable in-the-money options was approximately $6.6 million as of December 31, 2008. The aggregate intrinsic value of the options and restricted stock units outstanding at December 31, 2008 represents the total pretax intrinsic value, based on the Company’s closing stock price of $16.22 per share as of December 31, 2008, which would have been received by the grant holders, had all option holders with in-the-money options exercised their options as of that date and if all restricted stock units were vested as of December 31, 2008.

61

VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Options outstanding and currently exercisable by exercise price at December 31, 2008 are as follows:

						Weighted
						Average		Weighted				Weighted
				Number		Remaining		Average		Number		Average
Exercise Prices				Outstanding		Contractual Term		Exercise Price		Exercisable		Exercise Price
						(In years)
$	0.608	$	0.714		14,595		0.57	$	0.658		14,595	$	0.658
$	1.500	$	1.500		182,676		3.51	$	1.500		182,676	$	1.500
$	3.000	$	7.143		128,733		4.74	$	4.218		123,786	$	4.106
$	7.160	$	9.000		113,499		7.33	$	7.565		79,745	$	7.516
$	9.290	$	10.860		176,483		6.32	$	10.575		157,016	$	10.643
$	10.900	$	12.210		120,802		7.86	$	11.998		82,995	$	11.929
$	12.250	$	14.080		147,568		7.86	$	13.470		76,664	$	13.110
$	14.180	$	16.350		128,417		9.02	$	15.773		25,199	$	14.914
$	17.050	$	18.620		55,000		9.36	$	17.335		22,500	$	17.050
$	18.800	$	18.800		60,000		9.17	$	18.800		0	$	0.000
$	0.608	$	18.800		1,127,773		6.69	$	9.838		765,176	$	7.602

The table above does not include outstanding restricted stock units of 675,799.

The following activity occurred under our plans:

	Years Ended December 31,
	2008		2007		2006
	(In thousands)
Total intrinsic value of stock options exercised	$	2,640	$	3,800	$	1,100
Total intrinsic value of RSU’s released	$	3,322	$	1,597	$	442
Total fair value of stock options vested	$	7,289	$	7,253	$	4,807

The total cash received as a result of stock option exercises during the twelve months ended December 31, 2008 was approximately $1.9 million. In connection with these exercises, there was approximately $291,000 in tax benefits realized by the Company for the year ended December 31, 2008.

Restricted Stock Units

During the years ended December 31, 2008, 2007, and 2006, the Company granted 365,960, 500,140 and 311,177 restricted stock units to certain officers, employees and non-employees, respectively. The value of the restricted stock units was based on the closing market price of the Company’s common stock on the date of each award. The total grant date fair value of the restricted stock units granted during the twelve months ended December 31, 2008, 2007 and 2006 was approximately $6.5 million, $6.1 million and $2.5 million, respectively, that will be recognized over the vesting periods generally four years from the date of grant.

62

VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 9 — Income Taxes

The components of the provision for income taxes are as follows:

	2008		2007			2006
	(In thousands)
Current
Federal	$	322	$	(1	)	$	13
State		722		44			—
Foreign		24		35			20
Total	$	1,068	$	78		$	33

As of December 31, 2008, the Company had net operating loss carryforwards of approximately $24.3 million and $12.1 million for federal and state jurisdictions, respectively, available to reduce future taxable income. The federal and state net operating loss carryforwards expire in various periods through 2028. In September 2008 the State of California enacted a two year suspension of use of California net operating loss carryforwards The Company had federal and state research tax credit carryforwards of approximately $1.0 million and $1.0 million, respectively. The federal research credits expire in various periods through 2029 and the California research credits can be carried forward indefinitely. The company also had federal AMT credit carryforwards of $475,000. The AMT credits carry forward indefinitely.

The differences between the United States federal statutory income tax rate (benefit) and the Company’s effective tax rate were as follows:

	Years Ended December 31,
	2008			2007			2006
United States federal statutory tax rate		35	%		(35	)%		(35	)%
State income taxes, net of federal benefit		6			(5	)		(5	)
Permanent adjustments		5			1			1
Change in valuation allowance		(39	)		34			33
Share-based compensation		3			6			6
Other		(2	)		—			—
Effective tax rate		8	%		1	%		—	%

Deferred tax assets and liabilities consist of the following:

	Years Ended December 31,
	2008			2007
	(In thousands)
Net operating loss carryovers	$	7,148		$	13,128
Tax credits		2,059			1,740
Accruals, allowances and reserves		2,004			1,951
Capitalization and cost recovery		1,070			742
Share-based compensation		395			129
Other		99			(114	)
Net deferred tax assets		12,775			17,576
Valuation allowance		(12,775	)		(17,576	)
Net deferred tax assets reflected in balance sheet	$	—		$	—

63

VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Due to uncertainties surrounding the realization of deferred tax assets through future taxable income, the Company has provided a full valuation allowance, and, therefore, no benefit has been recognized for the net operating loss and other deferred tax assets. Approximately $143,000 of these deferred tax assets pertain to certain net operating loss carryforwards resulting from the exercise of employee stock options. When recognized, the tax benefit of these loss carryforwards are accounted for as a credit to additional paid-in capital rather than a reduction of the income tax provision.

The Tax Reform Act of 1986 limits the use of net operating loss and tax credit carryforwards in the case of an “ownership change” of a corporation. Any ownership changes, as defined, may restrict utilization of carryovers although the Company believes that loss carryovers utilized to offset taxable income in the current year are not subject to restriction.

Undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for federal and state income taxes have been provided thereon. Upon distribution of those earnings in the form of a dividend or otherwise, the Company could be subject to both United States income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries.

Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). This interpretation clarifies the criteria for recognizing income tax benefits under FASB Statement No. 109, Accounting for Income Taxes, and requires additional disclosures about uncertain tax positions. Under FIN 48 the financial statement recognition of the benefit for a tax position is dependent upon the benefit being more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that is greater than 50 percent likely of being realized upon ultimate settlement. A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits during the tax year ended December 31, 2008 and 2007 is as follows:

	2008		2007
	(In thousands)
Balance, beginning of period	$	1,247	$	969
Additions for tax positions of current year		305		278
Balance, end of period	$	1,552	$	1,247

The Company accounts for any applicable interest and penalties on uncertain tax positions as a component of income tax expense. As of December 31,2008 and 2007, the Company had approximately $21,000 and $14,000 of accrued interest related to uncertain tax positions, respectively.

Since the Company has a full valuation allowance on its deferred tax assets, recognition of uncertain tax benefits will not result in an impact on the Company’s effective tax rate except for $47,000 and $21,000 as of December 31, 2008 and 2007 respectively, which relate to items that have resulted in prior period tax expense.

The Company’s only major tax jurisdictions are the United States, Germany and the United Kingdom. The tax years 1995 through 2008 remain open and subject to examination by the appropriate governmental agencies in the United States, the tax years 2004 through 2008 remain open and subject to examination by the appropriate governmental agencies in Germany and the tax years 2007 through 2008 remain open and subject to examination by the appropriate governmental agencies in the United Kingdom.

Note 10 — Operating Segment and Geographic Information

The Company is organized and operates as one operating segment to provide medical devices for the minimally invasive treatment of venous reflux disease and uses one measure of profitability to manage its business. In accordance with SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information (“SFAS 131”), the chief operating decision-maker has been identified as the President and Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for

64

VNUS MEDICAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the entire company. Since the Company operates in one segment and provides one group of similar products and services, all financial segment and product line information required by SFAS 131 can be found in the consolidated financial statements.

The following is a summary of the percentage of the Company’s net revenues by geographic region and by product within the Company’s single segment.

	Years Ended December 31,
	2008			2007			2006
United States		90	%		93	%		96	%
Europe and other		10			7			4
		100	%		100	%		100	%
Catheters and devices		68	%		73	%		81	%
RF generators		8			14			8
Accessories		11			13			11
Royalty revenues		13			—			—
		100	%		100	%		100	%

Note 11 — Employee Benefit Plans

The Company sponsors a 401(k) defined contribution plan covering all employees. Contributions made by the Company are determined annually by the Board of Directors. Contributions by the Company (approved or payable) through December 31, 2008 and 2007 totaled $354,000 and $275,000, respectively. The Company made no contribution during 2006.

Note 12 — Selected Quarterly Financial Data (unaudited)

The following tables present the Company’s operating results for each of the eight quarters ending December 31, 2008. This data has been derived from unaudited consolidated financial statements that, in the opinion of the Company’s management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such information when read in conjunction with the Company’s annual audited consolidated financial statements and notes thereto appearing elsewhere in this report. These operating results are not necessarily indicative of results for any future period.

