EX-10.3






SEPARATION AND GENERAL RELEASE AGREEMENT




This Separation and General Release Agreement (this “Agreement”) is being entered into by and
among Encore Credit Corp. (“Encore”), ECC Capital Corporation (together with Encore, “Employer” or
the “Company”) and John Kohler (“Employee”) (collectively, the “Parties”) as of the date of
Employee’s execution of this Agreement (the “Date of this Agreement”).



WHEREAS, Employee was employed by Employer pursuant to an Employment Agreement dated as of
February 15, 2005 (the “Employment Agreement”);



WHEREAS, the Parties wish to terminate their employment relationship and the Employment
Agreement on mutually acceptable terms and conditions effective as of April 30, 2006; and



WHEREFORE in consideration of the foregoing premises and the terms and conditions set forth
below, the Parties agree as follows:



1. Resignation. Employee hereby resigns from any and all positions within the Company
or any of its affiliates, as an employee, officer and/or director effective as of April 30, 2006
(the “Resignation Date”). Employee understands that he is giving up any right or claim to
compensation or benefits of employment with the Company beyond the Resignation Date, except as set
forth in Section 2 below. Employee acknowledges that on or prior to the Date of this Agreement, he
was paid all unpaid, earned wages, including without limitation, any accrued, unused vacation pay.
Employee further acknowledges that the Employment Agreement is terminated as of April 30, 2006, and
that he is not entitled to any further payments or benefits under the Employment Agreement,
including without limitation, the Severance Payments, Vesting and Severance Benefits provided for
in Section 5.7 of the Employment Agreement.



2. Separation Benefits to Employee. Provided that Employee timely signs and delivers,
and does not revoke, this Agreement, the Company will make eight (8) monthly payments to Employee
of Twenty-Three Thousand Four Hundred Thirty-Seven Dollars and Fifty Cents ($23,437.50) during the
period of May 2006 through December 2006 and two (2) monthly payments to Employee of Thirty-One
Thousand Two Hundred Fifty Dollars ($31,250.00) during the period of January 2007 through February
2007, less withholding as required by law or authorized by Employee, with each monthly payment
being made on approximately the 15th day of each month (the “Payment”). Employee
understands that the Payment represents the Company’s sole and exclusive financial obligation to
Employee under this Agreement or in connection with Employee’s employment, and that, without
limiting the foregoing, he is not entitled to severance or separation pay under any other plan,
policy or agreement.



3. Cancellation of Employee’s Option Shares.  Employee owns an option to purchase
150,000 shares of the Company’s common stock at an exercise price of $6.75 per share and an option
to purchase 50,000 shares of the Company’s common stock at an exercise price of $6.25 per share
(collectively, the “Option Shares”). Employee agrees, simultaneously with the execution and
delivery of this Agreement, to surrender the Employee’s Option Shares.



4. Release by Employee.



a. General Release. In exchange for the Consulting Agreement, Employee does hereby
release and forever discharge the “Company Releasees” herein, consisting of Employer, its parent,
subsidiary and affiliate corporations, and each of their respective past and present parents,
subsidiaries, affiliates, associates, owners, members, stockholders, predecessors, successors,
assigns, employees, agents, directors, officers, partners, representatives, lawyers, and all
persons acting by, through, under, or in concert with them, or any of them, of and from any and all
manner of claims or causes of action, in law or in equity, of any nature whatsoever, known or
unknown, fixed or contingent (hereinafter called “Claims”), that Employee now has or may hereafter
have against the Company Releasees by reason of any and all acts, omissions, events or facts
occurring or existing prior to the date hereof. The Claims released hereunder include, without
limitation, any alleged breach of any express or implied employment agreement; any alleged torts or
other alleged legal restrictions relating to the Employee’s employment and the termination thereof;
and any alleged violation of any federal, state or local statute or ordinance including, without
limitation, Title VII of the Civil Rights Act of 1964, as amended, 42 USC Section 2000, et
seq.; Americans with Disabilities Act, as amended, 42 U.S.C. § 12101 et
seq.; the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 et seq.;
Age Discrimination in Employment Act, as amended, 29 USC Section 621, et seq.;
Civil Rights Act of 1866, and Civil Rights Act of 1991; 42 USC Section 1981, et
seq.; Equal Pay Act, as amended, 29 USC Section 206(d); regulations of the Office of
Federal Contract Compliance, 41 CFR Section 60, et seq.; The Family and Medical
Leave Act, as amended, 29 U.S.C. § 2601 et seq.; the Fair Labor Standards Act of
1938, as amended, 29 U.S.C. § 201 et seq.; the Employee Retirement Income Security
Act, as amended, 29 U.S.C. § 1001 et seq.; and the California Fair Employment and
Housing Act, California Government Code Section 12940, et seq. This release shall
not apply to the Company’s obligations hereunder, to any vested retirement plan benefits or to
Employee’s rights under Labor Code Section 2802 with respect to claims asserted against him.



b. Unknown Claims.



