Exhibit 10.3

SEPARATION AGREEMENT

AND GENERAL RELEASE OF CLAIMS

This Agreement dated April 22, 2008 is between R. Jarrett Lilien (“Employee”)
and E*TRADE Financial Corporation (the “Company”) (the “Parties”). The parties
hereby agree that Employee’s employment with the Company will terminate on
April 22, 2008 (the “Separation Date”).

 

1. Consideration: In consideration for and subject to Employee signing on or
within 21 days after the Separation Date the release of claims set forth on
Exhibit A hereto (the “Release”), the Company agrees to pay or provide Employee
with the following payments and benefits (in addition to Employee’s accrued and
unpaid wages as of the Separation Date):

 

  a. A lump sum payment of $5.7 million, to be paid on or promptly following the
Separation Date (but no later than 5 business days following the Separation
Date), reflecting the sum of (i) two times Employee’s base salary, (ii) two
times Employee’s target bonus for fiscal 2007 and (iii) a partial bonus for 2008
of $1.4 million.

 

  b. The following Company equity awards which would have become vested on or
before June 3, 2008 if Employee had remained employed by the Company shall
become vested on the Separation Date1: (i) Employee’s restricted stock award
granted June 3, 2003 with respect to 312,500 shares of the Company’s common
stock; (ii) Employee’s restricted stock award granted May 25, 2004 with respect
to 22,401 shares of the Company’s common stock which would have become vested on
May 25, 2008; and (iii) Employee’s stock option granted May 25, 2004 with
respect to 146,414 shares which would have become vested on May 25, 2008.

 

1 With approval of the board, this provision was expanded to clarify inclusion
of grants that would have vested on May 3, 2008.

 

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  c. Reimbursement for the cost of medical insurance coverage at a level
equivalent to that provided by the Company to Employee and his dependents
immediately prior to the Separation Date and elected by Employee through COBRA
(or, if Employee is no longer eligible for COBRA continuation coverage, through
a lump sum payment in an amount necessary to permit Employee to obtain medical
insurance coverage at a level equivalent to that provided by the Company
immediately prior to the Separation Date, which lump sum payment shall be made
to the Employee within five business days after the second anniversary date of
the Separation Date) and for the cost of life and disability insurance coverage
at a level equivalent to that provided by the Company to Employee, for a period
from the Separation Date through the earlier of (i) the two-year anniversary of
the Separation Date or (ii) the time Employee begins alternative employment.
Receipt of the benefits pursuant to this clause (c) shall be subject to Employee
not revoking the ADEA Release (as defined in the Release).

 

  d. Payment for the reasonable attorney’s fees and expenses incurred by
Employee in connection with the review and negotiation of this Agreement, in an
amount not to exceed $10,000, such payment to be made within 30 days following
the Separation Date.

 

2. Resignations: As of the Separation Date, Employee hereby resigns (and the
Company hereby accepts such resignations) from any and all director, manager,
officer or employee positions he may hold with the Company, its subsidiaries and
any of its affiliates; provided that Employee’s resignation from the Company’s
Board of Directors shall be effective on May 16, 2008 (but Employee shall not
receive non-employee director compensation during such period). Until the
Separation Date, Employee shall continue to serve in his current capacity and
receive his base salary and employee benefits and be reimbursed for reasonable
business expenses in accordance with the Company’s practices and procedures.

 

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3. Transition Consulting: Employee agrees to provide consulting services to the
Company from the Separation Date until May 16, 2008 (the “Consulting Period”)
and to render such advice and services to the Company as may be reasonably
required by the Company in order to facilitate an orderly transition. As a
consultant, Employee shall not be an employee of the Company and shall not be
entitled to participate in any employee benefit plans or other benefits or
conditions of employment (including any bonus plans) available to the employees
of the Company. Employee shall have no authority to act as an agent of the
Company, except on authority specifically so delegated, and Employee shall not
represent the contrary to any person. Employee shall not direct the work of any
employee of the Company, or make any management decisions, or undertake to
commit the Company to any course of action in relation to third persons.
Employee’s weekly consulting fee shall be the same as Employee’s currently
weekly prorated base salary, assuming Employee provides services for at least
four days per week, but the Company shall only be required to pay Employee for
services actually rendered during the consulting period. The Company will
reimburse Employee for reasonable business expenses incurred during the
Consulting Period in accordance with the Company’s policies.

