EXHIBIT 10.1


 


LEAVE
OF ABSENCE AGREEMENT


 


LEAVE OF ABSENCE AGREEMENT, dated as of June 2, 2004 (the “Leave of Absence
Agreement”), by and between Fog Cutter Capital Group Inc. (the “Company”),
with its principal office at 1410 S.W. Jefferson Street, Portland, Oregon 97201
and Andrew A. Wiederhorn (the “Mr. Wiederhorn”).


 


WITNESSETH:


 


WHEREAS,
Andrew Wiederhorn was a co-founder of the Company in 1997 and led its public
offering in 1998; and Mr. Wiederhorn has served ably as Chairman and Chief
Executive Officer since he helped establish the Company; and Mr. Wiederhorn has
been substantially responsible for the Company’s recent profitability and
strong performance the last few years;


 


WHEREAS, Mr.
Wiederhorn is the sole officer of the Company that is familiar with each of the
Company’s diverse business lines (such as real estate, mortgage-backed
securities, restaurant operations, overseas operations, and commercial mortgage
loan origination);


 


WHEREAS, Mr.
Wiederhorn is intimately familiar with the history and nuances of the Company’s
subsidiaries, operations, contractual arrangements and investments, and is
principally responsible for accounting matters and ensuring compliance with the
Company’s obligations as a United States registered public company;


 


WHEREAS, the Company
is currently transitioning into new, long-term business lines (e.g., restaurant
operations, special situation lending and increased real estate lending) and
de-emphasizing its subordinate residential mortgage-backed securities business,
and the sources and nature of its revenues and expenses are changing and as a
result, the Company recognizes the need for Mr. Wiederhorn’s assistance in
dealing with these challenges and opportunities;


 


WHEREAS, the Company
has had a large cash position, and Mr. Wiederhorn has been very involved in the
Company’s efforts to identify opportunities to deploy these amounts
appropriately in its existing and potential new business lines;


 


WHEREAS, Mr.
Wiederhorn has informed the Board that he has agreed to a settlement with the
United States Government in connection with a criminal investigation of certain
acts and omissions by Mr. Wiederhorn in his personal capacity and in his
capacity as an officer of Wilshire Financial Services Group Inc., (the “Settlement”),
and the Settlement is subject to among other things approval by a judge;


 


WHEREAS, Mr.
Wiederhorn has informed the Board that, pursuant to the Settlement, he will
plead guilty to two criminal felony violations (the “Violations”),
resulting in a maximum likely period of incarceration of approximately 18
months;


 


WHEREAS, the Board
understands that no acts or omissions
of the Company or of Mr. Wiederhorn in his capacity as an officer or director
of the Company is the basis for any of the charges to which Mr. Wiederhorn will
plead guilty pursuant to the Settlement;


 

















 


WHEREAS, the Board
also understands that the actions forming the basis for the Violations were
undertaken after Mr. Wiederhorn’s consultation with legal counsel and
accountants and in accordance with their counsel and advice;


 


WHEREAS, the Board
further understands that one of the Violations is based on a “gratuity”
statute, a general intent crime for which no intent for a quid pro quo must be proven;


 


WHEREAS, Mr.
Wiederhorn and the Company entered into that certain Employment Agreement dated
as of June 30, 2003 (the “Employment Agreement”), which, among other
terms, contains certain provisions governing the rights and obligations of the
parties in the event of Mr. Wiederhorn’s termination or resignation;


 


WHEREAS, given the
Settlement and Mr. Wiederhorn’s likely guilty plea pursuant thereto, the Board
has examined the Employment Agreement and carefully considered and evaluated
various options regarding Mr. Wiederhorn’s separation from the Company in determining
that which is in the best interests of the Company and its shareholders;


 


WHEREAS, the Board
believes that if Mr. Wiederhorn were incarcerated pursuant to the Settlement,
he would be limited in his ability to perform his functions as Chief Executive
Officer and Chairman of the Board during the period of any such incarceration;


