Document:

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                                                                   EXHIBIT 10.39

                        RELEASE AND SETTLEMENT AGREEMENT

THIS RELEASE and SETTLEMENT AGREEMENT (the "AGREEMENT") is made as of the ___day
of December, 2004 by and between Endocare, Inc. ("Endocare"), for itself and the
other Endocare Parties (as that term is defined below) and National Union Fire
Insurance Company of Pittsburgh, Pa. (the "Insurer"), for itself and the other
National Union Parties (as that term is defined below).

                                    RECITALS

      WHEREAS, the following consolidated class action has been brought against
Endocare, Paul Mikus, John V. Cracchiolo, and Kevin Quilty (collectively the
"Endocare Individual Defendants"):

            Slutsky et al v. Endocare, et al, No. CV-02-8429-DT(CTx) filed in
            the United States District Court, Central District of California,
            Western Division (the "Action");

      WHEREAS, the Insurer has issued Policy No. 511-72-42 (the "Policy")
providing certain coverage to Endocare, its Subsidiaries, the Endocare
Individual Defendants and others subject to the terms and conditions of the
Policy;

      WHEREAS, the Plaintiffs, Endocare, and the Endocare Individual Defendants
have entered into a Stipulation of Settlement (the "Stipulation") providing for
the settlement (the "Settlement") of the Action and claims related thereto as
set forth in the Stipulation;

      WHEREAS, Endocare and the Endocare Individual Defendants have asserted
claims under the Policy against the Insurer for payment and/or reimbursement of
Loss arising out of the Action and the Settlement;

      WHEREAS, the Insurer has raised questions as to the extent to which the
Policy is applicable to the Action and the Settlement; and

      WHEREAS, Endocare, the Endocare Individual Defendants and the Insurer are
desirous of achieving a resolution of such claims and questions existing among
Endocare, the Endocare Individual Defendants and the Insurer regarding the
claims for payment and/or reimbursement of Loss in connection with the Action,
the Stipulation and the Settlement.

                                    AGREEMENT

      NOW, THEREFORE, in consideration of the respective covenants,
undertakings, representations and conditions hereinafter set forth, the parties
hereto agree as follows:

                                       1

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      1. Definitions.

            Terms defined in the Policy are used herein with the same meaning
unless otherwise defined herein.

            "Based upon" means "based upon," "attributable to," "arising out
            of," "in connection with" or "in any way related to," with those
            terms having ascribed to them the fullest meanings under the law.

            "Claims" means any and all actions, causes of action, proceedings,
            adjustments, executions, offsets, contracts, judgments, obligations,
            suits, debts, dues, sums of money, accounts, reckonings, bonds,
            bills, specialties, variances, covenants, trespasses, damages,
            demands, agreements, promises, liabilities, controversies, costs,
            expenses, attorney's fees and losses whatsoever, whether in law, in
            admiralty or in equity and whether based on any federal law, state
            law, common law right of action or otherwise, foreseen or
            unforeseen, matured or unmatured, known or unknown, accrued or not
            accrued.

            "The National Union Parties" means the Insurer, its affiliates,
            predecessors, successors and assigns, and the respective agents,
            servants, attorneys, employees, officers, directors, shareholders
            and representatives of the foregoing, and each of them.

            "The Endocare Parties" means Endocare, the other entities insured
            under the Policy, and their respective affiliates, predecessors,
            successors and assigns, the Individual Defendants and the other
            Insured Persons and the respective estates, heirs, agents, servants,
            attorneys, employees, officers, directors, shareholders, and
            representatives of the foregoing, and each of them.

      2. Payments by the Insurer The Insurer agrees that it will, no later than
thirty (30) days after the Court has entered an Order granting preliminary
approval of the Settlement, pay the sum of $1,223,601.67 into an escrow account
maintained by Lerach Coughlin Stoia Geller Rudman and Robbins, LLP. Endocare and
the Endocare Individual Defendants acknowledge the Insurer has already paid
$3,776,398.33 of Defense Costs incurred by Insureds in connection with the
Action and the Settlement pursuant to the terms and conditions of the Policy.
The aforementioned payments are in full satisfaction of the obligations of the
Insurer under the Policy.