	Dec. ’08		Sept. ’08		June ’08		Mar. ’08			Dec. ’07		Sept. ’07			June ’07			Mar. ’07
	(In thousands except per share data)
	(Unaudited)
Net revenues	$	27,221	$	23,136	$	31,918	$	18,876		$	20,571	$	17,495		$	17,189		$	15,649
Gross profit	$	18,758	$	16,110	$	24,469	$	12,486		$	13,530	$	10,754		$	10,359		$	10,555
Income (loss) from operations	$	3,719	$	1,917	$	9,092	$	(1,389	)	$	67	$	(3,092	)	$	(3,055	)	$	(2,817	)
Basic net income (loss) per share	$	0.22	$	0.10	$	0.56	$	(0.03	)	$	0.06	$	(0.14	)	$	(0.15	)	$	(0.13	)
Diluted net income (loss) per share	$	0.21	$	0.10	$	0.53	$	(0.03	)	$	0.05	$	(0.14	)	$	(0.15	)	$	(0.13	)

65

Item 9:   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.   Controls and Procedures

We maintain “disclosure controls and procedures”, as such term is defined under Securities Exchange Act Rules 13a-15(e) and 15d-15(e), that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. We have carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2008.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and timely reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, our management used the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment management concluded that, as of December 31, 2008, our internal control over financial reporting was effective based on these criteria.

The effectiveness of the Company’s internal control over financial reporting has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing in Item 8 of this Annual Report on Form 10-K.

Item 9B.   Other Information

None.

66

PART III

Item 10:   Directors, Executive Officers and Corporate Governance of the Registrant

The information required under this Item 10 is hereby incorporated by reference to the information under the captions “Executive Officers of the Registrant,” “Proposal 1 Election of Directors,” “Certain Relationships and Related Transactions,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance,” and “Committees and Meetings of the Board of Directors” contained in our definitive proxy statement for our 2009 Annual Meeting of Stockholders that will be prepared pursuant to Regulation 14A (2009 Proxy Statement).

Item 11:   Executive Compensation

The information required under this Item 11 is hereby incorporated by reference to the information under the captions “Executive Compensation,” “Employment Contracts, Termination of Employment and Change in Control Agreements,” “Directors’ Compensation and Benefits,” and “Committees and Meetings of the Board of Directors” in our 2009 Proxy Statement.

Item 12:   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required under this Item 12 is hereby incorporated by reference to the information under the captions “Equity Compensation Plans” and “Outstanding Shares, Votes Required and Principal Holders” in our 2009 Proxy Statement.

Item 13:   Certain Relationships and Related Transactions, and Director Independence

The information required under this Item 13 is hereby incorporated by reference to the information under the captions “Certain Relationships and Related Transactions,” “Director Nominees” and “Committees and Meetings of the Board of Directors” in our 2009 Proxy Statement.

Item 14:   Principal Accountant Fees and Services

The information required under this Item 14 is hereby incorporated by reference to the information under the caption “Fees Billed to Registrant by PricewaterhouseCoopers LLP” in our 2009 Proxy Statement.

67

PART IV

Item 15:   Exhibits and Financial Statement Schedules

(a) 1. Consolidated Financial Statements and Supplementary Data:

The following financial statements are included herein under Item 8 of this report:

	Page
	Number
Report of Independent Registered Public Accounting Firm		42
Consolidated Balance Sheets at December 31, 2008 and December 31, 2007		43
Consolidated Statements of Operations for Each of the Years in the Three Year Period Ended December 31, 2008		44
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for Each of the Years in the Three Year Period Ended December 31, 2008		45
Consolidated Statements of Cash Flows for Each of the Years in the Three Year Period Ended December 31, 2008		46
Notes to Consolidated Financial Statements		47
2.  Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts		71
3.  Exhibit Index

INDEX OF EXHIBITS

Exhibit
Number			Description
	3	.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1/A No. 333-117640, filed on September 28, 2004).
	3	.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Report on Form 8-K dated March 3, 2008).
	4	.1	Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form No. S-1/A 333-117640, filed on October 15, 2004).
	10	.1*#	Amended and Restated 2000 Equity Incentive Plan.
	10	.2#	Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement Under the VNUS Medical Technologies, Inc. Amended and Restated 2000 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 8-K dated September 8, 2005).
	10	.3#	VNUS Medical Technologies, Inc. 1995 Stock Plan (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1 No. 333-117640, filed on July 23, 2004).
	10	.4#	First Amendment to the VNUS Medical Technologies, Inc. 1995 Stock Plan (incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1 No. 333-117640, filed on July 23, 2004).
	10	.5#	Second Amendment to the VNUS Medical Technologies, Inc. 1995 Stock Plan (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1 No. 333-117640, filed on July 23, 2004).
	10	.6*#	Amended and Restated VNUS Severance Plan for Management and Key Employees.
	10	.7#	Form of Indemnity Agreement for Directors and Officers (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-1/A No. 333-117640, filed on September 28, 2004).
	10	.8	Service and Supply Agreement by and between VNUS Medical Technologies, Inc. and Byers Peak, Inc., dated February 20, 2004 (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1/A No. 333-117640, filed on September 28, 2004).

68

Exhibit
Number			Description
	10	.9	Lease Agreement by and between Legacy Partners I SJ Fontanoso, LLC and VNUS Medical Technologies, Inc., dated November 15, 2005 (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K, dated March 14, 2006).
	10	.10#	Form of Stock Option Award Grant Notice and Option Award Agreement under the VNUS Medical Technologies, Inc. Amended and Restated 2000 Equity Incentive Plan (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K dated March 30, 2007).
	10	.11#	Offer Letter, dated as of October 10, 2007, by and between VNUS Medical Technologies, Inc. and Kirti Kamdar (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 4, 2007).
	10	.12#	Separation Agreement and Release, dated as of April 3, 2007, by and between VNUS Medical Technologies, Inc. and Scott Cramer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 6, 2007).
	10	.13#	Offer Letter, dated as of March 19, 2007, by and between VNUS Medical Technologies, Inc. and William A. Franklin (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated April 6, 2007).
	10	.14#	Offer Letter, dated as of January 15, 2008, by and between VNUS Medical Technologies, Inc. and Peter Osborne (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 18, 2008).
	10	.15#	Offer Letter, dated as of April 8, 2008, by and between VNUS Medical Technologies, Inc. and Donald J. Todd (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 10-Q dated August 18, 2008).
	10	.16+	Settlement Agreement, dated as of June 2, 2008, by and between VNUS Medical Technologies, Inc. and AngioDynamics, Inc., and Vascular Solutions, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 10-Q dated August 18, 2008).
	10	.17#*	Offer Letter, dated as of October 16, 2008, by and between VNUS Medical Technologies, Inc. and Guido E. Smeets M.D.
	21*		List of Subsidiaries of VNUS Medical Technologies, Inc.
	23	.1*	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
	31	.1*	Certification of Chief Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
	31	.2*	Certification of Principal Financial Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
	32*		Certification of Chief Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.

*	Filed herewith.
+	Confidential treatment requested and granted for certain portions of this document.
#	Management compensation or arrangement.

(b) Exhibits.

The exhibits required by Item 601 of Regulation S-K are filed or furnished herewith.

69

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

VNUS MEDICAL TECHNOLOGIES, INC.

By  /s/  BRIAN E. FARLEY

Brian E. Farley

President, Chief Executive Officer and Director

Date: March 13, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

/s/  BRIAN E. FARLEY Brian E. Farley	President, Chief Executive Officer and Director (Principal Executive Officer)	Date: March 13, 2009
/s/  PETER OSBORNE Peter Osborne	Vice President and Chief Financial Officer (Principal Financial Officer)	Date: March 13, 2009
/s/  W. JAMES FITZSIMMONS W. James Fitzsimmons	Director	Date: March 13, 2009
/s/  EDWARD W. UNKART Edward W. Unkart	Director	Date: March 13, 2009
/s/  LORI M. ROBSON, PH.D. Lori M. Robson, Ph.D.	Director	Date: March 13, 2009
/s/  MICHAEL J. COYLE Michael J. Coyle	Director	Date: March 13, 2009
/s/  GREGORY T. SCHIFFMAN Gregory T. Schiffman	Director	Date: March 13, 2009

