MEGO MORTGAGE CORP, DEF 14A, 1998-05-27

MEGO MORTGAGE CORP
DEF 14A, 1998-05-27
MISCELLANEOUS BUSINESS CREDIT INSTITUTION

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<PAGE> 1

SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))

[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>

MEGO MORTGAGE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[ ] Fee paid previously with preliminary materials:

---------------------------------------------------------------------------

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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<PAGE> 2

MEGO MORTGAGE CORPORATION
1000 PARKWOOD CIRCLE, SUITE 500, ATLANTA, GEORGIA 30339

---------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 8, 1998

---------------------

To the Stockholders of Mego Mortgage Corporation:

NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders (the
"Annual Meeting") of Mego Mortgage Corporation, a Delaware corporation (the
"Company"), will be held at the Company's principal executive offices, 1000
Parkwood Circle, Suite 500, Atlanta, Georgia 30339, on Monday, June 8, 1998, at
10:00 a.m., local time, for the following purposes:

(1) To elect six members to the Company's Board of Directors to serve
until the next annual meeting of stockholders and until their successors
are duly elected and qualified;

(2) To consider and vote upon a proposal to approve a transaction or
series of transactions to sell a number of shares of Common Stock below the
greater of book or market value and a number of shares of Preferred Stock
convertible into Common Stock at a conversion price below the greater of
book or market value which will likely result in the issuance of shares of
Common Stock and Preferred Stock convertible into shares of Common Stock
constituting more than 20% of the Company's outstanding Common Stock and
will likely result in a change of control of the Company;

(3) To consider and vote upon a proposal to amend the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 50,000,000 to 400,000,000 shares;

(4) To consider and vote upon a proposal to approve the Company's 1997
Stock Option and Stock Appreciation Rights Plan; and

(5) To consider and take action upon such other business as may
properly come before the Annual Meeting and any and all adjournments or
postponements thereof.

The Board of Directors has fixed the close of business on May 11, 1998 as
the record date for determining those stockholders entitled to notice of, and to
vote at, the Annual Meeting and any adjournments or postponements thereof. The
transfer books of the Company will not be closed.

Whether or not you expect to be present at the Annual Meeting, please
complete, sign and date the enclosed proxy card and return it promptly in the
enclosed pre-addressed envelope. No postage is required if mailed in the United
States.

By Order of the Board of Directors

JEFFREY S. MOORE
President and Chief Executive Officer

May 27, 1998

THIS IS AN IMPORTANT MEETING AND ALL STOCKHOLDERS ARE INVITED TO ATTEND THE
MEETING IN PERSON. THOSE STOCKHOLDERS WHO ARE UNABLE TO ATTEND ARE RESPECTFULLY
URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE.
STOCKHOLDERS WHO EXECUTE A PROXY CARD MAY NEVERTHELESS ATTEND THE MEETING,
REVOKE THEIR PROXY AND VOTE THEIR SHARES IN PERSON.
<PAGE> 3

MEGO MORTGAGE CORPORATION
1000 PARKWOOD CIRCLE, SUITE 500
ATLANTA, GEORGIA 30339

---------------------

PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
---------------------

This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Mego Mortgage Corporation, a Delaware corporation (the
"Company"), of proxies from the holders of the Company's Common Stock, par value
$.01 per share (the "Common Stock" or "Common Shares"), to be voted at the
Company's 1998 Annual Meeting of Stockholders (the "Annual Meeting") to be held
at the Company's principal executive offices, 1000 Parkwood Circle, Suite 500,
Atlanta, Georgia 30339, on Monday, June 8, 1998, at 10:00 a.m., local time, and
at any adjournments or postponements thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. Any stockholder giving
such a proxy may revoke it by written notice to the Secretary of the Company at
the above address at any time prior to the exercise of such proxy. Attendance at
the Annual Meeting will not have the effect of revoking the proxy unless such
written notice is given, or unless the stockholder votes by ballot at the
meeting.

The approximate date that this Proxy Statement and the enclosed form of
proxy are first being sent to stockholders is May 28, 1998. Stockholders should
review the information provided herein in conjunction with the Company's 1997
Annual Report on Form 10-K and Amendment No. 1 to Quarterly Report on Form 10-Q
for the quarter ended February 28, 1998, which reports accompany this Proxy
Statement. The Company's telephone number is (770) 952-6700.

PURPOSES OF THE MEETING

At the Annual Meeting, the Company's stockholders will consider and vote
upon the following matters:

(1) The election of six members to the Company's Board of Directors to
hold office until the next annual meeting of stockholders and until their
successors are duly elected and qualified;

(2) The proposal to approve a transaction or series of transactions to
sell a number of shares of Common Stock below the greater of book or market
value and a number of shares of the Company's Preferred Stock, $.01 par
value (the "Preferred Stock"), convertible into Common Stock at a
conversion price below the greater of book or market value which will
likely result in the issuance of shares of Common Stock and Preferred Stock
convertible into shares of Common Stock constituting more than 20% of the
Company's outstanding Common Stock and will likely result in a change of
control of the Company;

(3) The proposal to amend the Company's Certificate of Incorporation
to increase the number of authorized shares of Common Stock from 50,000,000
to 400,000,000 shares;

(4) The proposal to approve the Company's 1997 Stock Option and Stock
Appreciation Rights Plan (the "1997 Plan"); and

(5) To transact such other business as may properly come before the
Annual Meeting, including any adjournments or postponements thereof.

VOTING SECURITIES

Holders of record of shares of the Company's outstanding Common Stock at
the close of business on May 11, 1998 (the "Record Date") are entitled to vote
at the Annual Meeting. Each holder of an outstanding share of Common Stock is
entitled to one vote upon all matters to be acted upon at the Annual Meeting.
The presence, in person or by proxy, of the holders of shares representing a
majority vote of the outstanding
<PAGE> 4

Common Stock will constitute a quorum at the Annual Meeting. On May 11, 1998,
the Company had issued and outstanding 12,300,000 shares of Common Stock.

Abstentions will be considered as shares present and entitled to vote at
the Annual Meeting for purposes of determining the outcome of any matter
submitted to the stockholders for a vote, but will not be counted as votes cast
"for" or "against" any matter. Shares referred to as "broker or nominee
non-votes" (shares held by brokers or nominees as to which instructions have not
been received from the beneficial owners or persons entitled to vote and the
broker or nominee does not have discretionary voting power on a particular
matter) will be treated as shares that are present and entitled to vote at the
Annual Meeting for purposes of determining the presence of a quorum. For
purposes of determining the outcome of any matter as to which the proxies
reflect broker or nominee non-votes, shares represented by such proxies will be
treated as not present and not entitled to vote on that subject matter.

YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO SIGN, DATE AND RETURN
THE ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING. If you do attend the Annual Meeting you may vote by ballot, thereby
canceling any proxy previously given.

If the enclosed proxy is properly signed, dated and returned, the shares
represented thereby will be voted in accordance with the instructions thereon.
If no instructions are indicated, the shares represented thereby will be voted
(a) FOR the election of the nominees set forth under the caption "Election of
Directors" or, if any such nominee should become unable or unwilling to serve as
a Director, for such person or persons as shall be designated by the Board of
Directors; (b) FOR the proposal to approve a transaction or series of
transactions to sell a number of shares of Common Stock below the greater of
book or market value and a number of shares of Preferred Stock convertible into
Common Stock at a conversion price below the greater of book or market value
which will likely result in the issuance of shares of Common Stock and Preferred
Stock convertible into shares of Common Stock constituting more than 20% of the
Company's outstanding Common Stock and will likely result in a change of control
of the Company; (c) FOR the proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
50,000,000 to 400,000,000 shares, and (d) FOR the proposal to approve the 1997
Plan.

The Company's Directors and executive officers, the Placement Agent (as
defined below) and their affiliates, who beneficially own in excess of 50% of
the outstanding shares of Common Stock, have expressed their intention to vote
such shares in favor of the proposal to approve a transaction or series of
transactions to sell a number of shares of Common Stock below the greater of
book or market value and a number of shares of Preferred Stock convertible into
Common Stock at a conversion price below the greater of book or market value
which will likely result in the issuance of shares of Common Stock and Preferred
Stock convertible into Common Stock constituting more than 20% of the Company's
outstanding Common Stock and will likely result in a change in control of the
Company.

ELECTION OF DIRECTORS

The Company's Board of Directors has set at six the number of Directors
constituting the Board. Accordingly, at the Annual Meeting, six Directors will
be elected by the stockholders to serve until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Directors will be elected by a plurality vote of the Common Shares represented
in person or by proxy at the Annual Meeting. Messrs. Cohen, Moore, Nederlander,
Hirsch, Mayerson and Browne (the "Nominees"), each of whom is now a Director,
have been nominated to continue to serve as Directors of the Company. When
properly signed, dated and returned, the accompanying proxy will be voted "FOR"
the election of the Nominees as Directors, unless the proxy contains contrary
instructions. Management has no reason to believe that any of the Nominees will
not be a candidate or will be unable to serve as a Director if re-elected.
However, in the event that any Nominee should become unable or unwilling to
serve as a Director, the proxy will be voted for the election of such person or
persons as shall be designated by the Board of Directors.

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<PAGE> 5

Set forth below is certain information with respect to each Nominee:

Jerome J. Cohen, age 69, has been Chairman of the Board of the Company
since April 1995 and served as Chief Executive Officer of the Company from
June 1992 until September 2, 1997 and as President from June 1992 until
March 1995. Mr. Cohen has been the President and a Director of Mego
Financial Corp., the Company's former parent corporation ("Mego
Financial"), since January 1988. From April 1992 until June 1997, Mr. Cohen
was a director of Atlantic Gulf Communities Inc., formerly known as General
Development Corporation, a publicly held company engaged in land
development, land sales and utility operations in Florida and Tennessee.
Mr. Cohen does not currently serve on a full time basis in his capacities
with the Company.

Jeffrey S. Moore, age 40, has been a Director of the Company since the
Company's formation in June 1992 and has served as the President of the
Company since April 1995 and Chief Executive Officer since September 2,
1997. From December 1993 to September 1997, Mr. Moore served as the
Company's Chief Operating Officer. Prior to being elected President, Mr.
Moore served as an Executive Vice President of the Company from June 1992
to March 1995. Mr. Moore was the founder and from August 1984 until March
1992 served as President, Chief Executive Officer and a director of Empire
Funding Corp., a privately-held, nationwide consumer finance company
specializing in originating, purchasing, selling and servicing home
improvement loans insured under the Title I credit insurance program
("Title I Loans") of the Federal Housing Administration (the "FHA") and
other home improvement mortgage loans. Mr. Moore serves as a director of
the Title One Home Improvement Lenders Association and is a member of its
Legislative and Regulatory Affairs Committee.

Robert Nederlander, age 64, has been a Director of the Company since
September 1996. Mr. Nederlander has been the Chairman of the Board and
Chief Executive Officer of Mego Financial since January 1988. Mr.
Nederlander has been Chairman of the Board of Riddell Sports Inc. since
April 1988 and was Riddell Sports Inc.'s Chief Executive Officer from April
1988 through March 1993. From February 1992 until June 1992, Mr.
Nederlander was also Riddell Sports Inc.'s interim President and Chief
Operating Officer. Since November 1981, Mr. Nederlander has been President
and a director of the Nederlander Organization, Inc., owner and operator of
one of the world's largest chains of legitimate theaters. He served as the
Managing General Partner of the New York Yankees from August 1990 until
December 1991, and has been a limited partner since 1973. Since October
1985, Mr. Nederlander has been President of the Nederlander Television and
Film Productions, Inc.; Vice Chairman of the Board from February 1988 to
early 1993 of Vacation Spa Resorts, Inc., an affiliate of Mego Financial;
and Chairman of the Board of Allis-Chalmers Corp. from May 1989 to 1993 and
from 1993 to 1996 as Vice Chairman. Mr. Nederlander remains a director of
Allis-Chalmers Corp. In 1995, Mr. Nederlander became a director of
Hospitality Franchise Systems, Incorporated. In October 1996, Mr.
Nederlander became a director of News Communications, Inc., a publisher of
community oriented free circulation newspapers. Mr. Nederlander was a
senior partner in the law firm of Nederlander, Dodge and Rollins in
Detroit, Michigan, from 1960 to 1989.

Herbert B. Hirsch, age 61, has been a Director of the Company since
the Company's formation in June 1992. Mr. Hirsch has been the Senior Vice
President, Chief Financial Officer, Treasurer and a Director of Mego
Financial since January 1988. Mr. Hirsch served as Vice President and
Treasurer of the Company from June 1992 to September 1996.

Don A. Mayerson, age 70, has been a Director of the Company since the
Company's formation in June 1992. Mr. Mayerson has been the Secretary of
Mego Financial since January 1988 and the Executive Vice President and
General Counsel of Mego Financial since April 1988. Mr. Mayerson served as
Vice President, General Counsel and Secretary of the Company from June 1992
to September 1996.

Spencer I. Browne, age 47, has been a Director of the Company since
consummation of the Company's underwritten initial public offering of
Common Stock (the "IPO") in November 1996. For more than five years prior
to September 1996, Mr. Browne held various executive and management
positions with several publicly traded companies engaged in businesses
related to the residential and commercial mortgage loan industry. From
August 1988 until September 1996, Mr. Browne served as
3
<PAGE> 6

President, Chief Executive Officer and a director of Asset Investors
Corporation ("AIC"), a New York Stock Exchange ("NYSE") traded company he
co-founded in 1986. He also served as President, Chief Executive Officer
and a director of Commercial Assets, Inc., an American Stock Exchange
traded company affiliated with AIC, from its formation in October 1993
until September 1996. In addition, from June 1990 until March 1996, Mr.
Browne served as President and a director of M.D.C. Holdings, Inc., a NYSE
traded company and the parent company of a major home builder in Colorado.

All Directors hold office until the next annual meeting of stockholders of
the Company or until their successors have been duly elected and qualified.

The Company anticipates that investors in the Recapitalization Transactions
(as defined below) may have the right to designate for election members of the
Company's Board of Directors and may request the resignation of certain of the
Company's Directors and/or executive officers.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR ALL
NOMINEES NAMED ABOVE FOR ELECTION TO THE COMPANY'S BOARD OF DIRECTORS.

INFORMATION REGARDING THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD OF DIRECTORS

DIRECTORS' FEES

The Company reimburses all Directors for their expenses in connection with
their activities as Directors of the Company. Directors who are compensated as
employees or officers of the Company receive no additional compensation for
service on the Board of Directors or a committee thereof other than the Chairman
who receives an annual fee of $30,000. Members of the Board of Directors who are
not employees of the Company receive an annual retainer fee of $30,000 plus
$1,500 for chairing a committee or $1,000 for serving as a member of a
committee. In addition, each Director receives $1,000 for each Board or
committee Meeting (but only $500 for a Committee meeting held on the same day as
a Board Meeting). Directors are also reimbursed for their expenses incurred in
attending meetings of the Board of Directors and its committees.

