Document:

EX-10.7

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of October 10, 2006 (the
“Effective Date”) by and between ECC Capital Corporation (the “Company” or “Encore”) and Alanna
Darling (“Executive”).

WHEREAS, Executive is currently employed by Encore Credit Corp.

WHEREAS, the Company and Executive (the “Parties”) wish to ensure the Company’s access to
Executive’s continued services, and the terms on which those services will be provided;

THEREFORE, the Parties agree as follows:

1. EMPLOYMENT

The Company hereby employs Executive and Executive hereby accepts employment upon the terms
and conditions set forth below.

2. TERM

2.1 Term. The term of this Agreement shall commence on October 10, 2006 (the
“Effective Date”), and shall continue on the terms and conditions set forth below, until
Executive’s employment is terminated as provided in Section 5 (the “Term”).

3. COMPENSATION

3.1 Base Compensation. Executive shall be paid a salary at the annual rate of
$200,000 (the “Base Compensation”). The Base Compensation shall be reviewed at least annually, and
may be increased, but not decreased. In the event that the Base Compensation is increased, the new
salary shall be the Base Compensation for purposes of this Agreement thereafter.

3.2 Bonus Compensation. The Compensation Committee of the Board of Directors of the
Company (the “Compensation Committee”), or its designee, shall review Executive’s performance on an
annual basis and cause the Company to award Executive a cash bonus in an amount which the
Compensation Committee or its designee determines in its sole and absolute discretion.

3.3 Benefits. The Executive shall be entitled to participate in all pension, 401(k)
and other employee plans and benefits in accordance with the terms of such plans or policies as may
be in effect from time to time.

3.4 Method of Payment. The monetary compensation payable and any benefits due to
Executive hereunder may be paid or provided in whole or in part, from time to time, by the Company
and/or its respective parents, subsidiaries and affiliates, but shall at all times remain the
responsibility of the Company.

4. POSITION AND DUTIES

4.1 Position or Duties. Executive shall hold such position and have such duties as
assigned to her by the Company from time to time.

4.2 Devotion of Time and Effort. Executive shall use Executive’s good faith best
efforts and judgment in performing Executive’s duties as required hereunder and to act in the best
interests of the Company. Executive shall devote all of her business time, attention and energies
to the business of the Company.

4.3 Other Activities. Executive may engage in other activities for Executive’s own
account while employed hereunder, including without limitation, charitable, community and other
business activities, provided that in the judgment of the Board of Directors of the Company (the
“Board”) such other activities do not materially interfere with the performance of Executive’s
duties hereunder, and do not violate Sections 6 and 7.

4.4 Vacation. Executive shall be entitled to two (2) weeks paid vacation annually.
Such vacation shall be subject to the Company’s policies concerning accrual, use and scheduling of
vacation, as such policies may be in effect from time to time.

4.5 Business Expenses. Executive shall be entitled to reimbursement of reasonable
business expenses in accordance with Company policies, as they may be in effect from time to time.

5. TERMINATION

5.1 Due to Death. Executive’s employment shall terminate as of the date of her death.

5.2 Due to Disability. The Company may terminate Executive’s employment if she
becomes “disabled”, as defined below, upon written notice to Executive. For purposes of this
Agreement, the term “Disability” shall mean a physical or mental incapacity as a result of which
Executive becomes unable to continue to perform the essential functions of the job with or without
accommodation hereunder for six consecutive calendar months or for shorter periods aggregating 180
business days in any 12 month period, or, if this provision is inconsistent with any applicable
law, to the extent not prohibited by law.

5.3 By the Company Without “Cause”. The Company may terminate Executive’s employment
without “Cause” as defined in Section 5.5 below at any time following the Effective Date, upon
written notice to Executive.

5.4 By Executive Without “Good Reason”. Executive may terminate her employment
hereunder without Good Reason, as defined in Section 5.6 below, at any time upon written notice to
the Company.

5.5 By The Company For Cause. The Company may terminate Executive’s employment for
“Cause” at any time, upon written notice to Executive. For purposes of this Agreement, “Cause”
shall mean:

(a) Executive’s conviction of or plea of nolo contender to a felony or any crime involving
moral turpitude;

(b) Executive’s commission of any act of theft, embezzlement or misappropriation against the
Company;

(c) Executive’s failure to substantially perform Executive’s duties hereunder (other than such
failure resulting from Executive’s incapacity due to physical or mental illness), which failure is
not remedied within thirty (30) days after written demand for substantial performance is delivered
by the Company which specifically identifies the manner in which the Company believes that
Executive has not substantially performed Executive’s duties; or

(d) Executive’s material breach of her obligations under this Agreement, which breach is not
remedied within thirty (30) days after written notice is delivered by the Company which
specifically identifies the breach that the Company believes has occurred.