 


WHEREAS, as a result
of the beliefs of the Board (with the exception of Mr. Wiederhorn) as to the
limitations on Mr. Wiederhorn’s capacity to perform his corporate duties while
incarcerated, the Board (with the exception of Mr. Wiederhorn) understands that
(a) the Company would be entitled to terminate Mr. Wiederhorn’s employment
pursuant to the Employment Agreement once Mr. Wiederhorn became incarcerated,
and (b) Mr. Wiederhorn would not be entitled to any rights or remedies as a
result thereof;


 


WHEREAS, Mr.
Wiederhorn has informed the Board that (a) he believes he would be entitled to
certain rights and remedies under the Employment Agreement if the Company
terminated Mr. Wiederhorn’s employment as a result of entering into the
Settlement or his incarceration, and (b) he would pursue such rights and
remedies if the Company terminated his employment as a result of any such
Settlement or incarceration;


 


WHEREAS, among
others, the Board has considered the following possible options: (a)
termination of Mr. Wiederhorn with cause (both before and at the time of
incarceration) and no payments to him after the termination’s effective date;
(b) termination without cause and the payment of severance payments under
Paragraph 8(c) of the Employment Agreement, either in full or in part; (c)
possible litigation concerning Mr. Wiederhorn’s claim for full payment under
such severance payment provision; (d) possible litigation by Mr. Wiederhorn
concerning other possible claims against the Company under the Employment
Agreement; (e) acceptance of Mr. Wiederhorn’s resignation, Mr. Wiederhorn’s
release and waiver of (i) potential claims against the Company in connection
with the collapse of Capital Consultants and (ii) potential claims against the
Company under the Employment Agreement in connection with his termination as an
officer and director of the Company and its subsidiaries, and a financial
compensation package that recognizes the value of his continuing good will and
service to the Company and his prior service to the Company; and (f) granting
Mr. Wiederhorn a paid leave of absence during any period of incarceration
recognizing the value of his prior service and the value of retaining his good
will and assistance in the future;


 

















 


WHEREAS,
notwithstanding the Board’s understanding of the Company’s rights under the
Employment Agreement and the Board’s view as to the risks and weakness of any
potential claim by Mr. Wiederhorn if he was terminated upon incarceration, the
Board recognizes the need for Mr. Wiederhorn’s assistance and cooperation in
the Company’s operations and in facilitating appropriate corporate leadership
in his absence;


 


WHEREAS, under the
agreement whereby the Company acquired its 51% interest in the George Elkins
business, the owners of the remaining 49% interest in the George Elkins
business have the right to acquire the Company’s 51% interest at a favorable
price if Mr. Wiederhorn is no longer involved with the Company and the Company
would lose a substantial portion of the value of this investment if Mr.
Wiederhorn were to leave; and the Board of Directors took this into
consideration in determining to continue Mr. Wiederhorn’s relationship with the
Company and grant him a leave of absence;


 


WHEREAS, the Board
recognizes that Mr. Wiederhorn’s good will, cooperation, and continuing
assistance are in the best interests of the Company and its shareholders and
necessary to preserve the continuity and long term profitability of the
business; and in particular the Board recognizes that (i) Mr. Wiederhorn was
instrumental in structuring the Fat Burger acquisition and his assistance will
be invaluable in realizing the benefits and value of that acquisition over the
medium term (3-5 years), (ii) Mr. Wiederhorn established the Company’s real
estate business (including the Footlocker leases, George Elkins Commercial Real
Estate Lending, the Bourne End UK real estate) and will be the key to
maintaining and realizing the inherent value in these businesses; and (iii) Mr.
Wiederhorn developed and recently launched the Company’s special situation
lending business and his assistance will be necessary to fully implement and
realize on this business line in the next 5 years;


 