CONSULTING AGREEMENTS

In August 1997, the Company entered into Consulting Agreements (the
"Consulting Agreements") with Don A. Mayerson and Herbert B. Hirsch, Directors
of the Company (the "Consultants"), which expire August 31, 1999. Pursuant to
such Consulting Agreements, Messrs. Mayerson and Hirsch shall receive an annual
consulting fee of $250,000 and $150,000, respectively. Each of the Consulting
Agreements further provides that the Company will indemnify and hold each of the
Consultants harmless, to the extent permitted by law, from any and all costs,
expenses or damages incurred by them as a result of any claim, suit, action or
judgment arising out of their activities as a consultant to the Company. In the
event of a change of control (as defined in the Consulting Agreements) of the
Company during the term of the Consulting Agreements, the Company may, in its
sole discretion, pay each of the Consultants a lump sum equal to the annual
consulting fees such Consultant would have received through August 31, 1999. The
Consulting Agreements are not contingent upon such persons remaining as
Directors of the Company.

COMMITTEES AND MEETINGS OF THE BOARD

During fiscal 1997, the Board of Directors held four meetings and took
action by unanimous written consent seven times. The work of the Company's
Directors is performed not only at meetings of the Board of Directors and its
committees, but also in consideration of Company matters and documents, and in
numerous communications among Board members and others wholly-apart from
meetings. During fiscal 1997, all Directors attended at least 75% of the
aggregate of all meetings of the Board of Directors and committees on which they
served.

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<PAGE> 7

The Company has an Audit Committee, Executive Committee, Stock Option
Committee, Compensation Committee and Nominating Committee. The following is a
brief description of the functions of the Company's committees and the
identification of the members thereof:

Audit Committee. The members of the Audit Committee are Robert
Nederlander and Spencer I. Browne. The Audit Committee's functions include
recommending to the Board the engagement of the Company's independent
certified public accountants, reviewing with the accountants the plan and
results of their audit of the Company's financial statements and
determining the independence of the accountants. The Audit Committee held
two meetings during fiscal 1997.

Executive Committee. The members of the Executive Committee are
Jerome J. Cohen, Jeffrey S. Moore and Robert Nederlander. The Executive
Committee has the authority to exercise all of the powers of the Board to
the extent permitted by the Delaware General Corporation Law. The Executive
Committee held one meeting and took action by unanimous written consent two
times during fiscal 1997.

Stock Option Committee. The sole member of the Stock Option Committee
is Spencer I. Browne. The Stock Option Committee has the authority to
approve the grant of options under the Company's stock option plans to any
employee of the Company who, on the last day of the taxable year of the
Company, is (i) the Chief Executive Officer of the Company or who is acting
in such capacity, (ii) among the four highest compensated officers of the
Company and its affiliates (other than the Chief Executive Officer), or
(iii) otherwise considered to be a "Covered Employee" within the meaning of
Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as
amended (the "Code"). The Stock Option Committee held two meetings during
fiscal 1997.

Compensation Committee. The members of the Compensation Committee are
Robert Nederlander and Spencer I. Browne. The Compensation Committee has
the authority to approve the compensation of the Company's executive
officers, except to the extent that such compensation is subject to Section
162(m) of the Code. The Compensation Committee held one meeting during
fiscal 1997. See "Report on Executive Compensation" set forth below.

Nominating Committee. The members of the Nominating Committee are
Robert Nederlander, Jerome J. Cohen and Don A. Mayerson. The Nominating
Committee has the responsibility to recommend the nominees for election as
Directors of the Company to the Board of Directors. The Nominating
Committee did not meet during fiscal 1997 and held its first meeting in May
1998.

5
<PAGE> 8

SECURITY OWNERSHIP

The following table sets forth, as of May 8, 1998, information with respect
to the beneficial ownership of the Common Stock by (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, (ii) each Director of the Company, (iii) each of the Named
Executive Officers (as defined in "Executive Compensation"), and (iv) all
Directors and executive officers of the Company as a group. Unless otherwise
noted, the Company believes that all persons named in the table have sole voting
and investment power with respect to all shares of Common Stock beneficially
owned by them.

<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP OWNERSHIP
- --------------------------------------- ---------- ----------
<S> <C> <C>
Robert Nederlander(2)....................................... 674,541 5.5%
Eugene I. Schuster and Growth Realty, Inc. ("GRI")(3)....... 920,409 7.5
Jerome J. Cohen(4).......................................... 409,534 3.3
Jeffrey S. Moore(5)......................................... 22,542 *
James L. Belter(5).......................................... 6,408 *
Herbert B. Hirsch(6)........................................ 803,994 6.5
Don A. Mayerson(7).......................................... 396,392 3.2
Spencer I. Browne(8)........................................ 5,000 *
Friedman, Billings, Ramsey Group, Inc.(9)................... 3,705,774 30.1
All executive officers and directors of the Company as a
group (7 persons)(10)..................................... 2,318,411 18.8%
</TABLE>

- ---------------

* Less than 1%.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon the
exercise of options and warrants. Each beneficial owner's percentage
ownership is determined by assuming that options and warrants that are held
by such person (but not those held by any other person) and that are
exercisable within 60 days from the date hereof have been exercised.
(2) 810 Seventh Avenue, 21st Floor, New York, New York 10019. Does not include
347,600 shares of Common Stock owned by the Robert E. Nederlander
Foundation, an entity organized and operated exclusively for charitable
purposes (the "Foundation"), of which Mr. Nederlander is President. Mr.
Nederlander disclaims beneficial ownership of the shares owned by the
Foundation.
(3) 321 Fisher Building, Detroit, Michigan 48202. Includes (i) 801,409 shares
held of record by GRI, a wholly-owned subsidiary of Venture Funding, Ltd.
of which Mr. Schuster is a principal shareholder, director and Chief
Executive Officer and (ii) 119,000 shares held of record by Growth Realty
Holdings, LLC of which GRI, Mr. Schuster and Mr. Schuster's three children
are members.
(4) 1125 N.E. 125th Street, Suite 206, North Miami, Florida 33161. Excludes
52,507 shares of Common Stock owned by Mr. Cohen's spouse and 238,000
shares of Common Stock owned by a trust for the benefit of his children
over which Mr. Cohen does not have any investment or voting power, as to
which he disclaims beneficial ownership. Also excludes 100,000 shares of
Common Stock owned by the Rita and Jerome J. Cohen Foundation, Inc., an
entity organized and operated exclusively for charitable purposes (the
"Cohen Foundation"), of which Mr. Cohen is President. Mr. Cohen disclaims
beneficial ownership of the shares owned by the Cohen Foundation.
(5) 1000 Parkwood Circle, Suite 500, Atlanta, Georgia 30339.
(6) 230 East Flamingo Road, Las Vegas, Nevada 89109.
(7) 1125 N.E. 125th Street, Suite 206, North Miami, Florida 33161.
(8) 650 South Cherry Street, Suite 420, Denver, Colorado 80222.
(9) 1001 19th Street North, Arlington, VA 22209. The Company has been advised
that Friedman, Billings, Ramsey Group, Inc., through its three wholly-owned
subsidiaries, Friedman, Billings, Ramsey & Co., Inc. ("FBR"), Friedman,
Billings, Ramsey Investment Management, Inc. ("Investment Management"), and
FBR Offshore Management, Inc. ("Offshore Management"), had sole voting and
dispositive power with respect to 3,705,774 shares of Common Stock. FBR has
advised the Company

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<PAGE> 9

that, in the ordinary course of business, it actively trades in the Common
Stock of the Company for its accounts and for the accounts of its customers
and, accordingly, may at any time hold long or short positions in such
securities. As of May 1, 1998, FBR owned 2,798,965 shares of Common Stock.
Investment Management serves as general partner and discretionary
investment manager for FBR Ashton, Limited Partnership ("Ashton") which, as
of May 1, 1998, owned 824,187 shares of Common Stock. Offshore Management
serves as discretionary manager for FBR Opportunity Fund, Class A Ltd.
("Opportunity Fund") which, as of May 1, 1998, owned 82,622 shares of
Common Stock. Each of FBR, Ashton and Opportunity Fund disclaims beneficial
ownership of shares of Common Stock owned by the other two entities. In
addition, Emanuel J. Friedman, Eric F. Billings and W. Russell Ramsey are
each control persons with respect to Friedman, Billings, Ramsey Group, Inc.
and are the voting trustees of the Friedman, Billings, Ramsey Group, Inc.
Voting Trust, which has sole discretion to vote approximately 89.1% of the
voting power of Friedman, Billings, Ramsey Group, Inc.
(10) See Notes (2) and (4)-(8).

7
<PAGE> 10

MANAGEMENT

OFFICERS OF THE COMPANY

The Company's executive officers and key personnel are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ -- ---------------------------------------
<S> <C> <C>
Jerome J. Cohen................................. 69 Chairman of the Board
Jeffrey S. Moore................................ 40 President, Chief Executive Officer and
Director
James L. Belter................................. 50 Executive Vice President, Chief
Financial Officer and Treasurer
Robert Bellacosa................................ 56 Vice President -- Financial Management
Samuel Schultz.................................. 47 Vice President -- Credit Quality
John Kostelich.................................. 34 Vice President -- Project Management
Debra C. Turner................................. 37 Vice President -- Administration
Robert H. Chastain.............................. 38 Vice President -- Corporate Counsel
Forrest Parker Young, Jr........................ 32 Vice President -- Retail Business
Development
Norman D. Perry................................. 53 Vice President -- Alternative Lending
</TABLE>

James L. Belter has been Executive Vice President of the Company since
April 1995 and Chief Financial Officer and Treasurer since September 1996. Prior
to being elected Executive Vice President, Mr. Belter served as Senior Vice
President of the Company from October 1993 to March 1995. Prior to joining the
Company, from May 1989 to September 1993, Mr. Belter served as the President,
Chief Operating Officer and a director of Del-Val Capital Corporation, a
commercial finance company. From April 1985 to April 1989, Mr. Belter served as
Executive Vice President of Security Capital Credit Corporation, a commercial
finance company, where he was responsible for the formation of that company's
installment receivable lending division. From November 1976 to April 1985, Mr.
Belter served as a corporate Vice President of Barclays Business Credit, Inc.
where he managed a unit specializing in financing portfolios of consumer
contracts including residential second mortgages, home improvement contracts,
timeshare and land sales.

Robert Bellacosa has served as Vice President -- Financial Management since
October 1993 and Secretary since September 1996. From May 1989 to October 1993,
Mr. Bellacosa served as Senior Vice President of Loan Administration and
Financial Management for Del-Val Capital Corp. From May 1985 to May 1989, he
served as Vice President of Security Capital Credit Corp. where he was
responsible for loan administration of commercial real estate and term
receivable lending functions. From 1974 to 1985, he served as Vice President for
Aetna Business Credit, Inc. which was purchased by Barclays American Business
Credit, Inc. and was responsible for the management of loan administration for
special term receivables.

Samuel Schultz has served as Vice President -- Credit Quality since June
1996 and as Vice President of the Company's Dealer Division Operations from
December 1993 until June 1996. Mr. Schultz was a consultant to the Company from
June 1993 until December 1993. From September 1990 to June 1993, he served as
Vice President of Underwriting for Empire Funding Corp., a nationwide consumer
finance company specializing in the purchase of FHA Title I and other home
improvement mortgage loans. From February 1988 to September 1990, he served as a
Senior Manager for Avco Financial Services. From October 1985 to February 1988,
he served as a Department Manager for Associates Financial Services Inc. Prior
to 1985, and since 1971, Mr. Schultz's experience includes collections and
originations of consumer finance loans for Postal Finance, Turner Mortgage and
other consumer finance companies.

John Kostelich has served as Vice President -- Project Management since
June 1996 and is responsible for developing and implementing the Company's
policies and procedures for new and diversified loan products. In addition, he
is responsible for the Company's Correspondent and Wholesale Operations and
Sales Divisions. From June 1995 to June 1996, Mr. Kostelich served as director
of Compliance for the Company.

8
<PAGE> 11

From 1985 to 1995, he served in various positions for ITT Consumer Financial
Corporation, including Manager of Quality Control and Correspondent Support
Operations, Senior Compliance Officer, Assistant Vice President and Regional
Manager and Branch Manager.

Debra C. Turner has served as Vice President -- Administration since
October 1996 and is responsible for the management of quality assurance and
policy development and acts as liaison to the President's office. From April
1996 to September 1996, Ms. Turner served as the Southeast Division Operations
Manager for Ameriquest Mortgage Corporation where she was responsible for
assisting in the establishment and management of branch offices, training all
sales and technical staff and acting as liaison between branch and corporate
offices. From October 1994 to April 1996, Ms. Turner served as Chase Manhattan
Mortgage Corporation's Retail Manager for the State of Georgia where she was
responsible for, among other things, establishing and managing branches
throughout the State of Georgia. From June 1991 to October 1994, she served as a
Vice President for Unity Mortgage Corporation where she was responsible for
establishing retail branches throughout the Southeast region and training all
sales and technical staff. From September 1990 to June 1991, Ms. Turner served
as an Operations Manager for Sears Mortgage Corporation. From April 1984 to
September 1990, Ms. Turner served in various capacities for American Residential
Mortgage, a.k.a. ICA Mortgage Corp., including Vice President -- National
Production and Southeast Division Operations Supervisor.

Robert H. Chastain has served as Vice President -- Corporate Counsel since
June 1997. From November 1993 to June 1997, Mr. Chastain was an attorney with
the firm of Aiken & Associates, Atlanta, Georgia. Prior to joining Aiken &
Associates, from March 1990 to November 1993, Mr. Chastain was an attorney with
the firm of Cashin, Morton & Mullins, Atlanta, Georgia. From February 1984 to
September 1988, he served as a law clerk and from October 1988 to March 1990 as
an attorney with the firm of McCalla, Raymer, Padrick, Cobb & Nichols, Atlanta,
Georgia. Mr. Chastain's legal experience has focused on, among other areas, loan
workouts and foreclosures, asset securitizations and REMIC trusts, FHA, FNMA and
FHLMC loan servicing, and general corporate and structured business
arrangements. Mr. Chastain has been licensed to practice law in the State of
Georgia since 1988 and is a member of the Georgia Bar Association.

Forrest Parkhurst Young, Jr. has served as Vice President -- Retail
Business Development since August 1997. From October 1996 to May 1997, Mr. Young
served as Vice President Branch Systems of Transamerica Mortgage Company. From
August 1989 to October 1996, he served in various managerial capacities with
Transamerica Financial Services, including as Business Development Manager.