 

4. Reimbursements: Employee will be reimbursed for outstanding reasonable
business expenses incurred in connection with his duties to the Company prior to
the Separation Date (“Covered Business Expenses”) in accordance with the
Company’s standard procedures. Employee will have 10 business days from the
Separation Date to submit all outstanding Covered Business Expenses, if any,
with appropriate documentation for reimbursement by the Company. Failure to
submit documented Covered Business Expenses for reimbursement within this time
period will be considered a representation by Employee that he has been
reimbursed for all business expenses.

 

5.

Vested and Accrued Benefits: Employee understands and acknowledges that he shall
be entitled to no benefits from the Company other than those expressly set forth
in Section 1 and any

 

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vested and accrued benefits earned under employee benefit plans through the
Separation Date, which shall be paid or provided by the Company to Employee in
accordance with the terms and conditions of such plans. With respect to any
vested stock options (i) granted under the Company’s 1996 Stock Option Plan or
under the Company’s 2005 Equity Incentive Plan for which Employee would have a
shorter period of time to exercise such options, Employee will have 180 days
following the Separation Date (but in no event beyond the maximum term set forth
in the applicable stock option agreement) to exercise such vested stock options,
and (ii) granted under the Company’s 2005 Equity Incentive Plan in 2006 or
later, Employee will have, as provided by such award agreements, 12 months
following the Separation Date to exercise such vested stock options. In the
event that Employee fails to exercise any vested stock options in the required
time, those options will expire. All other provisions of the stock option
agreements applicable to any stock option grant shall remain in full force and
effect. Except as expressly set forth in Section 1, all unvested stock options
and unvested restricted stock awards shall terminate as of the Separation Date.
Employee understands that he will receive no bonus payment for the 2007 or 2008
fiscal year except as expressly set forth in Section 1.

 

6. Tax Matters: All amounts referenced in Section 1 and elsewhere in this
Agreement shall be subject to any required tax withholding by the Company.
Notwithstanding any other provision in this Agreement to the contrary, all
expenses eligible for reimbursement hereunder shall be paid to Employee promptly
in accordance with the Company’s customary practices (if any) applicable to the
reimbursement of expenses of such type, but in any event by no later than
March 15 of the calendar year following the calendar year in which such expenses
were incurred.

 

7. No Admission: This Agreement constitutes a mutually acceptable vehicle for
effecting Employee’s departure from the Company and shall not be used or treated
or deemed to be an admission of liability or responsibility on the part of any
released person or entity.

 

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8. Continuing Agreements: Employee acknowledges and agrees that he shall
continue to be bound by and comply with the Company’s Employee Inventions and
Proprietary Rights Assignment Agreement. Without limiting the foregoing,
Employee agrees that for a period of one year after the Separation Date, he
shall not, either directly or indirectly, solicit the services, or attempt to
solicit the services, of any employee of the Company to any other person or
entity. Anything to the contrary notwithstanding, the Company agrees that the
following shall not be deemed a violation of this Section 7: (i) Employee’s
responding to an unsolicited request for an employment reference regarding any
former employee of the Company from such former employee, or from a third party,
by providing a reference setting forth his personal views about such former
employee, or (ii) if an entity with which Employee is associated hires or
engages any employee of the Company or any of its subsidiaries, if Employee was
not, directly or indirectly, involved in hiring or identifying such person as a
potential recruit or assisting in the recruitment of such employee. For purposes
hereof, Employee shall only be deemed to have been involved “indirectly” in
soliciting, hiring or identifying an employee if Employee (x) directs a third
party to solicit or hire the employee, (y) identifies an employee to a third
party as a potential recruit or (z) aids, assists or participates with a third
party in soliciting or hiring an employee.

 

9.