70

FINANCIAL STATEMENT SCHEDULE

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

	Balance at							Balance at
	Beginning of							End of
	Period		Additions		Utilized			Period
			(In thousands)
Allowance for Doubtful Accounts Year Ended:
December 31, 2006	$	308		44		(68	)	$	284
December 31, 2007	$	284		205		(134	)	$	355
December 31, 2008	$	355		245		(130	)	$	470
Allowance for Excess and Obsolete Inventory Year Ended:
December 31, 2006	$	155		298		(63	)	$	390
December 31, 2007	$	390		565		(39	)	$	916
December 31, 2008	$	916		191		(595	)	$	512
Allowance for Deferred Tax Assets Year Ended:
December 31, 2006	$	14,385		2,183		—		$	16,568
December 31, 2007	$	16,568		1,008		—		$	17,576
December 31, 2008	$	17,576		—		(4,801	)	$	12,775

71

INDEX OF EXHIBITS

Exhibit
Number			Description
	3	.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1/A No. 333-117640, filed on September 28, 2004).
	3	.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Report on Form 8-K dated March 3, 2008).
	4	.1	Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form No. S-1/A 333-117640, filed on October 15, 2004).
	10	.1*#	Amended and Restated 2000 Equity Incentive Plan.
	10	.2#	Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement Under the VNUS Medical Technologies, Inc. Amended and Restated 2000 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 8-K dated September 8, 2005).
	10	.3#	VNUS Medical Technologies, Inc. 1995 Stock Plan (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1 No. 333-117640, filed on July 23, 2004).
	10	.4#	First Amendment to the VNUS Medical Technologies, Inc. 1995 Stock Plan (incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1 No. 333-117640, filed on July 23, 2004).
	10	.5#	Second Amendment to the VNUS Medical Technologies, Inc. 1995 Stock Plan (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1 No. 333-117640, filed on July 23, 2004).
	10	.6*#	Amended and Restated VNUS Severance Plan for Management and Key Employees.
	10	.7#	Form of Indemnity Agreement for Directors and Officers (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-1/A No. 333-117640, filed on September 28, 2004).
	10	.8	Service and Supply Agreement by and between VNUS Medical Technologies, Inc. and Byers Peak, Inc., dated February 20, 2004 (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1/A No. 333-117640, filed on September 28, 2004).
	10	.9	Lease Agreement by and between Legacy Partners I SJ Fontanoso, LLC and VNUS Medical Technologies, Inc., dated November 15, 2005 (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K, dated March 14, 2006).
	10	.10#	Form of Stock Option Award Grant Notice and Option Award Agreement under the VNUS Medical Technologies, Inc. Amended and Restated 2000 Equity Incentive Plan (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K dated March 30, 2007).
	10	.11#	Offer Letter, dated as of October 10, 2007, by and between VNUS Medical Technologies, Inc. and Kirti Kamdar (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 4, 2007).
	10	.12#	Separation Agreement and Release, dated as of April 3, 2007, by and between VNUS Medical Technologies, Inc. and Scott Cramer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 6, 2007).
	10	.13#	Offer Letter, dated as of March 19, 2007, by and between VNUS Medical Technologies, Inc. and William A. Franklin (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated April 6, 2007).
	10	.14#	Offer Letter, dated as of January 15, 2008, by and between VNUS Medical Technologies, Inc. and Peter Osborne (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 18, 2008).
	10	.15#	Offer Letter, dated as of April 8, 2008, by and between VNUS Medical Technologies, Inc. and Donald J. Todd (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 10-Q dated August 18, 2008).
	10	.16+	Settlement Agreement, dated as of June 2, 2008, by and between VNUS Medical Technologies, Inc. and AngioDynamics, Inc., and Vasculare Solutions, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 10-Q dated August 18, 2008).

72

Exhibit
Number			Description
	10	.17#*	Offer Letter, dated as of October 16, 2008, by and between VNUS Medical Technologies, Inc. and Guido E. Smeets M.D.
	21*		List of Subsidiaries of VNUS Medical Technologies, Inc.
	23	.1*	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
	31	.1*	Certification of Chief Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
	31	.2*	Certification of Principal Financial Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
	32*		Certification of Chief Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.

*	Filed herewith.
+	Confidential treatment requested and granted for certain portions of this document.
#	Management compensation or arrangement.

73

EX-10.1

Exhibit 10.1

VNUS MEDICAL TECHNOLOGIES, INC.
AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN

October 20, 2008

TABLE OF CONTENTS

	Page
1. Purposes of the Plan		1
2. Definitions		1
3. Stock Subject to the Plan		5
4. Administration of the Plan		5
5. Eligibility		7
6. Limitations		7
7. Term of Plan		8
8. Term of Awards		8
9. Option Exercise Price and Consideration		8
10. Exercise of Option		9
11. Non-Transferability of Awards		12
12. Granting of Options to Independent Directors		13
13. Terms of Options Granted to Independent Directors		13
14. Stock Purchase Rights		13
15. Restricted Stock Units		14
16. Adjustments upon Changes in Capitalization, Merger or Asset Sale		15
17. Time of Granting Awards		17
18. Amendment and Termination of the Plan		18
19. Inability to Obtain Authority		18
20. Reservation of Shares		19
21. Repurchase Provisions		19
22. Investment Intent		19
23. Governing Law		19

i

VNUS MEDICAL TECHNOLOGIES, INC.
AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN

     1. Purposes of the Plan. The purposes of the VNUS Medical Technologies, Inc. Amended and Restated 2000 Equity Incentive Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company’s business. Options granted under the Plan may be Incentive Stock Options or Non-Qualified Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights and Restricted Stock Units may also be granted under the Plan.

     2. Definitions. As used herein, the following definitions shall apply:

     (a) “Acquisition” means (i) any consolidation or merger of the Company with or into any other corporation or other entity or person in which the stockholders of the Company prior to such consolidation or merger own less than fifty percent (50%) of the Company’s voting power immediately after such consolidation or merger, excluding any consolidation or merger effected exclusively to change the domicile of the Company; or (ii) a sale of all or substantially all of the assets of the Company.

     (b) “Administrator” means the Board or the Committee responsible for conducting the general administration of the Plan, as applicable, in accordance with Section 4 hereof.

     (c) “Applicable Laws” means the requirements relating to the administration of equity compensation plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options, Stock Purchase Rights or Restricted Stock Units are granted under the Plan.

     (d) “Award” means an Option, a Stock Purchase Right or a Restricted Stock Unit award granted to an eligible individual under the Plan.

     (e) “Award Agreement” means any written agreement, contract, or other instrument or document evidencing an Award.

     (f) “Board” means the Board of Directors of the Company.

     (g) “Code” means the Internal Revenue Code of 1986, as amended, or any successor statute or statutes thereto. Reference to any particular Code section shall include any successor section.

     (h) “Committee” means a committee appointed by the Board in accordance with Section 4 hereof.

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     (i) “Common Stock” means the Common Stock of the Company, par value $0.001 per share.

     (j) “Company” means VNUS Medical Technologies, Inc., a Delaware corporation.

     (k) “Consultant” means any consultant or adviser if: (i) the consultant or adviser renders bona fide services to the Company or any Parent or Subsidiary of the Company; (ii) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and (iii) the consultant or adviser is a natural person.

     (l) “Director” means a member of the Board.

     (m) “Employee” means any person, including an Officer or Director, who is an employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient, by itself, to constitute “employment” by the Company.

     (n) “Equity Restructuring” shall mean a non-reciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the shares of Common Stock (or other securities of the Company) or the share price of Common Stock (or other securities) and causes a change in the per share value of the Common Stock underlying outstanding awards granted under the Plan.

     (o) “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. Reference to any particular Exchange Act section shall include any successor section.

     (p) “Fair Market Value” means, as of any date, the value of a share of Common Stock determined as follows:

     (i) If the Common Stock is listed on any established stock exchange or a national market system, including, without limitation, The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for a share of such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market

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2

trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

     (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for a share of the Common Stock on the last market trading day prior to the day of determination; or

     (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.

     (q) “Holder” means a person who has been granted or awarded an Award or who holds Shares acquired pursuant to an Award.

     (r) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and which is designated as an Incentive Stock Option by the Administrator.

     (s) “Independent Director” means a Director who is not an Employee of the Company.

     (t) “Non-Qualified Stock Option” means an Option (or portion thereof) that is not designated as an Incentive Stock Option by the Administrator, or which is designated as an Incentive Stock Option by the Administrator but fails to qualify as an incentive stock option within the meaning of Section 422 of the Code.

     (u) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

     (v) “Option” means a stock option granted pursuant to the Plan.

     (w) “Parent” means any corporation, whether now or hereafter existing (other than the Company), in an unbroken chain of corporations ending with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing more than fifty percent of the total combined voting power of all classes of stock in one of the other corporations in such chain.

     (x) “Plan” means the VNUS Medical Technologies, Inc. Amended and Restated 2000 Equity Incentive Plan.

     (y) “Restricted Stock” means Shares acquired pursuant to the exercise of an unvested Option in accordance with Section 10(h) below or pursuant to a Stock Purchase Right granted under Section 14 below.

