MEGO FINANCIAL CORP, DEF 14A, 1997-08-15

MEGO FINANCIAL CORP
DEF 14A, 1997-08-15
REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT)

Previous: BIOPHARMACEUTICS INC, 10-Q, 1997-08-15

Next: ZWEIG DIMENNA PARTNERS L P, SC 13D/A, 1997-08-15

<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

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
[X] Definitive proxy statement only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive additional materials
[ ] Soliciting material pursuant to
Rule 14a-11(c) or Rule 14a-12

MEGO FINANCIAL CORP
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

MEGO FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of filing fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on the table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.

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

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

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

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

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:

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

(4) Proposed maximum aggregate value of transaction:

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

(5) Total fee paid:

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

[ ] 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:

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

(2) Form, schedule or registration statement no.:

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

(3) Filing party:

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

(4) Date Filed:

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

<PAGE> 2

MEGO FINANCIAL CORP.
4310 PARADISE ROAD, LAS VEGAS, NEVADA 89109

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 9, 1997

To the Shareholders of Mego Financial Corp.:

NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Shareholders
(the "Annual Meeting") of Mego Financial Corp., a New York corporation (the
"Company"), will be held at the Company's principal executive offices, 4310
Paradise Road, Las Vegas, Nevada 89109, on Tuesday, September 9, 1997, 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 shareholders and until
their successors are duly elected and qualified;

(2) To consider and vote upon a proposal to increase by 500,000
shares the number of shares of Common Stock reserved for
issuance pursuant to the Company's Employee Stock Option Plan;
and

(3) 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 July 22, 1997
as the record date for determining those shareholders 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

DON A. MAYERSON
Executive Vice President, General
Counsel and Secretary
August 15, 1997

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

<PAGE> 3

MEGO FINANCIAL CORP.
4310 PARADISE ROAD
LAS VEGAS, NEVADA 89109

PROXY STATEMENT
1997 ANNUAL MEETING OF SHAREHOLDERS

This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Mego Financial Corp., a New York 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 1997 Annual Meeting of Shareholders (the "Annual Meeting") to be held
at the Company's principal executive offices, 4310 Paradise Road, Las Vegas,
Nevada 89109, on Tuesday, September 9, 1997, 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 Shareholders. Any shareholder giving
such a proxy may revoke it by written notice to the Secretary of the Company at
the above address at any time before it is exercised. Attendance at the Annual
Meeting will not have the effect of revoking the proxy unless such written
notice is given, or unless the shareholder votes by ballot at the meeting.

The approximate date that this Proxy Statement and the enclosed form of
proxy are first being sent to shareholders is August 15, 1997. Shareholders
should review the information provided herein in conjunction with the Company's
1996 Annual Report which accompanies this Proxy Statement. The Company's
telephone number is (702) 737-3700.

PURPOSES OF THE MEETING

At the Annual Meeting, the Company's shareholders 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
shareholders and until their successors are duly elected and
qualified;

(2) A proposal to increase by 500,000 shares the number of shares
of Common Stock reserved for issuance pursuant to the
Company's Employee Stock Option Plan (the "Stock Option
Plan"); and

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

2
<PAGE> 4

VOTING SECURITIES

Holders of record of shares of the Company's Common Shares at the close
of business on July 22, 1997 (the "Record Date") are entitled to vote at the
Annual Meeting. Each Common Share 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 Common Shares
will constitute a quorum. On July 22, 1997, the Company had issued and
outstanding 18,733,121 Common Shares.

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 shareholders 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 and
therefor would not be considered as shares entitled to vote on that subject
matter and therefor would not be considered when counting votes cast on the
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 not attend, you may vote by ballot at the Annual Meeting,
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" and (b) FOR the proposal to increase by 500,000 shares
the number of shares of Common Stock reserved for issuance pursuant to the
Company's Stock Option Plan.

ELECTION OF DIRECTORS

At the Annual Meeting, six Directors will be elected by the
shareholders to serve until the next annual meeting of shareholders 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. Nederlander, Cohen, Hirsch, McConnaughy, Ross and
Schuster (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 Director. 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.

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

Robert Nederlander (64) has been the Chairman of the Board and Chief
Executive Officer of the Company since January 1988, when affiliates of the
Assignors (as hereinafter defined), including Mr. Cohen, acquired approximately
43% of the outstanding Common Shares of the Company (the "Share Acquisition").
See "Certain Relationships and Related Transactions." Mr. Nederlander is the
Chairman of the Executive Committee and a member of the Audit Committee. Since
July 1995, Mr. Nederlander has served on the Board of Directors of Hospitality
Franchise Systems, Inc. ("HFS"), which, together with its subsidiary, entered
into an agreement in April

3
<PAGE> 5

1995 with the Company pursuant to which the Company is licensed to use the
"Ramada" name in its timeshare operations. 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 the world's largest chains of legitimate theaters. He served as
the Managing General Partner of the New York Yankees Baseball Club from August
1990 until December 1991, and has been a limited partner since 1973. Since
October 1985, Mr. Nederlander has been President of 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 the Company; and Chairman of
the Board of Allis-Chalmers Corp. from May 1989 to 1993, and Vice Chairman from
1993 to October 1996. He remains a director. Mr. Nederlander was elected to the
Board of Directors of Mego Mortgage Corporation, a subsidiary of the Company
("MMC"), in September 1996. 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. Mr. Nederlander does
not currently serve on a full time basis in his capacities with the Company.

Jerome J. Cohen (69) has been the President and a Director of the
Company since the Share Acquisition. Mr. Cohen serves as a member of the
Executive Committee and is Chairman of the Board and Chief Executive Officer of
MMC, and is President and Chief Executive Officer of Preferred Equities
Corporation, a wholly-owned subsidiary of the Company ("PEC"). From April 1992
to 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.

Herbert B. Hirsch (61) has been the Senior Vice President, Chief
Financial Officer, Treasurer and a Director of the Company since the Share
Acquisition. Mr. Hirsch serves as a member of the Executive Committee.

Eugene I. Schuster (60) has been a Vice President and a Director of the
Company since the Share Acquisition. Mr. Schuster is a member of the Stock
Option Committee. Mr. Schuster has also been Chief Executive Officer and
Chairman of the Board of Directors of Venture Funding, Ltd., a business
development corporation, since its inception in May of 1983. Since February
1986, Mr. Schuster has been the President and Chief Executive Officer and a
director of Quest BioTechnology, Inc., a publicly held biotechnology research
and development firm. Since September 1985, Mr. Schuster has been a director of
Wavemat, Inc., a publicly held company engaged in the manufacture and sale of
microwave equipment for advanced materials processing. Since January 1988, Mr.
Schuster has been the Chairman and from May 1988 through February 1995 was Chief
Executive Officer of Cellex Biosciences, Inc., a publicly held manufacturer of
automated cell culture systems. Mr. Schuster is Chairman and Chief Executive
Officer of Art Renaissance, Inc. a privately held company which operates several
chains of retail art galleries. Mr. Schuster does not currently serve on a full
time basis in his capacities with the Company.

John E. McConnaughy, Jr. (68) has been a Director of the Company since
1984. Mr. McConnaughy serves as Chairman of the Audit Committee and a member of
the Stock Option and Executive Incentive Compensation Committees. Mr.
McConnaughy also served as Chairman of the Board and Chief Executive Officer of
GEO International Corporation ("GEO"), a privately held nondestructive testing,
screen printing and oil field services company, from 1981 until October 1992.
GEO filed for protection under Chapter 11 of the U.S. Bankruptcy Code in October
1993. Mr. McConnaughy has served as a member of the Board of Directors of
Riddell Sports, Inc. since 1988.

Wilbur L. Ross, Jr. (59) has been a Director of the Company since 1984.
Mr. Ross serves as a member of the Audit, Stock Option and Executive Incentive
Compensation Committees. Mr. Ross has been a Senior Managing Director of
Rothschild, Inc., an investment banking firm, since August 1976. Mr. Ross was a
director of GEO from 1987 to January 1992. Mr. Ross serves as a director of Syms
Corporation, a publicly held corporation.

4
<PAGE> 6

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

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS 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

Directors who are compensated as employees or officers of the Company
receive no additional compensation for service on the Board of Directors or its
Committees. Each Director who is not an employee or officer of the Company is
paid an annual fee of $40,000. Directors are also reimbursed for their expenses
in attending meetings of the Board and Committees of the Board.

COMMITTEES AND MEETINGS OF THE BOARD

The following is a brief description of the functions of certain
committees of the Board of Directors and identity of their members.