      3. Mutual Release. The Endocare Parties do forever release and absolutely
and forever discharge the National Union Parties, and the National Union Parties
do forever release and absolutely and forever discharge the Endocare Parties,
from (a) any and all Claims under the Policy and (b) any and all Claims under
any and all other policies issued by the National Union Parties to the Endocare
Parties, but only to the extent that such Claims under such other policies are
based upon (i) the Action, (ii) the Stipulation, or (iii) the Settlement. The
foregoing release and discharge shall include without limitation: any assertion
that, in connection with or in any way related to the Action, the Settlement or
the Stipulation, the Insurer breached any obligation under the Policy or any of
the National Union Parties breached any obligation under any other

                                       2

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policy of insurance issued by any of the National Union Parties for the benefit
of any of the Endocare Parties with respect to the Action, the Stipulation or
the Settlement; and any assertion by the Insurer of any right to reimbursement
of any amounts paid under the Policy. The Endocare Parties and the National
Union Parties covenant not to sue based upon any matter released herein. Nothing
in this Agreement shall be deemed to release the National Union Parties or the
Endocare Parties from their obligations under this Agreement .

      4. Unknown Claims. The Endocare Parties and the National Union Parties
acknowledge that (a) they may have sustained damages, expenses and losses in
connection with the subject matter of the Claims released hereunder which are
presently unknown or not suspected and that such damages, expenses and losses,
if any, may give rise to additional damages, expenses and losses in the future
which are not now anticipated by them and (b) that this Agreement and the
foregoing releases have been negotiated and agreed upon despite this realization
and, being fully advised, expressly waive any and all rights they may have under
any statute, including but not limited to Section 1542 of the California Civil
Code, or common law principle which would limit the effect of the foregoing
release to those Claims actually known or suspected to exist at the time of the
effectiveness of the foregoing Release. California Civil Code Section 1542
provides:

      A general release does not extend to claims which the creditor does not
      know or suspect to exist in his favor at the time of executing the release
      which if known by him must have materially affected his settlement with
      the debtor.

It is the intention of the the Endocare Parties and the National Union Parties
that, notwithstanding the possibility that any of them or their counsel discover
or gain a more complete understanding of the facts, events or law which, if
presently known or fully understood, would have affected the foregoing release,
this Agreement shall be deemed to have fully, finally and forever settled any
and all claims encompassed by the release set forth herein, without regard to
the subsequent discovery or existence of different or additional facts, events
or law.

      5. Representations and Warranties. The Endocare Parties and the National
Union Parties represent and warrant, that:

      (a)   they own the rights released herein and they have not assigned or
            transferred or purported to assign or transfer any of such rights to
            any other person or entity;

      (b)   they, through their counsel, have carefully read and understand the
            contents of this Agreement;

      (c)   they have had the opportunity to consult with their own independent
            counsel regarding the terms of this Agreement; and

      (d)   they enter into this Agreement without any inducement other than
            that which is described herein.

                                       3

<PAGE>

      6. No Admission of Liability. Neither the negotiation, nor the terms,
conditions and other provisions nor the performance of this Agreement shall be
(a) deemed or construed in any manner whatsoever to be an admission of liability
by any party for any purpose, or (b) used by any party for any purpose other
than the enforcement of the provisions hereof, provided, however, that nothing
in this sentence shall affect the validity or the releases and other agreements
set forth in this Agreement.

      7. Costs and Expense of Enforcement. This Agreement is and may be pleaded
as a full and complete defense to, and is and may be used as the basis for an
injunction against prosecution, of any Claim which seeks recovery or relief
contrary to the terms of this Agreement. Should any party retain counsel for the
purpose of restraining, enjoining, or otherwise preventing the breach of, or
enforcing, this Agreement, including without limitation the commencement or
institution of any action or proceeding to enforce any provision of this
Agreement or to obtain (a) damages by reason of any alleged breach of any
provision hereof, (b) a declaration of the rights or obligations of any party or
(c) any other judicial remedy in connection therewith, the prevailing party
shall be entitled, in addition to such other relief as may be granted in such
action or proceeding, whether at trial or on appeal, to be reimbursed by the
other party for all reasonable out-of-pocket costs and expenses incurred as a
result thereof including without limitation reasonable outside attorneys' fees
and costs for services rendered to such prevailing party.