5.6 By Executive For Good Reason. Executive may terminate her employment for good
reason upon at least thirty (30) days prior written notice to the Company. For purposes of this
Agreement, “Good Reason” shall mean the Company’s material breach of the salary and benefit
obligations hereunder and either such breach is incurable or, if curable, has not been cured within
fifteen (15) days following receipt of written notice by Executive to the Company of such breach by
the Company. Executive shall be deemed to have waived Executive’s right to terminate for “good
reason” with respect to a breach if Executive does not notify the Company in writing of such breach
within fifteen (15) days of such breach, or, if such breach is not immediately known to her, and
could not reasonably be expected to be know by her, within fifteen (15) days of her discovery of
such breach. Following a Change in Control, as defined below, “Good Reason” shall also mean: (a) a
material reduction in the authority of Executive; (b) Executive’s assignment to a position other
than an officer position with the Company and any of its subsidiaries; or (c) a relocation of
Executive’s primary office location outside of Orange County, California, without Executive’s prior
written consent. The fact that the Company becomes a subsidiary of another entity, or that the
Company’s status changes from publicly-traded to privately-held, as a result of the Change in
Control, shall not, by itself, constitute a material reduction in the authority of Executive. In
addition, provided that Executive remains employed by the Company for ninety (90) days following a
Change in Control, during the thirty (30) days following the ninety (90) day period after the
Change in Control, if Executive elects to terminate her employment with the Company for any reason
or no reason, she shall be deemed to have “Good Reason”.

5.7 Severance Payment. In the event Executive’s employment terminates pursuant to
Sections 5.1 (Death), 5.4 (Without Good Reason), or 5.5 (For Cause), Executive (or Executive’s
estate, as applicable) shall have the right to receive Executive’s compensation as otherwise
provided under this Agreement through the effective date of termination. Executive shall have no
further right to receive compensation, benefits or other consideration from the Company, and
Executive shall not be entitled to any severance payments or benefits, except as required by
applicable law. In the event that Executive’s employment is terminated pursuant to Section 5.2
(Due to Disability), Section 5.3 (Without Cause), or Section 5.6 (For Good Reason), Executive shall
continue to render services to the Company pursuant to this Agreement until the date of termination
and shall continue to receive compensation, as provided in this Agreement, through the termination
date. Thereafter, Executive shall be entitled to severance pay and benefits as set forth in
subparagraph (a) through (c) below, provided that Executive executes and delivers (and does not
revoke, if a revocation period is required by law) a general release of claims in a form acceptable
to the Company in its sole and absolute discretion, and is not in material breach of any of the
provisions of this Agreement.

(a) Amount. The Company shall pay Executive an amount equal to 100 percent of
Executive’s Base Compensation (collectively, the “Severance Amount”). The Severance Amount shall
be subject to withholding under applicable law. The Severance Amount will be paid as follows: no
later than the tenth (10th) business day after Executive delivers a signed general
release in the form acceptable to the Company and returns all company property as required in
Section 9.9, twenty-five (25) percent of the Severance Amount shall be paid to Executive; the
remaining seventy-five (75) percent of the Severance Amount shall be paid in substantially equal
sums over the following twelve (12) months, in accordance with the Company’s regular payroll
practices (the “Severance Payments”). Notwithstanding the foregoing, the Severance Payments shall
be delayed to the extent necessary to comply with Section 409A of the Internal Revenue Code.

(b) Vesting. In addition to the Severance Payments, any unvested stock options or
restricted stock held by Executive shall vest as follows: 1/12th of the unvested stock
options and/or restricted stock held by Executive as of the termination date shall vest at the end
of each one-month period following the date of termination for the twelve-month period following
the date of termination (the “Vesting”). Any stock option or restricted stock vested in accordance
with this Section 5.7(b) shall be exercisable within ninety (90) days following the twelve-month
vesting period

(c) Benefits. In addition to the Severance Payments and the Vesting, provided that
Executive is eligible for and timely elects COBRA healthcare coverage continuation, the Company
shall pay the portion of the COBRA premium equal to the difference between the COBRA premium and
Executive’s monthly contribution towards health care benefits immediately prior to the data of
termination, for Executive to continue her (and, if applicable, her family’s) health care coverage,
which was in effect as of the date of termination for up to eighteen (18) months from the date of
termination, provided that Executive (and, if applicable, her family) remains eligible for such
coverage (the “Severance Benefits”). Notwithstanding the foregoing, the Company’s payment of
portions of the COBRA premium shall be delayed to the extent necessary to comply with Section 409A
of the Internal Revenue Code.

5.8 Change in Control.

For purposes of this Agreement, a “Change in Control” shall mean the occurrence of any of the
following events:

(a) within twenty-four (24) months of the Effective Date, the individuals constituting the
Board as of the Effective Date (the “Incumbent Board”) cease for any reason to constitute at least
two-thirds (2/3rds) of the Board; provided, however, that if the election, or nomination for
election by the Company’s stockholders, of any new director was approved by a vote of at least
two-thirds (2/3rds) of the Incumbent Board, such new director shall be considered a member of the
Incumbent Board; or

(b) an acquisition of any voting securities of the Company (the “Voting Securities”) by any
“person” (as the term “person” is used for purposes of Section 13(d) or Section 14(d) of the
Securities Exchange Act of 1934, as amended (the “1934 Act”)) immediately after which such person
has “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the 1934 Act)
(“Beneficial Ownership”) of 35% or more of the combined voting power of the Company’s then
outstanding Voting Securities; or

(c) approval by the stockholders of the Company of:

(i) a merger, consolidation, share exchange or reorganization involving the Company, unless