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     (z) “Restricted Stock Unit” means a right to receive a specified number of Shares awarded pursuant to Section 15 below.

     (aa) “Rule 16b-3” means that certain Rule 16b-3 under the Exchange Act, as such Rule may be amended from time to time.

     (bb) “Section 16(b)” means Section 16(b) of the Exchange Act, as such Section may be amended from time to time.

     (cc) “Securities Act” means the Securities Act of 1933, as amended, or any successor statute or statutes thereto. Reference to any particular Securities Act section shall include any successor section.

     (dd) “Service Provider” means an Employee, Director or Consultant.

     (ee) “Share” means a share of Common Stock, as adjusted in accordance with Section 16 below.

     (ff) “Stock Purchase Right” means a right to purchase Common Stock pursuant to Section 14 below.

     (gg) “Subsidiary” means any corporation, whether now or hereafter existing (other than the Company), in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing more than fifty percent of the total combined voting power of all classes of stock in one of the other corporations in such chain.

October 20, 2008

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     3. Stock Subject to the Plan. Subject to the provisions of Section 16 of the Plan, the shares of stock subject to Awards shall be Common Stock, initially shares of the Company’s Common Stock, par value $.001 per share. Subject to the provisions of Section 16 of the Plan, the maximum aggregate number of Shares which may be issued pursuant to Awards is 2,378,666 Shares; provided, however, that, during the term of the Plan, on each December 31 (commencing with December 31, 2005), such maximum aggregate number of Shares shall be increased by the lower of (i) 800,000 Shares, (ii) 4% of the then-outstanding shares of the Company’s Common Stock, and (iii) such other number of Shares as determined by the Administrator; and provided further that the maximum aggregate number of Shares which may be issued pursuant to Awards during the term of the Plan shall not exceed 6,378,666; and provided further, that the maximum aggregate number of Shares that may be issued upon the exercise of Incentive Stock Options during the term of the Plan shall not exceed 6,378,666 (the “ISO Issuance Limit”). Shares issued pursuant to Awards may be authorized but unissued, or reacquired Common Stock. To the extent that an Award terminates, expires, or lapses for any reason, any shares of Common Stock then subject to such Award shall again be available for the grant of an Award pursuant to the Plan (unless the Plan has terminated). Shares which are delivered by the Holder or withheld by the Company in payment of the exercise price of an Award or tax withholding with respect to an Award, may again be optioned, granted or awarded hereunder, subject to the limitations of this Section 3. If Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. Notwithstanding the provisions of this Section 3, no Shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an Incentive Stock Option under Code Section 422.

     4. Administration of the Plan.

     (a) Administrator. A Committee of the Board shall administer the Plan and the Committee shall consist solely of two or more Independent Directors each of whom is both an “outside director,” within the meaning of Section 162(m) of the Code, and a “non-employee director” within the meaning of Rule 16b-3. Within the scope of such authority, the Committee may (i) delegate to a committee of one or more members of the Board who are not Independent Directors the authority to grant awards under the Plan to eligible persons who are either (1) not then “covered employees,” within the meaning of Section 162(m) of the Code and are not expected to be “covered employees” at the time of recognition of income resulting from such award or (2) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (ii) delegate to a committee of one or more members of the Board who are not “non-employee directors,” within the meaning of Rule 16b-3, the authority to grant awards under the Plan to eligible persons who are not then subject to Section 16 of the Exchange Act. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may only be filled by the Board.

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5

Notwithstanding the foregoing, the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to Awards granted to Independent Directors.

     (b) Powers of the Administrator. Subject to the provisions of the Plan and the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its sole discretion:

     (i) to determine the Fair Market Value;

     (ii) to select the Service Providers to whom Awards may from time to time be granted hereunder;

     (iii) to determine the number of Shares to be covered by each such Award granted hereunder;

     (iv) to approve forms of agreement for use under the Plan;

     (v) to determine the terms and conditions of any Award granted hereunder (such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may vest or be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine);

     (vi) to determine whether to offer to buyout a previously granted Option as provided in subsection 10(i) and to determine the terms and conditions of such offer and buyout (including whether payment is to be made in cash or Shares);

     (vii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;

     (viii) to allow Holders to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued pursuant to an Award that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld based on the statutory withholding rates for federal and state tax purposes that apply to supplemental taxable income. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Holders to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable;

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     (ix) to amend the Plan or any Award granted under the Plan as provided in Section 18; and

     (x) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan and to exercise such powers and perform such acts as the Administrator deems necessary or desirable to promote the best interests of the Company which are not in conflict with the provisions of the Plan.

     (c) Effect of Administrator’s Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Holders.

     5. Eligibility. Non-Qualified Stock Options, Stock Purchase Rights and Restricted Stock Units may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. If otherwise eligible, an Employee or Consultant who has been granted an Award may be granted additional Awards. Each Independent Director shall be eligible to be granted Options and Restricted Stock Units at the times and in the manner set forth in Section 12.

     6. Limitations.

     (a) Each Option shall be designated by the Administrator in the Award Agreement as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of Shares subject to a Holder’s Incentive Stock Options and other incentive stock options granted by the Company, any Parent or Subsidiary, which become exercisable for the first time during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options or other options shall be treated as Non-Qualified Stock Options.

     For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time of grant.

     (b) Neither the Plan nor any Award shall confer upon a Holder any right with respect to continuing the Holder’s employment or consulting relationship with the Company, nor shall they interfere in any way with the Holder’s right or the Company’s right to terminate such employment or consulting relationship at any time, with or without cause.

     (c) No Service Provider shall be granted, in any calendar year, Awards to acquire more than 666,666 Shares; provided, however, that the foregoing limitation shall not apply until the earliest of: (i) the first material modification of the Plan (including any increase in the number of shares reserved for issuance under the Plan in accordance with Section 3); (ii) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (iii) the expiration of the Plan; (iv) the first meeting of stockholders at which Directors of the Company are to be elected that occurs after the close of the third calendar year following the

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calendar year in which occurred the first registration of an equity security of the Company under Section 12 of the Exchange Act; or (v) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder. The foregoing limitation shall be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 16. For purposes of this Section 6(c), if an Award is canceled in the same calendar year it was granted (other than in connection with a transaction described in Section 16), the canceled Award will be counted against the limit set forth in this Section 6(c). For this purpose, if the exercise price of an Option is reduced, the transaction shall be treated as a cancellation of the Option and the grant of a new Option.

     7. Term of Plan. The Plan became effective upon its initial adoption by the Board on May 1, 2000 and shall continue in effect until it is terminated under Section 18 of the Plan. No Awards may be issued under the Plan on or after April 30, 2010, the tenth (10th) anniversary of the date upon which the Plan was adopted by the Board.

     8. Term of Awards. The term of each Award shall be stated in the Award Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to a Holder who, at the time the Option is granted, owns (or is treated as owning under Code Section 424) stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.

     9. Option Exercise Price and Consideration.

     (a) Except as provided in Section 13, the per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following:

     (i) In the case of an Incentive Stock Option

     (A) granted to an Employee who, at the time of grant of such Option, owns (or is treated as owning under Code Section 424) stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant.

     (B) granted to any other Employee, the per Share exercise price shall be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.

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     (ii) In the case of a Non-Qualified Stock Option the per share exercise price shall be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.

     (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction.

     (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of (1) cash, (2) check, (3) with the consent of the Administrator, a full recourse promissory note bearing interest (at no less than such rate as shall preclude the imputation of interest under the Code), payable upon such terms as may be prescribed by the Administrator and structured to comply with Applicable Laws, (4) with the consent of the Administrator, other Shares which (x) in the case of Shares acquired from the Company, have been owned by the Holder for more than the amount of time which shall not result in any adverse accounting consequences to the Company on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) with the consent of the Administrator, surrendered Shares then issuable upon exercise of the Option having a Fair Market Value on the date of exercise equal to the aggregate exercise price of the Option or exercised portion thereof, (6) property of any kind which constitutes good and valuable consideration, (7) with the consent of the Administrator, delivery of a notice that the Holder has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Options and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price, provided, that payment of such proceeds is then made to the Company upon settlement of such sale, or (8) with the consent of the Administrator, any combination of the foregoing methods of payment.

     10. Exercise of Option.

     (a) Vesting; Fractional Exercises. Except as provided in Section 13, Options granted hereunder shall be vested and exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.