      8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the the Endocare Parties and the National Union Parties.

      9. Miscellaneous. This Agreement shall be deemed to have been drafted
jointly by the parties; accordingly, any rule pertaining to the construction of
contracts to the effect that ambiguities are to be resolved against the drafting
party shall not apply to the interpretation of this Agreement or of any
modifications of or amendments to this Agreement. The paragraph headings
contained in this Agreement are for convenience of reference only and shall not
affect the interpretation or construction of this Agreement. No failure or delay
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder. All prior understandings and agreements between the parties relating
to the subject matter hereof, whether written or oral, are merged in this
Agreement, which alone fully and completely expresses their entire agreement.
This Agreement may not be modified, changed, or amended orally. This Agreement
may be executed in multiple counterparts, each of which, when so executed and
delivered, shall be an original but such counterparts shall together constitute
one and the same instrument and agreement. The respective obligations of the
parties hereto are mutually reciprocal, interdependent and not subject to
severability.

                                       4

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      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.

                                  ENDOCARE, INC

                                  By:/s/ William Nydam
                                     ----------------------
                                     President

                                  NATIONAL UNION FIRE INSURANCE
                                  COMPANY OF PITTSBURGH, PA.

                                  By:/s/ Joseph Decaminada
                                     ----------------------
                                     Joseph Decaminada A.V.P.

                                       5exv10w8w1

 

Exhibit 10.8.1

EMPLOYEE INCENTIVE STOCK OPTION GRANT

     INCENTIVE STOCK OPTION GRANT, dated as of the                      day of                     , by and between Redwood Trust, Inc., a
Maryland corporation (the “Company”), and                     , an employee of the Company (the “Optionee”).

Pursuant to the 2002 Redwood Trust, Inc. Incentive Stock Plan (the “Plan”), the Compensation
Committee (the “Committee”) has determined that the Optionee is to be granted an Incentive Stock
Option (the “Option”) to purchase shares of the Company’s common stock, on the terms and conditions
set forth herein, and the Company hereby grants such Option. It is intended that the Option
constitute an “Incentive Stock Option” within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the “Code”). Any capitalized terms not defined herein shall have the
meaning set forth in the Plan.

	1)  	Number of Shares and Option Price. This Option Grant entitles the Optionee to
purchase                      (     ) shares of the Company’s common stock, par value $0.01 per share (the “Option
Shares”), at a price (the “Option Price”) of                      and 00/100 ($     ) per share, which is not less
that the Fair Market Value of the Option Shares as of the date hereof, as determined by the
Committee.
	 
	2)  	DER’s This Option Grant also entitles the Optionee to receive Dividend Equivalent
Rights in the form of “Current-Pay DERs” as defined in the Plan (“DERs”) in an amount equal to
the value of any common stock dividend declared and paid on the unexercised number of Option
Shares subject to the Option granted above, subject to the limitations specified below. All
such DER’s are intended to qualify as performance based compensation, having as a performance
objective and condition the requirement that the Company have sufficient earnings to declare
and pay dividends during the period while such DER’s accrue.

 

 

	 	a)  	Payment of DERs will commence with common stock dividends with a record date on or
after                      1, 20      and will cease for common stock dividends with a record date on or
after                      1, 20     .
	 
	 	b)  	The Current-Pay DERs will be paid in the form of cash or any other type of distribution
as set forth in Section 5(8) of the Plan on the payable date of the respective dividend.
	 
	 	c)  	The Optionee will not receive DERs for a dividend declared with respect to Option
Shares for which the related Option has been exercised or terminated as of the record date
of that dividend. The Optionee will not receive DERs for a dividend declared with respect
to Option Shares if the Optionee is not an employee on the record date of that dividend,
provided, however, that the Optionee will receive DER payments in the event of termination
of employment to the extent provided in Sections 7, 8, and 9 hereof.
	 
	 	d)  	DER’s will not be paid with respect to options that have been granted pursuant to the
exercise of a Reload Option (as defined below)
	 
	 	e)  	DER payments and Option grants are not considered compensation for purposes of
determination of severance or termination. This provision is subject to any provisions
relative to this issue in any employment agreement between the Company and the Optionee in
effect at the time of this grant (as it may be amended or replaced from time to time).