(A) the stockholders of the Company, immediately before such merger,
consolidation, share exchange or reorganization, own, directly or indirectly
immediately following such merger, consolidation, share exchange or reorganization,
at least 80% of the combined voting power of the outstanding voting securities of
the corporation that is the successor in such merger, consolidation, share exchange
or reorganization (the “Surviving Company”) in substantially the same proportion as
their ownership of the Voting Securities immediately before such merger,
consolidation, share exchange or reorganization; provided, however, that a merger,
consolidation, share exchange or reorganization of the Company shall not constitute
a “change in control” if such merger, consolidation, share exchange or
reorganization of the Company is approved by the Board and is recommended by
Executive to the Board for its approval; and

(B) the individuals who were members of the Incumbent Board immediately prior
to the execution of the agreement providing for such merger, consolidation, share
exchange or reorganization constitute at least two-thirds (2/3rds) of the members of
the board of directors of the Surviving Company; or

(ii) a complete liquidation or dissolution of the Company; or

(iii) an agreement for the sale or other disposition of all or substantially all of the assets
of the Company.

The Transaction shall not constitute a Change in Control for purposes of this Agreement.

5.9 Certain Additional Payments.

(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any Payment would be subject to the Excise Tax, then the
Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount
equal to the Excise Tax imposed upon the Payments, but not any Excise Tax resulting from the
receipt of any Gross-Up Payment.

(b) Subject to the provisions of Section 5.9(c), all determinations required to be made under
this Section 5.9, including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be
made by the nationally recognized certified public accounting firm used by the Company immediately
prior to the Change in Control or, if such firm declines to serve, such other nationally recognized
certified public accounting firm as may be designated by the Executive (the “Accounting Firm”)
which shall provide detailed supporting calculations both to the Company and the Executive within
15 business days of the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be
borne solely by the Company. Subject to Section 5.9(e) below, any Gross-Up Payment, as determined
pursuant to this Section 5.9, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. For purposes of making the calculations required by
this Section 5.9, the Accounting Firm may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good-faith interpretations concerning the application
of Sections 280G and 4999 of the Internal Revenue Code (the “Code”). As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been
made by the Company should have been made (“Underpayment”), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its remedies pursuant to
Section 5.9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no later than ten business days after
the Executive is informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive shall:

(i) give the Company any information reasonably requested by the Company relating to such
claim,

(ii) take such action in connection with contesting such claim as the Company shall reasonably
request in writing from time to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the Company,

(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

(iv) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such representation and payment
of costs and expenses. Without limitation on the foregoing provisions of this Section 5.9(c), the
Company shall control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect to any imputed income
with respect to such advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the
Company’s control of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to
Section 5.9(c), the Executive becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company’s complying with the requirements of Section 5.9(c))
promptly pay to the Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5.9(c), a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the expiration of 30
days after such determination, then such advance shall be forgiven and shall not be required to be
repaid in an amount equal to the Gross-Up Payment that the Company would otherwise be required to
pay, and the balance of the amount advance shall be repaid to the Company by Executive within sixty
(60) days of such determination.

(e) Notwithstanding any other provision of this Section 5.9, the Company may withhold and pay
over to the Internal Revenue Service for the benefit of the Executive all or any portion of the
Gross-Up Payment that it determines in good faith that it is or may be in the future required to
withhold, and the Executive hereby consents to such withholding.

(f) Notwithstanding the foregoing, if the net amount Executive would realize from any Payment
and any Gross-Up Payment after payment of all income, employment and excise taxes on such Payments
and such Gross-Up Payment would be less than the net amount Executive would realize if all Payments
were limited to the maximum amount that may be paid to Executive without any portion thereof being
an “excess parachute payment” under Section 280G of the Code, then Executive’s payments and
benefits under the Agreement, (and under all other contracts, arrangements, and programs) shall
not, in the aggregate, exceed the maximum amount that may be paid to Executive without any portion
thereof being an “excess parachute payment” under Section 280G of the Code, as determined in good
faith by the Accounting Firm. The Company shall bear the expense of the Accounting Firm’s
determination. If Executive’s payments and benefits must be reduced to avoid any portion thereof
being an “excess parachute payment,” Executive’s payments and benefits shall be reduced in the
priority order Executive designates or, if Executive fails promptly to designate an order, in the
priority order designated by the Company. If an amount in excess of the limit set forth in this
Section is paid to Executive, Executive shall repay the excess amount to the Company upon demand,
with interest at the rate provided in Section 1274(b)(2)(B) of the Code. Executive and the Company
agree to cooperate with each other reasonably in connection with any administrative or judicial
proceedings concerning the existence of payments and benefits (or portions thereof) that are
“excess parachute payments” and the amounts thereof.

(g) Definitions. The following terms shall have the following meanings for purposes
of this Section 5.9.

(i) “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code,
together with any interest or penalties imposed with respect to such excise tax.

(ii) A “Payment” shall mean any payment or distribution in the nature of compensation
(within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the
Executive, whether paid or payable pursuant to this Agreement or otherwise.

5.10 Vesting Upon Change in Control.

Notwithstanding the provisions of any plan or agreement to the contrary, upon a Change in
Control, all unvested stock options held by Executive shall be fully vested and exercisable, and
all restricted stock held by Executive shall be fully vested. Except as expressly set forth in
this Section 5.10, such stock options and restricted stock shall be subject to the terms of the
plans and agreements under which they were issued.