The Executive Committee meets as required between meetings of the Board
of Directors. The Executive Committee exercises all the powers of the Board
except the authorization of loan transactions involving more than $500,000, and
the purchase or sale of property and equipment with a value over $500,000. This
Committee's current members are Robert Nederlander (Chairman), Jerome J. Cohen
and Herbert B. Hirsch. The Executive Committee held two meetings during fiscal
1996.

The Audit Committee's duties are to review with the Company's
independent accounting firm the plan, scope and results of the annual audit and
the adequacy of internal control systems. The Audit Committee reports its
findings to the full Board of Directors. The Audit Committee is composed
exclusively of Directors who are, in the opinion of the Board of Directors, free
from any relationship which would interfere with the exercise of independent
judgment as a Committee member. The current members of the Audit Committee are
Robert Nederlander (Chairman), Wilbur L. Ross Jr. and John E. McConnaughy Jr.
The Audit Committee held one meeting during fiscal 1996.

The Stock Option Committee's duties are to administer the operations of
the Stock Option Plan. The Stock Option Committee is composed of three Directors
who, for at least one year prior to appointment to this Committee, were not
granted or awarded equity securities pursuant to the Stock Option Plan or any
other plan established by the Company. The current members of the Stock Option
Committee are Eugene Schuster (Chairman), Wilbur L. Ross, Jr. and John E.
McConnaughy, Jr. The Stock Option Committee held two meetings during fiscal
1996.

On June 22, 1994, Messrs. Ross and McConnaughy were appointed as
members of the Executive Incentive Compensation Committee to administer the
terms of the Executive Incentive Compensation Plan which commenced for fiscal
1995. The Executive Incentive Compensation Committee held one meeting during
fiscal 1996.

The Board of Directors held six meetings during fiscal 1996. 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 1996, all Directors attended at least 75% of
the aggregate of all meetings of the Board of Directors and committees on which
they served.

5
<PAGE> 7

SECURITY OWNERSHIP

The following table sets forth, as of August 15, 1997, information with
respect to the beneficial ownership of the Common Shares by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Shares, (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>
PERCENTAGE OF
NAME AND ADDRESS OF AMOUNT AND NATURE OF OUTSTANDING COMMON
BENEFICIAL OWNER OR IDENTITY OF GROUP BENEFICIAL OWNERSHIP (1) SHARES OWNED
- ------------------------------------------------------- ------------------------ -------------------
<S> <C> <C>

Robert Nederlander (2)................................. 2,047,697 10.8%
Eugene I. Schuster and Growth Realty Inc. (GRI)(3)... 1,933,634 10.2%
Jerome J. Cohen (4).................................... 1,081,823 5.7%
Herbert B. Hirsch (5).................................. 1,694,723 8.9%
Don A. Mayerson (6).................................... 838,414 4.4%
John E. McConnaughy, Jr.(7)............................ 593,077 3.2%
Wilbur L. Ross, Jr.(8)................................. 152,500 *
Jeffrey S. Moore (9).................................. 27,000 *
Stuart Harelik (10).................................... 25,700 *
All Officers and Directors as a Group (9 persons) (11). 8,394,568 42.1%

</TABLE>

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

* Less than one percent.

(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from August 15, 1997 upon the
exercise of options or 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 applicable date have been
exercised.

(2) 810 Seventh Avenue, 21st Floor, New York, New York 10019. Includes
35,000 shares issuable under an option granted pursuant to the Stock
Option Plan and 250,000 shares issuable upon the exercise of warrants
held by an affiliate of Mr. Nederlander. Does not include 100,000
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. See "Certain Relationships and Related Transactions."

(3) 321 Fisher Building, Detroit, Michigan 48202. These shares are 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. Includes 250,000 shares issuable upon the exercise
of warrants held by an affiliate of Mr. Schuster. See "Certain
Relationships and Related Transactions."

(4) 1125 N.E. 125th Street, Suite 206, North Miami, Florida 33161. Includes
35,000 shares issuable under an option granted pursuant to the Stock
Option Plan and 200,000 shares issuable upon the exercise of warrants
held by Mr. Cohen. Excludes 93,503 shares owned by Mr. Cohen's spouse
and 500,000 shares 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 30,000
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) 230 East Flamingo Road, Las Vegas, Nevada 89109. Includes 35,000 shares
issuable under an option granted pursuant to the Stock Option Plan and
200,000 shares issuable upon the exercise of warrants held by Mr.
Hirsch.

6
<PAGE> 8

(6) 1125 N.E. 125th Street, Suite 206, North Miami, Florida 33161. Includes
35,000 shares issuable under an option granted pursuant to the Stock
Option Plan and 100,000 shares issuable upon the exercise of warrants
held by Mr. Mayerson.

(7) 1011 High Ridge Road, Stamford, Connecticut 06905. Excludes 3,000
shares owned by a member of Mr. McConnaughy's family, as to which Mr.
McConnaughy does not have any investment or voting power, and as to
which he disclaims beneficial ownership.

(8) 1251 Avenue of the Americas, 51st Floor, New York, New York 10020.
Excludes 15,000 shares owned by a member of Mr. Ross' family and
250,000 shares owned by Rothschild, Inc., of which Mr. Ross is a
Managing Director, over which Mr. Ross does not have any investment or
voting power, and as to which he disclaims beneficial ownership.

(9) 1000 Parkwood Circle, Atlanta, Georgia 30339. Includes 25,000 shares
issuable under an option granted pursuant to the Stock Option Plan.

(10) 4310 Paradise Road, Las Vegas, Nevada 89109. Includes 25,000 shares
issuable under an option granted pursuant to the Stock Option Plan.

(11) See Notes (2)-(10).

MANAGEMENT

OFFICERS OF THE COMPANY

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

NAME AGE POSITION
- ---------------------------- ----------- ------------------------------------------------------------
<S> <C> <C>
Robert Nederlander 64 Chairman of the Board, Chief Executive Officer and Director
Jerome J. Cohen 69 President and Director
Don A. Mayerson 70 Executive Vice President, General Counsel and Secretary
Herbert B. Hirsch 61 Senior Vice President, Chief Financial Officer, Treasurer and
Director
Eugene I. Schuster 60 Vice President and Director
Jon A. Joseph 50 Vice President and Associate General Counsel
Paul K. Sadler 39 Vice President, Management Information Systems
Charles G. Baltuskonis 47 Vice President and Chief Accounting Officer
Jeffrey S. Moore 39 President and Chief Operating Officer of MMC
James L. Belter 54 Executive Vice President and Chief Financial Officer of MMC
Frederick H. Conte 45 Executive Vice President and Chief Operating Officer of PEC
Stuart Harelik 57 Senior Vice President Marketing and Sales of PEC

</TABLE>

All of the incumbent officers have held office since the Share
Acquisition, with the exception of Messrs. Joseph, Sadler and Harelik, who have
held their respective offices since July 1995, June 1995 and March 1989,
respectively. The business experience of Messrs. Nederlander, Cohen, Hirsch and
Schuster appears under the caption "Election of Directors" set forth herein.

Don A. Mayerson has been the Secretary of the Company since the Share
Acquisition and the Executive Vice President and General Counsel of the Company
since April 1988.

Jon A. Joseph has been a Vice President and Associate General Counsel
of the Company since July 1995. Mr. Joseph was Executive Vice President of
Valley Bank of Nevada from 1984 to 1991. In 1991, Valley Bank of Nevada was
acquired by Bank of America. Mr. Joseph remained with the legal department of
Bank of America until June 1, 1995.

7
<PAGE> 9

Paul K. Sadler has been with PEC as manager of Management Information
Services since 1985 and was elected Vice President of the Company in June 1995.

Jeffrey S. Moore has been a director of MMC since June 1992, at which
time he was elected its Executive Vice President. Mr. Moore was elected as Chief
Operating Officer of MMC in December 1993 and as its President in April 1995.
Mr. Moore was the founder and served as President, Chief Executive Officer and a
director of Empire Funding Corp., a nationwide Title I Lender, from August 1985
until March 1992, at which time he sold his interest in the company.

James L. Belter has been Executive Vice President of MMC since April
1995 and Chief Financial Officer since September 1996. Prior to joining MMC,
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 the 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 financial portfolios of consumer contracts including
residential second mortgages, home improvement contracts, timeshare and land
sales.

Charles G. Baltuskonis has been Chief Accounting Officer of the Company
since April 29, 1997. He is a certified public accountant and served as Senior
Vice President and Controller of Chase Federal Bank from May 1995 to March 1997.
Prior to that, he was Chief Financial Officer of F&C Bancshares and First
Coastal Bank, a Senior Vice President - Finance of Bank of New England, and was
a Senior Manager with the public accounting firm of Ernst & Young.

Frederick H. Conte has been with PEC since 1978, and its Executive Vice
President and Chief Operating Officer since February 1988.