	3)  	Period of Option. The term of the Option and of this Option Grant shall commence on
the date hereof (the “Date of Grant”) and, unless the Option is previously terminated pursuant
to this Option Grant, shall terminate upon the expiration of ten years from the Date of Grant.
Upon termination of the Option, all rights of the Optionee hereunder shall cease except the
right to receive DERs the Optionee is otherwise entitled to receive for dividends with a
record date that was previous to the termination event.
	 
	4)  	Conditions of Exercise.

 

 

	 	a)  	Subject to the provisions of paragraph (b) of this Section 4, the Option shall become
exercisable as follows:

	 	i)  	25% of the Option Shares (rounded down to the nearest whole number of shares)
on                     ;
	 
	 	ii)  	An additional 6.25% of the Option Shares (rounded down to the nearest whole
number of shares) on                     ;
	 
	 	iii)  	An additional 6.25% of the Option Shares (rounded down to the nearest whole
number of shares) on                     ;
	 
	 	iv)  	An additional 6.25% of the Option Shares (rounded down to the nearest whole
number of shares) on                     ;
	 
	 	v)  	An additional 6.25% of the Option Shares (rounded down to the nearest whole
number of shares) on                     ;
	 
	 	vi)  	An additional 6.25% of the Option Shares (rounded down to the nearest whole
number of shares) on                     ;
	 
	 	vii)  	An additional 6.25% of the Option Shares (rounded down to the nearest whole
number of shares) on                     ;
	 
	 	viii)  	An additional 6.25% of the Option Shares (rounded down to the nearest whole
number of shares) on                     ;
	 
	 	ix)  	An additional 6.25% of the Option Shares (rounded down to the nearest whole
number of shares) on                     ;
	 
	 	x)  	An additional 6.25% of the Option Shares (rounded down to the nearest whole
number of shares) on                     ;
	 
	 	xi)  	An additional 6.25% of the Option Shares (rounded down to the nearest whole
number of shares) on                     ;
	 
	 	xii)  	An additional 6.25% of the Option Shares (rounded down to the nearest whole
number of shares) on                     ;
	 
	 	xiii)  	The balance of the Option Shares on                     .

	 	b)  	The right of the Optionee to purchase Option Shares that have become exercisable under
clause (a) above may be exercised, in whole or in part, at any time or from time to time up
to ten (10) years from the Date of Grant, but only

 

 

	 	   	during the period in which such Option remains otherwise exercisable as herein provided.

	5)  	Limits on Transferability of Option.

	 	a)  	The Option and this Option Grant shall not be transferable otherwise than by will or by
the laws of descent and distribution or pursuant to a “qualified domestic relations order,”
as defined in the Employee Retirement Income Security Act of 1974; and the Option may be
exercised, during the lifetime of the Optionee, only by the Optionee or in accordance with
the terms of a qualified domestic relations order.

	6)  	Exercise of Option. Options that have become exercisable may be exercised in whole
or in part at any time during the period herein specified by giving written notice of exercise
to the Company specifying the number of shares to be purchased, accompanied by payment in full
of the purchase price in cash or its equivalent as determined by the Committee. As determined
by the Committee, in its sole discretion, payment in whole or in part may also be made in the
form of unrestricted Stock already owned by the Optionee, based in each case, on the Fair
Market Value of the Stock on the date the Option is exercised. Any payment in the form of
stock already owned by the Optionee may be effected by use of an Acknowledgement and
Attestation Form approved by the Committee.
	 