     (b) Deliveries upon Exercise. All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company or his or her office:

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     (i) A written or electronic notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Holder or other person then entitled to exercise the Option or such portion of the Option;

     (ii) Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with Applicable Laws. The Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance, including, without limitation, placing legends on share certificates and issuing stop transfer notices to agents and registrars;

     (iii) Upon the exercise of all or a portion of an unvested Option pursuant to Section 10(h), a Restricted Stock purchase agreement in a form determined by the Administrator and signed by the Holder or other person then entitled to exercise the Option or such portion of the Option; and

     (iv) In the event that the Option shall be exercised pursuant to Section 10(f) by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Option.

     (c) Conditions to Delivery of Share Certificates. The Company shall not be required to issue or deliver any certificate or certificates for Shares purchased upon the exercise of any Option or portion thereof prior to fulfillment of all of the following conditions:

     (i) The admission of such Shares to listing on all stock exchanges on which such class of stock is then listed;

     (ii) The completion of any registration or other qualification of such Shares under any state or federal law, or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body which the Administrator shall, in its sole discretion, deem necessary or advisable;

     (iii) The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its sole discretion, determine to be necessary or advisable;

     (iv) The lapse of such reasonable period of time following the exercise of the Option as the Administrator may establish from time to time for reasons of administrative convenience; and

     (v) The receipt by the Company of full payment for such Shares, including payment of any applicable withholding tax, which in the sole discretion of the Administrator may be in the form of consideration used by the Holder to pay for such Shares under Section 9(b).

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     (d) Termination of Relationship as a Service Provider. If a Holder ceases to be a Service Provider other than by reason of the Holder’s disability or death, such Holder may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option shall remain exercisable for three (3) months following the Holder’s termination. If, on the date of termination, the Holder is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option immediately cease to be issuable under the Option and shall again become available for issuance under the Plan. If, after termination, the Holder does not exercise his or her Option within the time period specified herein, the Option shall terminate, and the Shares covered by such Option shall again become available for issuance under the Plan.

     (e) Disability of Holder. If a Holder ceases to be a Service Provider as a result of the Holder’s disability, the Holder may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option shall remain exercisable for twelve (12) months following the Holder’s termination. If such disability is not a “disability” as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-Qualified Stock Option from and after the day which is three (3) months and one (1) day following such termination. If, on the date of termination, the Holder is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately cease to be issuable under the Option and shall again become available for issuance under the Plan. If, after termination, the Holder does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall again become available for issuance under the Plan.

     (f) Death of Holder. If a Holder dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Award Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Holder’s estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Award Agreement, the Option shall remain exercisable for twelve (12) months following the Holder’s termination. If, at the time of death, the Holder is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately cease to be issuable under the Option and shall again become available for issuance under the Plan. The Option may be exercised by the executor or administrator of the Holder’s estate

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or, if none, by the person(s) entitled to exercise the Option under the Holder’s will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall again become available for issuance under the Plan.

     (g) Regulatory Extension. A Holder’s Award Agreement may provide that if the exercise of the Option following the termination of the Holder’s status as a Service Provider would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in Section 8 or (ii) the expiration of a period of three (3) months after the termination of the Holder’s status as a Service Provider during which the exercise of the Option would not be in violation of such registration requirements.

     (h) Early Exercisability. The Administrator may provide in the terms of a Holder’s Award Agreement that the Holder may, at any time before the Holder’s status as a Service Provider terminates, exercise the Option in whole or in part prior to the full vesting of the Option; provided, however, that subject to Section 21 hereof, Shares acquired upon exercise of an Option which has not fully vested may be subject to any forfeiture, transfer or other restrictions as the Administrator may determine in its sole discretion.

     (i) Buyout Provisions. The Administrator may at any time offer to buyout for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Holder at the time that such offer is made.

     11. Non-Transferability of Awards. Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Holder, only by the Holder.

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     12. Granting of Awards to Independent Directors. During the term of the Plan, each person who first becomes an Independent Director automatically shall be granted an Option to purchase eighteen thousand (18,000) shares of Stock (an “Initial Option”) and an award of six thousand (6,000) Restricted Stock Units (an “Initial RSU”). During the term of the Plan, upon the date of each annual meeting of stockholders, Independent Directors automatically shall be granted an Option to purchase nine thousand (9,000) shares of Stock effective as of each annual meeting of stockholders (an “Annual Option”) and an award of three thousand (3,000) Restricted Stock Units (an “Annual RSU”); provided, he or she has served as an Independent Director for the six (6) months prior to such annual meeting of the stockholders and continues to serve as member of the Board upon such date. For the avoidance of doubt, an Independent Director elected for the first time to the Board at an annual meeting of stockholders shall only receive an Initial Option and an Initial RSU in connection with such election, and shall not receive an Annual Option and Annual RSU on the date following such meeting as well. Members of the Board who are employees of the Company who subsequently retire from the Company and remain on the Board will not receive an Initial Option grant or Initial RSU but to the extent they are otherwise eligible, will receive, at each annual meeting of stockholders after his or her retirement from employment with the Company, an Annual Option grant and Annual RSU.

     13. Terms of Options Granted to Independent Directors. The per Share price of each Initial Option and Annual Option granted to an Independent Director shall equal 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted. Initial Options and Initial RSUs (as defined in Section 12) will become vested in three (3) equal, consecutive, annual installments so that the Initial Option and Initial RSU shall become vested in full on the three-year anniversary of the Initial Option and Initial RSU grant date, contingent upon the director’s continued service on the Board through such date. Annual Options and Annual RSUs (as defined in Section 12) shall become vested in four (4) equal, consecutive, quarterly installments so that such Annual Option and Annual RSU shall become vested in full on the one-year anniversary of the Annual Option and Annual RSU grant date, contingent upon the director’s continued service on the Board through such date. Subject to Section 10, the term of each Option granted to an Independent Director shall be ten (10) years from the date the Option is granted. No portion of an Option which is unexercisable at the time of an Independent Director’s termination of membership on the Board shall thereafter become exercisable.

     14. Stock Purchase Rights.

     (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with Options granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator.

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     (b) Repurchase Right. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company the right to repurchase Shares acquired upon exercise of a Stock Purchase Right upon the termination of the purchaser’s status as a Service Provider for any reason. Subject to Section 21 hereof, the purchase price for Shares repurchased by the Company pursuant to such repurchase right and the rate at which such repurchase right shall lapse shall be determined by the Administrator in its sole discretion, and shall be set forth in the Restricted Stock purchase agreement.

     (c) Other Provisions. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.

     (d) Rights as a Stockholder. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a stockholder and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 16 of the Plan.

     15. Restricted Stock Units.

     Any Holder selected by the Administrator may be granted an award of Restricted Stock Units in the manner determined from time to time by the Administrator.

     (a) Vesting. The vesting of Restricted Stock Units shall be determined by the Administrator and may be linked to specific performance criteria determined to be appropriate by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. Common Stock underlying a Restricted Stock Unit award will not be issued until the Restricted Stock Unit award has vested, pursuant to a vesting schedule or performance criteria set by the Administrator.

     (b) Other Provisions. All Restricted Stock Units shall be subject to such additional terms and conditions as determined by the Administrator and shall be evidenced by a written Award Agreement. Such Award Agreement may also include limitations regarding the distribution of payments due pursuant to such Restricted Stock Units and may provide that such payments are subject to an election, by a certain date, of the Holder to whom such payment is to be awarded, to the extent such limitations and elections are required so as to not cause any Restricted Stock Unit Award or the shares of Common Stock issuable pursuant to any Restricted Stock Unit Award (or other amounts issuable or distributable) to be includable in the gross income of the Holder under Section 409A of the Code prior to such times or occurrence of such events, as permitted by the Code and the regulations and other guidance thereunder (including, without limitation, Section 409A of the Code, and the regulations and other guidance issued by the Secretary of the Treasury thereunder).

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     (c) Rights as a Stockholder. Unless otherwise provided by the Administrator, a Holder awarded Restricted Stock Units shall have no rights as a Company stockholder with respect to such Restricted Stock Units until such time as the Restricted Stock Units have vested and the Common Stock underlying the Restricted Stock Units has been issued.

     16. Adjustments upon Changes in Capitalization, Merger or Asset Sale.

     (a) In the event that the Administrator determines that other than an Equity Restructuring any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), reorganization, merger, consolidation, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Administrator’s sole discretion, affects the Common Stock such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any Award, then the Administrator shall, in such manner as it may deem equitable, adjust any or all of:

     (i) the number and kind of shares of Common Stock (or other securities or property) with respect to which Awards may be granted or awarded (including, but not limited to, adjustments of the limitations in Section 3 on the maximum number and kind of shares which may be issued, the ISO Issuance Limit and adjustments of the maximum number of Shares that may be purchased by any Holder in any calendar year pursuant to Section 6(c));

     (ii) the number and kind of shares of Common Stock (or other securities or property) subject to outstanding Awards; and

     (iii) the grant or exercise price with respect to any Award.