Employee acknowledges that Employee is familiar with the provisions of California Civil Code
Section 1542, which provides as follows:



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



Employee being aware of said code section, hereby expressly waives any rights Employee may have
thereunder, as well as under any other statutes or common law principles of similar effect.



c. Older Worker’s Benefit Protection Act.



Employee agrees and expressly acknowledges that this Agreement includes a waiver and release
of all claims which he has or may have under the Age Discrimination in Employment Act of 1967, as
amended, 29 U.S.C. § 621, et seq. (“ADEA”). The following terms and conditions
apply to and are part of the waiver and release of the ADEA claims under this Agreement:




(1) This paragraph, and this Agreement are written in a manner calculated to be
understood by him.




(2) The waiver and release of claims under the ADEA contained in this Agreement does
not cover rights or claims that may arise after the date on which he signs this Agreement.




(3) This Agreement provides for consideration in addition to anything of value to which
he is already entitled.




(4) Employee has been advised to consult an attorney before signing this Agreement.




(5) Employee has been granted twenty-one (21) days after he is presented with this
Agreement to decide whether or not to sign this Agreement. If he executes this Agreement
prior to the expiration of such period, he does so voluntarily and after having had the
opportunity to consult with an attorney, and hereby waives the remainder of the twenty-one
(21) day period.




(6) Employee has the right to revoke this general release within seven (7) days of
signing this Agreement. In the event this general release is revoked, this Agreement and
the Consulting Agreement attached as Exhibit A will be null and void in their entirety.



If he wishes to revoke this agreement, Employee shall deliver written notice stating his
intent to revoke this Agreement to the Director of Human Resources at the offices of Employer on or
before 5:00 p.m. on the Seventh (7th) Day after the date on which he signs this
Agreement.



d. No Assignment. Employee represents and warrants to the Company Releasees
that there has been no assignment or other transfer of any interest in any Claim that the
Employee may have against the Company Releasees, or any of them. Employee agrees to
indemnify and hold harmless the Company Releasees from any liability, claims, demands,
damages, costs, expenses and attorneys’ fees incurred as a result of any person asserting
such assignment or transfer of any right or claims under any such assignment or transfer
from Employee.



e. No Actions. Employee represents and warrants that he is not presently
aware of any injury for which he may be eligible for workers’ compensation benefits.
Employee agrees that if Employee hereafter commences, joins in, or in any manner seeks
relief through any suit arising out of, based upon, or relating to any of the Claims
released hereunder or in any manner asserts against the Company Releasees any of the Claims
released hereunder, then Employee will pay to the Company Releasees against whom such
claim(s) is asserted, in addition to any other damages caused thereby, all attorneys’ fees
incurred by such Company Releasees in defending or otherwise responding to said suit or
Claim. Provided, however, that Employee shall not be obligated to pay the Company
Releasees’ attorneys’ fees to the extent such fees are attributable to claims under the Age
Discrimination in Employment Act or a challenge to the validity of the release of claims
under the Age Discrimination in Employment Act



5. No Admission. Employee and the Company further understand and agree that neither
the payment of money nor the execution of this Release shall constitute or be construed as an
admission of any liability whatsoever by the Company Releasees.



6. Severability. The provisions of this Agreement are severable, and if any part of
this Agreement is found to be unenforceable, the other paragraphs (or portions thereof) shall
remain fully valid and enforceable.



7. Confidentiality. The terms of this Agreement are intended to be confidential by
the Parties. Employer would not enter into this Agreement but for Employee’s promise to maintain
the confidentiality of the terms of and existence of this Agreement. Employee may not disclose the
terms of this Agreement to any person, except as required by applicable law.



8. No Encouragement of Actions Against the Company. Employee agrees that except to
the extent required by law, Employee will not assist any person in bringing or pursuing legal
action against the Company, its agents, successors, representatives, employees and related and/or
affiliated companies, based on events occurring prior to the Date of this Agreement.



9. No Disparagement/Professional Conduct. Employee further agrees, as a condition to
receipt of the Separation Benefits: (a) not to disparage the Company, its employees or products;
and (b) not to engage in actions contrary to the interests of the Company.



10. Confidential Information. During Employee’s employment with the Company, Employee
has been provided with, or had access to, trade secrets, confidential communications, private
information concerning the Company, its employees, officers, directors and stockholders, and
material non-public information (collectively, Confidential Information”). Employee understands
that he was provided with or had access to such information solely in his capacity as an employee
of the Company, and that such information was provided to him subject to his obligation to retain
such information in confidence and not to make any use of such information except as authorized to
do so in the course and scope of his employment with the Company. Employee understands and agrees
that his obligations to maintain that information in confidence remain in effect after the
termination of his employment with the Company, and he agrees to continue to honor that obligation.
This provision is meant to supplement, not supersede any existing agreements concerning
confidentiality, trade secrets, assignment or ownership of intellectual property, or solicitation
of employees or customers. To the extent of any conflict between any provision of this paragraph
and that or any other such agreement, the provision providing the greatest protection to the
Company shall control.