WHEREAS, the Board
has considered the potential adverse consequences to the Company and its
shareholders of a dispute or litigation with Mr. Wiederhorn at this time of
transition and the Board also recognizes the relatively short-term nature of
this leave of absence, the difficulties of attracting appropriate talent to
fill his role quickly and for a relatively short period, and the difficulties
of such an individual learning the Company’s complexities in a short period of
time;


 


WHEREAS, in order to
secure the good will and assistance of Mr. Wiederhorn, avoid the loss of the
George Elkins business at a below market price and the other reasons referred
to in these Whereas clauses, the Board has considered offering Mr. Wiederhorn a
leave of absence on the terms set forth in this Leave of Absence Agreement
including a LOA Payment and certain other rights and obligations as set forth
in this Leave of Absence Agreement;


 


WHEREAS, in
consideration for the Company providing Mr. Wiederhorn the rights and
obligations under this Leave of Absence Agreement, Mr. Wiederhorn has indicated
his willingness and desire to: (a) release the Company in writing from and
provide a waiver of potential claims against the Company in connection with the
collapse of Capital Consultants, and any rights to indemnification for defense
costs or damages arising therefrom; (b) maintain his good will to, and
cooperation with, the Company; (c) cooperate with the Company in any federal or
state government investigation or prosecution (regulatory or otherwise), and in
any civil or other litigation, arising from the Settlement and his guilty plea
pursuant thereto, and (d) certain other obligations as set forth herein (the “Consideration”);


 


WHEREAS, in addition
to helping induce the Consideration, the Board believes that the


 

















 


LOA Payment (as defined in Section 3 hereof) is appropriate as
recognition of Mr. Wiederhorn’s past service to the Company and to help avoid
litigation; and


 


WHEREAS, based on
considering all of the above, the Board has determined, by the exercise of its
reasonable business judgment, that it is in the best interests of the Company
and its shareholders to enter into this Leave of Absence Agreement;


 


NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:


 


1.                                      LEAVE OF ABSENCE


 


On the terms and subject to the conditions of this
Leave of Absence Agreement, Mr. Wiederhorn hereby agrees to take a paid leave
of absence from the date of Mr. Wiederhorn’s incarceration pursuant to the
Settlement to the date he is released from such incarceration (the “Leave of
Absence Period”).  Prior to and
following the Leave of Absence Period, Mr. Wiederhorn will continue in his
normal employment as provided in the Employment Agreement and prior to the
commencement of such period, he agrees to (i) assist the Company’s interim and
existing management in providing a smooth transition, (ii) assist in ensuring
that the Company has a sound business plan for the current year and 2005 and a
clear method for implementing that plan, (iii) reassure existing clients,
shareholders, employees, executives of subsidiaries and affiliated companies,
the Company’s independent public accountants and other professionals, and
regulatory agencies and entities, (iv) assist the Company in its public
disclosure and media relations, and (v) such other matters as the Board may
reasonably request.  During the Leave of
Absence Period, Mr. Wiederhorn agrees, to the extent reasonably possible, to
(i) continue to assist the Company’s interim and existing management, (ii)
respond to questions and inquiries concerning the Company’s business, strategy
and plans, (iii) provide advice on implementing the Company’s business plan for
2004 and 2005, and (iv) provide advice and assistance on such other matters as
the Board may reasonably request. 
During the Leave of Absence Period, Mr. Wiederhorn will continue to
receive his regular salary and bonus pursuant to and as set forth in his
Employment Agreement.  Such Employment
Agreement shall continue in full force and effect during the Leave of Absence
Period and the terms and conditions of such Employment Agreement shall remain
the same, except as specifically set forth in this Section 1 of this Leave of
Absence Agreement.


 


2.                                      INTERIM MANAGEMENT ARRANGEMENTS


 


The Board has appointed two interim Co-Chairmen of the
Board of Directors and an interim Co-Chief Executive Officer of the Company to
assist in the management of the Company during the Leave of Absence Period.  Mr. Wiederhorn agrees to assist such
individuals to the extent reasonably possible during the Leave of Absence
Period.