6. CONFIDENTIALITY

During the Term, Executive will have access to and become acquainted with various information
relating to the Company’s business operations, including customer (meaning a broker or borrower)
lists, customer files, marketing data, business plans, strategies, employee lists, contracts,
financial records and accounts, projections and budgets, and similar information. Executive agrees
that to the extent such information is not generally known to or available to the public and/or the
industry, and gives the Company an advantage over competitors who do not know of or use such
information, such information and documents constitute “Confidential Information” of the Company.
Executive further agrees that any documents relating to the business of the Company, whether they
are prepared by Executive or come into Executive’s possession in any other way, are owned by the
Company, shall remain the exclusive property of the Company, and must be returned to the Company
upon termination of employment. Executive shall not use any Confidential Information of the
Company, directly or indirectly, for Executive’s own benefit, or the benefit of any person or
entity other than the Company, nor shall Executive disclose Confidential Information to any person
or entity other than the Company and its employees, either during the Term or at any time
thereafter, except as may be appropriate for Executive to perform her duties as an employee,
officer and/or director, directly or indirectly, of the Company. In the event Executive violates
this provision during any period in which she is receiving severance under Section 5.7 of this
Agreement, in addition to any other remedies the Company may have, the Company may terminate the
Severance Payments, Vesting and Severance Benefits under Section 5.7.

7. NON-SOLICITATION/NON-COMPETITION

7.1 Non-Solicitation. During the Term and for the twelve-month period following the
Term, Executive shall not solicit any of the Company’s employees, agents or independent contractors
to end their relationship with the Company, or solicit or otherwise induce any such person to
perform services for Executive, or any other person or entity. In the event Executive violates
this provision during any period in which she is receiving severance under Section 5.7 of this
Agreement, in addition to any other remedies the Company may have, the Company may terminate the
Severance Payments, Vesting and Severance Benefits under Section 5.7.

7.2 Non-Competition. Executive acknowledges that Encore does business throughout the
United States, and that Executive has access to Confidential Information of the Company in the
course of performing her duties under this Agreement. In order to protect the legitimate business
interests of the Company and to avoid misuse of its Confidential Information, during the Term, and
(i) if Executive’s employment terminates pursuant to Section 5.4 or 5.5, or (ii) if Executive’s
employment terminates pursuant to Section 5.2, 5.3 or 5.6 and Executive is receiving severance
under Section 5.7 of this Agreement, for the one-year period after the Term, Executive shall not,
directly or indirectly, serve as an employee, consultant, officer, director, lender, investor,
shareholder, partner, manager or member of any person or entity, or own or act as a sole proprietor
of a business that engages in subprime wholesale mortgage lending during that period in any County
of the State of California or any of the States of the United States of America, other than the
Company or its affiliates, or as approved in advance in writing by the Board; provided, however,
that ownership of less than one (1) percent of the publicly traded securities of any publicly
traded entity shall not violate this provision. In the event Executive violates this provision
during any period in which she is receiving severance under Section 5.7 of this Agreement, in
addition to any other remedies the Company may have, the Company may terminate the Severance
Payments, Vesting and Severance Benefits under Section 5.7.

8. ARBITRATION AGREEMENT

8.1 Claims Subject to Arbitration. Any controversy, dispute or claim between
Executive and the Company, or its parents, subsidiaries, affiliates and any of their officers,
directors, agents or other employees, shall be resolved by binding arbitration, at the request of
either party.

The arbitrability of any controversy, dispute or claim under this policy shall be determined
by application of the substantive provisions of the Federal Arbitration Act (9 U.S.C. sections 1
and 2) and by application of the procedural provisions of the California Arbitration Act, except as
provided herein. Arbitration shall be the exclusive method for resolving any dispute and all
remedies available from a court of competent jurisdiction shall be available; provided, however,
that either party may request provisional relief from a court of competent jurisdiction, as
provided in California Code of Civil Procedure Section 1281.8, if such relief is not available in a
timely fashion through arbitration.

The claims which are to be arbitrated include, but are not limited to any Claim arising out of
or relating to this Agreement or the employment relationship between Executive and the Company,
claims for wages and other compensation, claims for breach of contract (express or implied), claims
for violation of public policy, wrongful termination, tort claims, claims for unlawful
discrimination and/or harassment (including, but not limited to, race, religious creed, color,
national origin, ancestry, physical disability, mental disability, gender identity or expression,
medical condition, marital status, age, pregnancy, sex or sexual orientation) to the extent allowed
by law, and claims for violation of any federal, state, or other government law, statute,
regulation, or ordinance, except for claims for workers’ compensation and unemployment insurance
benefits. This Agreement shall not be interpreted to provide for arbitration of any dispute that
does not constitute a claim recognized under applicable law.

8.2 Selection of Arbitrator. The Executive and the Company will select a single
neutral arbitrator by mutual agreement. If the Executive and the Company are unable to agree on a
neutral arbitrator within thirty (30) days of a demand for arbitration, either party may elect to
obtain a list of arbitrators from the Judicial Arbitration and Mediation Service (“AMS”) or the
American Arbitration Association (“AAA”), and the arbitrator shall be selected by alternate
striking of names from the list until a single arbitrator remains. The party initiating the
arbitration shall be the first to strike a name.