Norman D. Perry has served as Vice President -- Alternative Lending since
November 1997. From August 1997 until joining the Company, Mr. Perry served as a
consultant to the Company's alternative lending division. From September 1996
until August 1997, Mr. Perry served as Executive Vice President and director of
National Capital Holdings, Inc. where he was responsible for developing and
implementing lending programs and packages and marketing programs, among other
things. From July 1993 to September 1996, Mr. Perry founded and served as
general sales manager of Industry Mortgage Company, L.P. where he was
responsible for the development of correspondent lending, sales and marketing.
From March 1990 to June 1993, Mr. Perry served as Regional Vice President of
Express Financial Services, Inc. where he was responsible for the development of
a title, appraisal and property report, as well as the development of marketing
strategies related to such company's products and services.

The business experience of Messrs. Cohen and Moore appears under the
caption "Election of Directors" set forth herein.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Directors and executive officers, and persons who own more than
ten percent of the Company's outstanding Common Shares, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of Common Shares. Such persons are required by
SEC regulations to furnish the Company with copies of all such reports they
file.

9
<PAGE> 12

To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, all Section 16(a) filing requirements
applicable to its officers, Directors and greater than ten percent beneficial
owners have been satisfied.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Relationship with Mego Financial; Spin-Off. The Company was formed in June
1992 as a wholly-owned subsidiary of Mego Financial. In November 1996, the
Company consummated the IPO of 2.3 million Common Shares. As a result of the
consummation of the IPO, Mego Financial's ownership of the Company was reduced
to approximately 81.3% of the outstanding Common Shares. On September 2, 1997,
Mego Financial distributed all of its 10.0 million Common Shares of the Company
to the shareholders of Mego Financial in a tax-free spin-off (the "Spin-Off").

Tax Sharing and Indemnity Agreement. For taxable periods up to the date of
the Spin-off, the results of operations of the Company are includable in the tax
returns filed by Mego Financial's affiliated group for federal income tax
purposes. Under a tax allocation and indemnity agreement with Mego Financial
currently in effect, the Company records a liability to Mego Financial for
federal income taxes calculated on a separate company basis. Under a prior tax
sharing arrangement with Mego Financial, the Company recorded a liability to
Mego Financial for federal income taxes applied to the Company's financial
statement income after giving consideration to applicable income tax law and
statutory rates. In addition, both the agreement and the arrangement provide
that the Company and Mego Financial each will indemnify the other under certain
circumstances. Following the Spin-off, the Company remains liable for any
amounts payable to Mego Financial pursuant to the tax sharing agreements in
effect prior to the date of the Spin-off. From and after the date of the
Spin-off, the Company no longer files consolidated returns with Mego Financial's
affiliated group but files separate consolidated returns with the Company's
subsidiaries.

Management Services Agreement with PEC. The Company and Preferred Equities
Corporation ("PEC"), a wholly-owned subsidiary of Mego Financial, were parties
to a management services arrangement (the "Management Arrangement") pursuant to
which certain executive, accounting, legal, management information, data
processing, human resources, advertising and promotional personnel of PEC
provided services to the Company on an as needed basis. The Management
Arrangement provided for the payment by the Company of a management fee to PEC
in an amount equal to the direct and indirect expenses of PEC related to the
services rendered by its employees to the Company, including an allocable
portion of the salaries and expenses of such employees based upon the percentage
of time such employees spend performing services for the Company. For the years
ended August 31, 1995 and 1996, approximately $690,000 and $671,000,
respectively, of the salaries and expenses of certain employees of PEC were
attributable to and paid by the Company in connection with services rendered by
such employees to the Company. In addition, during the years ended August 31,
1995 and 1996, the Company paid PEC for developing certain computer programming,
incurring costs of $36,000 and $56,000, respectively.

The Company entered into a formal management services agreement with PEC
(the "Management Agreement"), effective as of September 1, 1996, pursuant to
which PEC agreed to provide the following services to the Company for an
aggregate annual fee of approximately $967,000 payable monthly: strategic
planning, management and tax; accounting and finance; legal; management
information systems; insurance management; human resources; and purchasing.
Either party has the right to terminate all or any of these services upon 90
days' notice with a corresponding reduction in fees. Such agreement currently
remains in effect. Effective January 1, 1998, the annual fee payable to the
Company under the Management Agreement was reduced to $528,000, and the services
to be provided thereunder were reduced accordingly. PEC has given the Company
notice of termination of the Management Agreement.

Servicing Agreement with PEC. Prior to September 1, 1996, the Company had
an arrangement with PEC pursuant to which it paid servicing fees of 50 basis
points on the principal balance of loans serviced per year. For the years ended
August 31, 1995 and 1996, the Company paid servicing fees to PEC of
approximately $232,000 and $709,000, respectively. The Company entered into a
servicing agreement with PEC (the "Servicing Agreement"), effective as of
September 1, 1996, providing for the payment of servicing
10
<PAGE> 13

fees of 50 basis points on the principal balance of loans serviced per year. For
the year ended August 31, 1997, the Company paid servicing fees to PEC of $1.9
million under the Servicing Agreement. Such agreement currently remains in
effect. For the years ended August 31, 1995, 1996 and 1997, the Company incurred
interest expense in the amount of $85,000, $29,000 and $16,000, respectively,
related to fees payable to PEC for these services. The interest rates were based
on PEC's average cost of funds and equaled 11.8% in 1995, 10.68% in 1996 and
10.48% in 1997. The Servicing Agreement is also terminable upon 90 days notice
by either party. Effective September 1, 1997, the servicing fees were reduced to
40 basis points per year by written agreement. Effective January 1, 1998, the
servicing fees were further reduced to 35 basis points per year by written
agreement.

Funding and Guarantees by Mego Financial. In order to fund the Company's
past operations and growth, and in conjunction with filing consolidated returns,
the Company incurred intercompany debt to Mego Financial. As of August 31, 1995,
1996 and 1997, the amount of intercompany debt owed to Mego Financial was $8.5
million, $12.0 million and $9.7 million, respectively. Prior to the IPO, Mego
Financial had guaranteed the Company's obligations under the Company's credit
agreements and an office lease. The guarantees of the Company's credit
agreements were released upon consummation of the IPO. The Company did not pay
any compensation to Mego Financial for such guarantees.

In October 1996, the Company entered into an agreement with a financial
institution, providing for the purchase by the financial institution of $2.0
billion of loans over a five year period. Pursuant to the agreement, Mego
Financial issued to the financial institution four-year warrants to purchase 1.0
million shares of Mego Financial's common stock. The value of the warrants,
estimated at $3.0 million (0.15% of the commitment amount) as of the commitment
date (the "Warrant Value") plus a $150,000 fee, are being amortized as the
commitment for the purchase of loans is utilized. The Company has agreed to pay
Mego Financial the Warrant Value as it is amortized as described below. As of
November 30, 1997, $1.0 million of the Warrant Value and such fee had been
amortized.

On August 29, 1997, the Company and Mego Financial entered into an
agreement (the "Payment Agreement") with respect to the Company's repayment
after the Spin-off of (i) a portion of the debt owed by the Company to Mego
Financial as of May 31, 1997 aggregating approximately $3.4 million (the "May
Amounts") and (ii) debt owed by the Company to Mego Financial as of August 31,
1997 in addition to the May Amounts (the "Excess Amounts"). The May Amounts
consist of a portion of the debt owed by the Company to Mego Financial as of May
31, 1997 in respect of funds advanced by Mego Financial to the Company through
such date, the portion of the Warrant Value amortized through such date and
amounts owed under the tax allocation and indemnification agreement between Mego
Financial and the Company as of such date. The Excess Amounts consist of funds
advanced by Mego Financial to the Company during the period commencing June 1,
1997 and ending August 31, 1997 (the "Excess Period"), the portion of the
Warrant Value amortized during the Excess Period and amounts accrued under the
tax allocation and indemnification agreement during the Excess Period. Pursuant
to the Payment Agreement, the Company agreed to repay the May Amounts upon the
earlier to occur of (i) the first consummation after the date of the agreement
of a public or private debt or equity transaction by the Company of at least
$25.0 million in amount or (ii) August 31, 1998. In accordance with the Payment
Agreement, $3.9 million was paid upon consummation of the Company's private
placement of $40.0 million in principal amount of its 12 1/2% Senior
Subordinated Notes due 2001 in October 1997. The Company further agreed to repay
the Excess Amounts upon the earlier to occur of (i) the second consummation
after the date of the agreement of a public or private debt or equity
transaction by the Company of at least $25.0 million in amount or (ii) August
31, 1998. The amount of the amortization of the Warrant Value for each of the
months of September, October, November and December 1997 will be payable January
31, 1998. Commencing in January 1998, the unpaid balance of the Warrant Value
will continue to be amortized on a monthly basis and the amount of such
amortization will be due and payable within 30 days from the end of each fiscal
quarter.

At August 31, 1997, the Company owed Mego Financial $6,152,000 (the
"Receivable"), $5,283,000 of which related to amounts owed under the tax
allocation and indemnity agreement as a result of the Company's filing of a
consolidated federal income tax with Mego Financial's affiliated group prior to
the Spin-off. In April 1998, the Company and Mego Financial entered into an
agreement (the "1998 Agreement") superseding the
11
<PAGE> 14

Payment Agreement. Pursuant to the 1998 Agreement, the parties agreed to reduce
the amount of the Receivable by the amount owed under the tax allocation and
indemnity agreement, or $5,283,000, and that the balance of the Receivable in
the amount of $869,238 (the "New Debt") will be paid as follows: (i) on or
before May 15, 1998, the Company shall either (x) pay Mego Financial $215,000 in
cash or (y) assign to Mego Financial certain mortgage loans (the "Transferred
Loans") having an aggregate outstanding principal of $404,712 in payment of
$215,000 of the New Debt; and (ii) the balance of the New Debt in the amount of
$654,238 shall be payable in four equal installments of principal of $163,559.50
on April 1, 1999, 2000, 2001 and 2002, together with interest on the outstanding
amount thereof from April 1, 1998 until paid at the rate of 10% per annum, which
interest shall be payable annually with the payments of principal. The 1998
Agreement provides that the Company will service the Transferred Loans on behalf
of Mego Financial at no charge.

Mego Financial has agreed with the financial institution providing the
First Revolving Credit Facility (as defined below) to subordinate amounts due
Mego Financial from the Company to certain obligations to such institution which
have accrued through December 31, 1998.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth information concerning the annual and
long-term compensation earned by the Company's chief executive officer and each
of the two other executive officers whose annual salary and bonus during the
fiscal years presented exceeded $100,000 (the "Named Executive Officers").

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------------
--------------------------------------------------- NUMBER OF
OTHER ANNUAL OPTIONS/SARs ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION(1) GRANTED(2) COMPENSATION
- --------------------------- ----------- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jerome J. Cohen(3)....... 1995 $ 64,388 $ -- $ -- -- $ --
Chairman of the Board 1996 65,748 -- -- -- --
1997 150,000 -- 13,877 100,000 --

Jeffrey S. Moore......... 1995 $200,003 $ -- $13,963 -- $ --
President and Chief 1996 200,003 86,084 13,625 -- --
Executive Officer 1997 200,002 203,149 30,191 500,000 --

James L. Belter.......... 1995 $150,003 $ 50,000 $ 1,510 -- $ --
Executive Vice President, 1996 159,080 50,000 4,330 -- --
Chief Financial Officer 1997 180,003 100,000 15,896 100,000 --
and Treasurer
</TABLE>

- ---------------

(1) Other annual compensation consists of car allowances, contributions to
401(k) plans and moving expenses.
(2) Except for 100,000 stock appreciation rights ("SARs") granted to Mr. Moore
under the 1997 Plan, which grant is subject to stockholder approval of the
1997 Plan, represents SARs which were initially granted as options to
purchase Common Stock under the Company's 1996 Stock Option Plan (the "1996
Plan") and subsequently converted into SARs in connection with the Spin-Off.
In October 1997, the Company repurchased all outstanding SARs. See
"-- Company Stock Option Plans" below.
(3) Mr. Cohen served as the Company's Chief Executive Officer from June 1992
until September 2, 1997. Mr. Cohen's compensation is included in the
management fees paid to PEC. See "Certain Relationships and Related
Transactions" above.

12
<PAGE> 15

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information concerning grants of
stock options or SARs made during the fiscal year ended August 31, 1997 to the
Named Executive Officers. In October 1997, the Company repurchased all
outstanding SARs. See "-- Company Stock Option Plans" below.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT
PERCENT OF ASSUMED ANNUAL RATES
NUMBER OF TOTAL OF STOCK
SECURITIES OPTIONS/SARs PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS/SARs EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE 5%($) 10%($)
- ---- ------------ ------------ ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jerome J. Cohen(3).......... 100,000 8.9% $10.00 11/18/06 $ 710,000 $ 1,853,000
Chairman of the Board

Jeffrey S. Moore............ 500,000(1) 44.7 (2) (3) 3,834,000(4) 10,007,000(5)
President and Chief
Executive Officer

James L. Belter............. 100,000 8.9 10.00 11/18/06 710,000 1,853,000
Executive Vice President
and Chief Financial
Officer
</TABLE>

- ---------------

(1) Represents (i) 400,000 SARs granted under the Company's 1996 Plan and (ii)
100,000 SARs granted under the Company's 1997 Plan, which grant is subject
to stockholder approval of the 1997 Plan.
(2) Of such SARs, (i) 300,000 have an exercise price of $10.00 per share and
(ii) 200,000 have an exercise price of $12.00 per share.
(3) Of such SARs, (i) 300,000 expire on November 18, 2006 and (ii) 200,000
expire on August 19, 2007.
(4) The potential realizable value of the 300,000 SARs granted at an exercise
price of $10.00 per share would be $2,130,000 and the potential realizable
value of the 200,000 SARs granted at $12.00 per share would be $1,704,000
assuming a 5% annual appreciation in value.
(5) The potential realizable value of the 300,000 SARs granted at an exercise
price of $10.00 per share would be $5,559,000 and the potential realizable
value of the 200,000 SARs granted at an exercise price of $12.00 per share
would be $4,448,000 assuming a 10% annual appreciation in value.