     (b) In the event of any transaction or event described in Section 16(a), the Administrator, in its sole discretion, and on such terms and conditions as it deems appropriate, and to the extent allowed by Section 409A of the Code and any applicable regulations thereunder, to the extent applicable, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Holder’s request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any Award granted or issued under the Plan or to facilitate such transaction or event:

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     (i) To provide for either the purchase of any such Award for an amount of cash equal to the amount that could have been obtained upon the exercise of such Award or realization of the Holder’s rights had such Award been currently exercisable or payable or fully vested or the replacement of such Award with other rights or property selected by the Administrator in its sole discretion;

     (ii) To provide that such Award shall be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the provisions of such Award;

     (iii) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;

     (iv) To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards, and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards or Awards which may be granted in the future; and

     (v) To provide that immediately upon the consummation of such event, such Award shall not be exercisable and shall terminate; provided, that for a specified period of time prior to such event, such Award shall be exercisable as to all Shares covered thereby, and the restrictions imposed under an Award Agreement upon some or all Shares may be terminated and, in the case of Restricted Stock, some or all shares of such Restricted Stock may cease to be subject to repurchase, notwithstanding anything to the contrary in the Plan or the provisions of such Award Agreement.

(c) In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Section 16(a) and 16(b) hereof:

     (i) The number and type of securities subject to each outstanding Award and the exercise price or grant price thereof, if applicable, will be proportionately adjusted. The adjustments provided under this Section 16(c)(i) shall be nondiscretionary and shall be final and binding on the affected Holder and the Company.

     (ii) The Administrator shall make such proportionate adjustments, if any, as the Administrator in its discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3 hereof).

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     (d) Subject to Section 3, the Administrator may, in its sole discretion, include such further provisions and limitations in any Award Agreement or Common Stock certificate, as it may deem equitable and in the best interests of the Company.

     (e) If the Company undergoes an Acquisition, then any surviving corporation or entity or acquiring corporation or entity, or affiliate of such corporation or entity, may assume any Awards outstanding under the Plan or may substitute similar stock awards (including an award to acquire the same consideration paid to the stockholders in the transaction described in this subsection 16(d)) for those outstanding under the Plan. In the event any surviving corporation or entity or acquiring corporation or entity in an Acquisition, or affiliate of such corporation or entity, does not assume such Awards or does not substitute similar stock awards for those outstanding under the Plan, then with respect to (i) Awards held by participants in the Plan whose status as a Service Provider has not terminated prior to such event, the vesting of such Awards (and, if applicable, the time during which such awards may be exercised) shall be accelerated and made fully exercisable and all restrictions thereon shall lapse at least ten (10) days prior to the closing of the Acquisition (and the Awards terminated if not exercised prior to the closing of such Acquisition), and (ii) any other Awards outstanding under the Plan, such Awards shall be terminated if not exercised prior to the closing of the Acquisition.

     (f) The existence of the Plan or any Award Agreement and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

     17. Time of Granting Awards. The date of grant of an Award shall, for all purposes, be the date on which the Administrator makes the determination granting such Award, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Award is so granted within a reasonable time after the date of such grant.

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     18. Amendment and Termination of the Plan.

     (a) Amendment and Termination. The Board may at any time wholly or partially amend, alter, suspend or terminate the Plan. However, without approval of the Company’s stockholders given within twelve (12) months before or after the action by the Board, no action of the Board may, except as provided in Section 16, increase the limits imposed in Section 3 on the maximum number of Shares which may be issued under the Plan and the ISO Issuance Limit or extend the term of the Plan under Section 7.

     (b) Section 409A. To the extent that the Administrator determines that any Award granted or awarded under the Plan is subject to Section 409A of the Code, the Award Agreement shall incorporate the terms and conditions required by Section 409A of the Code. To the extent applicable, the Plan and the Award Agreement shall be interpreted in accordance with Section 409A of the Code and the Department of Treasury regulations and other interpretive guidance issued thereunder. Notwithstanding any provision of the Plan to the contrary, in the event that the Administrator determines that any Award may be subject to Section 409A of the Code and related Department of Treasury regulations and other interpretive guidance issued thereunder, the Administrator may adopt such amendments to the Plan and the applicable agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and related Department of Treasury regulations and other interpretive guidance thereunder and thereby avoid the application of any penalty taxes under such Section.

     (c) Stockholder Approval. The Board shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

     (d) Effect of Amendment or Termination. Except as provided in Section 18(b) above, no amendment, alteration, suspension or termination of the Plan shall impair the rights of any Holder, unless mutually agreed otherwise between the Holder and the Administrator, which agreement must be in writing and signed by the Holder and the Company. Termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Options, Stock Purchase Rights or Restricted Stock Units granted or awarded under the Plan prior to the date of such termination.

     19. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

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     20. Reservation of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

     21. Repurchase Provisions. The Administrator in its sole discretion may provide that the Company may repurchase any unvested Shares acquired upon exercise of an Option or Stock Purchase Right upon the occurrence of certain specified events, including, without limitation, a Holder’s termination as a Service Provider, divorce, bankruptcy or insolvency.

     22. Investment Intent. The Company may require a Holder, as a condition of exercising or acquiring stock under any Award, (i) to give written assurances satisfactory to the Company as to the Holder’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising rights under any Award; and (ii) to give written assurances satisfactory to the Company stating that the Holder is acquiring the stock subject to the Award for the participant’s own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (A) the issuance of the shares upon the exercise or acquisition of stock under the applicable Award has been registered under a then currently effective registration statement under the Securities Act or (B) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock.

     23. Governing Law. The validity and enforceability of this Plan shall be governed by and construed in accordance with the laws of the State of Delaware without regard to otherwise governing principles of conflicts of law.

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EX-10.6

Exhibit 10.6

AMENDED AND RESTATED VNUS SEVERANCE PLAN
FOR MANAGEMENT AND KEY EMPLOYEES

     The Board of Directors of VNUS Medical Technologies, Inc., a Delaware corporation (the “Company”) has determined that it is in the best interests of the Company and its stockholders to secure the continued services, dedication and objectivity of certain officers and employees of the Company without concern as to whether such officers or employees might be hindered or distracted by personal uncertainties and risks in connection with a Change of Control. To encourage the full attention and dedication to the Company by such officers and employees, the Board of Directors of the Company has authorized the Company to adopt this Amended and Restated VNUS Severance Plan (the “Plan”).

     1. Definitions. As used in this Plan, the following terms shall have the respective meanings set forth below:

          (a) “Administrator” means the person designated by the Board as the administrator of this Plan.

          (b) “Base Salary” means the Participant’s annual rate of base salary in effect immediately prior to the Effective Date.

          (c) “Board” means the Board of Directors of the Company.

          (d) “Bonus” means the Participant’s target bonus opportunity determined immediately prior to the Effective Date under the Company’s annual bonus plan.

          (e) “Cause” means (1) the willful and deliberate failure by a Participant to perform his or her duties and responsibilities (other than as a result of incapacity due to physical or mental illness) which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such failure, (2) willful misconduct by a Participant which is demonstrably injurious to the business or reputation of the Company, or (3) a Participant’s conviction of, or plea of guilty or nolo contendere to, a felony or other crime involving moral turpitude. The Company must notify such Participant that it believes “Cause” has occurred within ninety (90) days of its knowledge of the event or condition constituting Cause or such event or condition shall not constitute Cause hereunder.

          (f) “Change of Control” means the occurrence of any one of the following events:

          (i) any “person” (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the

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Exchange Act), directly or indirectly of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities; or

          (ii) during any period of two consecutive years (not including any period prior to the execution of this Agreement) individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds (2/3) of the directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

          (iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its subsidiaries that requires the approval of the Company’s stockholders, whether for such transaction or the issuance of securities in the transaction (a “Reorganization”), or sale or other disposition of all or substantially all of the Company’s assets to an entity that is not wholly owned by the Company (a “Sale”), unless immediately following such Reorganization or Sale, more than 50% of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of either (x) the surviving corporation or entity resulting from such Reorganization or the entity which has acquired all or substantially all of the assets of the Company (in either case, the “Surviving Entity”), or (y) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of 50% or more of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of the Surviving Entity (the “Parent Entity”), is represented by Company voting securities that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such Company voting securities were converted pursuant to such Reorganization or Sale), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company voting securities among the holders thereof immediately prior to the Reorganization or Sale, or the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company.

          (g) “Company” means VNUS Medical Technologies, Inc., a Delaware corporation and any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by operation of law, or otherwise.