8.3 Demand for Arbitration. The demand for arbitration must be in writing and must be
made by the aggrieved party within the statute of limitations period provided under applicable
State and/or Federal law for the particular claim(s). Failure to make a written demand within the
applicable statutory period constitutes a waiver of the right to assert that claim in any forum.

8.4 Location of Arbitration. Arbitration proceedings will be held in Orange County,
California.

8.5 Choice of Law. The arbitrator shall apply applicable State and/or Federal
substantive law to determine issues of liability and damages regarding all claims to be arbitrated,
and shall apply the California Evidence Code to the proceeding.

8.6 Discovery. The parties shall be entitled to conduct reasonable discovery and the
arbitrator shall have the authority to determine what constitutes reasonable discovery. The
arbitrator shall hear motions for summary judgment/adjudication as provided in the California Code
of Civil Procedure.

8.7 Written Opinion and Award. Within thirty days following the hearing and the
submission of the matter to the arbitrator, the arbitrator shall issue a written opinion and award
which shall be signed and dated. The arbitrator’s award shall decide all issues submitted by the
parties, and the arbitrator may not decide any issue not submitted. The opinion and award shall
include factual findings and the reasons upon which the decision is based. The arbitrator shall be
permitted to award only those remedies in law or equity which are requested by the parties and
allowed by law.

8.8 Appeals. The final award may be appealed to another arbitrator who will be chosen
by the parties in the same manner as the original arbitrator. All the rules governing judicial
appeals of judgments from the Superior Court of the State of California shall apply to any appeal
of this award, including but not limited to the time frames, deadlines and the standards of review.

8.9 Costs of Arbitration. The cost of the arbitrator and other incidental costs of
arbitration that would not be incurred in a court proceeding shall be borne by the Company. The
parties shall each bear their own costs and attorneys’ fees in any arbitration proceeding,
provided, however, that the arbitrator shall have the authority to require either party to pay the
costs and attorneys’ fees of the other party to the extent permitted under applicable federal or
state law, as a part of any remedy that may be ordered.

8.10 Waiver of Right to Jury. Both the Company and Executive understands that by
using arbitration to resolve disputes they are giving up any right that they may have to a judge or
jury trial with regard to all issues concerning employment or otherwise covered by this Section 8.

9. GENERAL PROVISIONS

9.1 Assignment; Binding Effect. Neither the Company nor Executive may assign,
delegate or otherwise transfer this Agreement or any of their respective rights or obligations
hereunder without the prior written consent of the other party; provided, however, that the Company
may assign its rights and obligations under this Agreement for ECC Capital Corp. without the prior
written consent of Executive. Any attempted prohibited assignment or delegation shall be void.
This Agreement shall be binding upon and inure to the benefit of any permitted successors or
assigns of the parties and the heirs, executors, administrators and/or personal representatives of
Executive.

9.2 Notices. All notices, requests, demands and other communications that are
required or may be given under this Agreement shall be in writing and shall be deemed to have been
duly given when received if personally delivered; when transmitted if transmitted by telecopy,
electronic or digital transmission method with electronic confirmation of receipt; the day after it
is sent, if sent for next-day delivery to a domestic address by recognized overnight delivery
service (e.g., FedEx); and upon receipt, if sent by certified or registered mail, return receipt
requested. In each case notice shall be sent to:

	 	 	 
	If to the Company:

	 	ECC Capital Corp.

1833 Alton Parkway

Irvine, California 92606

Attention: Chairman, Compensation Committee

Fax: (949) 856-4948
	 
	 	 
	If to Executive:

	 	Alanna Darling

1833 Alton Parkway

Irvine, California 92606

Phone: (949) 856-8300

Fax: (949) 856-4948

Any party may change its address for the purpose of this Section 9.2 by giving the other party
written notice of its new address in the manner set forth above.

9.3 Entire Agreement. This Agreement constitutes the entire agreement of the Parties
with respect to the subject matter hereof, and supersedes all prior agreements; provided, however,
that this Agreement shall supplement, not supercede, any prior agreements concerning the
Confidential Information, Trade Secrets or other intellectual property of the Company, and any
conflicts or inconsistencies between such agreements shall be resolved so that the provision
providing greater rights to the Company shall prevail.

9.4 Amendments; Waivers. This Agreement may be amended or modified, and any of the
terms and covenants may be waived, only by a written instrument executed by the parties hereto, or,
in the case of a waiver, by the party waiving compliance. Any waiver by any party in any one or
more instances of any term or covenant contained in this Agreement shall neither be deemed to be
nor construed as a further or continuing waiver of any such term or covenant of this Agreement.

9.5 Provisions Severable. In case any one or more provisions of this Agreement shall
be invalid, illegal or unenforceable, in any respect, the validity, legality and enforceability of
the remaining provisions contained herein shall not, in any way, be affected or impaired thereby.
If any provision hereof is determined by any court of competent jurisdiction to be invalid or
unenforceable by reason of such provision extending the covenants and agreements contained herein
for too great a period of time or over too great a geographical area, or being too extensive in any
other respect, such provision shall be interpreted to extend only over the maximum period of time
and geographical area, and to the maximum extent in all other respects, as to which it is valid and
enforceable, all as determined by such court in such action.