AGGREGATED FISCAL YEAR-END OPTION/SAR VALUE TABLE

The following table sets forth certain information concerning unexercised
stock options/SARs held by the Named Executive Officers as of August 31, 1997.
No stock options/SARs were exercised by the Named Executive Officers during the
fiscal year ended August 31, 1997. In October 1997, the Company repurchased all
outstanding SARs. See "-- Company Stock Option Plans" below.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARs HELD AT OPTIONS/SARs HELD
AUGUST 31, 1997 AT AUGUST 31, 1997(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jerome J. Cohen.................................. -- 100,000 $-- $175,000
Jeffrey S. Moore................................. -- 500,000 -- 525,000(2)
James L. Belter.................................. -- 100,000 -- 175,000
</TABLE>

- ---------------

(1) The closing sales price of the Company's Common Stock as reported on the
Nasdaq National Market on August 29, 1997 was $11.75. Value is calculated by
multiplying (a) the difference between $11.75 and each SAR exercise price by
(b) the number of shares of Common Stock underlying the SAR.
(2) Does not include 200,000 SARs granted at an exercise price of $12.00 per
share since such price was above the closing sale price of the Common Stock
on August 29, 1997.

13
<PAGE> 16

EMPLOYMENT AGREEMENTS

In August 1997, the Company entered into an employment/consulting agreement
with Jerome J. Cohen, the Company's Chairman of the Board of Directors, which
expires in December 2002. During the term of the employment/consulting
agreement, Mr. Cohen shall receive an annual Chairman's fee of at least $30,000.
During the term of such agreement, Mr. Cohen shall also receive (i) an annual
consulting fee in the amount of $120,000 and (ii) an annual incentive bonus
equal to one and one-quarter percent (1.25%) of the Company's pre-Federal tax
(and after state and local tax) income for the prior calendar year. The
incentive bonus and any incentive bonus payments under the employment/consulting
agreement are subject to stockholder approval at such time or times as required
under Section 162(m) of the Code and treasury regulations promulgated
thereunder. The employment/consulting agreement further provides that the
Company will indemnify and hold Mr. Cohen harmless, to the extent permitted by
law, to and from any and all costs, expenses or damages incurred by him as a
result of any claim, suit, action or judgment arising out of his activities as a
consultant to the Company. In the event of a change in control of the Company
during the term of the employment/consulting agreement, the Company may, in its
sole discretion, pay Mr. Cohen a lump sum equal to sum of (i) the annual
consulting fees that would have been received during the remaining term of such
agreement and (ii) the incentive bonuses that would have been received during
the remaining term of such agreement, increased by an assumed compounded growth
in such income of 20% per annum and appropriately discounted to present value.

The Company has entered into an employment agreement with Jeffrey S. Moore
effective as of the consummation of the Spin-off and terminating on December 31,
2000 (the "Initial Term"). Pursuant to the terms of such agreement, the term of
employment shall automatically be extended for additional one (1) year periods
unless the Company or Mr. Moore provides written notice to the other of an
intent to terminate the agreement at least 60 days prior to the expiration of
the calendar year, which termination shall be effective on the second
anniversary of the first day of the calendar year following such notification
(the "Extended Term," and together with the Initial Term shall be referred to as
the "Employment Term"). The agreement provides for an annual base salary of at
least $250,000, which base salary shall be increased during each year of the
Employment Term commencing on or after January 1, 1999, by the greater of (i)
$25,000 or (ii) an adjustment based on an increase in the Consumer Price Index
for All Urban Consumer for Atlanta, Georgia. During the Employment Term,
commencing in March 1998, Mr. Moore shall also be entitled to receive a bonus
equal to one and one-quarter percent (1.25%) of the Company's pre-Federal tax
(and after state and local tax) income for the prior calendar year (the
"Incentive Bonus"). The Incentive Bonus and any Incentive Bonus payments under
the agreement will be subject to stockholder approval at such time or times as
required under Section 162(m) of the Code and treasury regulations promulgated
thereunder. Mr. Moore shall also be entitled to receive for each calendar year
during the Employment Term, deferred compensation (the "Deferred Compensation")
in an amount equal to one percent (1.0%) of the amount of "Gain on sale of
loans," including the net gain on the sale of whole loans, and any portion of
the net gain from sales in securitized transactions included in net unrealized
gain on mortgage related securities, resulting from the sales of conventional
home improvement loans, debt consolidation loans, home improvement loans insured
under the Title I credit insurance program and nonconforming mortgage loans
(collectively, the "Loans") and the net gain from the sale of loans in any other
form of transaction not included in the foregoing. The accrual of such deferred
compensation for each year shall be conditioned on the Company achieving a
percentage return on stockholders' equity of at least ten percent (10%) during
such year or an average of ten percent (10%) per year over the previous two
years. The Deferred Compensation due for any year shall be payable in 24 equal
installments commencing on March 1 of the following year. As with the Incentive
Bonus, the Deferred Compensation and Deferred Compensation payments will be
subject to stockholder approval at such time or times as required under Section
162(m) of the Code and treasury regulations promulgated thereunder. The
agreement provides that the Company use its best efforts to obtain stockholder
approval of the Incentive Bonus and Deferred Compensation provisions of the
agreement at an annual meeting of the Company's stockholders to occur no later
than January 31, 1998. Mr. Moore shall also be entitled to participate, to the
extent eligible, in all benefit plans and programs as are generally provided
from time to time by the Company to its senior executives. Upon termination for
"cause," Mr. Moore shall only be entitled to receive his base salary through the
effective date of such termination. In the event Mr. Moore's employment is
terminated due
14
<PAGE> 17

to a non-extension of the term of the employment agreement, the Company shall
pay Mr. Moore $600,000 in twelve equal monthly installments. In the event of a
change in control as defined in the employment agreement, the Company (or its
successor) shall be required to pay Mr. Moore $1.0 million within thirty (30)
days following such change in control. In addition, if (i) within sixty (60)
days following a change in control Mr. Moore voluntarily terminates his
employment and is no longer employed by the Company (or its successor) under
another employment agreement, the Company shall pay Mr. Moore (x) 125% of the
prior year's or annualized current year's Incentive Bonus, whichever is higher,
if the change in control occurs during the Initial Term of the Agreement, or (y)
125% of the annualized current year's Incentive Bonus, if the change in control
occurs after the Initial Term of the Agreement, with either of such payments
being payable 50% at termination and the balance in twelve equal monthly
installments, or (ii) within one (1) year following a change in control the
Company (or its successor) terminates the employment agreement without cause,
the Company shall pay Mr. Moore compensation in an aggregate amount no less than
one year's base salary, and (x) 250% of the annualized current year's Incentive
Bonus, if the change in control occurs after the Initial Term of the Agreement,
or (y) 125% of the prior year's or annualized current year's Incentive Bonus,
whichever is greater, multiplied by the number of full calendar years remaining
to the end of the Initial Term of the Agreement plus a fraction the numerator of
which is the number of months during any partial year remaining to the end of
the Initial Term and the denominator of which is twelve or by 2, whichever is
greater, if the change in control occurs during the Initial Term of the
Agreement, with either of such payments being payable 50% within 60 days of
termination and the balance in twelve equal monthly installments. Mr. Moore will
be prohibited from competing with the Company during the Employment Term and for
a period of one (1) year following the termination of his employment.

The Company has entered into an employment agreement with James L. Belter,
the Company's Executive Vice President, Chief Financial Officer and Treasurer.
Mr. Belter's employment agreement has an initial term which commenced on
September 1, 1997 and terminates on December 31, 1999. Mr. Belter's agreement
provides for an annual base salary of $200,000 and provides that such executive
shall be entitled to receive a discretionary performance bonus based on factors
determined by the Company. Notwithstanding the foregoing, Mr. Belter is
guaranteed to receive a bonus of $100,000 for each of the first two years of his
employment agreement. In the event the executive is terminated without "cause,"
he will be entitled to receive a lump sum payment equal to (i) the value of any
unpaid salary through the remainder of the employment term plus (ii) the
guaranteed bonus, to the extent not already paid for the year during which his
employment was terminated. Upon termination for "cause," Mr. Belter shall only
be entitled to receive his base salary through the effective date of such
termination. The executive is also entitled to participate, to the extent
eligible, in all benefit plans and programs as are generally provided from time
to time by the Company to its senior executives.

COMPANY STOCK OPTION PLANS

Under the Company's 1996 Plan, 10,000 shares of Common Stock remain
reserved for issuance upon exercise of stock options. Prior to the Spin-off,
such options were accompanied by SARs which would become exercisable as
determined by the Board, or a Committee thereof, only if Mego Financial did not
give approval to the exercise of the option. The 1996 Plan is designed as a
means to retain and motivate key employees and Directors. The Company's Board of
Directors, or a committee thereof, administers and interprets the 1996 Plan and
is authorized to grant options thereunder to all eligible employees and
Directors of the Company, except that no incentive stock options (as defined in
Section 422 of the Code) may be granted to a Director who is not also an
employee of the Company or a subsidiary.

The 1996 Plan provides for the granting of both incentive stock options and
nonqualified stock options. Options may be granted under the 1996 Plan on such
terms and at such prices as determined by the Company's Board of Directors, or a
committee thereof, except that the per share exercise price of incentive stock
options cannot be less than the fair market value of the Common Stock on the
date of grant. Each option is exercisable after the period or periods specified
in the related option agreement, but no option may be exercisable after the
expiration of ten years from the date of grant. Options granted to an individual
who owns (or is deemed to own) at least 10% of the total combined voting power
of all classes of stock of the Company

15
<PAGE> 18

must have an exercise price of at least 110% of the fair market value of the
Common Stock on the date of grant and a term of no more than five years. The
1996 Plan also authorizes the Company to make or guarantee loans to optionees to
enable them to exercise their options. Such loans must (i) provide for recourse
to the optionee, (ii) bear interest at a rate no less than the prime rate of
interest, and (iii) be secured by the shares of Common Stock purchased. The
Board of Directors has the authority to amend or terminate the 1996 Plan,
provided that no such action may impair the rights of the holder of any
outstanding option without the written consent of such holder, and provided
further that certain amendments of the 1996 Plan are subject to stockholder
approval. Unless terminated sooner, the 1996 Plan will continue in effect until
all options granted thereunder have expired or been exercised, provided that no
options may be granted ten years after commencement of the 1996 Plan. In
connection with the Spin-off, all options outstanding under the 1996 Plan were
converted into SARs. As of August 31, 1997, an aggregate of 915,000 SARs were
issued and outstanding under the 1996 Plan.

In August 1997, the Company's Board of Directors adopted, subject to
stockholder approval, the Company's 1997 Plan. Under the 1997 Plan, as amended
by the Board of Directors in October 1997, 2,000,000 shares of Common Stock are
reserved for issuance upon the exercise of stock options and/or SARs granted
under such plan. The Company's Board of Directors, or a committee thereof,
administers and interprets the 1997 Plan and is authorized to grant options
and/or SARs thereunder to any person who has rendered services to the Company,
except that no incentive stock options may be granted to any person who is not
also an employee of the Company or any subsidiary. See "Proposal to Approve the
Company's 1997 Stock Option and Stock Appreciation Rights Plan."

In October 1997, the Company repurchased all of the SARs granted under the
1996 Plan and the 1997 Plan at a purchase price of $1.00 for each SAR granted at
an exercise price of $10.00 to $11.00 per share and $0.70 for each SAR granted
at an exercise price of $12.00 per share. In addition, in October 1997, options
to purchase an aggregate of 1,052,500 shares were granted under the 1997 Plan at
an exercise price of $14.75 per share, subject to stockholder approval of the
1997 Plan. Of the total aggregate options granted, Jeffrey S. Moore was granted
options to purchase 500,000 shares, Jerome J. Cohen was granted options to
purchase 100,000 shares, and James L. Belter was granted options to purchase
100,000 shares; all of which were granted subject to stockholder approval of the
1997 Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company's Compensation Committee was formed by the Board of Directors
in August 1997. During fiscal 1997, the Compensation Committee was comprised of
Robert Nederlander, Spencer I. Browne and Jeremy Wiesen, non-employee Directors.
In March 1998, Mr. Wiesen resigned from the Company's Board of Directors. During
fiscal 1997, the Compensation Committee had a special subcommittee consisting of
Jeremy Wiesen and Spencer I. Browne, who were considered "outside directors"
under Section 162(m), which subcommittee had the authority to approve executive
compensation and agreements that are subject to Section 162(m). Jerome J. Cohen,
Chairman of the Board and former Chief Executive Officer, participated in
deliberations concerning the compensation of the Company's executive officers
during fiscal 1997. Mr. Cohen's compensation for fiscal 1997 was determined by
the Board of Directors of Mego Financial.

16
<PAGE> 19

REPORT ON EXECUTIVE COMPENSATION

Pursuant to the rules of the Securities and Exchange Commission, the
Compensation Committee of the Board of Directors of the Company (the
"Committee") is required to provide a report explaining the rationale and
considerations that led to fundamental compensation decisions affecting the
Company's executive officers, including the Named Executive Officers, during the
past fiscal year. Set forth below is the report of the Committee and other
members of the Board of Directors who were involved in compensation decisions
during the 1997 fiscal year regarding such compensation policies. This report
shall not be deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
acts.

Prior to August 1997, executive officer compensation decisions were
determined by the Company's Board of Directors or, in the case of Mr. Cohen, by
the Board of Directors of Mego Financial. Neither Mr. Cohen nor Mr. Moore voted
on matters related to his specific compensation. The Committee was formed by the
Board of Directors in August 1997, and during fiscal 1997 was comprised of
Robert Nederlander, Spencer I. Browne and Jeremy Wiesen. In March 1998, Mr.
Wiesen resigned from the Company's Board of Directors. The Compensation
Committee has the authority to determine the compensation of the Company's
executive officers, except to the extent that such compensation is subject to
Section 162(m). During fiscal 1997, the Committee had a special subcommittee
consisting of Jeremy Wiesen and Spencer I. Browne, who were considered "outside
directors" under Section 162(m), which subcommittee had the authority to approve
executive compensation and agreements, or portions thereof, that are subject to
Section 162(m).

The primary elements of the Company's compensation program are base salary,
performance-based bonuses, deferred compensation and stock option plans designed
to provide long-term incentives. The Committee's and the Board of Directors'
general philosophy with respect to the compensation of the Company's executive
officers (including the Named Executive Officers) is to offer competitive
compensation programs designed to attract and retain key executives who are
critical to the long-term success of the Company and to recognize an
individual's personal performance and contribution to the Company, as well as
the Company's overall performance. More specifically, factors considered in
determining compensation, to the extent applicable, included the recommendations
of the Chairman of the Board and Chief Executive Officer, specific
accomplishments of the executive officers, the Company's historical and
projected performance and success in reaching performance goals and projections,
and the Company's sales of loans, earnings and financial condition.

The Company attempts to provide incentives to its executive officers to
remain with the Company and to improve performance through the grant of stock
options and/or SARs. Options and SARs allow executive officers to share, to some
extent, in stockholders' return on equity. All Company options vest in staggered
amounts over a period of years. Determinations as to the number of options
and/or SARs to grant to an executive officer are made by the Board of Directors
except that determinations with respect to grants to Covered Employees (as
defined in the 1997 Plan) are made by the Committee.