Stuart Harelik has been the Senior Vice President of Marketing and
Sales of PEC since March 1989.

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 regulation to furnish the Company with copies of all such reports they
file.

To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, 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

Purchase of Preferred Equities Corporation. Pursuant to a Stock
Purchase and Redemption Agreement dated October 6, 1987 and amended October 25,
1987, Comay Corp., an affiliate of Messrs. Cohen and Mayerson ("Comay"), GRI, an
affiliate of Mr. Schuster, RRE Corp., an affiliate of Mr. Nederlander (together
with its assignee, RER Corp., another affiliate of Mr. Nederlander, "RER"), and
H&H Financial Inc., an affiliate of Mr. Hirsch ("H&H"), obtained the rights
("PEC Purchase Rights") to acquire PEC, a privately-held Nevada corporation
engaged in retail land sales, resort time-sharing and other real estate related
activities. (Comay, GRI, RER and H&H are collectively referred to as the
"Assignors").

8
<PAGE> 10

Certain Arrangements Between the Company and Affiliates of Certain
Officers and Directors. Pursuant to the Assignment and Assumption Agreement,
dated February 1, 1988 as subsequently amended, the Assignors assigned
("Assignment") their PEC Purchase Rights to the Company. As part of the
consideration for the Assignment to the Company, the Assignors were entitled to
receive from the Company, on a quarterly basis until January 31, 1995, amounts
equal in the aggregate to 63% of the "Unrestricted Cash Balances" of PEC. The
Assignment and Assumption Agreement defines Unrestricted Cash Balances of PEC as
the cash on hand and on deposit of PEC and its subsidiaries as of the end of a
fiscal quarter that could be used to make a dividend or other payment to the
Company without violating the most restrictive loan agreement to which PEC is a
party or by which PEC is bound.

At January 31, 1995, at which point the accrual of payments ceased, the
Company owed the Assignors an aggregate of $13.3 million pursuant to the
Assignment and Assumption Agreement. Pursuant to an amendment (the "Amendment")
to the Assignment and Assumption Agreement, dated March 2, 1995, the Assignors
agreed to defer payment of the $10 million of Subordinated Debt and to
subordinate the payment of such amount to them to the Company's repayment of
certain borrowings and the repayment of certain obligations of subsidiaries of
the Company, the repayment of which obligations were guaranteed by the Company.
Pursuant to the Amendment, the Company is required to pay interest semi-annually
on the Subordinated Debt at a rate of 10% per year between September 1, 1995 and
March 1, 1997, and make seven equal semi-annual payments of $1.4 million plus
interest commencing March 1, 1997, the first payment of which was paid on that
date. In addition to the Subordinated Debt, at May 31, 1995, $3.3 million was
payable to the Assignors, which amount bears interest at the rate of 10% per
year, payable semi-annually pursuant to the provisions of the Assignment and
Assumption Agreement ("Unsubordinated Amount"). During fiscal 1996, the Company
paid an aggregate of $1.2 million to the Assignors, all of which represented
interest. The Unsubordinated Amount was paid in full during fiscal 1997. All
amounts owed to the Assignors are secured by a pledge of all the stock of PEC.

In consideration of the payment deferral and subordination described
above, warrants ("Warrants") for 1,000,000 shares of Common Stock at an exercise
price of $4.25 per share (the closing market price per share on March 2, 1995)
were granted to the Assignors. The Warrants contain restrictions on transfer and
are exercisable between March 2, 1996 and March 1, 2000.

In April 1995, PEC entered into an arrangement with HFS, of which Mr.
Nederlander became a Director in July 1995.

9
<PAGE> 11

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 four other most highly compensated executive officers whose annual salary
and bonus during the fiscal years presented exceeded $100,000 (the "Named
Executive Officers"). The Company did not grant any stock options to the Named
Executive Officers during the fiscal year ended August 31, 1996.

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------- ----------
NUMBER OF
FISCAL OTHER ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION GRANTED (B) COMPENSATION(C)
- --------------------------- ---- ------ -------- ------------ ----------- ---------------

<S> <C> <C> <C> <C> <C> <C>
Robert Nederlander 1994 $100,000 $ - $ - 35,000 $ 1,500
Chairman of the Board and Chief 1995 126,925 - - - 1,500
Executive Officer 1996 150,000 2,885 3,789 - 2,293

Jerome J. Cohen 1994 $300,000 $ 5,769 $ 1,437 35,000 $ 2,225
President 1995 300,000 120,369 3,227 - 2,250
1996 300,000 216,666 6,279 - 2,250

Don A. Mayerson 1994 $200,000 $ 3,846 $ - 35,000 $ 2,226
Executive Vice President, 1995 200,000 49,686 - - 2,250
General Counsel and Secretary 1996 200,000 86,680 5,305 - 2,250

Herbert B. Hirsch 1994 $200,000 $ 3,846 $ - 35,000 $ 2,2260
Senior Vice President, Chief 1995 200,000 49,686 - - 2,250
Financial Officer and Treasurer 1996 200,000 86,680 1,512 - 2,250

Stuart Harelik 1994 $125,000 $344,830 $ - 25,000 $ 2,302
Senior Vice President, 1995 125,000 438,064 - - 2,250
Marketing and Sales of PEC 1996 125,000 411,766 - - 2,250

</TABLE>

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

(A) Mr. Harelik receives a contingent bonus based on a percentage of the sales
made in excess of specified sales levels as set forth in his contract of
employment which expires August 31, 2000. In 1994, Messrs. Cohen, Mayerson
and Hirsch received bonuses equal to one week's salary at year end in
accordance with the Company's Christmas bonus formula. In addition to those
bonuses, on April 13, 1996, pursuant to contractual arrangements, incentive
compensation attributable to the year ended August 31, 1995 was paid to
Messrs. Cohen, Mayerson and Hirsch and is included in the above table as
1995 compensation. Incentive compensation attributable to the year ended
August 31, 1996, but not yet paid, is included in the above table as 1996
compensation.

(B) The Company adopted the Stock Option Plan on November 17, 1993, and options
were granted to certain executive officers on December 22, 1993 and
subsequently to other employees, subject to shareholder approval of the
Stock Option Plan. The Stock Option Plan was approved by shareholders on
February 9, 1994. One-fifth of each grant to the Named Executive Officers
became exercisable on December 22, 1994 and an additional one-fifth became
exercisable on December 22, 1995 and December 22, 1996. In August 1997, in
connection with the approval by the Company's Board of Directors of the
distribution to the

10
<PAGE> 12

holders of the Common Shares as of August 27, 1997 of all 10,000,000 shares
of MMC's common stock held by the Company (the "Spinoff"), the Stock Option
Committee accelerated the vesting of all of such options, excluding those
options granted subsequent to February 26, 1997. See "Aggregated Fiscal
Year-End Option Value Table" and "Stock Option Plan."

(C) Represents the Company's matching contributions of 25% of the employee's
contribution to the Company's 401(k) Plan on behalf of the employee.

AGGREGATED FISCAL YEAR-END OPTION VALUE TABLE

The following table sets forth certain information concerning
unexercised stock options held by the Named Executive Officers as of August 31,
1996. No stock options were exercised by the Named Executive Officers during the
fiscal year ended August 31, 1996.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS HELD AT OPTIONS HELD AT
AUGUST 31, 1996 AUGUST 31, 1996(1)
------------------------------------- -----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Robert Nederlander 14,000 21,000 $ 40,250 $ 60,375
Jerome J. Cohen 14,000 21,000 43,750 65,625
Don A. Mayerson 14,000 21,000 43,750 65,625
Herbert B. Hirsch 14,000 21,000 43,750 65,625
Stuart Harelik 10,000 15,000 31,250 46,875
Jeffrey S. Moore 10,000 15,000 31,250 46,875

</TABLE>

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

(1) The closing sales price of the Company's common stock as reported as
Nasdaq National Market on August 31, 1996 was $5.625. Value is
calculated by multiplying (a) the difference between $5.625 and each
option exercise price by (b) the number of shares of Common Stock
underlying the option.

EMPLOYMENT AGREEMENTS

The Company has entered into an employment agreement with Jerome J.
Cohen which expires on January 31, 2000. The agreement provides for an annual
base salary of $300,000 plus 2.5% of Incentive Income, as defined in the
Company's Incentive Plan (as defined below). Mr. Cohen's employment agreement
does not provide for an early termination bonus or other additional compensation
based on performance.

MMC has entered into an employment agreement with Jeffrey S. Moore
which expires on December 31, 1998 and which provides for an annual base salary
of $200,000. In addition, Mr. Moore is to receive an incentive bonus each
calendar year equal to 1.5% of MMC's after tax income, provided that certain
scheduled sales goals are met, as well as deferred compensation of 1.0% of the
gain on sale from sales of loans during such year, payable in 48 equal
installments. In the event payments of the incentive bonus and deferred
compensation due in any year exceed $500,000, then the excess over $500,000 is
only payable with the approval of MMC's Board of Directors.

