exv10w2



 







Exhibit 10.2




 

 








ENDOCARE, INC.




NON-EMPLOYEE DIRECTOR

DEFERRED STOCK UNIT PROGRAM




 

 








Effective as of May 18, 2006





 









 








ENDOCARE, INC.

NON-EMPLOYEE DIRECTOR

DEFERRED STOCK UNIT PROGRAM




     Endocare, Inc., a Delaware corporation, hereby adopts this Non-Employee Director Deferred
Stock Unit Program (the “Program”), effective as of May 18, 2006.



RECITALS




     WHEREAS, the Company (as defined below) wishes to adopt the Program to: (i) enable Directors
(as defined below) to obtain additional equity in the form of Deferred Stock Units (as defined
below) and defer taxes that otherwise would be payable on retainers and meeting fees; and (ii)
enable the Company to conserve cash that otherwise would be used to pay retainers and meeting fees;
and



     WHEREAS, the Program constitutes a deferred compensation program that is unfunded for tax
purposes to permit Directors (as defined below) to postpone receipt and taxation of certain
specific amounts of compensation in accordance with the terms hereof;



     NOW THEREFORE, the Company hereby establishes the Program, upon the terms and conditions set
forth below.



ARTICLE 1




DEFINITIONS




     1.1 “Award Date” shall mean the fifth (5th) trading day of each calendar quarter.



     1.2 “Beneficiary” shall mean the beneficiary or beneficiaries designated by a Director to
receive his or her deferred compensation benefits in the event of the Director’s death.



     1.3 “Board of Directors” shall mean the board of directors of the Company.



     1.4 “Change in Control” shall mean the occurrence of any change in ownership of the Company,
change in effective control of the Company, or change in the ownership of a substantial portion of
the assets of the Company, as defined in Code Section 409A(a)(2)(A)(v), the regulations
thereunder, and any other published interpretive authority, as issued or amended from time to
time.



     1.5 “Code” shall mean the U.S. Internal Revenue Code of 1986, as amended from time to time.



     1.6 “Committee” shall mean the Compensation Committee of the Board of Directors unless an
alternate committee is designated by the Board of Directors to administer this Program in
accordance with Article 8 below. If the Board of Directors has not appointed such a
committee, then each reference to the “Committee” shall be construed to refer to the Board of
Directors.



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     1.7 “Common Stock” shall mean the common stock of the Company.



     1.8 “Company” shall mean Endocare, Inc., a Delaware corporation, and any successor
organization thereto.



     1.9 “Deferral” shall mean a Participant’s deferral of his retainers and meeting fees in
accordance with the terms and conditions of the Program.



     1.10 “Deferral Amount” shall mean a dollar amount equal to (i) the aggregate amount of a
Participant’s retainers and meeting fees earned during the applicable calendar quarter, multiplied
by (ii) the percentage of such retainers and meeting fees that such Participant has elected to
defer in accordance with Section 3.1 below. In addition, any notional dividends credited pursuant
to Section 3.3 below shall be added to the Deferral Amount.



     1.11 “Deferral Election Form” shall mean the form attached hereto as Exhibit B on
which a Participant specifies the amount of his or her Deferral and the applicable Payout Date.



     1.12 “Deferral Election Period” shall mean the thirty (30) day period commencing on December
1 and ending on December 30 of the calendar year that is prior to the calendar year in which the
amounts subject to the Participant’s Deferral election will be earned; provided,
however, that: (a) for retainers and meeting fees earned during the final two calendar
quarters in the year ending December 31, 2006, the Deferral Election Period shall be the thirty
(30) day period commencing on the date on which the Program is established; and (b) to the extent
permitted by Code Section 409A, the Deferral Election Period for the calendar year in which a
Participant first becomes eligible to participate in the Program shall be the thirty (30) day
period commencing on the Participant’s initial eligibility date.



     1.13 “Deferred Stock Unit” shall mean the right to receive one share of the Company’s Common
Stock (subject to adjustment as provided below in Section 3.4) upon the terms and conditions set
forth herein, which shall be represented by a bookkeeping entry made by the Company.



     1.14 “Director” shall mean (a) a member of the Board of Directors who is not an employee of
the Company or (b) a member of the board of directors of any subsidiary of the Company who is not
an employee of the Company or such subsidiary of the Company.



     1.15 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.



     1.16 “Fair Market Value” shall mean, as of any date, the value of Common Stock determined as
follows:



          (a) If the Common Stock is listed on one or more established stock exchanges or national
market systems, including without limitation The Nasdaq Global Select


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Market, The Nasdaq Global Market or The Nasdaq Capital Market of The Nasdaq Stock Market,
Inc., its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if
no sales were reported) as quoted on the principal exchange or system on which the Common Stock is
listed (as determined by the Committee) on the date of determination (or, if no closing sales price
or closing bid was reported on that date, as applicable, on the last trading date such closing
sales price or closing bid was reported), as reported in The Wall Street Journal or such other
source as the Committee deems reliable;




          (b) If the Common Stock is regularly quoted on an automated quotation system (including the
OTC Bulletin Board) or by a recognized securities dealer, its Fair Market Value shall be the
closing sales price for such stock as quoted on such system or by such securities dealer on the
date of determination, but if selling prices are not reported, the Fair Market Value of a share of
Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on
the date of determination (or, if no such prices were reported on that date, on the last date such
prices were reported), as reported in The Wall Street Journal or such other source as the Committee
deems reliable; or




          (c) In the absence of an established market for the Common Stock of the type described in (i)
and (ii), above, the Fair Market Value thereof shall be determined by the Committee in good faith
and in a manner consistent with Code Section 409A and Prop. Reg. § 1.409A-1(b)(5)(iv) and any
successor thereto.