During fiscal 1997, compensation paid to Jerome J. Cohen, the Company's
Chairman of the Board of Directors and Chief Executive Officer until September
1997, was included in the management fees paid by the Company to PEC, its then
affiliate. During fiscal 1998, the Committee and Board of Directors approved an
employment/consulting agreement with Mr. Cohen expiring in December 2002. As
more fully described herein, such agreement provides that Mr. Cohen shall
receive an annual Chairman's fee of at least $30,000 and an annual consulting
fee of $120,000, as well as an annual incentive bonus equal to one and
one-quarter percent (1.25%) of the Company' pre-Federal tax (and after state and
local tax) income for the prior calendar year. The incentive bonus provision of
such agreement is subject to stockholder approval. See "Executive
Compensation -- Employment Agreements." Except in the case of a change of
control of the Company, Mr. Cohen's agreement does not provide for an early
termination bonus or other additional compensation based on performance.

During fiscal 1997, the Board of Directors approved an employment agreement
with Jeffrey S. Moore, the Company's then President and Chief Operating Officer,
expiring on December 31, 1998 and providing for

17
<PAGE> 20

a base salary of $200,000. The employment agreement also provided that Mr. Moore
receive an incentive bonus each calendar year equal to 1.5% of the Company's
after tax income, provided that certain scheduled goals were met, as well as
deferred compensation of 1.0% of the gain on sale from the Company's sales of
loans during each year, payable in 48 equal installments. In the event payments
of the incentive bonus and deferred compensation due in any year were to exceed
$500,000, then the excess over $500,000 would be payable only with the approval
of the Company's Board of Directors. In connection with Mr. Moore's appointment
as Chief Executive Officer in September 1997, the Company and Mr. Moore entered
into a new employment agreement, replacing the above-described agreement. The
incentive compensation provisions of such agreement subject to stockholder
approval are more fully described herein. See "Executive Compensation --
Employment Agreements."

During fiscal 1997, the Committee and the Board of Directors approved an
employment agreement with James Belter, the Company's Executive Vice President
and Chief Financial Officer. Mr. Belter's employment agreement provides that
such executive shall be entitled to receive discretionary performance bonuses
based on factors determined by the Committee and the Board of Directors in
accordance with the Company's executive bonus pool program. Notwithstanding the
foregoing, Mr. Belter is guaranteed to receive a bonus of $100,000 for each of
the first two years of his employment agreement.

Section 162(m) of the Code generally disallows a public company's deduction
for compensation to any one employee in excess of $1.0 million per year unless
the compensation is pursuant to a plan approved by the public company's
stockholders. None of the Named Executive Officers received annual cash
compensation in excess of the $1.0 million provided by Section 162(m) during
fiscal 1997. The Committee and the Board of Directors presently intend to use
their best efforts to take the necessary steps to ensure compliance with Section
162(m), in part, by seeking stockholder approval at the Annual Meeting of the
Company's 1997 Plan and by seeking stockholder approval at a later meeting of
the material terms of the performance goals relating to the incentive
compensation provisions set forth in each of Mr. Cohen's employment/consulting
agreement and Mr. Moore's employment agreement.

ROBERT NEDERLANDER SPENCER I. BROWNE

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<PAGE> 21

STOCK PERFORMANCE GRAPH

Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Common Shares, based on the market price of the Common
Shares, with the cumulative total return of companies in the Nasdaq Market Index
and the Mortgage Bankers and Loan Correspondents Peer Group Index as of August
31, 1997. The comparison assumes the investment of $100 on November 19, 1996 in
the Common Shares and in each of the foregoing indices. The Company did not pay
any dividends on the Common Shares during this period and accordingly, no
reinvestment of dividends is included in the following line graph.

COMPARE CUMULATIVE TOTAL RETURN
AMONG MEGO MORTGAGE CORPORATION,
NASDAQ MARKET INDEX AND PEER GROUP INDEX

<TABLE>
<CAPTION>
MEGO
MEASUREMENT PERIOD MORTGAGE INDUSTRY BROAD
(FISCAL YEAR COVERED) CORP INDEX MARKET
<S> <C> <C> <C>
11/19/96 100.00 100.00 100.00
12/31/96 110.00 92.30 99.77
03/31/97 111.11 86.58 94.70
06/30/97 88.89 105.79 112.03
08/31/97 104.44 105.84 123.35
</TABLE>

ASSUMES $100 INVESTED ON NOV. 19, 1996
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING AUG. 31, 1997

19
<PAGE> 22

PROPOSAL TO APPROVE THE SALE OF COMMON STOCK BELOW

THE GREATER OF BOOK OR MARKET VALUE AND A NUMBER OF

SHARES OF PREFERRED STOCK CONVERTIBLE INTO COMMON STOCK AT A

CONVERSION PRICE BELOW THE GREATER OF BOOK OR

MARKET VALUE CONSTITUTING MORE THAN 20% OF THE

OUTSTANDING COMMON STOCK AND LIKELY RESULTING IN A

CHANGE OF CONTROL OF THE COMPANY

BACKGROUND

The Company is contemplating a transaction or series of private
transactions (collectively, the "Recapitalization Transactions"): (1) to sell a
number of shares of Common Stock; (2) to sell up to $40.0 million of a
newly-designated class of Preferred Stock (the "Series A Preferred Stock")
convertible into shares of Common Stock; and (3) to offer to exchange for the
Company's Existing Notes (as defined below) in the aggregate principal amount of
$80.0 million up to $55.0 million aggregate principal amount of new 12 1/2%
Subordinated Notes Due 2001 and up to 40,000 shares of Series A Preferred Stock.
In addition to the Recapitalization Transactions, the Company contemplates that
following the consummation of the Recapitalization Transactions, the Company
will issue to all holders of outstanding shares of Common Stock prior to the
consummation of the Recapitalization Transactions transferable rights to
purchase additional shares of Common Stock (the "Rights Offering"). The
consummation of the Recapitalization Transactions will likely result in the
issuance of shares of Common Stock and/or shares of Preferred Stock convertible
into shares of Common Stock constituting in the aggregate more than 20% of the
Company's outstanding Common Stock and may constitute a change of control of the
Company. The sale of such Common Stock may or may not be below the greater of
the book or market value of the Common Stock. In addition, the conversion price
of the Series A Preferred Stock may be below the greater of the book or market
value of the Common Stock. The Company anticipates that investors in the
Recapitalization Transactions may have the right to designate for election
members of the Company's Board of Directors and may request the resignation of
certain of the Company's Directors and/or executive officers. Additionally, the
Company may enter into employment agreements with additional executive officers
in connection with the Recapitalization Transactions. The Securities Act of
1933, as amended (the "Securities Act"), defines the term "control" to mean the
power to direct the management and policies of a person, directly through one or
more intermediaries, whether through ownership of voting securities, by
contract, or otherwise. At the date of this Proxy Statement, the Company has not
entered into any contracts or other agreements that would bind the Company to
contract to sell Common Stock or Preferred Stock. Since the Company has not
entered into any agreements to sell Common Stock or Preferred Stock and because
there are no certain terms of any such transaction or transactions, except as
set forth below, the Company is unable to provide stockholders with additional
details of any such proposed transaction or series of transactions at this time.

THIS PROXY STATEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OF THE COMPANY. THE PROPOSED TO BE ISSUED SECURITIES
REFERRED TO IN THIS PROXY STATEMENT HAVE NOT BEEN REGISTERED FOR SALE BY THE
COMPANY UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS AND MAY NOT BE SO OFFERED OR SOLD ABSENT SUCH
REGISTRATION UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS OR ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF.

The Company anticipates that offers to sell Common Stock and Series A
Preferred Stock will be made only to a limited number of (i) qualified
institutional buyers (as defined in Rule 144A under the Securities Act) and (b)
institutional "accredited investors" (as defined in Rule 501(a) promulgated
under the Securities Act). Any offer and sale of Common Stock or Series A
Preferred Stock will be made in reliance on an exemption from registration under
the Securities Act and the rules and regulations promulgated thereunder.

In the event that the sale of shares of Common Stock and Series A Preferred
Stock would result in a change of control, as defined under certain of the
Company's financing agreements, the Company would seek

20
<PAGE> 23

to obtain a waiver from each such lender or other holder of the related
indebtedness, although no assurance can be given that the Company would obtain
such waivers.

In connection with any such transaction or series of transactions, the
Company may agree to file with the Securities and Exchange Commission (the
"Commission") one or more registration statements (the "Resale Registration
Statement") under the Securities Act to cover resales of such shares by the
holders thereof who satisfy certain conditions.

The Company has engaged Friedman, Billings, Ramsey & Co., Inc. (the
"Placement Agent") to act as placement agent in connection with any sale of
Common Stock and Series A Preferred Stock, for which it will receive a
commission and other fees. According to the Placement Agent, as of May 1, 1998,
Friedman, Billings, Ramsey Group, Inc., through its three wholly-owned
subsidiaries the Placement Agent, Friedman, Billings, Ramsey Investment
Management, Inc. ("Investment Management") and FBR Offshore Management, Inc.
("Offshore Management") had sole voting and dispositive power with respect to
approximately 3,705,774 shares, or 30.1%, of the Company's outstanding Common
Stock. The Placement Agent has advised the Company that, in the ordinary course
of its business, it actively trades in the Common Stock of the Company for its
accounts and for the accounts of its customers and, accordingly, may at any time
hold long or short positions in such securities. As of May 1, 1998, the
Placement Agent owned in its trading account 2,798,965 shares, or 22.8%, of the
Company's outstanding Common Stock. The Placement Agent also served as a
managing underwriter for the Company's IPO of Common Stock and the public
offering of $40.0 million of the Company's 12 1/2% Senior Subordinated Notes due
2001 (the "Existing Notes") in November 1996, as well as the initial purchaser
of an additional $40.0 million of Existing Notes privately placed by the Company
in October 1997, for which services the Placement Agent received compensation.
The Placement Agent in the past has also provided certain investment banking
services to the Company and Mego Financial.

STOCKHOLDER APPROVAL

Rule 4460 of the National Association of Securities Dealers (the "NASD"),
which rule is applicable to the Company because the Company's Common Stock is
listed on the Nasdaq National Market, sets forth certain corporate governance
standards for companies with Nasdaq listed securities. In general, pursuant to
Section (i)(1)(D) of Rule 4460, the Company is required to obtain stockholder
approval prior to its issuance of Common Stock (or securities convertible into
Common Stock) constituting in excess of 20% of the outstanding shares of Common
Stock (the "20% Rule") at a price below the greater of the book value or market
value of the Common Stock or in connection with an issuance of stock that will
result in a change of control (the "Change of Control Rule"). The Company
anticipates that the Company will issue a number of shares of Common Stock and
shares of Preferred Stock convertible into shares of Common Stock constituting
in excess of 20% of the outstanding Common Stock at a price below the greater of
the book value or the market price pursuant to any such transaction or
transactions and that such issuance may result in a change of control.
Accordingly, in order to comply with the 20% Rule and the Change of Control
Rule, the prior approval of stockholders is a condition precedent to the
Company's consummation of any such transaction or transactions.

THE COMPANY'S CAPITAL REQUIREMENTS

The Company is a specialized consumer finance company that originates,
purchases, sells, securitizes and services consumer loans consisting primarily
of debt consolidation loans and to a lesser extent conventional uninsured home
improvement loans. The Company's business operations require continued access to
adequate credit facilities. The Company is dependent on the availability of
credit facilities for the origination of loans prior to their sale. The Company
has four significant sources of financing: (i) a warehouse line of credit for up
to a current amount of $16.0 million (the "Warehouse Line") which matures on May
29, 1998; (ii) a revolving credit facility for up to $25.0 million, less amounts
outstanding under repurchase agreements (the "First Revolving Credit Facility");
(iii) a second revolving credit facility for up to $5.0 million which may, under
certain circumstances, be increased to $8.8 million; and (iv) $80.0 million of
outstanding Existing Notes. Certain of the Company's credit facilities contain
debt-to-net worth ratio requirements, adjustable tangible net worth requirements
and other material covenants.
21
<PAGE> 24

In part as a result of losses recognized by the Company during the six
months ended February 28, 1998, the Company is not in compliance with certain of
the financial requirements and covenants contained in certain of the Company's
credit facilities. In particular, pursuant to the Indenture governing the
Existing Notes, the Company may not incur indebtedness (other than certain
limited types of indebtedness) if, on the date of such incurrence and after
giving effect thereto, the Company's Consolidated Leverage Ratio (as defined in
the Indenture) would exceed 2:1, subject to certain exceptions. At February 28,
1998, the Company's Consolidated Leverage Ratio was 5.52:1. Accordingly, while
the Company is not in default under the terms of the Indenture, the Company
cannot presently incur additional indebtedness (other than certain limited types
of indebtedness). Additionally, the pledge and security agreement, as amended,
governing the First Revolving Credit Facility requires the Company to maintain a
debt-to-net worth ratio not to exceed 2.5:1. At February 28, 1998, the
debt-to-net worth ratio was 4.25:1, however, the financial institution providing
the First Revolving Credit Facility has agreed to waive the non-compliance
provided that the debt-to-net worth ratio shall not exceed 6:1 prior to May 31,
1998 after which the ratio may not exceed 2.5:1. Additionally, at February 28,
1998 the Company was required to maintain a minimum net worth of $42.5 million
and the Company's actual net worth was $28.0 million.

The Company has operated since March 1994 on a negative cash flow basis. As
a result of such negative cash flow, the Company has been required to
significantly curtail the volume of its loan originations. In addition,
partially as a result of such negative cash flow, the Company has recently
reduced its workforce by 32% in order to decrease operating expenses. The
Company must maintain external sources of cash to fund operations and pay its
taxes and therefore must maintain its sources of financing or identify other
external funding sources.

As a result of the Company's negative cash flow and recently incurred
losses, which have, in part, restricted the Company's ability to incur
additional indebtedness under its current financing agreements and the
Indenture, the Company has determined to implement various strategic initiatives
to alter the manner in which it conducts its operations. One of these
initiatives is to raise additional capital through the issuance of securities
pursuant to the proposed Recapitalization Transactions.

CONSEQUENCES OF NON-APPROVAL OR PRIOR CLOSING OF TRANSACTION

To comply with the 20% Rule and the Change Of Control Rule, the Company may
not raise additional funds through the sale of Common Stock (or Preferred Stock
convertible into Common Stock) absent stockholder approval unless the
transaction does not result in a change of control and (i) the transaction
results in an issuance or potential issuance of a number of shares of Common
Stock representing less than 20% of the total number of outstanding shares of
Common Stock, (ii) the Common Stock is sold (and the Preferred Stock is
convertible at a conversion price) at the greater of book value and market
price, or (iii) the Common Stock is sold in a registered public offering. Based
on current market conditions, the Company's Board of Directors and management
believe that a public sale of securities would likely not be successful.
Moreover, a public offering would involve substantial delay and significant
expense.