PEC has entered into an employment contract with Stuart Harelik which
expires on August 31, 2000 and provides for an annual base salary of $125,000.
In addition, Mr. Harelik is to receive a contingent bonus each year equal to the
sum of 1.25% of Net Sales (as defined in the employment agreement) in excess of
$20 million up to $50 million plus 0.75% of Net Sales in excess of $50 million.

11
<PAGE> 13

STOCK OPTION PLAN

Under the Company's Stock Option Plan, as more fully described herein,
525,000 shares of Common Stock were reserved for issuance upon exercise of
options. The Company's Board of Directors has recently adopted a proposal to
increase by 500,000 shares the number of shares of Common Stock reserved for
issuance pursuant to the Company's Stock Option Plan. In the event the proposal
is approved by shareholders at the Annual Meeting, an aggregate of 1,025,000
shares of Common Stock will be reserved for the issuance pursuant to the Stock
Option Plan. The Stock Option Plan is designed to serve as an incentive for
retaining qualified and competent employees. As of the Record Date, options to
purchase an aggregate of 500,000 shares of Common Stock were issued and
outstanding under the Stock Option Plan.

The Stock Option Committee administers and interprets the Stock Option
Plan and is authorized, in its discretion, to grant options thereunder to all
eligible employees of the Company (currently 1,062 individuals), including
officers of the Company. The Stock Option Plan provides for the granting of both
"incentive stock options" (as defined in Section 422A of the Internal Revenue
Code of 1986, as amended (the "Code")) and nonstatutory stock options. Options
can be granted under the Stock Option Plan on such terms and at such prices as
determined by the Board, or a committee thereof, except that the per share
exercise price of options may not be less than 80% of the fair market value of
the Common Stock on the date of grant, and, in the case of an incentive stock
option, the per share exercise price may not be less than 100% of such fair
market value. In the case of incentive stock options granted to a 10%
shareholder, the per share exercise price may not be less than 110% of the fair
market value of the Common Stock on the date of grant and shall expire five
years from the date of grant. The aggregate fair market value of the shares
covered by incentive stock options granted under the Stock Option Plan that
become exercisable by a grantee for the first time in any calendar year is
subject to a $100,000 limit.

Options granted under the Stock Option Plan are exercisable after the
period or periods specified in the option agreement. Options granted under the
Stock Option Plan are not exercisable after the expiration of ten years from the
date of grant (except in the case of options granted to 10% shareholders) and
are not transferable other than by will or by the laws of descent and
distribution.

Under MMC's Stock Option Plan, which was effective upon the
consummation of MMC's initial public stock offering of common stock in November
1996, 925,000 shares of MMC's common stock were reserved for issuance upon
exercise of stock options. During the period specified in the MMC Stock Option
Plan, the options, even if vested, may not be exercised without the Company's
prior written consent. In addition, during the period specified in the MMC Stock
Option Plan, options are accompanied by stock appreciation rights ("SARs") which
become exercisable as determined by MMC's Board of Directors or a committee
thereof, only if the Company does not give approval to the exercise of the
options. In connection with the Spinoff, all outstanding options under MMC's
Stock Option Plan are being converted to SARs. The MMC Stock Option Plan was
designed as a means to retain and motivate key employees and Directors of MMC.
MMC's Board of Directors, or a committee thereof, administers and interprets
this MMC plan and is authorized to grant options thereunder to all eligible
employees and Directors of MMC, 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 MMC, the Company or a subsidiary of MMC.

The MMC plan provides for the granting of both incentive stock options
and unqualified stock options. Options will be granted on such terms and at such
prices as determined by MMC'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 MMC or the Company 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. MMC is authorized 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, and (iii) be
secured by the

12
<PAGE> 14

shares of common stock purchased. The Board of Directors of MMC has the
authority to amend or terminate this 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 are subject
to shareholder approval. Unless terminated sooner, the MMC 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 MMC
plan.

EXECUTIVE INCENTIVE COMPENSATION PLAN

On June 22, 1994, effective for the year ending August 31, 1995, the
Company's Board of Directors approved and adopted an Executive Incentive
Compensation Plan (the "Incentive Plan") for executives and other key employees
of the Company and its subsidiaries who contribute to the success of the
Company. Under the terms of the Incentive Plan, awards of incentive compensation
are determined by the Incentive Compensation Committee of the Board of Directors
of the Company, which committee shall be composed of not less than two members.
'The Incentive Plan provides that the Board of Directors may amend, suspend or
terminate the Incentive Plan at any time. Incentive Compensation for any fiscal
year is defined as an amount equal to 7.5% of incentive income (the "Incentive
Income") for such year. Incentive Income for any fiscal year is defined as the
amount reported as income before taxes in the consolidated financial statements
of the Company for such year. The maximum amount of all awards of Incentive
Compensation for any fiscal year shall not exceed (a) 7.5% of' incentive Income
for such year, reduced by (b) the amount of Incentive Income which must be paid
by the Company to employees pursuant to any contractual obligation of the
Company, increased by (c) any unawarded Incentive Compensation carried forward
from a prior fiscal year.

In accordance with the terms of the employment agreements for each of
Jerome J. Cohen, Don A. Mayerson and Herbert B. Hirsch, such executives are
entitled to receive 2.5%, 1.0% and 1.0%, respectively, of the Company's
Incentive Income for the five-year period commencing with fiscal 1995, which
amounts directly reduce the amounts available for additional awards under the
Incentive Plan.

SPLIT DOLLAR INSURANCE PLAN

On April 5, 1995, the Board of Directors of the Company established a
split-dollar life insurance plan (the "Split-Dollar Plan") pursuant to which the
Company pays the premiums for certain "second to die" life insurance policies on
the lives of Messrs. Nederlander, Cohen, Mayerson and Hirsch and their
respective spouses, for a period not to exceed five years, at an annual
aggregate premium outlay of $400,000. Each policy is in the name of a trust
established for family beneficiaries selected by each executive. On August 3,
1995, the Company approved a life insurance policy for Mr. Schuster at an annual
cost of $100,000 for a period of five years. Pursuant to the plan, and with
respect to each policy, after ten years, or earlier upon the deaths of the
respective insured parties, or certain other events, the Company will receive
the amount of premiums paid on the policy.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors has not designated a Compensation Committee, but has
delegated the responsibility and authority for setting and overseeing the
administration of policy which governs the compensation of all of the Company's
employees (with the exception of Messrs. Nederlander. Cohen, Mayerson, Hirsch
and Schuster) to its President, Jerome J. Cohen. The compensation paid to
Messrs. Nederlander, Cohen, Mayerson, Hirsch and Schuster is determined by the
Board of Directors. The Directors who are also executive officers of the Company
do not participate in deliberations of the Board of Directors of the Company
concerning their own compensation. In fiscal 1996, Mr. Nederlander's annual
salary was increased to $150,000, and Mr. Schuster's annual salary was increased
to $60,000.

13
<PAGE> 15

REPORT ON EXECUTIVE COMPENSATION

The Board of Directors has not designated a Compensation Committee, but has
delegated the responsibility and authority for setting and overseeing
administration of policy which governs the compensation of all of the Company's
employees (with the exception of Messrs. Nederlander, Cohen, Mayerson, Hirsch
and Schuster) to its President, Jerome J. Cohen. The compensation paid to
Messrs. Nederlander, Cohen, Mayerson, Hirsch and Schuster is determined by the
Board of Directors. No previously named executives other than Messrs.
Nederlander and Schuster received an increase in base compensation in fiscal
1996. See "Compensation Committee Interlocks and Insider Participation."

On June 22, 1994, the Board of Directors of the Company approved an
Executive Incentive Compensation Plan (the "Incentive Plan") for executives and
other key employees of the Company and its subsidiaries who contribute to the
success of the Company. Under the terms of the Incentive Plan, which commenced
for years beginning with fiscal 1995, awards of Incentive Compensation shall be
made by an Incentive Compensation Committee of the Board of Directors of the
Company, which committee shall be composed of not less than two members. The
Incentive Plan provides that the Board of Directors may amend, suspend or
terminate the Incentive Plan at any time. Incentive Compensation for any fiscal
year is defined as an amount equal to 7.5% of Incentive Income for such year.
Incentive Income for any fiscal year is defined as the amount reported as
"Income Before Taxes" in the consolidated financial statements of the Company
for such year. The maximum amount of all awards of Incentive Compensation for
any fiscal year shall not exceed (a) 7.5% of Incentive Income for such year,
reduced by (b) the amount of Incentive Income which must be paid by the Company
to employees pursuant to any contractual obligation of the Company, increased by
(c) any unawarded Incentive Compensation carried forward from a prior fiscal
year. The amount paid pursuant to the Incentive Plan for fiscal 1996 in January
1997 was approximately $643,000, including amounts paid to Messrs. Cohen,
Mayerson and Hirsch under the agreements described in the following paragraph.