9.6 Attorney’s Fees. If any legal action, arbitration or other proceeding, is brought
for the enforcement of this Agreement, or because of an alleged dispute, breach or default in
connection with any of the provisions of this Agreement, each of the parties hereto shall be
responsible for payment of their own attorneys’ fees and other costs incurred by them in that
action or proceeding, without regard to whomever is the prevailing party in such action or
proceeding with respect to such claims, except as otherwise provided in Section 8.

9.7 Governing Law. This Agreement shall be construed, performed and enforced in
accordance with, and governed by the laws of the State of California without giving effect to the
principles of conflict of laws thereof.

9.8 Non-Disparagement. During her employment and thereafter, Executive agrees to
represent the Company in a positive light and not to disparage or in any other way communicate to
any person or entity any negative information or opinion concerning the Company, its parents,
subsidiaries and affiliates, or any of their partners, members, shareholders, officers, directors,
employees or agents, or any of them. This provision shall not prohibit Executive from making any
statements or taking any actions required by law, or reporting any actions or inactions Executive
believes to be unlawful. This provision shall not be interpreted to require or encourage Executive
to make any misrepresentations.

9.9 Return of Property. Upon termination of Executive’s employment, Executive shall
return to the Company any and all company property, materials, or equipment in her possession,
including, without limitation, Company property described in Section 6.

9.10 Cooperation. During Executive’s employment with the Company and thereafter,
Executive agrees to cooperate with Employer and Employer’s agents, accountants and attorneys
concerning any matter with which Executive was involved during her employment. Such cooperation
shall include, but not be limited to, providing information to, meeting with and reviewing
documents provided by Employer and Employer’s agents, accountants and attorneys during normal
business hours or other mutually agreeable hours upon reasonable notice and to make herself
available for depositions and hearings, if necessary and upon reasonable notice. If Executive’s
cooperation is required after the termination of Executive’s employment, the Company shall
reimburse Executive for any out of pocket expenses incurred in and any wages lost by Executive for
time spent performing her obligations hereunder.

9.11 Counterparts. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which shall constitute the same instrument.

9.12 Headings. The headings contained in this Agreement are provided solely for the
Parties’ convenience and shall not be deemed to alter the meaning of the text of the Agreement.

9.13 Survival. Sections 6, 7, 8, and 9 shall survive the termination of this
Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date
first written above.

	 	 	 	 	 
	THE COMPANY:
	 	 	 	 
	 
	 	 	 	 
	ECC Capital Corporation, a
Maryland corporation
By: _______________________
Its: _______________________
	 	 	—	 
	EXECUTIVE:
	 	Date

	—
	 	 	—	 
	__________________________________
	 	Date

	Alanna Darlingexv10w1

 

Exhibit 10.1

SEPARATION AGREEMENT AND GENERAL RELEASE

This Separation Agreement and General Release (the “AGREEMENT”) is entered into this 5th day of October 2006
between Gregory Couto (“Couto”) and NationsHealth, Inc. (“the Company” or “NationsHealth”) (collectively the
“Parties”).

WHEREAS, the Parties have agreed that Couto will resign from employment with the Company, effective as of the
Separation Date, and that the terms of this AGREEMENT shall supersede the Employment Agreement between Couto and the
Company, dated April 13, 2005 (“the Employment Agreement”), unless otherwise stated herein;

WHEREAS, the Parties agree that Couto has made valuable contributions to the Company and that the Company will
provide the separation benefits described in this AGREEMENT in exchange for a release of claims against the Company,
including a release of any obligations of the Company under the Employment Agreement;

NOW, THEREFORE, in consideration of the promises and conditions set forth herein, Couto and the Company agree as
follows:

1. Couto has resigned from employment with the Company and from all positions that Couto holds at the Company,
effective April 26, 2006 (the “Separation Date”). Couto shall deliver or return to the Company, on or before the
Separation Date, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes, and written
information (and all copies thereof) furnished by the Company and its subsidiaries or affiliates or prepared by Couto
in the course of Couto’s employment by the Company and its subsidiaries or affiliates.

2. Couto and his spouse and dependents shall be eligible to elect health care continuation (“COBRA”) coverage
under the Company’s group health plan, subject to their paying the applicable COBRA premium, which shall be reimbursed
by the Company, in accordance with the terms of the group health plan applicable in the case of a voluntary
resignation; and

3. Following the Effective Date as set forth in paragraph 10 below, the Company shall provide to Couto a lump-sum
separation payment in the amount of ninety thousand seven hundred seventy four dollars ($90,774.00), of which $60,774
was paid on September 14, 2006, subject to applicable withholding as required by law. Couto acknowledges and agrees
that the payment described in this paragraph 3 exceeds any legal payment obligations of NationsHealth and provides
valid consideration for the release contained in paragraph 4 of this AGREEMENT.