     1.17 “Participant” shall mean a Director who elects to participate in the Program in
accordance with Section 3.1 below; references to a Participant herein shall refer also to his or
her designated Beneficiary where the context so requires.



     1.18 “Payout Date” shall mean, with respect to each award of Deferred Stock Units, the payout
date specified by the respective Participant in his or her Deferral Election Form;
provided, however, that if the Participant’s Separation from Service occurs
earlier than two years after the last day of the applicable Deferral Election Period, then any
“Payout Date” that would otherwise be triggered by such Separation from Service shall be deferred
until the date that is two years after the last day of the applicable Deferral Election Period.



     1.19 “Program” shall mean this Endocare, Inc. Non-Employee Director Deferred Stock Unit
Program.



     1.20 “Separation from Service” shall mean the date the Participant no longer serves as a
Director of the Company or any subsidiary of the Company.



     1.21 “Trust” or “Trust Agreement” shall mean the trust agreement intended to conform to terms
of the model trust described in Revenue Procedure 92-64, 1992-2 C.B. 422, including any amendments
thereto, which may be entered into between the Company and the Trustee to carry out the provisions
of the Program.



     1.22 “Trust Fund” shall mean the cash and other property held and administered by the Trustee
pursuant to the Trust to carry out the provisions of the Program.



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     1.23 “Trustee” shall mean the designated trustee acting at any time under the Trust.



     1.24 “Unforeseeable Emergency” shall mean an unforeseeable emergency as defined in Code
Section 409(a)(2)(B)(ii)(I) (as limited by Code Section 409A(a)(2)(B)(ii)(II)), the regulations
thereunder, and any other published interpretive authority, as issued or amended from time to
time.1



ARTICLE 2




PARTICIPATION




     2.1 Eligible Participants. All Directors (which is defined above to include only
non-employee directors) shall be eligible to participate in the Program.



ARTICLE 3




ELECTIONS AND AWARDS




     3.1 Contributions to the Program. Participants may make Deferrals by electing to
defer payment of all or a specified portion of his or her retainers and meeting fees for the
applicable calendar year; provided, however, that the minimum annual Deferral that
may be made by an electing Participant is twenty-five percent (25%) of the Participant’s retainers
and meeting fees for the applicable calendar year. For the year ending December 31, 2006,
elections shall apply only to retainers and meeting fees earned during the final two calendar
quarters of the year. Elections shall be made in the form attached hereto as Exhibit B.
Elections must be made no later than the last day of the applicable Deferral Election Period. No
direct contributions by Participants are required or permitted. An election shall be effective on
the date a Participant delivers a completed Deferral Election Form to the Committee or its
delegate; provided, however, that, if the Participant delivers another properly completed election
prior to the close of the applicable Deferral Election Period, the deferral election on the form
bearing the latest date shall control. On the last day of the applicable Deferral Election Period, the controlling
election then on file with the Company shall be irrevocable.





 




			
	1	 	Code Section 409A(a)(2)(B)(ii) provides the
following definition of “unforeseeable emergency”:
	 
	 	 	Unforeseeable emergency. For purposes of subparagraph (A)(vi)
—
	 
	 	 	(I) In general. The term “unforeseeable emergency”
means a severe financial hardship to the participant resulting from an
illness or accident of the participant, the participant’s spouse, or a
dependent (as defined in Section 152(a)) of the participant, loss of the
participant’s property due to casualty, or other similar extraordinary
and unforeseeable circumstances arising as a result of events beyond the
control of the participant.
	 
	 	 	(II) Limitation on distributions. The requirement of subparagraph (A)(vi)
is met only if, as determined under regulations of the Secretary, the amounts
distributed with respect to an emergency do not exceed the amounts necessary to
satisfy such emergency plus amounts necessary to pay taxes reasonably
anticipated as a result of the distribution, after taking into account the
extent to which such hardship is or may be relieved through reimbursement or
compensation by insurance or otherwise or by liquidation of the participant’s
assets (to the extent the liquidation of such assets would not itself cause
severe financial hardship).




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     3.2 Award of Deferred Stock Units. As of each Award Date, a Participant will receive
the number of Deferred Stock Units equal to a fraction: (a) the numerator of which is such
Participant’s Deferral Amount for the immediately preceding quarter; and (b) the denominator of
which is the Fair Market Value of one share of Common Stock on such Award Date.



     3.3 Contribution of Notional Distributions. Deferred Stock Units shall be credited
with notional dividends and other distributions at the same time, in the same form, and in
equivalent amounts as dividends and other distributions that are payable from time to time with
respect to Common Stock.