The Company's business operations are dependent upon continued access to
adequate credit facilities. Accordingly, a failure to obtain stockholder
approval of the issuance of Common Stock and Series A Preferred Stock as
described herein could have a material adverse effect on the Company. As a
result of the foregoing, the Board of Directors believes that it is in the
Company's best interests to consummate a private sale of unregistered
securities.

In the event that stockholder approval is not obtained, the Board of
Directors may, in consideration of its fiduciary duties, determine to proceed
with any such transaction or transactions if the Board of Directors deems such
action to be in the Company's best interests. Additionally, the Board of
Directors may proceed with any such transaction or transactions prior to
obtaining stockholder approval if the Board of Directors deems such action or
actions to be in the Company's best interests. In each such instance, the
Company may no longer qualify for inclusion on the Nasdaq National Market. In
the event the Company proceeds with such

22
<PAGE> 25

transaction or transactions prior to obtaining stockholder approval, subsequent
stockholder approval will serve as ratification of such transaction or
transactions.

USE OF PROCEEDS

The Company intends to use the net proceeds from any sale of the Common
Stock and Series A Preferred Stock to originate loans and for general corporate
purposes, including the payment of interest due on June 1, 1998 with respect to
the Existing Notes. The Company may also use a portion of such net proceeds to
repay the amount outstanding under the Warehouse Line in the event the Company
is unable to obtain a replacement warehouse line of credit.

RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS

Although the issuance of shares of stock pursuant to the Recapitalization
Transactions as proposed herein will have a dilutive effect on the Company's
current stockholders and will likely constitute a change of control, the Board
of Directors believes that stockholder approval of the issuance of such stock is
in the best interests of the Company because the Company's ability to otherwise
raise additional financing absent stockholder approval is severely limited.
Moreover, the Company's business operations are dependent upon continued access
to adequate credit facilities. A failure to obtain stockholder approval of the
issuance of shares of Common Stock and Series A Preferred Stock pursuant to the
Recapitalization Transactions could have a material adverse effect on the
Company. Accordingly, the Board of Directors strongly recommends that
stockholders vote to approve the Company's sale of a number of shares of Common
Stock below the greater of book or market value and a number of shares of
Preferred Stock convertible into shares of Common Stock at a conversion price
below the greater of book or market value in a transaction or series of
transactions which will likely result in the issuance of shares of Common Stock
and shares of Preferred Stock convertible into Common Stock constituting more
than 20% of the outstanding Common Stock and will likely result in a change of
control of the Company. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the foregoing proposal.

As indicated above, in the event that stockholder approval is not obtained,
the Board of Directors may, in consideration of its fiduciary duties, determine
to proceed with any such transaction or transactions if the Board of Directors
deems such action to be in the Company's best interests. Additionally, the Board
of Directors may proceed with any such transaction or transactions prior to
obtaining stockholder approval if the Board of Directors deems such action or
actions to be in the Company's best interests. In each such instance, the
Company may no longer qualify for inclusion on the Nasdaq National Market. In
the event the Company proceeds with such transaction or transactions prior to
obtaining stockholder approval, subsequent stockholder approval will serve as
ratification of such transaction or transactions.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL
TO APPROVE A TRANSACTION OR SERIES OF TRANSACTIONS TO SELL A NUMBER OF SHARES OF
COMMON STOCK BELOW THE GREATER OF BOOK OR MARKET VALUE AND A NUMBER OF SHARES OF
PREFERRED STOCK CONVERTIBLE INTO COMMON STOCK AT A CONVERSION PRICE BELOW THE
GREATER OF BOOK OR MARKET VALUE WHICH WILL LIKELY RESULT IN THE ISSUANCE OF
SHARES OF COMMON STOCK AND PREFERRED STOCK CONVERTIBLE INTO COMMON STOCK
CONSTITUTING MORE THAN 2O% OF THE COMPANY'S OUTSTANDING COMMON STOCK AND WILL
LIKELY RESULT IN A CHANGE OF CONTROL OF THE COMPANY.

PROPOSAL TO APPROVE THE INCREASE IN THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

The Company's Board of Directors has proposed an amendment to Article IV of
the Company's Certificate of Incorporation that would increase the number of
authorized shares of the Common Stock from

23
<PAGE> 26

50,000,000 to 400,000,000 shares. The adoption of the amendment requires
approval by the holders of a majority of the outstanding shares of Common Stock.

The Board of Directors is empowered to authorize the issuance of Common
Stock. Of the 50,000,000 shares of Common Stock presently authorized for
issuance, 12,300,000 shares were issued and outstanding as of the Record Date
and 2,000,000 shares are reserved for issuance pursuant to the 1997 Plan,
subject to stockholder approval of the 1997 Plan. Accordingly, assuming the
issuance of all shares currently reserved for future issuance, the Company will
have issued 14,300,000 of the 50,000,000 shares of Common Stock currently
authorized for issuance, leaving 35,700,000 shares authorized for subsequent
issuance. If this proposal is approved, approximately 385,700,000 shares of
Common Stock will be available for future issuance, in addition to the shares
currently reserved for issuance.

The Company has an insufficient number of shares of Common Stock available
for the Recapitalization Transactions, the Rights Offering and for future
corporate transactions. The Board of Directors of the Company believes that it
is in the best interest of the Company to increase the authorized number of
shares of Common Stock to 400,000,000. The purpose of the increase in the
authorized shares of the Company's Common Stock is to provide additional
authorized shares for use in connection with the Recapitalization Transactions,
the Rights Offering and other possible corporate transactions including future
equity offerings, acquisitions, financing programs, stock dividends or splits
and corporate planning. The Board of Directors believes authorization of the
additional shares is appropriate so that the Company may consummate the
Recapitalization Transactions and the Rights Offering and may have the
flexibility to issue shares from time to time for other purposes, without the
delay of seeking stockholder approval (unless required by law), whenever, in its
judgment, such issuance is in the best interest of the Company and its
stockholders. No holder of the Common Stock has any preemptive right to
subscribe for any securities of the Company. Future issuances of Common Stock
are likely to result in dilution to existing stockholders.

In addition to such corporate purposes, an increase in the number of
authorized shares of Common Stock could be used to make more difficult a change
in control of the Company. Under certain circumstances, the Board of Directors
could create impediments to, or frustrate persons seeking to effect, a takeover
or transfer of control of the Company by causing such shares to be issued to a
holder or holders who might side with the Board in opposing a takeover bid that
the Board of Directors determines is not in the best interest of the Company and
its shareholders. Furthermore, the existence of such additional authorized
shares of Common Stock might have the effect of discouraging any attempt by a
person or entity through the acquisition of a substantial number of shares of
Common Stock, to acquire control of the Company since the issuance of such
additional shares could dilute the Common Stock ownership of such person or
entity. The Company is not aware of any such action that may be proposed or
pending.

The Board recommends that the first paragraph of Article IV of the
Company's Certificate of Incorporation be amended and restated to read as
follows:

The aggregate number of shares of all classes of capital stock
which this Corporation shall have authority to issue is four
hundred five million (405,000,000) consisting of (i) four
hundred million (400,000,000) shares of common stock, par
value $0.01 per share (the "Common Stock"), and (ii) five
million (5,000,000) shares of preferred stock, par value $0.01
per share (the "Preferred Stock").

A copy of the entire text of Article IV of the Company's Certificate of
Incorporation, amended and restated as proposed herein, is provided herewith as
Exhibit A to this Proxy Statement. The bold face portions of the first paragraph
of Article IV, as set forth in Exhibit A, reflect the changes in the Company's
Certificate of Incorporation that will result from the approval of this proposed
amendment at the Annual Meeting.

If the amendment to the Certificate of Incorporation is approved at the
Annual Meeting, it will become effective upon the filing of the amendment with
the Secretary of State of the State of Delaware, which is expected to be
accomplished as promptly as practicable after such approval is obtained.

24
<PAGE> 27

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSAL TO
AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK.

PROPOSAL TO APPROVE THE COMPANY'S
1997 STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN

In August 1997, the Company's Board of Directors adopted, subject to
stockholder approval, the Company's 1997 Stock Option and Stock Appreciation
Rights Plan. The affirmative vote of a majority of shares of Common Stock
present and voting at the Annual Meeting is required to approve the 1997 Plan.
The 1997 Plan is attached hereto as Exhibit A. Under the 1997 Plan, as amended
by the Board of Directors in October 1997, 2,000,000 shares of Common Stock are
reserved for issuance upon the exercise of stock options (the "Options") and/or
SARs granted under such plan. The Company's Board of Directors, or a committee
thereof, administers and interprets the 1997 Plan and is authorized to grant
options and/or SARs thereunder to any person who has rendered services to the
Company, except that no incentive stock options may be granted to any person who
is not also an employee of the Company or any subsidiary. As of August 31, 1997,
a total of 137,500 SARs had been granted under the 1997 Plan subject to
stockholder approval of that plan, of which (i) 100,000 SARs had been granted to
Jeffrey S. Moore pursuant to the terms of his employment agreement and (ii)
7,500 SARs were granted to each of the Company's Directors, other than Jerome J.
Cohen and Jeffrey S. Moore. In October 1997, the Company repurchased all of the
SARs granted under the 1997 Plan. In addition, in October 1997, options to
purchase an aggregate of 1,052,500 shares were granted under the 1997 Plan at an
exercise price of $14.75 per share, subject to stockholder approval of the 1997
Plan. Of the total aggregate options granted, Jeffrey S. Moore was granted
options to purchase 500,000 shares, Jerome J. Cohen was granted options to
purchase 100,000 shares, and James L. Belter was granted options to purchase
100,000 shares; all of which were granted subject to stockholder approval of the
1997 Plan.

The purpose of the 1997 Plan is to provide incentive to attract and retain
qualified and competent persons who provide services to the Company and its
subsidiaries, including employees, officers, and Directors, upon whose efforts
and judgment the success of the Company and its subsidiaries is largely
dependent, through the encouragement of stock ownership, and the payment of
benefits based upon the appreciation in the value of stock in the Company by
such persons. In the case of Options and SARs granted to individuals who are, or
the Board reasonably expects to become, the Chief Executive Officer (the "CEO")
or acting in such capacity, and among the four highest compensated officers
(other than the CEO) of the Company (the "Covered Employees"), the 1997 Plan is
to be administered by the Stock Option Committee of the Board (the "Committee").
All other grants of Options and/or SARs shall be administered by the Board of
Directors or the Committee. The Board of Directors and the Committee make all
decisions or determinations by either a majority vote of their respective
members at a meeting or without a meeting by the unanimous written approval of
their respective members. The Board of Directors may adopt rules and regulations
for carrying out the purposes of the 1997 Plan, and the Board of Directors
determinations, interpretations and construction of any provision of the 1997
Plan are final and conclusive.

Shares of Common Stock may be made available for issuance under the 1997
Plan from authorized but unissued shares of Common Stock. If any Option or SAR
granted pursuant to the 1997 Plan expires, terminates, or is canceled, in whole
or in part, shares of Common Stock subject to the unexercised portion may again
be available for the grant of Options and/or SARs under the 1997 Plan. The
Company's stockholders do not have any preemptive rights to purchase or
subscribe for the shares of Common Stock reserved for issuance under the 1997
Plan.

The terms of the 1997 Plan provide for grants of incentive stock options
("Incentive Stock Options") and non-qualified stock options ("Non-Qualified
Stock Options"). An Incentive Stock Option is an option to purchase Common Stock
that meets the definition of "incentive stock option" set forth in Section 422
of the Code. A Non-Qualified Stock Option is an option to purchase Common Stock
that meets certain requirements set forth in the 1997 Plan but does not meet the
definition of an "incentive stock option" set

25
<PAGE> 28

forth in Section 422 of the Code. Options granted under the 1997 Plan are
evidenced by stock option agreements executed by the Company and Optionees
("Option Agreements").

ELIGIBILITY

Options and SARs may be granted to those persons selected from time to time
by the Board of Directors, in its sole discretion, provided that Incentive Stock
Options may not be granted to any person who is not an employee of the Company
or one of its Subsidiaries. At the time of the grant of an Option, the Committee
shall determine whether such Option is to be designated an Incentive Stock
Option or a Non-Incentive Stock Option.

The following table indicates, as of the Record Date, certain information
regarding Options which have been granted under the 1997 Plan to the persons and
groups indicated:

<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE VALUE OF OPTIONS AT
NAME AND POSITION SUBJECT TO OPTIONS PER SHARE MAY 7, 1998(1)
- ----------------- ------------------ -------------- -------------------
<S> <C> <C> <C>
Jerome J. Cohen........................ 100,000 $14.75 (2)
Chairman of the Board
Jeffrey S. Moore....................... 500,000 $14.75 (2)
President, Chief Executive Officer
and Director
James L. Belter........................ 100,000 $14.75 (2)
Executive Vice President, Chief
Financial Officer and Treasurer
Robert Nederlander..................... 32,500 $14.75 (2)
Director
Herbert B. Hirsch...................... 32,500 $14.75 (2)
Director
Don A. Mayerson........................ 32,500 $14.75 (2)
Director
Spencer I. Browne...................... 32,500 $14.75 (2)
Director
All current executive officers as a
group (3 persons).................... 700,000 $14.75 (2)
All current directors who are not
executive officers as a group (4
persons)(3).......................... 130,000 $14.75 (2)
All employees as a group, other than
executive officers (10 persons)...... 300,000 $14.75 (2)
</TABLE>

- ---------------

(1) The closing sales price of the Common Stock as reported on the Nasdaq
National Market on May 7, 1998 was $2 7/32 per share.
(2) As of May 7, 1998, the closing sales price of the Common Stock did not
exceed the Option exercise price and accordingly, such Options were not
in-the-money on such date.
(3) Does not include Options to purchase 32,500 shares of Common Stock granted
to Jeremy Wiesen, a former Director of the Company, which Options shall
expire in March 1999 unless earlier exercised.

TERMS AND CONDITIONS

The exercise price of any Option granted pursuant to the 1997 Plan that is
designated an Incentive Stock Option shall be not less than 100% of the Fair
Market Value (as defined below) of the shares of Common Stock on the date of the
grant of such Option; provided, however, that in the case of an Incentive Stock
Option granted to a Ten Percent Shareholder (as defined below), the Option
exercise price shall not be less than 110% of such Fair Market Value. The
exercise price of any Option granted pursuant to the Stock Option
26
<PAGE> 29

Plan that is designated a Non-Incentive Stock Option shall not be less than 80%
of the Fair Market Value of the shares of Common Stock on the date of the grant
of such Option. The date of grant of any Option shall be that date on which the
Committee adopts a resolution expressly granting such Option. For purposes of
the 1997 Plan, a "Ten Percent Shareholder" shall be an Optionee who, at the time
an Option is granted, owns directly or indirectly (within the meaning of Section
425(d) of the Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or a subsidiary
thereof. The aggregate number of Options and/or SAR's granted to any one
Optionee may not exceed 800,000 Options and/or SAR's, subject to adjustment, as
provided in the 1997 Plan.