4. In consideration of the payment and mutual promises and covenants set forth in this AGREEMENT, Couto, on behalf
of himself, his heirs, successors, current and former agents, representatives, attorneys, assigns, executors,
beneficiaries, and administrators, hereby releases and forever discharges NationsHealth and each and all of its current
and former parents, divisions, subsidiaries and affiliates, attorneys, shareholders, employees, representatives and
agents (collectively “the NationsHealth Group”) and each and all of their predecessors, successors, assigns, officers,
directors, from any and all charges, complaints, claims, liabilities,

 

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obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands,
costs, losses, debts and expenses (including attorneys’ fees) of any nature whatsoever, whether in law or in equity,
which Couto now has or ever may have had against the NationsHealth Group, including, but not limited to, any and all
matters related in any way to Couto’s equity interest in NationsHealth and Couto’s employment with or separation from
NationsHealth, as well as all claims under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the
Americans with Disabilities Act, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act,
the Employee Retirement Income Security Act of 1974, the National Labor Relations Act, the Immigration Reform and
Control Act, the Workers Adjustment and Retraining Notification Act, the Occupational Safety and Health Act, the Family
and Medical Leave Act, the Florida Civil Rights Act, the Florida Minimum Wage Law, any other federal, state, or local
anti-discrimination, wage or benefits laws, and any other contractual or tort claims relating to Couto’s equity
interest in NationsHealth and Couto’s employment or separation from employment with NationsHealth. Notwithstanding the
foregoing, nothing in this provisions shall waive or supersede the Parties’ obligations under this AGREEMENT.

5. The Parties agree that there are no sums owed to either Party for business expenses incurred on behalf of the
Company, for the use of Company credit cards or automobiles, or in connection with the payment of emergency expenses
associated with Hurricane Wilma.

6. Couto agrees that he and his agents will not publicize or disclose, directly or indirectly, the existence of
this AGREEMENT, the terms thereof, or the circumstances giving rise to the AGREEMENT, to anyone other than Couto’s
attorney, accountant, financial advisor and members of his immediate family or as required by law. Couto further
agrees that he will advise any individual to whom the terms, conditions or existence of this AGREEMENT have been
disclosed of the confidentiality requirements of this paragraph and that he will use his best efforts to ensure that
the confidentiality requirements of this paragraph are complied with in all respects.

7. Couto understands and agrees that his covenant to comply with the following non-competition and
non-solicitation obligations serves as material inducement for the Company to enter into this AGREEMENT and that his
obligations under this paragraph 7 survive the termination of this AGREEMENT. Further, Couto understands and agrees
that his breach of the obligations set forth in this paragraph 7 would be a material breach of this AGREEMENT,
entitling the Company to all available remedies at law and equity, including, but not limited to, recoupment of the
payments made to Couto under paragraph 3 of this AGREEMENT.

(a) Non-Competition. Couto acknowledges and recognizes his possession of Confidential Information (as defined in
his Employment Agreement with the Company) and acknowledges the highly competitive nature of the business of the
Company and its affiliates and subsidiaries and accordingly agrees that, in consideration of the promises contained
herein, he will not, prior to April 26, 2007 (the “Post-Employment Restricted Period”), engage or invest in, own,
manage, operate, finance, control, or participate in the ownership, management, operation, financing, or control of, be
employed by, lend his name to, lend his credit to, or render services or advice to any business that competes with the
business then being conducted by the Company or any of its affiliates or subsidiaries (or that had been conducted by
the Company or any of its

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affiliates or subsidiaries during the prior 12 months), provided, however, that Couto may purchase or otherwise
acquire up to three percent of any class of securities of any enterprise if such securities are listed on any national
or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended. Couto agrees that, in consideration of the promises contained herein, he will not, either individually or as
an officer, director, stockholder, member, partner, agent, consultant or principal of any other business firm, directly
or indirectly, solicit any business of the type being carried on by the Company or any of its affiliates or
subsidiaries during the Post-Employment Restricted Period (or any business of a similar type) from any person or entity
that was a customer of the Company or its affiliates or subsidiaries during the term of his employment with the
Company.

(b) Non-Solicitation. Couto recognizes that he does possess confidential information about employees of the
Company and its subsidiaries or affiliates relating to their education, experience, skills, abilities, compensation,
and benefits, and inter-personal relationships with suppliers to and customers of the Company and its subsidiaries and
affiliates. Couto recognizes that the information he possesses about these other employees is not generally known, is
of substantial value to the Company and its subsidiaries or affiliates in developing their respective businesses and in
securing and retaining customers, and has been acquired by Couto because of his engagement with the Company. Couto
agrees that, for one year after the Separation Date, Couto will not, directly or indirectly, solicit or recruit any
employee of the Company or any of its subsidiaries or affiliates of the purpose of becoming employed by Couto or by any
business, individual, partnership, firm, corporation or other entity on whose behalf Couto is acting as an agent,
representative or employee and that Couto will not convey any such confidential information or trade secrets about
employees of the Company or any of its subsidiaries or affiliates to any person.

8. This AGREEMENT constitutes a compromise settlement of disputed and contested matters between the Parties and is
the product of arms-length negotiations. It shall not be construed as an admission of any sort by either of the
Parties, nor shall it be used as evidence in a proceeding of any kind, except one in which one of the Parties alleges
breach of the terms of this AGREEMENT or one in which one of the Parties elects to use this AGREEMENT as a defense to
any claim.