     3.4 Recapitalizations, etc. In the event of any change in the outstanding shares of
the Company’s Common Stock by reason of a recapitalization, reclassification, reorganization,
stock split, reverse stock split, combination of shares, stock dividend or similar transaction,
the Committee or the Board of Directors shall adjust, in an equitable manner, the number of
Deferred Stock Units held by each Participant and/or the number of shares of Common Stock issuable
upon pay out of Deferred Stock Units hereunder.



ARTICLE 4




VESTING OF DEFERRED STOCK UNITS AND ISSUANCE OF UNDERLYING SHARES




     4.1 Vesting of Deferred Stock Units. A Participant’s Deferred Stock Units awarded
under the Program shall be fully vested at all times.



     4.2 Issuance of Shares of Common Stock Underlying Deferred Stock Units. Subject to
Sections 4.4, 4.5 and 4.6, the issuance of shares of Common Stock underlying a Participant’s
Deferred Stock Units shall be made on the earlier of: (i) the Payout Date; (ii) the date on which
a Change in Control occurs; or (iii) the first day of the month next following the Participant’s
death.



     4.3 Form of Payment.



          (a) Except as otherwise provided in Sections 4.3(b) and 4.3(c) below, distributions under the
Program shall be paid solely in shares of Common Stock.




          (b) At a Participant’s election, the Company will pay out up to fifty percent (50%) of the
Participant’s Deferred Stock Units in cash rather than Common Stock to facilitate the Participant’s
payment of applicable taxes relating to the issuance of shares of Common Stock underlying such
Deferred Stock Units. Any such election must be made prior to the issuance date specified by the
Participant in his or her Deferral Election Form.




          (c) No fractional shares of Common Stock shall be issued hereunder. Any fractional portion of
Deferred Stock Units shall be paid to the Participant in cash, based on the then-current Fair
Market Value of the Common Stock.




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     4.4 Accelerated Full or Partial Issuances. Notwithstanding Section 4.2 above, the
shares of Common Stock underlying all or a portion of a Participant’s Deferred Stock Units may be
issued to such Participant in the circumstances described below.



          (a) Unforeseeable Emergency. In the event of an Unforeseeable Emergency, the
Committee may, in its sole discretion, permit the issuance to a Participant of shares of Common
Stock underlying Deferred Stock Units with a cash value no greater than the amount necessary to
satisfy the emergency plus any taxes reasonably anticipated as a result of the issuance.




          (b) Domestic Relations Order. In its sole discretion, the Committee may permit
acceleration of the time or schedule of an issuance of shares of Common Stock under the Program to
an individual other than the Participant as may be necessary to fulfill a domestic relations order
(as defined in Code Section 414(p)(1)(B)).




          (c) Conflict of Interest. In its sole discretion, the Committee may permit
acceleration of the time or schedule of an issuance of shares of Common Stock under the Program as
may be necessary to comply with a certificate of divestiture (as defined in Code Section
1043(b)(2)).




          (d) De Minimus Issuance. In its sole discretion, the Committee may issue the shares
of Common Stock underlying a Participant’s Deferred Stock Units in their entirety, provided that
(i) the aggregate value of such shares as of the issuance date is $10,000 or less, (ii) the
issuance accompanies the termination of the entirety of the Participant’s interest in the Program;
and (iii) the issuance is made on or before the later of (A) December 31 of the calendar year in
which the Participant’s Separation from Service occurs or (B) the date two and one-half (21/2)
months after the Participant’s Separation from Service.




          (e) Employment Taxes. In its sole discretion, the Committee may permit acceleration
of the time or schedule of an issuance of shares of Common Stock under the Program as may be
necessary to pay the Federal Insurance Contributions Act (“FICA”) tax imposed under Section 3101,
3121(a) and 3121(v)(2) of the Code (as applicable) on compensation deferred under the Program. In
addition, the Committee may permit acceleration of the time or schedule of an issuance of shares
of Common Stock under the Program as may be necessary to pay the income tax at source on wages
imposed under Section 3401 of the Code or the corresponding withholding provisions of applicable
state, local, or non-U.S. tax laws as a result of the payment of the FICA tax, and to pay the
additional income tax at source on wages attributable to the pyramiding Section 3401 wages and
taxes. Notwithstanding the foregoing, the total accelerated issuance of shares of Common Stock to
a Participant under this Section 4.4(e) shall not exceed the aggregate amount of FICA taxes and
the income tax withholding related to such amount of FICA taxes.




          (f) Income Inclusion under Section 409A of the Code. In its sole discretion, the
Committee may permit acceleration of the time or schedule of an issuance of shares of Common Stock
at any time the Program fails to meet the requirements of Section 409A of the Code and the
corresponding regulations. Notwithstanding the foregoing, the total accelerated issuance of
shares of Common Stock to a Participant under this Section 4.4(f) shall not exceed the amount
required to be included as income by the Participant as a result of the failure to meet the
requirements of Section 409A of the Code and the corresponding regulations.