	   	To the extent the Optionee exercises the Option or Reload Option (as defined below) granted
hereunder, by delivering (or attesting to ownership of) shares of unrestricted common stock
instead of paying cash, or pays tax withholding by delivering shares of unrestricted common
stock, or having shares withheld from exercise, then, if the Optionee’s relationship as an
employee has not terminated, the Optionee shall automatically receive on the date of such
exercise a new Option (a “Reload Option”) to purchase additional shares of stock equal to the
number of shares so delivered or attested to, or (at the sole discretion of the Committee)
withheld by, the Company. The Reload Option shall have a strike price equal to the Fair Market
Value per share

 

 

	   	of common stock on the date the Reload Option is granted, shall expire the same date as the
expiration date of the Option so exercised, be fully vested and exercisable, have no DERs and
otherwise shall be subject to the same terms and conditions as set forth herein. Furthermore,
such Reload Options shall not constitute an “Incentive Stock Option” within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).
	 
	   	All deliveries and distributions under this Option Grant are subject to withholding of all
applicable taxes. At the election of the Optionee, but subject to the sole discretion of the
Committee and such rules and limitations as may be established by the Committee from time to
time, such withholding obligations may be satisfied through the surrender of shares of common
stock which the Optionee already owns, or to which the Optionee is otherwise receiving shares of
common stock upon exercise under the Plan.
	 
	   	The Optionee may be able to defer payment of taxes on income realized in connection with the
exercise of these options by participating in the Company’s Deferred Compensation Plan, subject
to the eligibility requirements and other rules and procedures of the Deferred Compensation Plan
in place at that time.
	 
	7)  	Termination by Death. If the Optionee’s relationship as an employee with the Company
terminates by reason of death, the Option becomes immediately fully vested and exercisable.
DER’s will continue to be paid on unexercised shares with respect to dividend record dates
occurring during the remaining exercise period as noted below. After termination by death,
the Option may be exercised for (a) a period of twelve (12) months after the date of death or
(b) if longer, the last record date for which DER’s are receivable under the terms of this
Option Grant, plus thirty (30) days, (provided, however, that an exercise after three months
of retirement will cease qualification as an Incentive Stock Option) but in no case beyond the
stated term of this Option Grant. The Optionee is not eligible to receive Reload Options
following the Optionee’s death.

 

 

	8)  	Termination by Reason of Disability. If the Optionee’s relationship as an employee
with the Company terminates by reason of disability, the Option becomes immediately fully
vested and exercisable. DER’s will continue to be paid on unexercised shares with respect to
dividend record dates occurring during the remaining exercise period as noted below. After
termination by disability the Option may be exercised for (a) a period of twelve (12) months
from the date of termination by reason of disability or (b) if longer, the last record date
for which DER’s are receivable under the terms of this Option Grant, plus thirty (30) days
(provided, however, that an exercise after three months of retirement will cease qualification
as an Incentive Stock Option), but in no case beyond the stated term of this Option Grant;
provided, however, that if the Optionee dies prior to the end of the exercise period following
termination by disability, such Option may thereafter be exercised until the earlier to occur
of (a) a period of twelve (12) months from the date of death or (b) if longer, the last record
date for which DER’s are receivable under the terms of this Option Grant, plus thirty (30)
days but in no case beyond the stated term of this Option Grant. The Optionee is not eligible
to receive Reload Options following the Optionee’s disability.
	 
	9)  	Other Termination.

	 	a)  	Upon termination by retirement (as defined by the Committee), the Option shall remain
outstanding and continue to vest and become exercisable pursuant to Section 4, until the
later to occur of (i) thirty (30) days after the last dividend record date for which DER’s
are receivable under the terms of this Option Grant, or (ii) the earlier to occur of (a)
thirty six (36) months from the date of retirement or (b) the expiration of the stated term
of the Option (provided, however, that an exercise after three months of retirement will
cease qualification as an Incentive Stock Option). Following termination by retirement,
DER’s will continue to be paid under the provisions of this Option Grant with respect to
dividend record dates occurring during the remaining exercise period, as noted herein. The
Optionee is not eligible to receive Reload Options following the Optionee’s retirement.
	 