Agreement Not to Compete; Return of Company Property: Employee agrees that he
shall not compete with the Company in any unfair manner, including, without
limitation, using any confidential or proprietary information of the Company to
compete with the Company in any way. The parties agree that Employee’s
employment by any other person or entity shall not, by itself, violate the
preceding sentence. Employee agrees that for a period of one year following the
Separation Date he will not accept employment, or perform services as a
consultant or independent contractor, for any of the following entities or their
successors: Ameritrade, Charles Schwab & Co., Fidelity Investments, Scottrade,
Inc. or TD Waterhouse Group, Inc. Employee represents that he has returned to
the Company all documents, property, and other records of the

 

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Company or any affiliate of the Company, and all copies thereof, within
Employee’s possession, custody or control. Anything to the contrary
notwithstanding, Employee shall be entitled to retain (i) papers and other
materials of a personal nature, including, but not limited to, photographs,
correspondence, personal diaries, calendars and rolodexes, personal files and
phone books, (ii) information showing his compensation or relating to
reimbursement of expenses, (iii) information that he reasonably believes may be
needed for tax purposes, (iv) copies of plans, programs and agreements relating
to his employment, or termination thereof, with the Company and (v) copies of
minutes, presentation materials and personal notes from any meeting of the Board
of Directors of the Company or any of its subsidiaries, or any committee
thereof, while he was a member of any such Board of Directors or committee
thereof.

 

10. Non-Disparagement; Disclosure of Agreement: Employee agrees that he shall
not disparage the Company or any of its former, current or future officers,
directors, employees, products or services, and the Company agrees that it will
not (and will cause each of its subsidiaries not to and will use reasonable
efforts to cause its directors and officers not to) disparage Employee in the
course of any authorized internal or external communication. Notwithstanding the
foregoing, nothing contained in this Agreement shall prohibit Employee or the
Company from (x) responding publicly to incorrect, disparaging or derogatory
public statements to the extent reasonably necessary to correct or refute such
public statement or (y) making any truthful statement to the extent
(i) necessary with respect to any litigation, arbitration or mediation involving
this Agreement, including, but not limited to, the enforcement of this Agreement
or (ii) required by law or by any court, arbitrator, mediator or administrative
or legislative body (including any committee thereof) with apparent jurisdiction
over Employee or the Company. Employee and the Company acknowledge that the
Company will be required to disclose this Agreement and its terms in its public
filings with the SEC.

 

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11. Cooperation Clause: Employee agrees that, as requested by the Company or its
counsel, he will fully cooperate with the Company and its counsel in any formal
or informal inquiry, investigation, disciplinary or other proceeding initiated
by any government, regulatory or law enforcement agency (including without
limitation the Securities and Exchange Commission, FINRA, formerly the National
Association of Securities, Inc., or the Office of Thrift Supervision). Employee
further agrees to fully cooperate with the Company and its counsel in both the
pursuit or prosecution of any claim or right the Company may hold against others
for damages or relief and in defending the Company against any pending or future
claims, complaints or actions brought against the Company, including but not
limited regulatory actions, administrative proceedings, arbitration claims,
lawsuits or independent investigations by the Board in conjunction with a
stockholder demand. In this regard, Employee agrees that he will promptly
provide all information or documents he may possess relevant to the subject
matter of any inquiry, and that he will testify truthfully and with complete
candor in connection with any such regulatory, administrative or legal action or
proceeding. To the extent possible, the Company will try to limit Employee’s
participation to regular business hours. Any request for cooperation by the
Company hereunder will take into account, to the extent practicable, Employee’s
personal and professional schedule. The Company agrees to provide Employee
reasonable notice, to the extent practicable, in the event his assistance is
required. The Company will reimburse Employee for reasonable travel expenses
(including lodging and meals) incurred by him in connection with providing such
assistance and for legal fees to the extent Employee reasonably believes that
separate representation is warranted, in either case within 30 days of the
submission of the appropriate documentation to the Company. Employee’s
entitlement to such reimbursement, including legal fees, pursuant to this
Section 10, shall in no way affect Employee’s rights to be indemnified and/or
advanced expenses in accordance with the Company’s or any of its subsidiaries’
corporate or other organizational documents, or any applicable insurance policy.