9. By signing this AGREEMENT, Couto acknowledges and agrees that:

(a) he has been afforded a reasonable and sufficient period of time for deliberation thereon and for negotiation
of the terms thereof;

(b) he has carefully read and understands the terms of this AGREEMENT;

(c) he has signed this AGREEMENT freely and voluntarily and without duress or coercion and with full knowledge of
its significance and consequences and of the rights relinquished, surrendered, released and discharged hereunder;

(d) the only consideration for signing this AGREEMENT are the terms stated herein and no other promise, agreement
or representation of any kind has been made to him by any person or entity whatsoever to cause him to sign this
AGREEMENT;

(e) that NationsHealth did offer him a minimum period of at least twenty-one (21) days after his receipt of this
AGREEMENT to review it; and

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(f) that NationsHealth advised him that he had the opportunity to consult an attorney before signing this
AGREEMENT.

10. This AGREEMENT may be revoked, in a writing sent to the Chairman of the Company, by Couto at any time during
the period of seven (7) calendar days following the date of execution by Couto. If such seven (7) day revocation
period expires without Couto exercising his revocation right, the obligations of this AGREEMENT will become fully
effective on the eighth day after Couto’s execution of the AGREEMENT (the “Effective Date”).

11. This AGREEMENT constitutes an integrated agreement, containing the entire understanding of the Parties with
respect to the matters addressed herein and, except as set forth in this AGREEMENT, no representations, warranties or
promises have been made or relied on by the Parties. This AGREEMENT shall prevail over any prior communications
between the Parties or their representations relative to matters addressed herein.

12. It is the desire and intent of the parties hereto that the provisions of this AGREEMENT shall be enforced to
the fullest extent permissible under the law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, although Couto and the Company consider the restrictions contained in this AGREEMENT to be
reasonable for the purpose of preserving the Company’s goodwill and proprietary rights, if any particular provision of
this AGREEMENT shall be adjudicated to be invalid or unenforceable, such provision shall be deemed amended to delete
the portion adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of
such business in the particular jurisdiction in which such adjudication is made. It is expressly understood and agreed
that although the Company and Couto consider the restrictions contained in paragraph 7 to be reasonable, if a final
determination is made by a court of competent jurisdiction that the time or territory or other restriction contained in
this AGREEMENT is unenforceable against Couto, the provisions of this AGREEMENT shall be deemed amended to apply as to
such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be
enforceable.

The Parties acknowledge that the Company’s damages at law would be an inadequate remedy for the breach by Couto of
any of the provisions of paragraph 7, and agree that in the event of such breach the Company may obtain temporary and
permanent injunctive relief restraining the Couto from such breach, and, to the extent permissible under the applicable
statutes and rules of procedure, a temporary injunction may be granted immediately upon the commencement of any such
suit. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies
available at law or equity for such breach or threatened breach of paragraph 7, or for any breach or threatened breach
of any other provision of this AGREEMENT.

Further, the Parties agree that any claim, controversy, or dispute between Couto and the Company (including
without limitation Company’s affiliates, subsidiaries, officers, employees, representatives or agents) arising out of
or related to this AGREEMENT, other than a dispute concerning a breach or a threatened breach of paragraph 7 of this
AGREEMENT, shall be submitted to and settled by arbitration before a single arbitrator in a forum of the American
Arbitration Association (“AAA”) located in Broward County in the State of Florida and

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conducted in accordance with the National Rules for the Resolution of Employment Disputes. In such arbitration:
(a) the arbitrator shall agree to treat as confidential evidence and other information presented by the parties to the
same extent as Confidential Information must be held confidential by Couto under the terms of his prior employment and
under the terms of this AGREEMENT, (b) the arbitrator shall have no authority to amend or modify any of the Company’s
policies, and (c) the arbitrator shall have ten business days from the closing statements or submission of post-hearing
briefs by the parties to render a decision. All AAA-imposed costs of said arbitration, including the arbitrator’s
fees, if any, shall be borne by the Company. All legal fees incurred by each party in connection with said arbitration
shall be borne by the party who incurs them, unless applicable statutory authority exist providing for the award of
attorneys’ fees to a prevailing party and the arbitration decision and award provides for the award of such fees. Any
arbitration award shall be final and binding upon the Parties, and any court having jurisdiction may enter a judgment
on the award.

13. The Parties agree that a failure by any party at any time to require performance of any provision of this
AGREEMENT shall not waive, affect, diminish, obviate or void in any way that party’s full right or ability to require
performance of the same, or any other provisions of this AGREEMENT, at any time thereafter.

14. This AGREEMENT shall be interpreted, enforced and governed under the laws of the State of Florida, without
regard to conflict of laws principles.

15. The Parties warrant and represent that they have read and understand the foregoing provisions of this
AGREEMENT and that they and their respective signatories are fully authorized and competent to execute this AGREEMENT
on behalf of each of them. Couto further warrants and represents that he has not previously assigned or transferred
any of claims that are the subject of the release contained herein.

Executed as an agreement under seal effective as of eight (8) days after Couto’s execution of this AGREEMENT.

	 	 	 	 	 	 	 
	NATIONSHEALTH, INC.

	 	GREGORY J. COUTO

	 

	 	 	 	 
	 	

	By:

	 	/s/ Glenn Parker
	 	By:
	 	/s/ Gregory J. Couto
	
 
	 	 
	 	 	 	 
	Title:

	 	Chief Executive Officer
	 	Date:
	 	10/5/06
	
 
	 	 
	 	 	 	 
	Date:

	 	10/5/06
	 	

	 	

	
 
	 	 
	 	

	 	

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