**SEPARATION
      AGREEMENT AND RELEASE OF CLAIMS**




THIS
      AGREEMENT, entered into as of the ___ day of January 2006, by and between
      Franklin Credit Management Corporation (the "Company"), a Delaware corporation,
      and Jeffrey R. Johnson ("Employee");




**W
      I T N E S S E T H:**




WHEREAS,
      the Employee has been employed as the President and Chief Executive Officer
      of
      the Company under the Employment Agreement dated as of October 1, 2004 (the
      “Employment Agreement”); and




WHEREAS
      Employee and the Company have agreed to terminate the employment relationship
      between Employee and the Company on an amicable basis.




WHEREAS,
      the Employee and the Company desire to settle fully and finally any differences
      between them, to facilitate the Employee’s separation and allow for an orderly
      transition by the Company.




NOW,
      THEREFORE, in consideration of the mutual agreement and covenants contained
      herein, the parties do hereby mutually agree as follows:




|*1)* | *TERMINATION
              OF EMPLOYMENT*
|---- | -----------------------------------------



Employee's
      employment shall terminate effective as of January 21, 2006 (the “Termination
      Date”). As of the Termination Date, the Employment Agreement and all existing
      employment agreements between Employee and the Company, whether oral or written,
      are hereby terminated, except as otherwise expressly stated herein. Except
      as
      otherwise expressly provided herein, the parties agree that this Agreement
      supersedes the Employment Agreement (and any such existing employment agreement
      between the parties). Additionally, Employee hereby resigns all positions as
      an
      officer or director of the Company, its subsidiaries and affiliates, effective
      immediately.




The
      parties represent that they do not have any claim, action, or proceeding pending
      against each other, or which arises out of Employee’s employment by the Company
      or the separation thereof.




|*2)* | *SEVERANCE
              PAYMENTS*
|---- | ----------------------------------



In
      addition to paying Employee his salary through January 21, 2006, the Company
      shall pay Employee the following amounts (subject to any applicable federal,
      state and local tax withholding requirements) in full and complete satisfaction
      of all amounts due Employee under the Employment Agreement:




|a) | The
              Company shall pay Employee $282,500.00 on or before January 21, 2006
              in
              full satisfaction of any and all amounts due under the Employment
              Agreement, including but not limited, amounts payable under Sections
              4(b)
              and 12(b) of the Employment Agreement, severance, medical benefits,
              and
              reimbursements.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|b) | An
              additional 30,000 shares of Employee’s Restricted Award (as that term is
              used in the Employment Agreement and the Restricted Stock Grant Agreement,
              effective as of November 4, 2004) that are currently not vested shall
              vest
              and become non-forfeitable on January 21, 2006 (the “Accelerated Shares”).
              All shares comprising the Restricted Award not otherwise vested as
              of
              January 21, 2006 shall be forfeited pursuant to the Employment Agreement
              and paragraph 6 of the Restricted Stock Grant Agreement. The Restricted
              Stock Grant Agreement is hereby amended consistent with the
              above.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|c) | The
              parties shall reasonably cooperate in the certification or
              recertification, to the extent required, of the Restricted Stock Grant
              and
              the Accelerated Shares. Employee shall return to the Company the shares
              of
              Employee's Restricted Award that are currently not vested and will
              not
              become vested on or before January 21,
              2006.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|d) | Employee
              agrees that he shall have no further rights under Section 2 of the
              Registration Rights Agreement between the parties.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



|*3)* | *INDEMNIFICATION*
|---- | -----------------



The
      Company shall continue to indemnify Employee in accordance with the terms and
      conditions set forth in the Company’s Certificate of Incorporation and By Laws
      (as such Certificate of Incorporation and By Laws may be amended from time
      to
      time) or under the terms and conditions of the agreement currently in place
      between the Company and its other officers and directors for a period of six
      years from the date of this Agreement. Notwithstanding the forgoing, the
      indemnification of Employee shall extend only to acts or omissions of Employee
      during the period of time during which Employee was an officer or director
      of
      the Company.