 


3.                                      FINANCIAL PACKAGE


 


In
consideration of the Consideration provided by Mr. Wiederhorn to the Company
and of Mr. Wiederhorn’s good will, cooperation, and continuing assistance, and
in recognition of Mr. Wiederhorn’s past service to the Company, to help avoid
litigation and for the other reasons stated herein, the Company agrees to
provide the following financial compensation package (the “Financial Package”):  Subject to the provisions of this Leave of
Absence Agreement, the Company agrees to pay Mr. Wiederhorn as compensation a
leave of absence payment in the amount of $2 million (the “LOA Payment”),
which will be payable on June 2, 2004 to an escrow account of Mr. Wiederhorn’s
attorney.


 

















 


Notwithstanding the foregoing, if the Settlement is not approved by the
judge hearing the case or for any other reason the Settlement does not proceed
as anticipated on June 3, 2004, this Leave of Absence Agreement shall terminate
and cease to have any further effect and Mr. Wiederhorn will cause the LOA
Payment to be paid from such escrow account to the Company on June 3, 2004.


 


4.                                      LITIGATION COOPERATION; CONSULTATION


 


Mr. Wiederhorn agrees that he will reasonably
cooperate with the Company to the best of his ability in the defense of any
claim or investigation, civil or governmental, brought against Company or any
of its current, former or future directors or officers of which Mr. Wiederhorn
has any personal knowledge, and Company agrees it will reimburse Mr.
Wiederhorn’s reasonable out-of-pocket expenses in providing such
assistance.  In addition, to the extent
permitted by the Settlement, Mr. Wiederhorn agrees to reasonably provide
specific operations information to the Company as requested in a reasonable,
timely and clear manner to allow the Company to continue and/or complete job
tasks, activities, assignments, to continue effective relationships with
business partners by responding to reasonable inquiries as needed by telephone
or otherwise at no additional cost to the Company beyond what is provided by
this Leave of Absence Agreement.


 


5.                                      ARBITRATION


 


Any dispute or controversy arising under or in
connection with this Leave of Absence Agreement shall be settled exclusively by
arbitration conducted in the City of Portland in the State of Oregon under the
Commercial Arbitration Rules then prevailing of the American Arbitration
Association and such submission shall request the American Arbitration
Association to: (i) appoint an arbitrator experienced and knowledgeable
concerning the matter then in dispute; (ii) require the testimony to be
transcribed; (iii) require the award to be accompanied by findings of fact and
the statement for reasons for the decision; and (iv) request the matter to be
handled by and in accordance with the expedited procedures provided for in the
Commercial Arbitration Rules.  The
determination of the arbitrators, which shall be based upon a DE NOVO
interpretation of this Leave of Absence Agreement, shall be final and binding
and judgment may be entered on the arbitrators’ award in any court having
jurisdiction.  All costs of arbitration,
including the cost of the American Arbitration Association and the arbitrator,
shall be borne by the Company.


 


6.                                      RELEASE OF CLAIMS


 


In consideration of this Leave of Absence Agreement,
Mr. Wiederhorn, for himself and for his heirs, executors, administrators, and
assigns (hereinafter referred to collectively as “Releasors”), forever
releases and discharges the Company and any and all of its subsidiaries,
divisions, affiliated entities, employee benefit and/or pension plans or funds,
successors and assigns, and all of its or their past and present officers,
directors, members, shareholders, trustees, agents and employees (hereinafter
referred to as the “Entities and Persons”), from any and all claims,
demands, cause of action, fees and liabilities relating to the collapse of
Capital Consultants and related matters, whether known or unknown, which Mr.
Wiederhorn ever had, now has, or may have against the Entities and Persons by
reason of any actual or alleged act, omission, transaction, practice, conduct,
occurrence, or other matter up to and including the date of this Leave of
Absence Agreement.  For purposes of this
Leave of Absence Agreement, Wilshire Financial Services Group Inc., Wilshire
Credit Corp., and CWH Mergeco Corp. are not affiliated entities of the Company,
and neither Wilshire Financial Services Group Inc., Wilshire Credit Corp., CWH
Mergeco Corp., nor any of their officers, directors, shareholders, agents or
employees are released Entities and Persons.