In fiscal 1994, the Board approved an employment agreement with Mr.
Jerome J. Cohen, President of the Company, and agreements with Messrs. Don A.
Mayerson and Herbert B. Hirsch, senior officers of the Company, pursuant to
which Messrs. Cohen, Mayerson and Hirsch would receive 2.5%, 1.0% and 1.0%,
respectively, of Incentive Income of the Company, as defined in the Incentive
Plan, for the five year period commencing with fiscal 1995, which amounts would
directly reduce the amounts available for awards under the Incentive Plan. The
allocations to Messrs. Cohen, Mayerson and Hirsch were determined through
negotiation. Mr. Cohen's employment agreement, which expires January 31, 2000,
provides for a base salary of $300,000 per year plus the 2.5% of Incentive
Income as previously discussed. Mr. Cohen's employment agreement does not
provide for an early termination bonus or other additional compensation based on
performance.

BOARD OF DIRECTORS

Robert Nederlander Jerome J. Cohen Herbert B. Hirsch
Eugene I. Schuster John E. McConnaughy, Jr. Wilbur L. Ross, Jr.

14
<PAGE> 16

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 Media General Peer Group (real estate subdividers and developers) Index.
The comparison assumes the investment of $100 on September 1, 1990 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.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG MEGO FINANCIAL CORP.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX

[GRAPHIC]

ASSUMES $100 INVESTED ON SEPT,1,1991
ASSUMES DIVIDEND REINVESTED

15
<PAGE> 17

PROPOSAL TO INCREASE BY 500,000 SHARES THE NUMBER
OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
UNDER THE COMPANY'S EMPLOYEE STOCK OPTION PLAN

The Company's Board of Directors has unanimously approved, subject to
approval by the Company's shareholders, an amendment to the Stock Option Plan to
increase by 500,000 shares the number of shares of Common Stock reserved for
issuance pursuant to such plan. The text of the Stock Option Plan, as amended by
the Company's Board of Directors, is attached hereto as Exhibit A. Although the
material features of the Stock Option Plan are discussed below, such discussion
is qualified in its entirety by the full text of the Stock Option Plan.

The purpose of the Stock Option Plan is to provide incentive to persons
holding the position of managerial employee, vice president or other senior
executive of the Company or any of its subsidiaries (collectively, "Key
Employees") as defined in Section 424(f) of the Internal Revenue Code of 1986,
as amended (the "Code"), through the encouragement of stock ownership in the
Company by those Key Employees. The Stock Option Plan is to be administered by
the Stock Option Committee of the Board (the "Committee") consisting of not
fewer than two members. No person serving as a Committee member shall be
eligible to be granted or awarded options under the Stock Option Plan or certain
other plans established by the Company, nor shall any person serve as a
Committee member if during the one year period prior to his or her appointment
to the Committee, or while on the Committee, such person has been granted or
awarded options pursuant to the Stock Option Plan or certain other plans of the
Company. The Committee makes all decisions or determinations by either a
majority vote of its members at a meeting or without a meeting by the unanimous
written approval of its members. The Committee may adopt rules and regulations
for carrying out the purposes of the Stock Option Plan, and such Committee's
determinations, interpretations and construction of any provision of the Stock
Option Plan are final and conclusive.

An aggregate of 1,025,000 shares of Common Stock have been reserved,
including 500,000 shares reserved subject to approval by the Company's
shareholders of the proposal to increase the number of such shares, for issuance
upon exercise of options ("Options") granted under the Stock Option Plan. As of
the date hereof, Options to purchase 500,000 shares of Common Stock at exercise
prices ranging from $2.50 to $8.75 per share have been granted and are
outstanding under the Stock Option Plan. Shares of Common Stock may be made
available for issuance under the Stock Option Plan from authorized but unissued
shares of Common Stock. If any Option granted pursuant to the Stock Option 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 under the Stock Option Plan. The Company's shareholders do not have any
preemptive rights to purchase or subscribe for the shares of Common Stock
reserved for issuance under the Stock Option Plan.

The terms of the Stock Option Plan provide for the 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 Stock
Option Plan but does not meet the definition of an "incentive stock option" set
forth in section 422 of the Code. Options granted under the Stock Option Plan
are evidenced by stock option agreements executed by the Company and Optionees.

ELIGIBILITY

Options may be granted to those Key Employees selected from time to
time by the Committee, in its sole discretion. 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.

16
<PAGE> 18

TERMS AND CONDITIONS

The exercise price of any Option granted pursuant to the Stock Option
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
hereafter), 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 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 Stock Option 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.

Pursuant to the Stock Option Plan, the "Fair Market Value" of a share
of Common Stock on any day shall be the closing sale quotation as reported for
such day on the National Association of Securities Dealers' Automated Quotation
System, or, if no such quotation is reported for such day, the average of the
high bid and low ask price of Common Stock as reported for such day. If no
quotation is made for the applicable day, the Fair Market Value of a share of
Common Stock on such day shall be determined in the manner set forth in the
preceding sentence using quotations for the next preceding day for which there
were quotations, provided that such quotations shall have been made within the
ten (10) "trading" days preceding the applicable day. Notwithstanding the
foregoing, if no such information is available or it is otherwise deemed
necessary or appropriate by the Committee, the Fair Market Value of a share of
Common Stock on any day shall be determined in good faith by the Committee
taking into account all relevant material facts and circumstances. In no event
shall the Fair Market Value of any share of Common Stock be less than its par
value, nor shall the Fair Market Value take into account any restrictions on the
Common Stock issuable on exercise of an Option other than restrictions which
will never lapse.

Pursuant to the terms of the Stock Option 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
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.

Notwithstanding any provision of the Stock Option Plan and any
outstanding Option, each outstanding Option shall become immediately fully
exercisable (i) if any "person," including a "group," as such terms are
defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended, and the rules promulgated thereunder, becomes the beneficial owner,
directly or indirectly, whether by purchase or acquisition or agreement or
otherwise, of fifty percent (50%) or more of the outstanding Common Stock; (
ii) if a cash tender or exchange offer for fifty percent (50%) or more of the
outstanding Common Stock is commenced; (iii) if the Company's shareholders
approve an agreement to merge, consolidate, liquidate, or sell all of
substantially all of the Company's assets; or (iv) if two or more Directors
are elected to the Company's Board of Directors without having previously been
nominated and approved by the incumbent members of the Board on the day
immediately preceding such election. In addition, the Committee may amend any
outstanding Option to accelerate the time or times at which the Option may be
exercised. In connection with the Spinoff, in August 1997, the Committee
accelerated the vesting of all outstanding Options other than those granted
after February 26, 1997.

17
<PAGE> 19

In accordance with the terms of the Stock Option 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) in Common Stock of the Company already held
by the Optionee, (iii) by permitting the Company to withhold shares of Common
Stock issuable upon exercise of such Option or (iv) in any combination of cash
and shares of Common Stock.

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 STOCK OPTION PLAN

The Board of Directors may from time to time suspend, discontinue,
revise or amend the Stock Option Plan or any Option granted thereunder in any
respect whatsoever, provided that any amendment that would increase the
aggregate number of shares of Common Stock as to which Options may be granted,
materially increase the benefits accruing to participants under the Stock Option
Plan, or modify the requirements as to eligibility for participation in the
Stock Option Plan shall be subject to the approval of the shareholders of the
Company, voting at a meeting of shareholders at which a quorum is present within
twelve months after such action is taken by the Board of Directors. In addition,
no such amendment shall impair any rights or increase any obligations of an
Optionee under any outstanding Option 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).

ADJUSTMENTS AND REORGANIZATIONS

The Stock Option 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, distributions, stock split-ups, reverse
stock splits or similar changes in capitalization, or by reason of any merger,
consolidation, spinoff or other corporate reorganization in which the Company is
the surviving corporation, in which event appropriate adjustments will be made
by the Committee, in the number and class of shares subject to the Stock Option
Plan, both in the aggregate and with respect to each outstanding Option, and the
number, class and Option prices of shares of Common Stock under then outstanding
Options.

The Committee is also authorized to amend the terms of Options
outstanding under the Stock Option Plan when, in its discretion, the Committee
deems such adjustment appropriate by reason of certain corporate transactions
that would result in an Option becoming fully exercisable, provided, that no
such amendment shall impair any rights or increase any obligations of an
Optionee or cause any Incentive Stock Option not to qualify as such under the
provisions of the Code without the consent of the Optionee. See "Terms and
Conditions of Options - Exercise of Options," above.