 

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12. Dispute Resolution: In the event of any dispute or claim relating to or
arising out of this Agreement (including, but not limited to, any claims of
breach of contract, wrongful termination or age, sex, race or other
discrimination), Employee and the Company agree that all such disputes shall be
fully and finally resolved by binding arbitration conducted through the American
Arbitration Association in New York, New York in accordance with its National
Employment Dispute Resolution rules. The Parties acknowledge that by accepting
this arbitration provision that they are waiving any right to a jury trial in
the event of such dispute. In connection with any such arbitration, the Company
shall bear all costs not otherwise born in a court proceeding.

 

13. Prevailing Party: The prevailing party shall be entitled to recover from the
losing party its attorneys’ fees and costs incurred in any action or proceeding
brought to enforce any right arising out of this Agreement.

 

14. Entire Agreement: This Agreement, any confidentiality, proprietary rights
and dispute resolution agreement between Employee and the Company, and any
agreement concerning any stock options and other equity awards issued to
Employee, constitute the entire agreement between the parties with respect to
the subject matter hereof and thereof and supersede all prior negotiations and
agreements, whether written or oral, including without limitation the Employment
Agreement between Employee and the Company dated as of September 1, 2004 (as
amended, the “Employment Agreement”). This Agreement may not be altered or
amended except by a written document signed by Employee and an authorized
representative of the Company. This Agreement shall be governed by the internal
laws of the State of New York.

 

15.

Older Workers Benefit Protection Act: In accordance with the Older Workers
Benefit Protection Act, Employee understands and acknowledges that he has been
advised to consult an attorney before accepting this Agreement. Employee further
understands and acknowledges that he has up to 21 days from the Separation Date
to Employee to sign the Release and return it to the

 

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Company, although it may be signed and returned at any time within such period.
Furthermore, in the event Employee does not sign the Release, Employee will not
be eligible and will be required to return all consideration received under this
Agreement.

 

16. Indemnification: Nothing herein or in the Release shall affect or otherwise
limit any indemnification of Employee provided by the Company’s (or its
subsidiaries’) bylaws, charter, other corporate or organizational documents or
other agreement concerning indemnification (including the Company’s insurance
policies). The indemnification provisions for officers and directors under the
Company’s (or its subsidiaries’) bylaws shall (to the maximum extent permitted
by law) be extended to the Employee following the Separation Date with respect
to all matters, events or transactions occurring or effected during the
Employee’s period of employment with the Company.

EMPLOYEE UNDERSTANDS THAT HE IS ENTITLED TO CONSULT WITH, AND HAS CONSULTED
WITH, AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT. EMPLOYEE IS SIGNING THIS
AGREEMENT KNOWINGLY, WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE BENEFITS
DESCRIBED IN SECTION 1.

 

Dated: April 22, 2008   Employee  

/s/ R. Jarrett Lilien

  R. Jarrett Lilien Dated: April 22, 2008   E*TRADE Financial Corporation    

/s/ Donald H. Layton

  By:   Donald H. Layton     Chief Executive Officer and Chairman of the Board
of Directors

 

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EXHIBIT A – Release of Claims

 

1. Full Release: In exchange for the benefits described in the Separation
Agreement dated April 22, 2008 (the “Separation Agreement”) between R. Jarrett
Lilien (“Employee”) and E*TRADE Financial Corporation (the “Company”) (the
“Parties”), Employee and his successors and assigns release and absolutely
discharge the Company and its subsidiaries and other affiliated entities, and
each of their respective shareholders, directors, employees, agents, attorneys,
legal successors and assigns of and from any and all claims, actions and causes
of action, whether now known or unknown, which Employee now has, or at any other
time had, or shall or may have, against those released parties arising out of or
relating to any matter, cause, fact, thing, act or omission whatsoever occurring
or existing at any time to and including the date of execution of this
Separation Agreement by Employee, including, but not limited to:

 