 

















 


Except as otherwise prohibited by law, Mr. Wiederhorn
represents and warrants that he will not sue or commence any proceeding (judicial
or administrative), or participate in any action, suit or proceeding, against
any of the Entities and Persons, with respect to any act, event, occurrence, or
any alleged failure to act, released hereunder.


 


Mr. Wiederhorn acknowledges that he has been advised
by the Company to consult an attorney before signing this Leave of Absence
Agreement and that he has executed this Leave of Absence Agreement after having
had the opportunity to consult with an attorney of his choice and has had an
opportunity to consider this Leave of Absence Agreement for a period of at
least fourteen (14) days.


 


7.                                      MISCELLANEOUS


 


(a)                                  Governing Law


 


This Leave of Absence Agreement shall be governed by
and construed in accordance with the laws of the State of New York without reference
to principles of conflicts of laws.


 


(b)                                  Entire Agreement/Amendments


 


This Leave of Absence Agreement and the instruments
contemplated herein, contain the entire understanding of the parties with
respect to the leave of absence of Mr. Wiederhorn from the Company and
supersedes any prior agreements, whether written or otherwise, between the
Company and Mr. Wiederhorn.  There are
no restrictions, agreements, promises, warranties, covenants or undertakings
between the parties with respect to the subject matter herein other than those
expressly set forth herein.  This Leave
of Absence Agreement may not be altered, modified, or amended except by written
instrument signed by the parties hereto.


 


(c)                                  No Waiver


 


The failure of a party to insist upon strict adherence
to any term of this Leave of Absence Agreement on any occasion shall not be
considered a waiver of such party’s rights or deprive such party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Leave of Absence Agreement.  Any
such waiver must be in writing and signed by Mr. Wiederhorn or an authorized
officer of the Company, as the case may be.


 


(d)                                  Assignment


 


This Leave of Absence Agreement shall not be
assignable.


 


(e)                                  Successors; Binding Agreement; Third
Party Beneficiaries


 


This Leave of Absence Agreement shall inure to the
benefit of and be binding upon parties hereto and their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.


 


(f)                                    Communications


 


For the purpose of this Leave of Absence Agreement,
notices and all other communications provided for in this Leave of Absence
Agreement shall be in writing and shall be


 

















 


deemed to have
been duly given (i) when faxed or delivered, and (ii) two business days after
being mailed by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the respective addresses set forth on
the initial page of this Leave of Absence Agreement, or to such other address
as any party may have furnished to the other in writing in accordance herewith.
Notice of change of address shall be effective only upon receipt.


 


(g)                                 Survivorship


 


The respective rights and obligations of the parties
hereunder shall survive any termination of this Leave of Absence Agreement.


 


(h)                                 Counterparts


 


This Leave of Absence Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.


 


(i)                                    Headings


 


The headings of the sections contained in this Leave
of Absence Agreement are for convenience only and shall not be deemed to
control or affect the meaning or construction of any provision of this Leave of
Absence Agreement.


 

















 


IN WITNESS WHEREOF, the parties hereto have duly
executed this Leave of Absence Agreement as of the day and year first above
written.


 


 


FOG
CUTTER CAPITAL GROUP INC.


 


 


	
  By:

  	
  /s/ Donald
  Berchtold

  	
   

  	
   

  
	
   

  	
  Name: Donald Berchtold

  
	
   

  	
  Title: Co-Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  /s/ Andrew A.
  Wiederhorn

  	
   

  	
   

  
	
   

  	
  Andrew A. Wiederhorn