          (h) “Date of Termination” means the date on which a Participant’s employment with the Company terminates.

          (i) “Effective Date” means the date on which a Change in Control occurs.

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          (j) “Good Reason” means the occurrence of any of the following without the Participant’s express written consent: (1) any reduction in a Participant’s annual rate of base salary in effect immediately prior to the Effective Date, as such may be increased thereafter, (2) the termination or material reduction of the levels of pension and welfare benefits that were provided to a Participant immediately prior to the Effective Date, as such may be increased thereafter, (3) the requirement by the Company that the Participant have his principal location of work changed to any location that is in excess of 25 miles from its location on the Effective Date, or (4) with respect to Participants that are employees of the Company at the vice president level and above, removal of duties customarily assigned to an employee with such Participant’s title, or a substantial adverse alteration in the nature or status of such Participant’s duties; provided, however, that a significant reduction in job responsibility and/or authority shall not be deemed to have occurred simply by virtue of a Change of Control, the fact that the Company becomes a subsidiary of another entity or the Company’s status changing from publicly-traded to privately-held, as a result of the Change in Control.

          (k) “Participant” means the CEO, vice presidents, directors and managers of the Company, other than those persons whose most recent performance evaluation is below standard.

          (l) “Plan” means this VNUS Severance Plan as set forth herein and as amended from time to time.

          (m) “Qualifying Termination” means the termination of a Participant’s employment by the Company other than for Cause or by a Participant for Good Reason, which termination occurs during a Termination Period.

          (n) “Separation Benefit” means the benefit payable in accordance with Section 2(a)(1) of this Plan.

          (o) “Service” means a Participant’s service with the Company.

          (p) “Termination Period” means, with respect to the occurrence of a Change of Control, the period of time beginning with the Effective Date and ending on the two-year anniversary of the Effective Date.

     2. Payments Upon Termination of Employment.

          (a) If, during a Termination Period, the employment of a Participant who was a Participant at the Effective Date for such Termination Period is terminated by reason of a Qualifying Termination, such Participant shall be entitled to receive:

          (i) (A) if such termination occurs on or before the one year anniversary of the Effective Date, a lump sum payment equal to the percent of his or her Base Salary and Bonus shown in column A below, or (B) if such termination occurs on a date following the one year anniversary of the Effective Date but prior to the two year anniversary of the Effective Date, a lump sum

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payment equal to the percent of his or her Base Salary and Bonus shown in column B below;

          (ii) continued coverage under any and all life, medical, dental, vision and disability insurance in which such Participant was participating immediately prior to the Effective Date. Such benefits will continue (A) if such termination occurs on or before the one year anniversary of the Effective Date, for the number of months shown in column A below following the Termination Date or (B) if such termination occurs after the one year anniversary of the Effective Date but prior to the two year anniversary of the Effective Date, for the number of months shown in column B below following the Termination Date; provided, however, that upon the Participant’s acceptance of comparable employment, such continued coverage under plans and programs of the Company shall be secondary to the benefits available, if any, from the benefit plans provided by the Participant’s new employer; and

          (iii) full vesting and immediate exercisability of any outstanding stock options or restricted stock units held by the Participant.

          (iv) immediate lapsing of all repurchase rights relative to shares held by the Participant.

	A	B
	Qualifying Termination	Qualifying Termination
	Within first year of	Between 1 and 2 years
	Change of Control	after Change of Control
CEO & vice presidents	100% of Base Salary & Bonus	67% of Base Salary & Bonus
	12 months of benefits	8 months of benefits
Directors	50% of Base Salary & Bonus	33% of Base Salary & Bonus
	6 months of benefits	4 months of benefits
Managers	33% of Base Salary & Bonus	25% of Base Salary & Bonus
	4 months of benefits	3 months of benefits

          (b) Lump sum payments of amounts due a Participant pursuant to this Section 2 shall be payable within ten (10) working days following the Participant’s Date of Termination. The benefits described in this Section 2 shall be payable in addition to, and not in lieu of, all other accrued, vested or deferred compensation, rights, options or other benefits which may be owed to a Participant following termination of employment, including but not limited to accrued sick pay and vacation pay, amounts or benefits payable under any bonus or other compensation plan, stock option plan, stock ownership plan, stock purchase plan, life insurance plan, health plan, disability plan or similar or successor plan; provided, however, that any Separation Benefit a Participant is entitled to hereunder shall be reduced by the amount of any cash payments in the nature of separation allowance, severance pay, or “notice” pay which the Company is

October 20, 2008

required to pay such Participant upon termination of employment pursuant to any applicable law or other severance program or arrangement. For this purpose, unemployment compensation benefits shall not reduce the Separation Benefit hereunder.

          (c) Notwithstanding anything contained in this Plan to the contrary, to the maximum extent permitted by applicable law, amounts payable to a Participant pursuant to Section 2 shall be made in reliance upon Treas. Reg. Section 1.409A- 1(b)(9) (Separation Pay Plans) or Treas. Reg. Section 1.409A-1(b)(4) (Short-Term Deferrals). For this purpose each installment or monthly payment to which Participant is entitled under Section 2 shall be considered a separate and distinct payment. In addition, (i) no amount deemed deferred compensation subject to Section 409A of the Code and Treasury Regulations and guidance thereunder (“Section 409A”) shall be payable pursuant to Section 2 unless the Participant’s termination of employment constitutes a “separation from service” within the meaning of Treas. Reg. Section 1.409A-1(h) and (ii) if the Participant is deemed at the time of his or her separation from service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, then to the extent delayed commencement of any portion of the termination benefits to which Participant is entitled under this Plan is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of the Participant’s termination benefits shall not be provided to the Participant prior to the earlier of (A) the expiration of the six-month period measured from the date of the Participant’s “separation from service” with the Company (as such term is defined in the Treasury Regulations issued under Section 409A) or (B) the date of the Participant’s death. Upon the earlier of such dates, all payments deferred pursuant to this Section 2(c) shall be paid in a lump sum to the Participant, and any remaining payments due under this Plan shall be paid as otherwise provided herein. The determination of whether the Participant is a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code as of the time of his or her separation from service shall be made by the Company in accordance with the terms of Section 409A (including without limitation Treas. Reg. Section 1.409A-1(i) and any successor provision thereto). The reimbursement of any expense under Section 2 and Section 5 herein shall be made no later than December 31 of the year following the year in which the expense was incurred. The amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year.

     3. Confidentiality. The benefits provided in Section 2 are expressly conditioned upon Participant’s agreement not to, directly or indirectly, for a period of one (1) year after his or her Date of Termination, disclose or utilize any trade secrets or confidential information of the Company, and the provision of such benefits shall immediately cease in the event of the Participant’s violation of the provisions of this Section 3.

     4. Withholding Taxes. The Company may withhold from all payments due hereunder all taxes which, by applicable federal, state, local or other law, it is required to withhold therefrom.

October 20, 2008

     5. Reimbursement of Expenses and Settlement of Disputes. If any contest or dispute shall arise under this Plan involving termination of a Participant’s employment or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse such Participant, on a current basis, for all reasonable legal fees and expenses, if any, reasonably incurred by such in connection with such contest or dispute (to the extent the Participant prevails in such contest or dispute), provided, that, if it is determined by a court or by arbitration that such Participant did not enter into the contest or dispute in good faith, such Participant shall be obligated to return to the Company such reimbursed fees and expenses. All disputes hereunder shall be settled exclusively by arbitration in the State of California in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitration award in any court having jurisdiction. The Company shall bear all costs and expenses in connection with the retention of the arbitration panel for any proceeding.

     6. Termination or Amendment of Plan.

          (a) Subject to paragraph (b) below, this Plan shall be in effect as of May 3, 2001.

          (b) The Board shall have the right at any time prior to a Change of Control, in its sole discretion, to terminate or amend the Plan, which right includes, but is not limited to, the right to add any person to the Plan as a Participant or to remove any Person from the Plan as a Participant. In no event shall this Plan be terminated or amended following a Change of Control in any manner which would adversely affect the rights or potential rights of a Participant (or his or her dependents) under this Plan with respect to such Change of Control.

     7. Successors.

          (a) This Plan shall not be terminated by any merger, consolidation, share exchange or similar event involving the Company whereby the Company is or is not the surviving or resulting entity. In the event of any merger, consolidation, share exchange or similar event, the provisions of this Plan shall be binding upon the surviving or resulting corporation or the person or entity to which the Company’s assets are transferred.

          (b) Concurrently with any merger, consolidation, share exchange or sale, lease or transfer of all or substantially all of its assets, the Company will cause any successor or transferee unconditionally to assume all of the obligations of the Company hereunder.