  (a) claims relating to any letter offering Employee employment with the
Company, the Employment Agreement between Employee and the Company dated as of
September 1, 2004, the parties’ employment relationship, the termination of that
relationship, the Employee’s purchase or right to purchase shares of the
Company’s stock, and any claims for breach of contract, infliction of emotional
distress, fraud, defamation, personal injury, wrongful discharge or age, sex,
race, national origin, industrial injury, physical or mental disability, medical
condition, sexual orientation or other discrimination, harassment or
retaliation, claims under the federal Americans with Disabilities Act, Title VII
of the federal Civil Rights Act of 1964, as amended, 42 U.S.C. Section 1981, the
federal Fair Labor Standards Act, the federal Employee Retirement Income
Security Act, the federal Worker Adjustment and Retraining Notification Act, the
federal Family and Medical Leave Act, the National Labor Relations Act, the
Virginians with Disabilities Act and the Virginia Human Rights Act, which
prevent employment discrimination, Virginia Code sections 40.1-29, et seq.,

 

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  (b) the Age Discrimination in Employment Act (subject to Section 3 below); or

 

  (c) any other federal, state or local law, all as they have been or may be
amended, and all claims for attorneys fees and/or costs, to the full extent that
such claims may be released.

This Release does not apply to (i) claims which cannot be released as a
matter of law, including claims for indemnification under applicable state law,
(ii) any right Employee may have to enforce the Separation Agreement, (iii) any
right or claim that arises after the date of this Release, (iv) Employee’s
eligibility for indemnification and advancement of expenses in accordance with
applicable laws or the certificate of incorporation and by-laws of Company
and/or its subsidiaries, or any applicable insurance policy or (v) any right
Employee may have to obtain contribution as permitted by law in the event of
entry of judgment against Employee as a result of any act or failure to act for
which Employee, on the one hand, and Company or any other releasee hereunder, on
the other hand, are jointly liable.

 

2. All Claims Waived: Employee understands that he is releasing claims that he
may not know about. That is Employee’s knowing and voluntary intent even though
he recognizes that someday he may regret having signed the Separation Agreement
and this Release. Nevertheless, by signing the Separation Agreement and this
Release, Employee agrees that he is assuming that risk, and he agrees that the
Separation Agreement and this Release shall remain effective in all respects in
any such case. Employee expressly waives all rights he may have under any law
that is intended to protect him from waiving unknown claims.

 

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3. Older Workers Benefit Protection Act: In accordance with the Older Workers
Benefit Protection Act, Employee understands and acknowledges that he has been
advised to consult an attorney before accepting the Separation Agreement and
signing this Release. Employee further understands and acknowledges that he has
up to 21 days from the Separation Date to sign this Release by dating and
signing a copy of this Release and returning it to the Company, although it may
be accepted at any time within such period. Employee further understands that,
once having signed this Release, Employee will have an additional seven (7) days
within which to revoke the release of claims solely under the Age Discrimination
in Employment Act (the “ADEA Release”), by delivering written notice of
revocation of the ADEA Release to Christine Wolf, Managing Director, Human
Resources. If Employee revokes such ADEA Release during such seven-day period,
Employee will not be eligible for the consideration under Section 1(c) of the
Separation Agreement. Employee’s revocation of the ADEA Release shall not impact
the Release in any other way, and the Release is otherwise irrevocable on the
date signed.

 

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EMPLOYEE UNDERSTANDS THAT HE IS ENTITLED TO CONSULT WITH, AND HAS CONSULTED
WITH, AN ATTORNEY PRIOR TO SIGNING THE SEPARATION AGREEMENT AND THIS RELEASE AND
THAT HE IS GIVING UP ANY LEGAL CLAIMS HE HAS AGAINST THE PARTIES RELEASED ABOVE
BY SIGNING THIS RELEASE. EMPLOYEE IS SIGNING THIS AGREEMENT KNOWINGLY, WILLINGLY
AND VOLUNTARILY IN EXCHANGE FOR THE BENEFITS DESCRIBED IN SECTION 1 OF THE
SEPARATION AGREEMENT.

 

Dated:   Employee  

 

  R. Jarrett Lilien Dated:   E*TRADE Financial Corporation  

 

  By:  

 

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