The Stock Option Plan provides that if an Optionee's employment is
terminated for any reason other than dismissal for cause any outstanding Option
shall be exercisable on the following terms and conditions: (i) exercise may be
made only to the extent that the Optionee was entitled to exercise the Option 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. 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 Stock Option Plan and the applicable Option Agreement which
would have applied to the Optionee.

18
<PAGE> 20

FEDERAL INCOME TAX CONSEQUENCES OF THE STOCK OPTION PLAN

The Stock Option 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 Stock
Option Plan, an Optionee (other than an officer or Director of the Company) 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. That income will be subject to the withholding
of Federal income tax. The Optionee's tax basis in those shares 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.

An officer or Director of the Company or any other person to whom the
short-swing profit recovery provisions of section 16(b) of the Exchange Act
apply in connection with an Option under the Stock Option Plan (a "Reporting
Person") generally will not recognize ordinary income until the earlier of the
expiration of the six month period after the exercise of an Option and the first
day on which a sale at a profit of shares acquired on exercise of the Option
would not subject the Reporting Person to suit under section 16(b) of the
Exchange Act. The amount of ordinary income will equal the excess, if any, of
the fair market value of the shares on the date the income is recognized over
the exercise price of the Option. A Reporting Person, however, is entitled under
section 83(b) of the Code to elect to recognize ordinary income on the date of
exercise of the Option, in which case the amount of income will be equal to the
excess, if any, of the fair market value of the shares on that date over the
exercise price of the Option. A section 83(b) election must be made within 30
days after exercising an Option.

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 long-term capital gain
or loss.

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

19
<PAGE> 21

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 short-term or long-term capital gain,
depending on whether the holding period for the share exceeds one year.

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 SHAREHOLDERS VOTE "FOR" THE
PROPOSAL TO INCREASE BY 500,000 SHARES THE NUMBER OF SHARES OF COMMON STOCK
RESERVED FOR ISSUANCE PURSUANT TO THE COMPANY'S STOCK OPTION PLAN.

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 shareholders 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

20
<PAGE> 22

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.

A copy of the Company's 1996 Annual Report accompanies this Proxy. The
Annual Report includes the Company's Form 10-K, as amended, except for exhibits,
for the fiscal year ended August 31, 1996, 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 Financial Corp., 4310 Paradise
Road, Las Vegas, Nevada 89109, ATTN: Don A. Mayerson, 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
shareholders.

SHAREHOLDER PROPOSALS

Shareholder proposals intended to be presented at the Company's 1998
Annual Meeting of Shareholders 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
April 15, 1998, or within a reasonable time before the announced date of the
Company's 1998 Annual Meeting of Shareholders, for inclusion in the Company's
proxy statement and form of proxy relating to such meeting.

By Order of the Board of Directors,

DON A. MAYERSON
Executive Vice President, General Counsel
and Secretary

August 15, 1997

21
<PAGE> 23

EXHIBIT A

MEGO FINANCIAL CORP.

EMPLOYEE STOCK OPTION PLAN

1. PURPOSE

This Stock Option Plan (the "Plan") for Mego Financial Corp., a New
York corporation (the "Company") and its subsidiaries, is intended to provide
incentive to persons holding the position of managerial employee, vice president
or other senior executive of the Company or any of its subsidiaries as defined
in Section 424(f) of the Internal Revenue Code of 1986, as amended (collectively
"Key Employees"), by providing those persons with opportunities to purchase
shares of the Company's Common Stock under (a) incentive stock options
("Incentive Stock Options") as such term is defined under Section 422 of the
Internal Revenue Code of 1986, as amended, and (b) other stock options
("Non-Incentive Stock Options").

2. DEFINITIONS

As used in this Plan, the following words and phrases shall have the
meanings indicated:

(a) "Board" shall mean the Company's board of directors.

(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.

(d) "Common Stock" shall mean the common stock of the Company.

(e) "Fair Market Value" of a share of Common Stock on any day shall be
the closing sale quotation as reported for such day on the National Association
of Securities Dealers' automated quotation system, or, if no such quotation is
reported for such day, the average of the high bid and low ask price of Common
Stock as reported for such day. If no quotation is made for the applicable day,
the Fair Market Value of a share of Common Stock on such day shall be determined
in the manner set forth in the preceding sentence using quotations for the next
preceding day for which there were quotations, provided that such quotations
shall have been made within the 10 "trading" days preceding the applicable day.
Notwithstanding the foregoing, if no such information is available or it
otherwise deemed necessary or appropriate by the Committee, the Fair Market
Value of a share of Common Stock on any day shall be determined in good faith by
the Committee taking into account all relevant material facts and circumstances.
In no event shall the Fair Market Value of any share of Common Stock be less
than its par value, nor shall the Fair Market Value take into account any
restrictions on the Common stock issuable on exercise of an Option other than
restrictions which will never lapse.

A-1
<PAGE> 24

(f) "Incentive Stock Options" means one or more Options to purchase
Common stock which, at the time such Options are granted under this Plan or any
other such plan of the Company, qualify as incentive stock options under Section
422 of the Code and which are designated as such in the option agreement (the
"Option Agreement") evidencing such option.

(g) "Key Employees" shall mean individuals employed by the Company or
any of its subsidiaries, who hold the position of managerial employee, vice
president or other senior executive.

(h) "Plan" shall mean this Stock Option Plan established by the
Company.

(i) "Option" shall mean any option issued under this Plan.

(j) "Optionee" shall mean any person to whom an Option is granted under
this Plan.

(k) "Ten Percent Shareholder" shall mean 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 of the total combined
voting power of all classes of stock of the Company or a subsidiary thereof.

(l) "Termination of Employment" shall mean termination of employment
with the Company and all of its subsidiaries. The Committee may in its
discretion determine whether any leave of absence constitutes a Termination of
Employment for purposes of this Plan and the impact, if any, of any such leave
of absence on Options made under this Plan. The Committee shall have the right
to determine whether the termination of an Optionee's employment is a dismissal
for cause and the date of termination in such case, which date the Committee may
retroactively deem to be the date of the action that is cause for dismissal.
Such determinations of the Committee shall be final, binding and conclusive.

3. GENERAL ADMINISTRATION

(a) This Plan shall be administered by the Stock Option Committee (the
"Committee") of the Board consisting of not fewer than two members. Except as
permitted by Securities Exchange Act Rule 16b-3(c)(2), no person serving as a
Committee member shall be eligible to be granted or awarded equity securities
pursuant to this Plan or any other plan established by the Company, nor shall
any person serve as a Committee member if during the one year prior to his or
her appointment to the Committee, he or she was granted or awarded equity
securities pursuant to this plan or any other plan established by the Company,
other than a plan complying with said Rule 16b-3(c)(2).

(b) The Committee shall have the authority (i) to exercise all of the
powers granted to it under this Plan, (ii) to construe, interpret and implement
this Plan and any Option Agreements executed pursuant to Section 7 below, (iii)
to prescribe amend and rescind rules and regulations relating to this Plan,
including rules governing the Committee's own operations, (iv) to make all
determinations necessary or advisable in administering this Plan, (v) to correct
any defect, supply any omission and reconcile any inconsistency in this Plan,
(vi) to cause the Plan and Incentive

A-2
<PAGE> 25

Stock Options granted hereunder to continue to qualify as such under Code
Section 422, and (vii) to amend this Plan to reflect changes in applicable law;
provided, however, no amendment of the Plan requiring shareholder approval under
Securities Exchange Act Rule 16b-3 or the regulations of the Internal Revenue
Service may be made without such approval.

(c) Actions by the Committee shall be taken by the affirmative vote of
a majority of the Committee members. Any action may be taken by an instrument
signed by all of the Committee members, and action so taken shall be fully as
effective as if such action had been taken by a vote at a Committee meeting.

(d) The determination of the Committee on all matters relating to this
Plan or any Option Agreement shall be final, binding and conclusive.

(e) No Committee member shall be liable for any action or determination
made in good faith with respect to this Plan, including any Option.

4. GRANTING OF OPTIONS

Options may be granted under this Plan at any time prior to November
17, 2003.

5. ELIGIBILITY

(a) Options may be made to such Key Employees as the Committee shall in
its sole discretion select. The committee may from time to time in its sole
discretion determine that any Key Employee shall be eligible to receive Options.

(b) At the time of the grant of each Option, the Committee shall
determine whether such Option is to be designated an Incentive Stock Option or a
Non-Incentive Stock Option. The length of the exercise period of Incentive Stock
Options shall be governed by Section 7(d)(2) below; the exercise period of all
other Options will be governed by Section 7(d)(3) below.