11. Solicitation of Employees. Employee agrees that through the first anniversary of
the Resignation Date, neither Employee nor anyone under Employee’s supervision or control, shall,
directly or indirectly, whether in an individual capacity or as an agent for or representative of
another person or entity, (a) solicit any person employed by the Company or an affiliate of the
Company to leave his/her employment with the Company or an affiliate of the Company, or any
successor thereto; (b) solicit any person who Employee knows to be an applicant or a candidate for
employment with the Company or an affiliate of the Company to seek employment with any person or
entity other than the Company or an affiliate of the Company; or (c) solicit any person who
Employee knows to be a potential or actual contractor with the Company or an affiliate of the
Company to provide his, her or its consulting services to any person or entity, such that it
results in a diminishment of services to the Company or an affiliate of the Company.



12. Solicitation of Customers. During Employee’s employment with the Company,
Employee has been provided with Confidential Information as set forth above for the purpose of
performing his job duties for the Company. Consequently, in order to prevent the misuse of such
information, Employee agrees that that neither Employee nor anyone under Employee’s supervision or
control, shall, directly or indirectly, whether in an individual capacity or as an agent for or
representative of another person or entity, use Confidential Information to solicit any customer,
broker, referral source, supplier, licensee, licensor or other party which Employee knows to have a
contractual or business relationship with, or to be receiving services by the Company or an
affiliate of the Company, to cease doing business with the Company, or an affiliate of the Company.



13. Remedies. In the event that Employee violates Sections 10, 11, 12 or 13 of this
Agreement, the Company shall be entitled to terminate the Separation Benefits in addition to any
other remedies to which it may be entitled.



14. Encore Property. Employee agrees to search his home, office and all other storage
areas for all property owned by the Company (“Encore Property”). Employee will return all Encore
Property within 72 hours of the execution of this Agreement, to the Human Resources Department of
Employer.



15. Choice of Law and Venue. The Parties acknowledge and agree that this Agreement
shall be interpreted in accordance with California law. Any actions arising out of or relating to
this Agreement or Employee’s employment with Employer shall be filed in either the Superior Court
of the State of California for the County of Orange, or the Federal District Court for the Central
District of California, unless subject to arbitration, in which case they shall be filed in
accordance with the Parties’ arbitration agreement. 



16. Sole and Entire Agreement. This Agreement represents the sole and entire
agreement among the Parties and supersedes all prior agreements, negotiations, and discussions
between the Parties hereto and/or their respective counsel, excluding any agreements concerning
arbitration of disputes, confidentiality, trade secret information, or assignment of intellectual
property rights. Any agreement amending or superseding this Agreement must be in writing, signed
by duly authorized representatives of the Parties, specifically reference this Agreement; and state
the intent of the Parties to amend or supersede this Agreement.



17. Arbitration. The Parties hereby agree to submit any claim or dispute arising out
of or relating to the terms of this Agreement as to Employee’s employment or the termination
thereof to private and confidential arbitration by a single neutral arbitrator. Subject to the
terms of this Section, the arbitration proceedings shall be governed by the rules of the Judicial
Arbitration and Mediation Service (“JAMS”) applicable to employment disputes as they may be in
effect from time to time, and shall take place in Orange County, California. The arbitrator shall
be appointed by agreement of the Parties hereto or, if no agreement can be reached, by JAMS
pursuant to its rules. The decision of the arbitrator shall be rendered in writing and be final
and binding on all Parties to this Agreement, and judgment thereon may be entered in any court
having jurisdiction. The arbitrator’s fees and/or any other fees payable to JAMS shall be shared
in accordance with the rules of JAMS; provided, however, that Employee shall not be required to pay
any such fees that are unique to arbitration and/or would exceed the cost of filing the same
claim(s) in a court of competent jurisdiction, and any shortfall shall be borne by the Company. The
Parties shall each bear their own attorneys’ fees, witness expenses, expert fees and other costs,
except to the extent they may be awarded otherwise by the arbitrator in accordance with applicable
law. This arbitration procedure is intended to be the sole and exclusive method of resolving any
claim between the Parties, and each of the Parties hereby waives any right to a jury trial with
respect to such claims.



18. Successors. This Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and permitted assigns.



19. Headings. The headings in this Agreement are provided solely for the
Parties’ convenience, and are not intended to be part of, nor to affect or alter the interpretation
or meaning of this Agreement.



20. Construction of Agreement. Both Parties have been represented by, or had the
opportunity to be represented by counsel in connection with this Agreement. Any rule of
construction to the effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.



21. Counterparts. For the convenience of the Parties hereto, this Agreement may be
executed in any number of counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same agreement.



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Date: May 12, 2006



ENCORE CREDIT CORP.



By: /s/ Shahid S. Asghar

Name: Shahid S. Asghar

Title: Executive Vice President





Date: May 12, 2006



ECC CAPITAL CORPORATION



By: /s/ Shahid S. Asghar

Name: Shahid S. Asghar

Title: President & Co-Chief Executive Officer





EMPLOYEE



Date: May 12, 2006



/s/ Charles John Kohler


Name: Charles John Kohler




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