	 	b)  	If the Optionee’s relations as an employee with the Company terminates for any reason
other than death, disability, or retirement, the Option may be exercised, but

 

 

	 	   	only to the extent vested and exercisable at the time of such termination, until the earlier
to occur of (a) three (3) months from the date of such termination or (b) the expiration of
the stated term of the Option. The Optionee is not eligible to receive DER’s for record
dates subsequent to the date of such termination. The Optionee is not eligible to receive
Reload Options following such termination.
	 
	 	c)  	This provision is in effect only for an employee of the Company for which there is in
effect an employment agreement (such employment agreement as it may be amended or replaced
from time to time, the “Employment Agreement”) between the Optionee and the Company at the
date of grant. Upon termination of the Optionee’s employment either by the Company other
than for Cause (as such term is defined in the Employment Agreement) or by the Optionee for
Good Reason (as such term is defined in the Employment Agreement), the Option becomes
vested and exercisable and DER’s will be paid to the Optionee pursuant to the Employment
Agreement as provided therein. If not specifically provided in the Employment Agreement,
DER’s will be paid pursuant to the provision of this Grant. If the Optionee’s relationship
as an employee with the Company terminates because of termination by the Company for Cause
(as such term is defined in the Employment Agreement) or because the Optionee voluntarily
terminates employment for other than Good Reason (as such term is defined in the Employment
Agreement), the Option may be exercised, but only to the extent vested and exercisable at
the time of such termination, until the earlier to occur of (a) three (3) months from the
date of such termination, (b) the expiration of the term of the Option, or (c) as otherwise
provided in the Employment Agreement. The Optionee will not be eligible to receive DER’s
or Reload Options following such a termination.

	10)  	At-Will Employment. This Option Grant is not an employment contract and nothing in
this Option Grant shall be deemed to create in any way whatsoever any obligation on your part
to continue in the employ of the Company or on the part of the Company to continue your
employment with the Company. It is understood and agreed to by you, as an Optionee under the
Plan, that this Option Grant and your participation in

 

 

	   	the Plan does not alter the at-will nature of your relationship with the Company (subject to the
terms of the Employment Agreement). The at-will nature of your relationship with the Company
can only be altered by a writing signed by both you and the President of the Company.
	 
	11)  	Notices. Any notice required or permitted under this Option Grant shall be deemed
given when delivered personally, or when deposited in a United States Post Office, postage
prepaid, addressed, as appropriate, to the Optionee either at the Optionee’s address
hereinbelow set forth or such other address as the Optionee may designate in writing to the
Company, and to the Company: Attention: Douglas B. Hansen (or his designee), at the Company’s
address or such other address as the Company may designate in writing to the Optionee.
	 
	12)  	Failure to Enforce Not a Waiver. The failure of the Company to enforce at any time
any provision of this Option Grant shall in no way be construed to be a waiver of such
provision or of any other provision hereof.
	 
	13)  	Existing Agreements. This Option Grant does not supersede nor does it modify any
existing agreements between the Optionee and the Company.
	 
	14)  	Governing Law. This Option Grant shall be governed by and construed according to the
laws of the State of Maryland without regard to its principles of conflict of laws.
	 
	15)  	Incorporation of Plan. The Plan is hereby incorporated by reference and made a part
hereof, and the Option and this Option Grant are subject to all terms and conditions of the
Plan.
	 
	16)  	Amendments. This Option Grant may be amended or modified at any time by an
instrument in writing signed by the parties hereto.

 

 

IN WITNESS WHEREOF, the parties have executed this Option Grant on the day and year first above
written.

REDWOOD TRUST, INC.

	 	 	 	 	 
	By
	 	 	 	 
	

	 	 	 	 
	

	 	Douglas B. Hansen, President	 	 
	

	 	One Belvedere, Suite #300	 	 
	

	 	Mill Valley, California 94941
	 	 

The undersigned hereby accepts and agrees to all the terms and provisions of the foregoing Option
Grant and to all the terms and provisions of the Plan herein incorporated by reference.

	 	 	 
	 
	 	 
	 
	 	 
	[employee name]
	 	 
	[employee address]

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