          (c) This Plan shall inure to the benefit of and be enforceable by each Participant’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If a Participant shall die while any amounts are payable to such Participant hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such Participant’s surviving spouse or, if none, to such Participant’s estate.

October 20, 2008

     8. No Mitigation, Offset. The obligation of the Company to provide a Participant with the benefits specified in Section 2 and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against such Participant or others. In no event shall a Participant be obligated to seek other employment or take other action by way of mitigation of the amounts payable to such Participant under any of the provisions of this Plan and such amounts shall not be reduced whether or not such Participant obtains other employment, except as provided in Section 2(a)(ii) of this Plan.

     9. Governing Law; Law Validity. The interpretation, construction and performance of this Plan, unless preempted by the Standard Participant Retirement Income Security Act of 1974, as amended (“ERISA”), shall be governed by and construed and enforced in accordance with the laws of the State of California without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which other provisions shall remain in full force and effect.

     10. Administration. The Plan shall be administered by the Administrator. Consistent with the requirements of ERISA and the regulations of the Department of Labor, the Administrator shall provide adequate written notice to any Participant covered by the Plan whose claim for a Separation Benefit or other benefits hereunder has been denied, setting forth specific reasons for such denial, written in a manner calculated to be understood by such Participant and affording such Participant a full and fair review of the decision denying the claim.

     11. Miscellaneous.

          (a) The Company shall not be required to fund or otherwise segregate assets to be used for the payment of any benefits under the Plan. The Company shall make such payments only out of its general corporate funds, and therefore its obligation to make such payments shall be subject to any claims of its other creditors having priority as to its assets.

          (b) This Plan does not constitute a contract of employment or impose on the Company any obligation to retain a Participant as an officer or employee (as the case may be), to retain a Participant as a Participant (prior to a Change in Control), not to change the status of a Participant’s employment, or not to change the policies of the Company regarding termination of employment.

          (c) No rights of any Participant (or beneficiary) to payments of any amounts under the Plan shall be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of other than by will or by the laws of descent and distribution.

October 20, 2008

          (d) Unless the Company specifically provides otherwise, any benefits payable under this Plan shall not be taken into account for purposes of determining benefits payable to a Participant under any other benefit plan or program.

          (e) The Company’s obligations hereunder shall be subject to all applicable laws, and the Separation Benefit and other benefits payable hereunder may be adjusted to comply with any such laws.

     IN WITNESS WHEREOF, the foregoing VNUS Severance Plan has been duly adopted by the Board of Directors of the Company in 2001, and amended and restated as of the 7th of November 2005, and amended and restated as of the 20th of October 2008.

By:
	Brian E. Farley, Chief Executive Officer
By:
	Cindee Van Vleck, Interim Secretary &
	Senior Director of Human Resources

October 20, 2008

EX-10.17

Exhibit 10.17

October 16, 2008

Guido E. Smeets, M.D.
Redacted not material to the agreement

Dear Guido:

On behalf of VNUS Medical Technologies, Inc. (“VNUS” or the “company”), I am pleased to offer you the position of Vice President of Clinical Research and Chief Medical Officer, reporting to the President and CEO. In making this offer we are expressing our enthusiastic support of your abilities to help VNUS become a great success. You bring a skill set to this company that is essential to achieving our goals, both short and long term. The purpose of this letter is to offer you a position and detail the terms of your employment.

Job Title:	Vice President of Clinical Research & Chief Medical Officer
Starting Date:	Friday, October 31, 2008, or an earlier mutually agreed date.
Salary:	$225,000, payable in accordance with the company’s standard payroll policies (currently the 15th and the last day of the month). Your initial performance review will be performed with an effective date of January 1, 2010. You are also eligible to participate in the company’s 2008 officer bonus plan for a target bonus of approximately 40 percent of annual salary, pro-rated to your date of hire.
Stock:	Subject to Board approval, you will be granted 15,000 restricted stock units at $0.00 per share as soon as practicable during the open trading window following your first day of employment. These RSUs will vest 25% each year, for a total vesting period of 4 years, so long as you are an employee of the company.
	Subject to Board approval, you will be granted 50,000 Stock Options as soon as practicable during the open trading window following your first day of employment. These options will be exercisable at the fair market value of the shares on the date of the grant, and will vest 25 percent after 12 months, and 1/36th of the remaining balance for each month thereafter for an additional 36 months, for a total vesting period of 4 years. These options may be exercised up to 10 years from the date of grant so long as you are an employee of the company.

Benefits:	The company will provide to you, medical, dental and vision coverage beginning the first of the month after your start date. For an additional monthly charge, coverage for your spouse and children may also be added. You are eligible to participate in the company’s 401(k) plan beginning the first of the month after your start date. The company has a discretionary match of one-half of the first six percent of base salary deferred into the VNUS 401(k) plan, capped at $2500.
	Life insurance coverage equal to twice your annual salary is provided to you as part of the employee benefits program. Long-term disability insurance is also provided after one month of employment. To help employees pay for healthcare and dependent care expenses, the company has adopted a flexible spending/reimbursement accounts program. This allows you to pay for out-of-pocket medical, dental, and vision costs, as well as dependent care expenses, with pre-tax wages
Paid Time Off:	You are eligible to accrue 18 days of Paid Time Off during your first year of employment. Two days of PTO accrual are added for each year of service up to a maximum of 28 days per year. You may accumulate up to 40 days of banked PTO-time. In addition, in 2008, the company will be closed for 13 holidays including the days from December 24 to December 31.

This offer is contingent upon your executing VNUS’ Proprietary Information and Inventions Agreement for new employees, signing the Arbitration Agreement, and providing the company with the legally required proof of your identity and authorization to work in the United States within 72 hours of your first day of employment. VNUS is an at-will employer. Employment-at-will may be terminated with or without cause, and with or without notice at any time, by the employee or the company.

This offer will remain in effect through October 21, 2008. If you do accept, and I sincerely hope you will, please fax an endorsed letter to HR’s confidential fax at 408-365-8489, and return an original signed copy by mail shortly thereafter.

Guido, we believe you will be an outstanding addition to the company. We have an exciting opportunity ahead of us to which you can make a significant contribution. We look forward to working with you in a productive and mutually beneficial relationship.

Sincerely,	Foregoing terms and conditions hereby accepted:
Brian E. Farley	Guido E. Smeets, M.D.	Date
President and
Chief Executive Officer

EX-21

EXHIBIT 21

List of Subsidiaries of VNUS Medical Technologies, Inc.

VNUS Medical Technologies GmbH
Incorporated in Germany

VNUS Medical Technologies UK Ltd
Incorporated in the United Kingdom

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-119946) of VNUS Medical Technologies, Inc. of our report dated March 13, 2009 relating to the consolidated financial statements, financial statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

San Jose, California

March 13, 2009

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Brian E. Farley, certify that:

     1. I have reviewed this annual report on Form 10-K of VNUS Medical Technologies, Inc.;

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

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

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

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

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

/s/ BRIAN E. FARLEY  

Brian E. Farley 

President, Chief Executive Officer and Director
(Principal Executive Officer) 

Date: March 13, 2009

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Peter Osborne, certify that:

     1. I have reviewed this annual report on Form 10-K of VNUS Medical Technologies, Inc.;

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

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

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

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

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

/s/ PETER OSBORNE  

Peter Osborne 

Vice President and Chief Financial Officer (Principal Financial Officer) 

Date: March 13, 2009

EX-32

EXHIBIT 32

     The following certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350 and in accordance with SEC Release No. 33-8238. These certifications shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Certification of Principal Executive Officer

     Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of VNUS Medical Technologies, Inc., a Delaware corporation (the “Company”), hereby certifies, to his knowledge, that:

     (i) the accompanying Annual Report on Form 10-K of the Company for the period ended December 31, 2008 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

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

/s/ BRIAN E. FARLEY  

Brian E. Farley 

President, Chief Executive Officer and Director
(Principal Executive Officer) 

Dated: March 13, 2009

     A signed original of this written statement required by Section 906 has been provided to VNUS Medical Technologies, Inc. and will be retained by VNUS Medical Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Certification of Principal Financial Officer

     Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of VNUS Medical Technologies, Inc., a Delaware corporation (the “Company”), hereby certifies, to his knowledge, that:

     (i) the accompanying Annual Report on Form 10-K of the Company for the period ended December 31, 2008 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

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

/s/ PETER OSBORNE  

Peter Osborne 

Vice President and Chief Financial Officer
(Principal Financial Officer) 

Dated: March 13, 2009

     A signed original of this written statement required by Section 906 has been provided to VNUS Medical Technologies, Inc. and will be retained by VNUS Medical Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.