|*4)* | *NON-COMPETITION/NON
              AND NON-DISCLOSURE*
|---- | ------------------------------------------------------



|a) | Employee
              is hereby released from the provisions of Paragraphs 9(a), 9(b)(1)
              and
              9(b)(3) of the Employment Agreement.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



|b) | For
              the six year period following the date of this Agreement, Employee
              will
              cooperate fully with the Company in its defense of or other participation
              in any administrative proceeding, judicial proceeding,
              governmentalor
              regulatory inquiryor
              other proceeding arising from any charge, complaint or other action
              that
              has been or may be filed regarding Company actions in which Employee
              was
              involved during his employment. The Company shall reimburse Employee
              for
              his reasonable out-of-pocket expenses associated with Employee’s
              cooperation as set forth above.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|c) | Employee
              will continue to comply with the terms of Paragraphs 8, 9(b)(2) and
              14 of
              the Employment Agreement and such terms shall survive execution of
              this
              Agreement and Employee’s termination of
              employment.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|*5)* | *NON-DISPARAGEMENT*
|---- | -------------------



|a) | For
              a period of two years after the execution of this Agreement, Employee
              covenants and agrees that he will not, directly or indirectly, either
              for
              himself or for any other person: (1) make any disparaging statements
              concerning the Company, its past or present subsidiaries or affiliates,
              or
              their respective past or present officers, directors, agents, or
              employees, that could or are intended to injure, impair, or damage
              the
              reputation or business relationships of such entities; (2) discredit
              or
              otherwise adversely criticize or engage in any act, directly or
              indirectly, not compelled by law, which may tend to bring disparagement,
              disrepute, ridicule, or scorn upon the Company, its past or present
              subsidiaries or affiliates, their respective business operations, or
              any
              of their respective past or present agents, employees, directors or
              officers; or (3) engage in any form of conduct that disparages, or
              is
              intended to disparage, the reputation, good will, or commercial interests
              of the Company, its past or present subsidiaries or affiliates, or
              their
              respective past or present officers, directors, agents, or employees.
              This
              provision does not prohibit Employee from cooperating with appropriate
              regulatory authorities or providing accurate information or opinion
              related to his current or future business activities or from responding
              to
              a subpoena or from being compelled to disclose information by judicial
              process.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b) | (b)
              For a period of two years after the execution of this Agreement, the
              Company covenants and agrees that the Company’s officers and directors
              will not: (1) make any disparaging statements concerning Employee that
              could or are intended to injure, impair, or damage Employee’s reputation
              or business relationships; (2) discredit or otherwise adversely criticize
              or engage in any act, directly or indirectly, not compelled by law,
              which
              may tend to bring disparagement, disrepute, ridicule, or scorn upon
              Employee; or (3) engage in any form of conduct that disparages, or
              is
              intended to disparage, Employee’s reputation, good will, or commercial
              interests. This provision does not prohibit the Company (or its officers
              or directors) from cooperating with appropriate regulatory authorities
              or
              providing accurate information or opinion related to the current or
              future
              business activities of the Company (or its officers or directors) or
              from
              responding to a subpoena or from being compelled to disclose information
              by judicial process.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|*6)* | *DENIAL
              OF LIABILITY*
|---- | -----------------------------------



Nothing
      herein contained shall be construed as an admission by any party hereto of
      any
      liability of any kind to the other party.




|*7)* | *RELEASE*
|---- | ---------



Except
      as
      necessary to enforce the terms of this Agreement, and in exchange for and in
      consideration of the promises, covenants and agreements set forth herein,
      Employee hereby irrevocably and unconditionally releases and forever discharges
      the Company and its past and present parents, subsidiaries, and affiliates,
      and
      each and all of their respective past and present officers, agents, directors,
      supervisors, employees, representatives, predecessors, successors and assigns,
      in both their individual and corporate capacities, to the maximum extent
      permitted by law, from any and all manner of claims, demands, causes of action,
      obligations, damages, or liabilities of any kind or nature whatsoever, at law
      or
      in equity, known or unknown, suspected or unsuspected, and whether or not
      discoverable, which Employee has or may have for any period prior to his
      execution of this Agreement, including, without limitation, claims for
      additional compensation, claims for severance pay, claims of defamation,
      wrongful discharge or breach of contract, claims for unpaid wages or commissions
      or bonuses, claims arising under any federal, state or local labor laws, claims
      of discrimination under the Age Discrimination in Employment Act of 1967, as
      amended, Title VII of the Civil Rights Act of 1964, as amended, the Americans
      with Disabilities Act of 1990, the New York State and City Human Rights Laws,
      the New Jersey Law Against Discrimination, the New Jersey Conscientious Employee
      Protection Act, the New Jersey Family Leave Act, or any other federal, state
      or
      local laws, claims arising under the Employee Retirement Income Security Act
      of
      1974, and any claim for attorneys’ fees or costs.