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          (g) Dissolution or Bankruptcy. To the extent permitted under Code Section 409A, the
Committee shall have the authority, in its sole discretion, to terminate the Program and issue to
each Participant (or, if applicable, his or her Beneficiary) the shares of Common Stock underlying
his or her Deferred Stock Units within twelve (12) months of a corporate dissolution taxed under
Section 331 of the Code or with the approval of a bankruptcy court pursuant to 11 U.S.C. §
503(b)(1)(a). The total accelerated issuance of shares of Common Stock under this Section 4.4(g)
must be included in a Participant’s gross income in the latest of:





(i) The calendar year in which the Program is
terminated;




(ii) The calendar year in which the amount of the
Participant’s Deferred Stock Units are no longer subject to a
substantial risk of forfeiture; or




(iii) The calendar year in which the issuance of all
of the shares of Common Stock underlying the Participant’s Deferred
Stock Units is administratively practicable.



          (h) Change in Control. To the extent permitted under Code Section 409A, the
Committee shall have the authority, in its sole discretion, to terminate the Program and issue to
each Participant (or, if applicable, his or her Beneficiary) the shares of Common Stock underlying
his or her Deferred Stock Units within thirty (30) days prior to or within twelve (12) months
after a Change in Control. Each Participant’s participation in the Program will be treated as
terminated under this Section 4.4(h) only if all substantially similar arrangements sponsored by
the Company are terminated so that all Participants in the Program and all participants under
substantially similar arrangements are required to receive all amounts of compensation deferred
under the terminated arrangements within twelve (12) months of the date of termination of the
arrangements.




          (i) Termination of the Program by the Company. To the extent permitted under Code
Section 409A, the Committee shall have the authority, in its sole discretion, to terminate the
Program and issue to each Participant (or, if applicable, his or her Beneficiary) the shares of
Common Stock underlying his or her Deferred Stock Units provided that:





(i) All arrangements sponsored by the Company that would be aggregated with
this Program under Proposed Regulation Section 1.409A-1(c) if the
Participants participated in all of the arrangements are terminated;




(ii) No payments other than payments that would be payable under the terms of
this Program and the other aggregated arrangements if the termination had not
occurred are made within twelve (12) months of the termination of this
Program and the other aggregated arrangements;



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(iii) All payments under this Program and the other aggregated arrangements
are made within twenty four (24) months of the termination of this Program
and the other aggregated arrangements; and




(iv) The Company does not adopt a new arrangement that would be aggregated
with this Program and any other terminated arrangements under Proposed
Regulation Section 1.409A-1(c) if the Participants had participated in both
arrangements, at any time within five (5) years following the date of
termination of this Program and the other terminated arrangements.



          (j) Other Events and Conditions. The Committee shall have the authority to terminate
the Program and issue to each Participant (or, if applicable, his or her Beneficiary) the shares
of Common Stock underlying his or her Deferred Stock Units upon the occurrence of such other
events and conditions as may be prescribed in generally applicable guidance published in the
Internal Revenue Bulletin.




     4.5 Death Benefit. Upon the death of a Participant prior to complete issuance to him
or her of the shares of Common Stock underlying his or her Deferred Stock Units, the shares of
Common Stock underlying the remaining Deferred Stock Units on the date of death shall be issued to
the Participant’s Beneficiary designated on Exhibit A as of the first day of the month
next following the Participant’s death.



     4.6 Delay of Issuances. To the extent permitted under Code Section 409A, a scheduled
issuance of shares of Common Stock underlying a Participant’s Deferred Stock Units shall be
delayed to a date after the scheduled issuance date under any of the following circumstances:



          (a) Violation of a Loan Agreement or Similar Contract. A scheduled issuance of
shares of Common Stock underlying a Participant’s Deferred Stock Units shall be delayed to a date
after the scheduled issuance date in the event the Company reasonably anticipates that making the
issuance will violate a loan agreement or other similar contract to which the Company is a party,
and such violation will cause material harm to the Company. The delayed issuance must be made at
the earliest date at which the Company reasonably anticipates that making the issuance will not
cause such violation, or such violation will not cause material harm to the Company. In addition,
the facts and circumstances must indicate that the Company entered into such loan agreement or
other similar contract for legitimate business reasons, and not to avoid the restrictions on
deferral elections under Code Section 409A.




          (b) Issuances that would Violate Federal Securities Laws or other Applicable Law. A
scheduled issuance of shares of Common Stock underlying a Participant’s Deferred Stock Units shall
be delayed to a date after the scheduled issuance date in the event the Company reasonably
anticipates that making the issuance will violate federal securities laws or other applicable law.
The delayed issuance must be made at the earliest date at which the Company reasonably
anticipates that making the issuance will not cause such violation. For purposes of this Section
4.6(b), making an issuance that would cause inclusion in gross income or the application of any
penalty provision or other provision of the Code is not considered a violation of applicable law.




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          (c) Issuances to Key Employees. In the event the Company’s securities are
publicly-traded on an established securities market or otherwise, the Company shall have the
authority to delay the issuance of shares of Common Stock underlying Deferred Stock Units to the
extent it deems necessary or appropriate to comply with Section 409A(a)(2)(B)(i) of the Code
(relating to payments made to certain “key employees” of certain publicly-traded companies) and in
such event, any such issuance to which a Participant would otherwise be entitled during the six
(6) month period immediately following his or her Separation from Service shall be made instead on
the first business day following the expiration of such six (6) month period.