Pursuant to the 1997 Plan, the "Fair Market Value" of a Share on any date
of reference shall mean the "Closing Price" (as defined below) of the Common
Stock on the business day immediately preceding such date, unless the Committee
in its sole discretion shall determine otherwise in a fair and uniform manner.
For the purpose of determining Fair Market Value, the "Closing Price" of the
Common Stock on any business day shall be (i) if the Common Stock is listed or
admitted for trading on any United States national securities exchange, or if
actual transactions are otherwise reported on a consolidated transaction
reporting system, the last reported sale price of Common Stock on such exchange
or reporting system, as reported in any newspaper of general circulation, (ii)
if the Common Stock is quoted on the Nasdaq, or any similar system of automated
dissemination of quotations of securities prices in common use, the last
reported sale price of Common Stock on such system or, if sales prices are not
reported, the mean between the closing high bid and low asked quotations for
such day of Common Stock on such system, as reported in any newspaper of general
circulation or (iii) if neither clause (i) or (ii) is applicable, the mean
between the high bid and low asked quotations for the Common Stock as reported
by the National Quotation Bureau, Incorporated if at least two securities
dealers have inserted both bid and asked quotations for Common Stock on at least
five of the ten preceding days. If neither (i), (ii), or (iii) above is
applicable, then Fair Market Value shall be determined in good faith by the
Committee or the Board in a fair and uniform manner.

Pursuant to the terms of the 1997 Plan, Incentive Stock Options shall be
exercisable over the exercise period specified by the Committee in the Option
Agreement, but in no event shall such period exceed ten (10) years from the date
of the grant of each such Incentive Stock Option; provided, however, that in the
case of an Incentive Stock Option granted to a Ten Percent Shareholder, the
exercise period shall not exceed five (5) years from the date of the grant of
such Option. The exercise period shall be subject to earlier termination as
provided in the Stock Option Plan. Additionally, each Option and/or SAR granted
pursuant to the Stock Option Plan shall not be exercisable until after six (6)
months following its grant. An Incentive Stock Option may be exercised, as to
any or all of the shares of Common Stock as to which the Incentive Stock Option
has become exercisable, by giving written notice of such exercise to the
Committee; provided that the exercise of an Incentive Stock Option must
represent at least the lesser of (i) twenty percent (20%) of the Incentive Stock
Options or (ii) the full portion of the Incentive Stock Options that are then
vested and exercisable. Options which have been designated by the Committee as
Non-Incentive Stock Options shall be exercised over a period of ten (10) years.

The Committee may grant SARs in tandem with an Option, either at the time
of grant of the options or by amendment. Each such SAR shall be subject to the
same terms and conditions as the related Option, if any, and shall be
exercisable only at such times and to such extent as the related Option is
exercisable; provided, however, that an SAR may be exercised only when the Fair
Market Value of the Common Stock exceeds the exercise price of the related
Option. An SAR shall entitle the Optionee to surrender to the Company
unexercised the related Option, or any portion thereof, and, except as provided
below, to receive from the Company in exchange therefor, cash in the amount of
the excess of the Fair Market Value of one Share for the day of the surrender of
such Option over the exercise price per share of one Share multiplied by the
number of Shares provided for under the Option, or portion thereof, which is
surrendered.

The Committee may also grant SARs unrelated to any Option that may be
granted under the 1997 Plan. Each such SAR shall be subject to the terms and
conditions as determined by the Committee. Freestanding SARs shall entitle the
Optionee to surrender to the Company a portion or all of such SARs, and
generally, subject to certain exceptions, to receive from the Company in
exchange therefor cash in the amount of the excess of the Fair Market Value of
one Share for the day of the surrender of such SAR over the Fair Market
27
<PAGE> 30

Value per Share (determined as of the date the SAR was granted) multiplied by
the number of SARs that are surrendered.

Notwithstanding any provision of the 1997 Plan and any outstanding Option
or SAR, each outstanding Option or SAR shall become immediately fully
exercisable (i) if the Company's stockholders approve a reorganization, merger,
consolidation or other form of corporate transaction or series of transactions,
in each case, with respect to which persons who were the stockholders of the
Company immediately prior to such transaction do not own more than 50% of the
combined voting power of the Company; (ii) the stockholders approve an agreement
to merge, consolidate, liquidate, or sell all or substantially all of the
Company's assets; or (iii) if, under certain circumstances, the individuals
constituting the Board of Directors cease to constitute a majority of the Board.
In addition, the Committee may amend any outstanding Option or SAR to accelerate
the time or times at which the Option or SAR may be exercised.

In accordance with the terms of the 1997 Plan, shares of Common Stock
purchased upon the exercise of Options must be paid for in full at the time of
exercise (i) in cash, (ii) by certified or official bank check, (iii) by money
order, (iv) in Common Stock of the Company already held by the Optionee, (iv) by
permitting the Company to withhold shares of Common Stock issuable upon exercise
of such Option or by any other form of cashless exercise procedure approved by
the Committee or Board, or (v) in such other consideration as the Committee or
the Board deems appropriate, or by a combination of the above.

Options shall not be transferable other than by will or by the laws of
descent and distribution, and Options may be exercised, during the lifetime of
the Optionee, only by the Optionee or, in the event of incapacity, by the
Optionee's legal representative.

AMENDMENT AND TERMINATION OF THE 1997 PLAN

The Board of Directors may from time to time amend, suspend, or terminate
the 1997 Plan or any Option or SAR granted to or held by a Covered Employee.
Additionally, the Committee may from time to time amend any Option or SAR
granted by the Committee. However, any amendment to the 1997 Plan shall be
subject to the approval of the Company's stockholders if such amendment would
increase aggregate number of shares of Common Stock as to which Options and SARs
may be granted, materially increase the benefits accruing to participants under
the 1997 Plan, or modify the requirements as to eligibility for participation in
the 1997 Plan shall be subject to the approval of the stockholders of the
Company, voting at a meeting of stockholders at which a quorum is present within
twelve months after such action is taken by the Board of Directors. In addition,
no such amendment, suspension or termination of the 1997 Plan shall
substantially impair any rights or benefits of any Optionee under any
outstanding Option or SAR or cause any Incentive Stock Option not to qualify as
such under the provisions of the Code without the consent of the Optionee (or,
upon the Optionee's death or adjudication of mental incapacity, the person
having the right to exercise the Option or SAR).

ADJUSTMENTS AND REORGANIZATIONS

The 1997 Plan contains certain adjustment provisions applicable in the
event that the outstanding shares of Common Stock are changed in number or class
by reason of stock dividends, or through any recapitalization resulting in a
stock split-up, combination or exchange of Shares, in which event appropriate
adjustments will be made by the Committee, in the number and class of shares
subject to the 1997 Plan, both in the aggregate and with respect to each
outstanding Option and SAR, and the number, class and prices of shares of Common
Stock under then outstanding Options and SARs.

Unless otherwise provided in any Option or SAR, the Committee or the Board
of Directors is also authorized to amend the terms of Options or SARs, or both,
outstanding under the 1997 Plan when, in the Committee's or Board's sole
discretion, the Committee or the Board of Directors deems such adjustment
appropriate so as to preserve but not increase benefits under the 1997 Plan.

The 1997 Plan provides that if an Optionee's employment is terminated for
any reason other than dismissal for cause any outstanding Option or SAR shall be
exercisable on the following terms and conditions:

28
<PAGE> 31

(i) exercise may be made only to the extent that the Optionee was entitled to
exercise the Option or SAR on the effective date of termination of employment;
and (ii) exercise must occur prior to the earlier of the 91st day after
employment terminates and the expiration date of the Option or SAR. Any such
exercise of an Option following an Optionee's death or adjudication of mental
incapacity shall be made only by the Optionee's executor or administrator or
other duly appointed representative, as the case may be, reasonably acceptable
to the Committee, unless the Optionee's will specifically disposes of such
Option, in which case such exercise shall be made only by the recipient of such
specific disposition. To the extent that an Optionee's legal representative or
the recipient of a specific disposition under the Optionee's will shall be
entitled to exercise any Option pursuant to the preceding sentence, such
representative or recipient shall be bound by the provisions of the 1997 Plan
and the applicable Option Agreement which would have applied to the Optionee.

FEDERAL INCOME TAX CONSEQUENCES OF THE 1997 PLAN

The 1997 Plan is not qualified under the provisions of Section 401(a) of
the Code, and is not subject to any of the provisions of the Employee Retirement
Income Security Act of 1974, as amended.

NON-QUALIFIED STOCK OPTIONS

On exercise of a Non-Qualified Stock Option granted under the 1997 Plan, an
Optionee will recognize ordinary income equal to the excess, if any, of the fair
market value on the date of exercise of the Option of the shares of Common Stock
acquired on exercise over the exercise price. On exercise of an SAR, an Optionee
will recognize income in an amount equal to the amount he would have recognized
had he instead exercised a Non-Qualified Stock Option in respect of the same
number of shares. In either case, the income recognized by the Optionee will be
subject to the withholding of Federal income tax. The Optionee's tax basis in
shares acquired on exercise of a Non-Qualified Stock Option will be equal to
their fair market value on the date of exercise of the Option, and his holding
period for those shares will begin on that date.

If an Optionee pays for shares of Common Stock on exercise of an Option by
delivering shares of the Company's Common Stock, the Optionee will not recognize
gain or loss on the shares delivered, even if their fair market value at the
time of exercise differs from the Optionee's tax basis in them. The Optionee,
however, otherwise will be taxed on the exercise of the Option in the manner
described above as if he had paid the exercise price in cash. If a separate
identifiable stock certificate is issued for that number of shares equal to the
number of shares delivered on exercise of the Option, the Optionee's tax basis
in the shares represented by that certificate will be equal to his tax basis in
the shares delivered, and his holding period for those shares will include his
holding period for the shares delivered. The Optionee's tax basis and holding
period for the additional shares received on exercise of the Option will be the
same as if the Optionee had exercised the Option solely in exchange for cash.

The Company will be entitled to a deduction for Federal income tax purposes
equal to the amount of ordinary income taxable to the Optionee, provided that
amount constitutes an ordinary and necessary business expense for the Company
and is reasonable in amount, and either the employee includes that amount in
income or the Company timely satisfies its reporting requirements with respect
to that amount.

INCENTIVE STOCK OPTIONS

Pursuant to the Code, an Optionee generally is not subject to tax upon the
grant or exercise of an Incentive Stock Option. In addition, if the Optionee
holds a share received on exercise of an Incentive Stock Option for at least two
years from the date the Option was granted and at least one year from the date
the Option was exercised (the "Required Holding Period"), the difference, if
any, between the amount realized on a sale or other taxable disposition of that
share and the holder's tax basis in that share will be a capital gain or loss.
If the Optionee has held that share for more than one year on the date of sale,
any capital gain qualifies for a 28 percent maximum marginal Federal income tax
rate, and if on that date the Optionee has held that share for more than 18
months, any gain qualifies for a 20 percent maximum marginal Federal income tax
rate.

29
<PAGE> 32

If, however, an Optionee disposes of a share acquired on exercise of an
Incentive Stock Option before the end of the Required Holding Period (a
"Disqualifying Disposition"), the Optionee generally will recognize ordinary
income in the year of the Disqualifying Disposition equal to the excess, if any,
of the fair market value of the share on the date the Incentive Stock Option was
exercised over the exercise price. If, however, the Disqualifying Disposition is
a sale or exchange on which a loss, if realized, would be recognized for Federal
income tax purposes, and if the sales proceeds are less than the fair market
value of the share on the date of exercise of the Option, the amount of ordinary
income the Optionee recognizes will not exceed the gain, if any, realized on the
sale. If the amount realized on a Disqualifying Disposition exceeds the fair
market value of the share on the date of exercise of the Option, that excess
will be capital gain. The maximum marginal Federal income tax rate will be 39.6
percent, 28 percent or 20 percent, depending on whether the holding period of
the Option for the share on the date of sale is, respectively, one year or less,
more than one year but not more than 18 months or more than 18 months.

An Optionee who exercises an Incentive Stock Option by delivering shares of
Common Stock acquired previously pursuant to the exercise of an Incentive Stock
Option before the expiration of the Required Holding Period for those shares is
treated as making a Disqualifying Disposition of those shares. This rule
prevents "pyramiding" the exercise of an Incentive Stock Option (that is,
exercising an Incentive Stock Option for one share and using that share, and
others so acquired, to exercise successive Incentive Stock Options) without the
imposition of current income tax.

For purposes of the alternative minimum tax, the amount by which the fair
market value of a share of Common Stock acquired on exercise of an Incentive
Stock Option exceeds the exercise price of that Option generally will be an item
of adjustment included in the Optionee's alternative minimum taxable income for
the year in which the Option is exercised. If, however, there is a Disqualifying
Disposition of the share in the year in which the Option is exercised, there
will be no item of adjustment with respect to that share. If there is a
Disqualifying Disposition in a later year, no income with respect to the
Disqualifying Disposition is included in the Optionee's alternative minimum
taxable income for that year. In computing alternative minimum taxable income,
the tax basis of a share acquired on exercise of an Incentive Stock Option is
increased by the amount of the item of adjustment taken into account with
respect to that share for alternative minimum tax purposes in the year the
Option is exercised.

The Company is not allowed an income tax deduction with respect to the
grant or exercise of an Incentive Stock Option or the disposition of a share
acquired on exercise of an Incentive Stock Option after the Required Holding
Period. However, if there is a Disqualifying Disposition of a share, the Company
is allowed a deduction in an amount equal to the ordinary income includible in
income by the Optionee, provided that amount constitutes an ordinary and
necessary business expense for the Company and is reasonable in amount, and
either the employee includes that amount in income or the Company timely
satisfies its reporting requirements with respect to that amount.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
PROPOSAL TO APPROVE THE 1997 STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN.

30
<PAGE> 33

GENERAL

The Company and the Board of Directors do not know of any matters other
than those stated in this Proxy Statement that are to be presented for action at
the Annual Meeting. If any other matters should properly come before the Annual
Meeting, proxies will be voted on these other matters in accordance with the
judgment of the persons voting the proxies. Discretionary authority to vote on
such matters is conferred only by the granting of such proxies.