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|*8)* | *ADVICE
              OF COUNSEL*
|---- | ---------------------------------



Employee
      acknowledges that he entered into this Agreement voluntarily, that he fully
      understands all of its provisions, and that no representations were made to
      induce execution of this Agreement that are not expressly contained
      herein.




Employee
      is hereby advised to consult with an attorney prior to executing this Agreement.
      Employee acknowledges that he has been afforded an opportunity to consult with
      the attorneys of his choice prior to executing this Agreement. Employee
      acknowledges that he has consulted with his own tax advisors regarding the
      payments hereunder and is not relying on the Company for any advice in this
      regard.




Employee
      acknowledges that he has been afforded an opportunity to take at least
      twenty-one (21) days to consider this Agreement. Employee further understands
      and acknowledges that he will have a period of seven (7) calendar days following
      his execution of this Agreement in which to revoke his consent, and that such
      revocation will be effective only if received in writing by Thomas J. Axon,
      Franklin Credit Management Corporation, Number 6 Harrison Street, Sixth Floor,
      New York New York 10013 on or before the expiration of this seven (7) day
      period. This Agreement will not become effective or enforceable until the
      revocation period has expired.




|*9)* | *SUCCESSORS*
|---- | ------------



|a) | This
              Agreement and the covenants and conditions herein contained shall apply
              to, be binding upon, and inure to the benefit of the respective heirs,
              administrators, executors, legal representatives, assignees, successors,
              and agents of the parties to this
              Agreement.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b) | In
              the event of the death of Employee while payments are still due to
              him,
              said payments are hereby irrevocably assigned to his current spouse
              or, in
              the case that she does not survive him, his
              estate.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|c) | In
              the event Company shall enter into any arrangement or agreement of
              merger,
              consolidation or any other transaction whereby it either dissolves
              or
              transfers its assets to another entity or person while payments remain
              due
              under this Agreement, then this Agreement and the obligations under
              it
              shall be transferred with the assets, or in the case of dissolution
              or
              liquidation without any transfer, cause this Agreement to be paid off
              from
              the sale of its assets.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|*10)* | *NOTICES*
|----- | ---------



Any
      notice required or permitted to be given under this Agreement shall be
      sufficient if in writing, and if sent by registered mail to his residence in
      the
      case of the Employee, or to its principal office in the case of the
      Company.




|*11)* | *WAIVER*
|----- | --------



The
      waiver by either party of a breach by the other party of any provisions of
      this
      Agreement shall not operate or be construed as a waiver of any subsequent
      breach.




|*12)* | *ENTIRE
              AGREEMENT*
|----- | --------------------------------



Except
      as
      specifically set forth herein, the Restricted Stock Grant Agreement between
      the
      parties (as amended herein), and the Registration Rights Agreement (as amended
      herein) between the parties, this Agreement shall be deemed to express, embody
      and supersede all previous understandings, agreements and commitments, whether
      written or oral, between the parties hereto with respect to the subject matter
      hereof and fully and finally to set forth the entire agreement between the
      parties hereto. No modifications shall be binding unless stated in writing
      and
      signed by both parties .




|*13)* | *APPLICABLE
              LAW*
|----- | ------------------------------



The
      parties acknowledge that no promises or representations have been made to
      procure this Agreement that are not contained in this Agreement. This Agreement
      shall be construed in accordance with and interpreted under the terms of New
      York Law. This Agreement is deemed to be jointly prepared by the parties hereto,
      and the language of all parts of this Agreement shall in all cases be construed
      as a whole, according to its fair meaning, and not strictly for or against
      any
      party.









[Signature
      page follows.]




5




IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement under seal
      as
      of the day and year first above written and the Company and the person signing
      on its behalf hereby warrant that they are fully authorized to do
      so.




Dated
      as
      of January __, 2006.


__________________________________Jeffrey R.
              JohnsonFranklin
              Credit
              Management CorporationBy:
            ___________________________________Thomas AxonChairman












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