          (d) Other Events and Conditions. The Company may delay a scheduled issuance of
shares of Common Stock underlying a Participant’s Deferred Stock Units upon such other events and
conditions as may be prescribed in generally applicable guidance published in the Internal Revenue
Bulletin.




     4.7 Participant’s Rights Unsecured. The right of Participants and their
Beneficiaries hereunder shall be an unsecured claim against the general assets of the Company, and
neither the Participants nor their Beneficiaries shall have any rights in or against any specific
assets of the Company, except as may otherwise be provided in the Trust Agreement (if any).



ARTICLE 5




DESIGNATION OF BENEFICIARY




     5.1 Designation of Beneficiary. A Participant may designate a Beneficiary to receive
any amount due hereunder to the Participant via written notice thereof to the Committee at any
time prior to his or her death and may revoke or change the Beneficiary designated therein without
the Beneficiary’s consent by written notice delivered to the Committee at any time and from time
to time prior to the Participant’s death, provided that any such designation or change of
designation naming a primary Beneficiary other than the Participant’s spouse shall be effective
only if written spousal consent is provided to the Committee. If a Participant’s spouse is
incapacitated, then the person who holds a power of attorney for the incapacitated spouse or other
person authorized to act on behalf of the incapacitated spouse may provide the required spousal
consent. If a Participant fails to designate a Beneficiary, or if no such designated Beneficiary
shall survive him or her, then such amount shall be paid to his or her estate. The designations
of Beneficiaries shall be made in the form attached hereto as Exhibit A.



ARTICLE 6




TRUST PROVISIONS




     6.1 Trust Agreement. The Company may (but shall not be required to) establish the
Trust for the purpose of retaining assets set aside by the Company pursuant to the Trust Agreement
for payment of all or a portion of the amounts payable pursuant to the Program. Any benefits not
paid from the Trust shall be paid from the Company’s general funds, and any benefits paid from the
Trust shall be credited against and reduce by a corresponding amount the Company’s liability under
the Program. All Trust Funds shall be subject to the claims of general



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creditors of the Company
in the event the Company is insolvent as defined in the Trust Agreement. The obligations of the
Company to pay benefits under the Program and the obligation of the Trustee to pay benefits under
the Trust constitute an unfunded, unsecured promise to pay benefits in the future and the
Participant and his or her Beneficiaries shall have no
greater rights than general creditors of the Company. No Trust may hold assets located
outside of the United States nor provide that assets will become restricted to the provision of
benefits under the Program in connection with a change in the Company’s financial health.



ARTICLE 7




AMENDMENT AND TERMINATION




     7.1 Amendment. The Committee shall have the general authority, in its sole
discretion, to amend or suspend the Program at any time and for any reason it deems appropriate;
provided however, that no amendment of the Program may adversely affect a Participant’s rights
thereunder without such Participant’s prior written consent. Any amendment or suspension of the
Program must be pursuant to a written document that is executed by a duly-authorized officer of
the Company. Except as required under Code Section 409A, no Deferrals shall be made during any
suspension of the Program or after termination of the Program.



     7.2 Termination of Program. The Committee may terminate the Program at any time
after the date when no Participant (or Beneficiary) has any right to or expectation of payment of
further benefits under the Program.



ARTICLE 8




ADMINISTRATION




     8.1 Administration. The Committee shall administer and interpret this Program in
accordance with the provisions of the Program and the Trust Agreement (if any) and shall have the
authority in its discretion to adopt, amend or rescind such rules and regulations as it deems
advisable in the administration of the Program. Any determination or decision by the Committee
shall be made in its sole discretion and shall be conclusive and binding on all persons who at any
time have or claim to have any interest under this Program. Notwithstanding anything in the
Program to the contrary, it is the intention of the Company that the Program be administered and
construed in accordance with Code Section 409A, the regulations thereunder, and any other
published interpretive authority, as issued or amended from time to time.



     8.2 Liability of Committee, Indemnification. The Committee shall not be liable for
any determination, decision, or action made in good faith with respect to the Program. The
Company will indemnify, defend and hold harmless the members of the Committee from and against any
and all liabilities, costs, and expenses incurred by such person(s) as a result of any act, or
omission, in connection with the performance of such persons’ duties, responsibilities, and
obligations under the Program, other than such liabilities, costs, and expenses as may result from
the bad faith, gross misconduct, breach of fiduciary duty, willful failure to follow the lawful
instructions of the Board or criminal acts of such persons. All members of the Board or the



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Committee and each and any officer or employee of the Company acting on their behalf shall, to the
extent permitted by law, be fully indemnified and protected by the Company in respect of any such
action, determination or interpretation. The Company’s obligations under this Section 8.2 shall
be in addition to, and not in lieu of, any indemnification obligations or other obligations to
which the Company may be subject under law, under the Company’s charter documents, by
contract or otherwise.



     8.3 Expenses. The cost of the establishment and the adoption of the Program by the
Company, including but not limited to legal and accounting fees, shall be borne by the Company.
The expenses of administering the Program shall be borne by the Company, and the Company shall
bear, and shall not be reimbursed by the Trust, for any tax liability of the Company associated
with the investment of assets held by the Trust.