6. COMMON STOCK

(a) The stock subject to the Options shall be Common Stock.

(b) The total number of shares of Common Stock with respect to which
Options may be granted shall not exceed 525,000. Common Stock issued pursuant to
this Plan may be authorized and unissued Common Stock or authorized and issued
Common stock held in the Company's treasury or acquired by the Company for the
purposes of the Plan. The Committee may direct that any certificate evidencing
Common Stock pursuant to this plan shall bear a legend setting forth such
restrictions on transferability as may apply to such shares.

(c) If there is any change in the number of outstanding shares of
Common Stock by reason of a stock dividend or distribution, stock split-up,
reverse stock split, recapitalization, combination or exchange of shares, or by
reason of any merger, consolidation, spinoff or other corporate reorganization
exchange shares, or by reason or any merger, consolidation, spinoff or other
corporate reorganization in which the Company is the surviving corporation, the
number of

A-3
<PAGE> 26

shares of Common Stock available for issuance both in the aggregate and with
respect to each outstanding Option, and the purchase price per share under each
outstanding Option, shall be equitably adjusted by the Committee, whose
determination shall be final, binding and conclusive, it being understood that
no fractional share will be issued, and provided that no such adjustment shall
be made with respect to Incentive Stock Options if the same would cause the Plan
not to comply with Code Section 422, with Securities Exchange Act Rule 16b-3 or
which would be considered the adoption of anew plan requiring shareholder
approval. In the event of any merger, consolidation or combination in which the
Company with or into another corporation (other than a merger, consolidation or
combination in which the Company is the surviving corporation and which does not
result in any reclassification or other change in the number of outstanding
shares of Common Stock, each Optionee shall have the right thereafter and during
the term of each such Option to receive upon exercise (subject to the provisions
of the Option Agreement) or such Option, for each share of Common Stock as to
which the Option shall be exercised, the kind and amount of shares of the
surviving or new corporation, cash, securities, evidence of indebtedness, other
property or any combination thereof which would have been received upon such
merger, consolidation or combination by the holder of one share of Common Stock
immediately prior to such merger, consolidation or combination; provided, that
if any such right would cause any outstanding Incentive Stock Option not to
qualify as such, the holder of such Incentive Stock Option may elect, prior to
such merger, consolidation or combination, to exercise his Option prior to such
transaction notwithstanding any restrictions on vesting or exercisability
provided in his Option Agreement.

(d) If any outstanding Option for any reason expires or is terminated
without having been exercised in full, the Common Stock allocable to the
unexercised portion of such Option shall (unless this Plan shall have been
terminated) become available for subsequent grants of Options.

7. TERMS AND CONDITIONS OF OPTIONS

Each Option granted shall be evidenced by an Option Agreement in such
form as the Committee may from time to time approve. By accepting an Option, an
Optionee thereby agrees that the Option shall be subject to the provisions of
the applicable Option Agreement. Options shall comply with and be subject to the
following terms and conditions:

(a) OPTION PRICE. Each Option shall state the Option Price, which for
Options that are Incentive Stock Options shall be not less than 100% of the Fair
Market Value of the shares of Common Stock on the date of grant of the Option;
provided, however, that in the case of an Incentive Stock Option granted to a
Ten Percent Shareholder, the Option Price shall not be less than 110% of such
Fair Market Value. The Option Price for Options that are not Incentive Stock
Options shall not be less than 80% of the Fair Market Value of the shares of
Common Stock on the date of grant of the Option. The date on which the Committee
adopts a resolution expressly granting an Option shall be considered the day on
which such Option is granted.

(b) VALUE OF COMMON STOCK. Options may be granted to any Key Employee
for Common Stock of any value, provide that so long as the Code shall so
provide, the aggregate

A-4
<PAGE> 27

Fair Market Value (determined at the time the Option is granted) of the Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year (under all the plans of the
Company and its subsidiaries) shall not exceed $100,000.

(c) MEDIUM AND TIME OF PAYMENT. The Option Price shall be paid in full
at the time of exercise either: (i) in cash; (ii) in Common Stock of the Company
held by the Optionee; (iii) by permitting the Company to withhold shares of
Common Stock issuable on exercise of such Option; or (iv) by a combination of
the foregoing. The shares delivered or withheld are to be valued at Fair Market
Value as of the date of exercise of the Option. If an Optionee is subject to
Securities Exchange Act, Section 16(b), then any election to use such shares in
payment or partial payment of the Option Price shall not be effective unless
made in compliance with Securities Exchange Act Rule 16b3.

(d) TERM AND EXERCISE OF OPTIONS.

(1) Unless the applicable Option Agreement otherwise provides,
each Option shall become vested and first exercisable in the following
installments:

<TABLE>
<CAPTION>
Percentage
Year Exercisable
---- -----------
<S> <C>
1 0%
2 20%
3 40%
4 60%
5 100%

</TABLE>

However, in no event shall any Option be exercisable until after six
months from the date of grant.

(2) 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 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 years from the date of grant of such Option. The exercise period
shall be subject to earlier termination as provided in Section 7(e) below. An
Incentive Stock Option may be exercised, as to any or all full 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) 20% of the
Incentive Stock Options or (ii) the full portion of the Incentive Stock Options
that are then vested and exercisable.

(3) Options which may have been designated by the Committee as
Non-Incentive Stock Options shall be exercised over a period of ten years.

A-5
<PAGE> 28

(e) TERMINATION OF EMPLOYMENT; DEATH.

(1) If an Optionee's employment terminates for any reason other
than dismissal for cause, any outstanding Option shall be exercisable on the
following terms and conditions: (i) exercise may be made only to the extent that
the Optionee was entitled to exercise the Option 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.
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 proceeding sentence, such
representative or recipient shall be bound by the provisions of this Plan and
the applicable Option Agreement which would have applied to the Optionee.

(2) Except to the extent otherwise provided in paragraph (1) of
this Section 7(e) or in the applicable Option Agreement, any portion of an
Option not theretofore exercised shall Terminate upon the Optionee's Termination
of Employment for any reason or without reason (including death).

(3) The Committee may, in the applicable Option Agreement, waive or
modify the application of any of the foregoing provisions of this Section 7,
even though such wavier or modification may cause the Options granted under such
Option Agreement to fail to qualify as Incentive Stock Options.

(f) NONTRANSFERABILITY OF OPTIONS. 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.

(g) CHANGE IN CONTROL.

(1) "Change in Control" shall be deemed to have occurred upon the
happening of any of the following events: (i) any "person", including a "group",
as such terms are defined in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended, and the rules promulgated thereunder, becomes the
beneficial owner, directly or indirectly, whether by purchase or acquisition or
agreement to act in concur or otherwise of 50% or more of the outstanding Common
Stock; (ii) a cash tender or exchange offer for 50% or more of the outstanding
Common Stock is commenced; (iii) the Company's shareholders approve an agreement
to merge, consolidate, liquidate, or sell all of substantially all of the
Company's assets; or (iv) two or more directors are elected to the Board without
having previously been nominated and approved by the members of the Board
incumbent on the day immediately preceding such election.

A-6
<PAGE> 29

(2) Upon the happening of a Change in Control:

i. notwithstanding any other provision of this Plan and any
Option then outstanding prior to the date of the Change in Control shall become
fully vested and immediately exercisable; and

ii. to the extent permitted by law, the Committee may, in its
discretion and subject to the provisions of Section 16(b) below, amend any
Option Agreement in such manner as it deems appropriate.

(3) Whenever deemed appropriate by the Committee, any action
referred to in paragraph(2)(ii) of this Section 7(g) may be made conditional
upon the consummation of the applicable Change in Control transaction.

(4) Without the consent of the Optionee, no such amendment shall be
effective with respect to such Optionee's Incentive Stock Options if such
changes would cause the Option not to qualify as an Incentive Stock Option.

(h) RIGHTS AS A SHAREHOLDER. An Optionee or a transferee of an Option
shall have no rights as a shareholder with respect to any Common Stock covered
by his Option until the date of the issuance of a stock certificate to him for
such shares. No adjustments shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
of other rights for which the record date is prior to the date such stock
certificate is issues, except as provided in Section 6(c) above.

(i) OTHER PROVISIONS. The Option Agreements authorized under this Plan
shall contain such other provisions, including (i) the imposition of
restrictions upon the exercise of an Option or upon the disposition of Common
Stock issued upon exercise of the option and (ii) the inclusion of any condition
not inconsistent with such Option qualifying as an Incentive Stock Option (if so
designated), as the Committee shall deem advisable, including provisions with
respect to compliance with federal and applicable state securities laws.

8. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES

(a) No later than the date of exercise of any Option, or in the
circumstances provided for in Section 8(b) below, the Optionee will pay to the
Company or make arrangements satisfactory to the Committee regarding payment of
any federal, state or local taxes of any kind required by law to be withheld
upon the exercise of such Option. The Optionee may make such payment in whole or
in part by surrendering Common Stock of such Option. The Optionee may make such
payment in whole or in part by surrendering Common Stock to the Company, or by
permitting the Company to withhold shares of Common Stock issuable on exercise
of such Option. The shares surrendered or withheld are to be valued at Fair
Market Value as of the date such withholding tax is to be determined. If an
Optionee is subject to Securities Exchange Act, Section 16(b), then any election
to use such shares to satisfy such withholding shall not be effective unless
made in compliance with Securities Exchange Act Rule 16b03.

A-7
<PAGE> 30

(b) Exercise of an Incentive Stock Option shall constitute an agreement
by the Optionee to notify the Company if any shares acquired in such exercise
are disposed of by the Optionee within two years after the date the Option was
granted or within one year after such shares were issued to the Optionee and to
make arrangements to satisfy any withholding tax obligation of the Company
arising from such disposition as provided for in Section 8(a) above.

9. TERM OF PLAN

Options may be granted from time to time within a period of 10 years
from the date on which this Plan is adopted by the Board, provided that no
Options granted shall become exercisable unless and until this Plan shall have
been approved by the Company's shareholders.

10. RESTRICTIONS

(a) If the Committee shall at any time determine that any Consent (as
hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any Option, the issuance or purchase of Common
Stock or other rights thereunder, or the taking of any other action thereunder
(each such action being hereinafter referred to as a "Plan Action"), then such
Plan Action shall not be taken, in whole or in part, unless and until such
Consent shall have been effected or obtained to the Committee's full
satisfaction.

(b) The term "Consent" as used herein with respect to any Plan Actin
means (i) any and all listings, registrations or qualifications in respect
thereof upon any inter-dealer quotation system of a registered national
securities association or any national securities exchange or under any federal,
state or local law, rule or regulation, (ii) any and all written agreements and
representations by the Optionee with respect to the disposition or Common Stock,
or with respect to any other matter, which the Committee shall deem necessary or
desirable to comply with the terms of any such listing, registration or
qualification, or to obtain an exemption from the requirement that any such
listing, qualification or registration be made, and (iii) any and all consents,
clearances and approvals in respect of a Plan Action by any governmental or
other regulatory bodies.

(c) In furtherance of the foregoing, at the time of any exercise of an
Option, the Committee may, if it shall determine it necessary desirable for any
reason, require the Optionee as a condition to the exercise thereof, to deliver
to the Committee a written representation of the Optionee's present intention to
purchase the Common Stock for investment and not for distribution. If such
representation is required to be delivered, an appropriate legend may be placed
upon each certificate delivered to the Optionee upon his exercise of part or all
of an Option and a stop transfer order may be placed with the transfer agent.
Each such Option shall also be subject to the requirement that, if at any time
the Committee determines, in its discretion, that either (i) the listing,
registration or qualification of Common Stock subject to an Option upon any
securities exchange or under any state, federal or foreign law, or (ii) the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the issue or purchase of
Common Stock thereunder, the option may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the
Committee. The

A-8
<PAGE> 31

Committee shall not have the power to require or oblige the Company to register
any Common Stock subject to an Option and any requirement imposed by the
Committee relating to the registration of Common Stock shall not bind the
Company to cause the registration of such Common Stock.

11. SAVINGS CLAUSE

Notwithstanding any other provisions hereof, this Plan is intended to
qualify as a plan pursuant to which Incentive Stock Options may be issued under
Section 422 of the Code. If this Plan or any provision of this plan shall be
held to be invalid or to fail to meet the requirements of Section 422 of the
Code or the regulations promulgated thereunder, such invalidity or failure shall
not affect the remaining parts of this Plan, but rather it shall be construed
and enforced as if this Plan or the affected provision thereof, as the case may
be, complied in all respects with the requirements of Section 422 of the Code.

12. NATURE OF PAYMENTS

(a) All Options granted shall be in consideration of services performed
for the Company by the Optionee.

(b) All Options granted shall constitute a special incentive payment to
the Optionee and shall not be taken into account in computing the amount of
salary or compensation of the Optionee for the purpose of determining any
benefits under any pension, retirement, profit-sharing, bonus, life insurance or
other benefit plan of the Company or under any agreement between the Company and
the Optionee, unless such plan or agreement specifically otherwise provides.

13. NON-UNIFORM DETERMINATIONS

The Committee's determinations under this Plan need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, Options (whether or not such persons are similarly situated). Without
limiting the generality of the foregoing, the Committee shall be entitled, among
other things, to make non-uniform and selective determinations which may, inter
alia, reflect the specific terms of individual employment agreements, and to
enter into non-uniform and selective Option Agreements, as to (a) the persons to
receive Options and (b) the terms and conditions of Options.

A-9
<PAGE> 32

14. OTHER PAYMENTS OR OPTIONS

Nothing contained in this Plan shall be deemed in any way to limit or
restrict the Company from making any option to purchase Common Stock or payment
to any person under any other plan, arrangement or understanding, whether now
existing or hereafter in effect.

15. SECTION HEADINGS

The section headings contained herein are for the purpose of
convenience only and are not intended to define or limit the contents of said
sections.

16. AMENDMENT AND TERMINATION

(a) The Board may from time to time suspend, discontinue, revise or
amend this Plan in any respect whatsoever, provided that any amendment that
would increase the aggregate number of shares of Common Stock as to which
Options may be granted, materially increase the benefits accruing to
participants under this Plan, or modify the requirements as to eligibility for
participation in this Plan shall be subject to the approval of the shareholders
of the Company, voting at a meeting of shareholders at which a quorum is present
within twelve months after such action is taken by the Board of Directors. In
addition, no such amendment shall impair any rights or increase any obligations
of an Optionee under any outstanding Option 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.)

(b) The Committee may cancel any outstanding Option and issue anew
Option in substitution therefor. The Committee also may amend any outstanding
Option Agreement, including any amendment which would: (i) accelerate the time
or times at which the Option becomes unrestricted or may be exercised; (ii)
waive or amend any goals, restrictions or conditions set forth in the Option
Agreement; or (iii) waive or amend the operations of Section 7(e) above with
respect to the termination of the Option upon Termination of Employment provided
that no such action which would cause any Incentive Stock Option not to qualify
as such under the provisions of the Code, or which would be treated as the grant
of a new Option under the Code, shall be taken without the consent of the
Optionee. However, any such cancellation or amendment that impairs the rights or
increases the obligations of an Optionee under an outstanding Option shall be
made only with the consent of the Optionee (or, upon the Optionee's death, the
person having the right to exercise the Option).

The foregoing Employee Stock Option Plan was adopted by the Board of
Directors of Mego Financial Corp. On November 17, 1993, subject to the approval
of the Company's shareholders.

/s/ Don A. Mayerson, Secretary

A-10
<PAGE> 33

MEGO FINANCIAL CORP.

COMMON STOCK

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY -- ANNUAL MEETING OF SHAREHOLDERS -- SEPTEMBER 9, 1997

The undersigned, a holder of Common Stock of Mego Financial Corp., a
New York corporation (the "Company"), does hereby appoint Robert Nederlander and
Jerome J. Cohen, 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 1997 Annual
Meeting of Shareholders of the Company to be held at the Company's headquarters
on Tuesday, September 9, 1997, at 10:00 A.M., and at any adjournment(s), or
postponement(s) thereof.

The undersigned hereby instructs said proxies or their substitutes:

1. ELECTION OF DIRECTORS:

[ ] VOTE FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as indicated to the contrary to vote for all
below) nominees listed below.

Robert Nederlander, Jerome J. Cohen, Herbert B. Hirsch, John E.
McConnaughy, Jr., Wilbur L. Ross, Jr., and Eugene I. Schuster

INSTRUCTIONS: To withhold authority to vote for individual nominee(s),
write the(ir) name(s) in the space provided below:

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

2. PROPOSAL TO INCREASE BY 500,000 SHARES THE NUMBER OF SHARES OF COMMON
STOCK RESERVED FOR ISSUANCE PURSUANT TO THE COMPANY'S EMPLOYEE STOCK
OPTION PLAN.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

3. 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)

<PAGE> 34

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH ANY
DIRECTIONS HEREINBEFORE GIVEN. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE
VOTED "FOR" ALL OF THE PROPOSALS. 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 Shareholders
and Proxy Statement, both dated August 15, 1997, and the Company's Annual Report
for the fiscal year ended August 31, 1996.

Dated: ,1997
--------------------------

--------------------------------------
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.