The Company will bear the cost of preparing, printing, assembling and
mailing all proxy materials that may be sent to stockholders in connection with
this solicitation. Arrangements will also be made with brokerage houses, other
custodians, nominees and fiduciaries, to forward soliciting material to the
beneficial owners of the Common Shares held by such persons. The Company will
reimburse such persons for reasonable out-of-pocket expenses incurred by them.
In addition to the solicitation of proxies by use of the mails, officers and
regular employees of the Company may solicit proxies without additional
compensation, by telephone or telegraph. The Company does not expect to pay any
compensation for the solicitation of proxies.

Copies of the Company's 1997 Annual Report and Quarterly Report on Form
10-Q for the quarter ended February 28, 1998 accompany this Proxy. The Annual
Report includes the Company's Form 10-K, as amended, except for exhibits, for
the fiscal year ended August 31, 1997, as filed with the Securities and Exchange
Commission. Upon request, the Company will provide copies of the exhibits to its
Form 10-K, as amended, at a cost of fifty cents per page of each exhibit. All
requests should be directed to Mego Mortgage Corporation, 1000 Parkwood Circle,
Suite 500, Atlanta, Georgia 30339, ATTN: Robert Bellacosa, Secretary.

The firm of Deloitte & Touche LLP, independent public accountants, serves
as the Company's independent public accountants. One or more of the
representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate questions from
stockholders.

SHAREHOLDER PROPOSALS

Shareholder proposals intended to be presented at the Company's 1999 Annual
Meeting of Stockholders pursuant to the provisions of Rule 14a-8 of the
Securities and Exchange Commission promulgated under the Securities Exchange Act
of 1934, as amended, must be received by the Company at its executive offices by
January 27, 1999, or within a reasonable time before the announced date of the
Company's 1999 Annual Meeting of Stockholders, for inclusion in the Company's
proxy statement and form of proxy relating to such meeting.

By Order of the Board of Directors,

JEFFREY S. MOORE
President and Chief Executive Officer

May 27, 1998

31
<PAGE> 34

APPENDIX A

ARTICLE IV

The aggregate number of shares of all classes of capital stock which this
Corporation shall have authority to issue is FOUR HUNDRED FIVE MILLION
(405,000,000), consisting of (i) FOUR HUNDRED MILLION (400,000,000) shares of
common stock, par value $0.01 per share (the "Common Stock"), and (ii) Five
Million (5,000,000) shares of preferred stock, par value $0.01 per share (the
Preferred Stock").

The designations and the preferences, limitations and relative rights of
the Preferred Stock and the Common Stock of the Corporation are as follows:

A. PROVISIONS RELATING TO THE PREFERRED STOCK.

1. Except as set forth in subsection D of this Article IV, the Preferred
Stock may be issued from time to time in one or more classes or series, the
shares of each class or series to have such designations and powers, preferences
and rights, and qualifications, limitations and restrictions thereof as are
stated and expressed herein and in the resolution or resolutions providing for
the issue of such class or series adopted by the Board of Directors as
hereinafter prescribed.

2. Except as set forth in subsection D of this Article IV, authority is
hereby expressly granted to and vested in the Board of Directors to authorize
the issuance of the Preferred Stock from time to time in one or more classes or
series, to determine and take necessary proceedings fully to effect the issuance
and redemption of any such Preferred Stock and, with respect to each class or
series of the Preferred Stock, to fix and state by resolution or resolutions
from time to time adopted providing for the issuance thereof the following:

a. whether or not the class or series is to have voting rights, full
or limited, or is to be without voting rights;

b. the number of shares to constitute the class or series and the
designations thereof;

c. the preferences and relative, participating, optional or other
special rights, if any, and the qualifications, limitations or restrictions
thereof, if any, with respect to any class or series;

d. whether or not the shares of any class or series shall be
redeemable and if redeemable the redemption price or prices, and the time
or times at which and the terms and conditions upon which, such shares
shall be redeemable and the manner of redemption;

e. whether or not the shares of a class or series shall be subject to
the operation of retirement or sinking funds to be applied to the purchase
or redemption of such shares for retirement, and if such retirement or
sinking fund or funds be established, the annual amount thereof and the
terms and provisions relative to the operation thereof;

f. the dividend rate, whether dividends are payable in cash, stock of
the Corporation, or other property, the conditions upon which and the times
when such dividends are payable, the preference to or the relation to the
payment of the dividends payable on any other class or classes or series of
stock whether or not such dividend shall be cumulative or noncumulative,
and if cumulative, the date or dates from which such dividends shall
accumulate;

g. the preferences, if any, and the amounts thereof which the holders
of any class or series thereof shall be entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the
assets of, the Corporation;

h. whether or not the shares of any class or series shall be
convertible into, or exchangeable for, the shares of any other class or
classes or of any other series of the same or any other class or classes of
stock of the Corporation and the conversion price or prices or ratio or
ratios or the rate or rates at which such conversion or exchange may be
made, with such adjustments, if any, as shall be stated and expressed or
provided for in such resolution or resolutions; and

i. such other special rights and protective provisions with respect to
any class or series as the Board of Directors may deem advisable.

The shares of each class or series of the Preferred Stock may vary from the
shares of any other series thereof in any or all of the foregoing respects. The
Board of Directors may increase the number of shares of the
A-1
<PAGE> 35

Preferred Stock designated for any existing class or series by a resolution
adding to such class or series authorized and unissued shares of the Preferred
Stock not designated for any other class or series. The Board of Directors may
decrease the number of shares of the Preferred Stock designated for any existing
class or series by a resolution, subtracting from such series unissued shares of
the Preferred Stock designated for such class or series, and the shares so
subtracted shall become authorized, unissued and undesignated shares of the
Preferred Stock.

B. PROVISIONS RELATING TO THE COMMON STOCK.

1. Except as otherwise required by law or as may be provided by resolutions
of the Board of Directors authorizing the issuance of any class or series of
Preferred Stock, as herein above provided, all rights to vote and all voting
power shall be vested exclusively in the holders of the Common Stock.

2. Subject to the rights of the holders of the Preferred Stock (if any),
the holders of the Common Stock shall be entitled to receive when, as and if
declared by the Board of Directors, out of funds legally available therefor,
dividends payable in cash, stock or otherwise.

3. Upon any liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, and after the holders of the Preferred Stock
shall have been paid-in-full the amounts to which they shall be entitled (if
any) or a sum sufficient for such payment in full shall have been set aside, the
remaining net assets of the Corporation shall be distributed pro rata to the
holders of the Common Stock in accordance with their respective rights and
interests to the exclusion of the holders of the Preferred Stock.

C. GENERAL PROVISIONS.

1. Except as may be provided by resolutions of the Board of Directors
authorizing the issuance of any class or series of Preferred Stock as
hereinabove provided, cumulative voting by any stockholder is hereby expressly
denied.

2. No stockholder of the Corporation shall have, by reason of its holding
shares of any class or series of stock of the Corporation, any preemptive or
preferential rights to purchase or subscribe for any other shares of any class
or series of the Corporation now or hereafter to be authorized, and any other
equity securities, or any notes, debentures, warrants, bonds, or other
securities convertible into or carrying options or warrants to purchase shares
of any class, now or hereafter to be authorized, whether or not the issuance of
any such shares, or such notes, debentures, bonds or other securities, would
adversely affect the dividend or voting rights of such stockholder.

D. PROHIBITIONS AGAINST FUTURE ISSUANCES AND INVESTMENTS.

Notwithstanding any other provision of this Certificate of Incorporation,
during the period (the "Eighty Percent Period") that and so long as Mego
Financial Corp., a New York corporation and presently the sole stockholder of
the Corporation, holds shares having at least 80% of the total combined voting
power of all classes of stock entitled to vote for directors of the Corporation
and constituting at least 80% of the total number of shares of each other class
of stock of the Corporation, all as defined in Section 368(c) of the Code (all
such stock in the aggregate constituting "Eighty Percent Control" and Mego
Financial Corp. being hereinafter referred to as the "Eighty Percent Holder"),
and although a vote of stockholders is not and shall not be required under
applicable law or this Certificate of Incorporation for the issuance of shares
of capital stock or equity securities or any debt or other instrument that is
convertible or exchangeable into stock or any other equity security of the
Corporation or any subsidiary, including options or any other rights to purchase
capital stock, pursuant to any employee benefit plan or stock option plan
(collectively, "Plan") or otherwise, that are authorized under this Certificate
of Incorporation, but unissued, or, to acquire an ownership interest in certain
assets, the advance written approval of the Eighty Percent Holder shall be
required (unless waived in writing by the Eighty Percent Holder) prior to:

(i) the Corporation taking any action, including without limitation,
the issuance of any capital stock or other equity security or any debt or
other instrument that is convertible or exchangeable into stock or

A-2
<PAGE> 36

any other equity security of the Corporation, including options, warrants
or any other rights to purchase capital stock, pursuant to any Plan or
otherwise, that would reduce the percentage of ownership of the Eighty
Percent Holder in the capital stock of the Corporation so that the Eighty
Percent Holder thereafter would not own stock constituting Eighty Percent
Control (treating options, warrants or any other rights to purchase capital
stock as exercised immediately upon issuance for purposes of making this
determination) or that otherwise would reduce (or, with the taking of any
action contemplated by the instrument in question, could reduce) the Eighty
Percent Holder's ownership of Corporation stock below "control" of the
Corporation within the meaning of Section 368(c) of the Code;

(ii) the Corporation acquiring or taking any action to cause any
subsidiary to acquire any direct or indirect ownership interest in any
asset that does not constitute part of an active trade or business within
the meaning of Section 355(b) of the Code, provided, however, that the
Corporation or any subsidiary may acquire any asset that is similar in
nature to the assets it holds on October 28, 1996, so long as that
acquisition would not cause the Corporation or any subsidiary not to be
engaged in an active trade or business within the meaning of Section 355(b)
of the Code; or

(iii) the Corporation taking any action to cause the issuance of any
capital stock or equity security, any debt or other instrument that is
convertible or exchangeable into stock or any other equity security by or
of any subsidiary or any right to purchase the same in the Corporation or
any subsidiary, and the Corporation shall not take any such action above
without the prior written approval of the Eighty Percent Holder.

Any attempt to take any such actions without the prior written approval of
the Eighty Percent Holder during the Eighty Percent Period shall be null and
void and any purported issuance of any capital stock or equity security or any
convertible or exchangeable debt or other instrument or any right to purchase
the same in the Corporation or any subsidiary or any acquisition in violation of
this provision shall not terminate the Eighty Percent Period.

A-3
<PAGE> 37
Appendix A

MEGO MORTGAGE CORPORATION

COMMON STOCK

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY -- ANNUAL MEETING OF STOCKHOLDERS

JUNE 8, 1998

The undersigned, a holder of Common Stock of Mego Mortgage Corporation, a
Delaware corporation (the "Company"), does hereby appoint Jerome J. Cohen,
Robert Nederlander and Jeffrey S. Moore and each of them, the true and lawful
attorneys and proxies with full power of substitution, for and in the name,
place and stead of the undersigned, to vote all of the shares of Common Stock of
the Company which the undersigned would be entitled to vote if personally
present at the 1998 Annual Meeting of Stockholders of the Company to be held at
the Company's headquarters on Monday, June 8, 1998, at 10:00 A.M., and at any
adjournment(s), or postponement(s) thereof.

The undersigned hereby instructs said proxies or their substitutes:

<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS: [ ] VOTE FOR ALL NOMINEES LISTED BELOW
(except as indicated to the contrary below)

Jerome J. Cohen, Jeffrey S. Moore, Robert Nederlander, Herbert B. Hirsch, Don A.
Mayerson and Spencer I. Browne.
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR INDIVIDUAL NOMINEE(S), WRITE THE(IR)
NAME(S) IN THE SPACE PROVIDED BELOW:
--------------------------------------------------------------------------------------

<CAPTION>
<S> <C>
1. ELECTION OF DIRECTORS: [ ] WITHHOLD AUTHORITY
to vote for all nominees listed below.
Jerome J. Cohen, Jeffrey S. Moore, Robert Nederlander, Herbert B. Hirsch, Don A.
Mayerson and Spencer I. Browne.
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR INDIVIDUAL NOMINEE(S), WRITE THE(IR)
NAME(S) IN THE SPACE PROVIDED BELOW:
--------------------------------------------------------------------------------------
</TABLE>

2. Proposal to approve a transaction or series of transactions to sell a number
of shares of Common Stock below the greater of book or market value and a
number of shares of Preferred Stock convertible into Common Stock at a
conversion price below the greater of book or market value which will likely
result in the issuance of shares of Common Stock and Preferred Stock
convertible into shares of Common Stock constituting more than 20% of the
Company's outstanding Common Stock and will likely result in a change of
control of the Company.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

3. Proposal to approve the increase in the number of authorized shares of Common
Stock from 50,000,000 to 400,000,000 shares.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

4. Proposal to approve the 1997 Stock Option and Stock Appreciation Rights Plan.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

5. In their discretion, the proxies are authorized to vote upon such business as
may properly come before the meeting.

(Continued and to be signed on reverse side)

THIS PROXY WILL BE VOTED IN ACCORDANCE WITH ANY DIRECTIONS HEREINBEFORE GIVEN.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED TO (I) ELECT THE NOMINEES
FOR DIRECTORS; (II) APPROVE A TRANSACTION OR SERIES OF TRANSACTIONS TO SELL A
NUMBER OF SHARES OF COMMON STOCK BELOW THE GREATER OF BOOK OR MARKET VALUE AND A
NUMBER OF SHARES OF PREFERRED STOCK CONVERTIBLE INTO COMMON STOCK AT A
CONVERSION PRICE BELOW THE GREATER OF BOOK OR MARKET VALUE CONSTITUTING MORE
THAN 20% OF THE OUTSTANDING COMMON STOCK AND LIKELY RESULTING IN A CHANGE OF
CONTROL; (III) APPROVE THE INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK FROM 50,000,000 TO 400,000,000 SHARES; AND (IV) APPROVE THE COMPANY'S 1997
STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN.

The undersigned hereby revokes any proxy or proxies heretofore given, and
ratifies and confirms all that the proxies appointed hereby, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
thereof. The undersigned hereby acknowledges receipt of a copy of the Notice of
Annual Meeting of Stockholders and Proxy Statement, both dated May 27, 1998, and
the Company's Annual Report on Form 10-K for the fiscal year ended August 31,
1997 and Amendment No. 1 to Quarterly Report on Form 10-Q for the quarter ended
February 28, 1998.

DATED:

--------------------------------,
1998

--------------------------------
Signature

NOTE: Your signature should
appear exactly the same as your
name appears hereon. If signing
as partner, attorney, executor,
administrator, trustee or
guardian, please indicate the
capacity in which signing. When
signing as joint tenants, all
parties in the joint tenancy
must sign. When a proxy is given
by a corporation, it should be
signed by an authorized officer
and the corporate seal affixed.
No postage is required if mailed
within the United States.