ARTICLE 9




GENERAL AND MISCELLANEOUS




     9.1 Rights Against Company. Except as expressly provided by the Program, the
establishment of this Program shall not be construed as giving to any Participant, employee or any
person, any legal, equitable or other rights against the Company, or against its officers,
directors, agents or members, or as giving to any Participant or Beneficiary any equity or other
interest in the assets or business of the Company or giving any Participant the right to be
retained in the employ of the Company. In no event shall the terms of service of a Participant,
expressed or implied, be modified or in any way affected by the adoption of the Program or Trust
or any election under the Program made by a Participant. The rights of a Participant or his or
her Beneficiaries hereunder shall be solely those of an unsecured general creditor of the Company.



     9.2 Claims Procedures. Claims for benefits under the Program by a Participant (or
his or her beneficiary or duly appointed representative) shall be filed in writing with the
Committee. The Committee shall follow the procedures set forth in this Section 9.2 in processing
a claim for benefits.



          (a) Within 90 days following receipt by the Committee of a claim for benefits and all
necessary documents and information, the Committee shall furnish the person claiming benefits under
the Program (the “Claimant”) with written notice of the decision rendered with respect to such
claim. Should special circumstances require an extension of time for processing the claim, written
notice of the extension shall be furnished to the Claimant prior to the expiration of the initial
90 day period. The notice shall indicate the special circumstances requiring an extension of time
and the date by which a final decision is expected to be rendered. In no event shall the period of
the extension exceed 90 days from the end of the initial 90 day period.




          (b) In the case of a denial of the Claimant’s claim, the written notice of such denial shall
set forth (1) the specific reason(s) for the denial, (2) references to the Program provisions upon
which the denial is based, (3) a description of any additional information or material necessary
for perfection of the application (together with an explanation why such material


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or information is
necessary), and (4) an explanation of the Program’s appeals procedures and the time limits
applicable to these procedures, including a statement of the Claimant’s right to bring a civil
action under Section 502(a) of ERISA following an adverse determination on review. If no notice of
denial is provided as herein described, the Claimant may appeal the claim as though his or her
claim had been denied.




     9.3 Appeals Procedures. A Claimant who wishes to appeal the denial of his or her
claim for benefits or to contest the amount of benefits payable shall follow the administrative
procedures for an appeal as set forth in this Section 9.3 and shall exhaust such administrative
procedures prior to seeking any other form of relief.



          (a) In order to appeal a decision rendered with respect to his or her claim for benefits or
with respect to the amount of his or her benefits, the Claimant must file an appeal with the
Committee in writing within 60 days after the date of notice of the decision with respect to the
claim.




          (b) The Committee shall provide a full and fair review of all appeals filed under the Program
and shall take into account all comments, documents, records, and other information submitted by
the Claimant relating to the claim, without regard to whether such information was submitted or
considered in the initial benefit determination. In connection with the filing of an appeal, the
Claimant may submit written comments, documents, records, and other information relevant to his or
her appeal. The Committee will provide, upon the Claimant’s request and free of charge, reasonable
access to, and copies of, all documents, records, and other information relevant to the Claimant’s
claim for benefits. The decision of the Committee shall be made not later than 60 days after the
Claimant has completed his or her submission to the Committee of his or her appeal and any
documentation or other information to be submitted in support of such appeal. Should special
circumstances require an extension of time for processing, written notice of the extension shall be
furnished to the Claimant prior to the expiration of the initial 60 day period. The notice shall
indicate the special circumstances requiring an extension of time and the date by which a final
decision is expected to be rendered. In no event shall the period of the extension exceed 60 days
from the end of the initial 60 day period.




          (c) The decision on the Claimant’s appeal shall be in writing and shall include specific
reason(s) for the decision, written in a manner calculated to be understood by the Claimant and
shall, in the case of a adverse determination, include: (1) the specific reason or reasons for the
adverse determination; (2) reference to the specific Program provisions on which the benefit
determination is based; (3) a statement that the Claimant is entitled to receive, upon request and
free of charge, reasonable access to, and copies of, all documents, records, and other information
relevant to his or her claim for benefits; and (4) a statement describing any voluntary appeal
procedures offered by the Program and the Claimant’s right to obtain the information about such
procedures and a statement of the Claimant’s right to bring an
action under Section 502(a) of ERISA.




12









 








          (d) If the Committee does not respond within 120 days, the Claimant may consider his or her
appeal denied.




          (e) In the event of any dispute over benefits under this Program, all remedies available to
the disputing individual under this Section 9.3 must be exhausted before legal recourse of any type
is sought.




     9.4 Assignment or Transfer. No right, title or interest of any kind in the Program
shall be transferable or assignable by any Participant or Beneficiary or be subject to alienation,
anticipation, encumbrance, garnishment, attachment, execution or levy of any kind, whether
voluntary or involuntary, nor subject to the debts, contracts, liabilities, engagements, or torts
of a Participant or his or her Beneficiary. Any attempt to alienate, anticipate, encumber, sell,
transfer, assign, pledge, garnish, attach or otherwise subject to legal or equitable process or to
dispose of any interest in the Program shall be void.



     9.5 Severability. If any provision of this Program shall be declared illegal or
invalid for any reason, said illegal or invalid provision shall not affect the remaining
provisions of this Program but shall be fully severable, and this Program shall be construed and
enforced as if said illegal or invalid provision was not part of this Program.



     9.6 Construction. The article and section headings and numbers are included only for
convenience of reference and are not to be taken as limiting or extending the meaning of any of
the terms and provisions of this Program. Whenever appropriate, words used in the singular shall
include the plural or the plural may be read as the singular. When used herein, the masculine
gender includes the feminine and neuter genders, the feminine gender includes the masculine and
neuter genders and the neuter gender includes the masculine and feminine genders.



     9.7 Governing Law. The validity and effect of this Program and the rights and
obligations of all persons affected hereby shall be construed, administered and enforced in
accordance with ERISA and, to the extent applicable, the internal laws of the State of California,
without giving effect to any choice of law rule.



     9.8 Payment Due to Incompetence. If the Committee receives evidence that a
Participant or Beneficiary entitled to receive any payment under the Program is physically or
mentally incompetent to receive such payment, the Committee may, in its sole and absolute
discretion, direct the payment to any other person who or trust which has been legally appointed
or established for the benefit of such person.



     9.9 Taxes. All amounts hereunder may be reduced by any and all federal, state, and
local taxes imposed upon the Participant or his or her Beneficiary which are required to be paid
or withheld by the Company. The determination of the Company regarding applicable income and
employment tax withholding requirements shall be final and binding on the Participant.



13









 





     IN WITNESS WHEREOF, the undersigned Secretary of the Company hereby certifies that this
Program was duly adopted by the Company’s Board of Directors on May 18, 2006.



	 	 	 	 	 
	 	ENDOCARE, INC.,

a Delaware corporation

 	 
	 	By:  	/s/ Clint B. Davis
 	 
	 	 	Clint B. Davis 	 
	 	 	Secretary 	 



14









 






	 	 	 	 	 



EXHIBIT A




ENDOCARE, INC.

NON-EMPLOYEE DIRECTOR DEFERRED STOCK UNIT PROGRAM




BENEFICIARY DESIGNATION



In the event that I should die prior to the issuance of shares of Common Stock underlying my
Deferred Stock Units awarded under the Endocare, Inc. Non-Employee Director Deferred Stock Unit
Program (the “Program”), and in lieu of disposing of my interest2 in my Deferred Stock
Units (and the underlying shares of Common Stock) by my will or the laws of intestate succession, I
hereby designate the following person(s) as primary Beneficiary(ies) and contingent
Beneficiary(ies) of my interest in my Deferred Stock Units and the underlying shares of Common
Stock (please attach additional sheets if necessary):





     Primary Beneficiary(ies) (Select only one of the three alternatives)



	 	 	 	 	 
	o (a) Individuals and/or Charities	 	% Share
	 
	 	 	 	 
	Name
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	Address
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	Name
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	Address
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	Name
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	Address
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	Name
	 	 	 	 
	 	 	   







 




			
	2	 	A married Participant whose Deferred Stock Units
are community property may dispose only of his or her own interest in the
Deferred Stock Units and the underlying shares of Common Stock. In such cases,
the Participant’s spouse may (a) consent to the Participant’s
designation by signing the Spousal Consent or (b) designate the Participant or
any other person(s) as the beneficiary(ies) of his or her interest in the
Deferred Stock Units and the underlying shares of Common Stock on a separate
Beneficiary Designation.





Exhibit A




 









 








     Primary Beneficiary(ies) (Select only one of the three alternatives)



	 	 	 	 	 
	o (a) Individuals and/or Charities	 	% Share
	 
	 	 	 	 
	Address
	 	 	 	 
	 	 	 





	 	 	 
	o (b) Residuary Testamentary Trust	 	 
	 
	 	 
	In trust, to the trustee of the trust named as the beneficiary of the residue
of my probate estate.






	 	 	 	 	 	 	 
	o (c) Living Trust	 	 	 	 
	 
	 	 	 	 	 	 
	The

	 	 	 	Trust, dated	 	 
	 

	 	 
	 	 	 	 
	 

	 	(print name of trust)
	 	 	 	(fill in date trust was established)






     Contingent Beneficiary(ies) (Select only one of the three alternatives)



	 	 	 	 	 
	o (a) Individuals and/or Charities	 	% Share
	 
	 	 	 	 
	Name
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	Address
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	Name
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	Address
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	Name
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	Address
	 	 	 	 
	 	 	 





Exhibit A






 









 








	 	 	 
	o (b) Residuary Testamentary Trust	 	 
	 
	 	 
	In trust, to the trustee of the trust named as the beneficiary of the residue
of my probate estate.






	 	 	 	 	 	 	 
	o (c) Living Trust	 	 	 	 
	 
	 	 	 	 	 	 
	The

	 	 	 	Trust, dated	 	 
	 

	 	 
	 	 	 	 
	 

	 	(print name of trust)
	 	 	 	(fill in date trust was established)






     Should all the individual primary Beneficiary(ies) fail to survive me or if the trust named as
the primary Beneficiary does not exist at my death (or no will of mine containing a residuary trust
is admitted to probate within six months of my death), the contingent Beneficiary(ies) shall be
entitled to my interest in the Deferred Stock Units (and the underlying shares of Common Stock) in
the shares indicated. Should any individual beneficiary fail to survive me or a charity named as a
beneficiary no longer exists at my death, such beneficiary’s share shall be divided among the
remaining named primary or contingent Beneficiaries, as appropriate, in proportion to the
percentage shares I have allocated to them. In the event that no individual primary
Beneficiary(ies) or contingent Beneficiary(ies) survives me, no trust (excluding a residuary
testamentary trust) or charity named as a primary Beneficiary or contingent Beneficiary exists at
my death, and no will of mine containing a residuary trust is admitted to probate within six (6)
months of my death, then my interest in the Deferred Stock Units (and the underlying shares of
Common Stock) shall be disposed of by my will or the laws of intestate succession, as applicable.



[SIGNATURE PAGE FOLLOWS]




Exhibit A





 









 








     Capitalized terms used but not otherwise defined herein shall have the same meanings as set
forth in the Program. This Beneficiary Designation is effective until I file another such
Beneficiary Designation with the Company. Any previous Beneficiary Designations are hereby
revoked.



	 	 	 	 	 	 	 
	Submitted by:	 	Filing Acknowledgement:
	 
	 	 	 	 	 	 
	o Participant o Participant’s Spouse	 	Endocare, Inc.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	Name:

	 	 	 	Its:	 	 
	 

	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	Date:	 	 	 	Filed with the records of the Company this
	 

	 	 	 	 	 	 
	 	 	 	 	_____ day of _________________, 20___






Exhibit A






 









 








Spousal Consent for any interest in Deferred Stock Units that is Community Property (necessary if
separate Beneficiary Designation is not filed by spouse):



I hereby consent to this Beneficiary Designation and agree that this designation of beneficiaries
provided herein shall apply to my community property interest in any Deferred Stock Units held by
(and the underlying shares of Common Stock issuable to) my spouse in connection with his or her
service to the Company or any subsidiary of the Company. This consent does not apply to any
subsequent Beneficiary Designation which may be filed by my spouse unless consented to by me while
I am still married to the Participant. This Spousal Consent may be revoked by me at any time,
whether by filing a Beneficiary Designation disposing of my interest in the Deferred Stock Units
(and the underlying shares of Common Stock) or by filing a written notice of revocation with the
Company.




	 	 	 	 	 
	 
	 	 	 	 
	 	 	 
	(Signature of Spouse)
	 	 
	 
	 	 	 	 
	Date:
	 	 	 	 
	 

	 	 	 	 





Spousal Consent for any interest in Deferred Stock Units (and the underlying shares of Common
Stock) that is not Community Property (necessary if beneficiary is other than spouse):



I hereby consent to this Beneficiary Designation. This Spousal Consent does not apply to any
subsequent Beneficiary Designation which may be filed by my spouse unless consented to by me while
I am still married to the Participant.




	 	 	 	 	 
	 
	 	 	 	 
	 	 	 
	(Signature of Spouse)
	 	 
	 
	 	 	 	 
	Date:
	 	 	 	 
	 

	 	 	 	 





Exhibit A





 









 








EXHIBIT B




ENDOCARE, INC.

NON-EMPLOYEE DIRECTOR DEFERRED STOCK UNIT PROGRAM




DEFERRAL ELECTION FORM




Name: _____________________________



I hereby elect to defer the following amounts in accordance with the terms of the Endocare, Inc.
Non-Employee Director Deferred Stock Unit Program (the “Program”). This election shall be
effective with respect to any retainers or meeting fees I become eligible to receive for the
calendar year specified below (for 2006, the election applies only to retainers and meetings fees
earned during the final two calendar quarters):



___% of my retainers and meeting fees (specify percentage between 25% and 100%) for ___
(specify calendar year).



Note: This election must be submitted to the Company no later than the last day of the
applicable Deferral Election Period. I understand that this election will become irrevocable upon
the last day of the Deferral Election Period. Contact the Human Resources Department with any
questions regarding the applicable Deferral Election Period.



Payout Date: Subject to the terms and conditions of the Program, the shares of Common
Stock underlying my Deferred Stock Units shall be issued to me on one of the following payout dates
(select one):





			
	o	 	_____________________________ (specify a date certain no less than two years after the
last day of the applicable Deferral Election Period)






			
	o	 	As soon as administratively practicable following my Separation from Service.






			
	o	 	The earlier of (i) _____________________________ (specify a date certain no less than two
years after the last day of the applicable Deferral Election Period) or (ii) as soon as
administratively practicable following my Separation from Service




Important Note: If the Participant’s Separation from Service occurs earlier than two years
after the last day of the applicable Deferral Election Period, then any “Payout Date” that would
otherwise be triggered by such Separation from Service shall be deferred until the date that is two
years after the last day of the applicable Deferral Election Period.




	 	 	 	 	 	 	 
	Submitted by:	 	Filing Acknowledgement:
	 
	 	 	 	 	 	 
	Participant	 	Endocare, Inc.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	Name:

	 	 	 	Its:	 	 
	 

	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	Date:	 	 	 	Filed with the records of the Company this
	 

	 	 	 	 	 	 
	 	 	 	 	_____ day of _________________, 20___






Exhibit B