<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
MEGO FINANCIAL CORP
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
MEGO FINANCIAL CORP.
4310 PARADISE ROAD, LAS VEGAS, NEVADA 89109
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 9, 2000
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To the Shareholders of Mego Financial Corp.:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders (the
"Annual Meeting") of Mego Financial Corp., a New York corporation (the
"Company"), will be held at the offices of Greenberg Traurig, P.A., 885 Third
Avenue, 21st Floor, New York, New York 10022, on Thursday, November 9, 2000, 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 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 October 11,
2000, 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.
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
JON A. JOSEPH
Senior Vice President, General
Counsel and Secretary
October 12, 2000
THIS IS AN IMPORTANT MEETING AND ALL SHAREHOLDERS ARE INVITED TO ATTEND THE
MEETING IN PERSON. ALL SHAREHOLDERS 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
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PROXY STATEMENT
1999 ANNUAL MEETING OF SHAREHOLDERS
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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 1999 Annual Meeting of Shareholders (the "Annual Meeting") to be held
at the offices of Greenberg Traurig, P.A., 885 Third Avenue, 21st Floor, New
York, New York 10022, on Thursday, November 9, 2000, 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 October 12, 2000. Shareholders
should review the information provided herein in conjunction with the Company's
1999 Annual Report on Form 10-K and the Company's Quarterly Report on Form 10-Q
for the period ended May 31, 2000, which accompany this Proxy Statement. The
Company's telephone number is (702) 737-3720.
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; and
(2) To transact such other business as may properly come before the
Annual Meeting, including any adjournments or postponements
thereof.
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VOTING SECURITIES
Holders of record of shares of the Company's Common Shares at the close
of business on October 11, 2000 (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 of the outstanding Common Shares will
constitute a quorum. On October 11, 2000, the Company had issued and outstanding
3,500,557 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
FOR the election of the nominees set forth under the caption "Election of
Directors."
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 (67) 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").
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 Cendant Corp., formerly known as Hospitality Franchise Systems,
Inc., which, together with its subsidiary, entered into an agreement in April
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.
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Nederlander has been President and/or a Director of the Nederlander
Organization, Inc., owner and operator of legitimate theaters in the City of New
York. Since December 1998, Mr. Nederlander has been a co-managing partner of
the Nederlander Company LLC, operator of legitimate theaters outside the City of
New York. 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 from 1993 to October 1996 as Vice Chairman. He remains a director of
Allis-Chalmers Corp. Mr. Nederlander served as a director of Mego Mortgage
Corporation, a former subsidiary of the Company ("MMC"), from September 1996
until June 1998. In October 1996, Mr. Nederlander became a director of News
Communications Inc., a publisher of community oriented free circulation
newspapers. Mr. Nederlander does not currently serve on a full time basis in his
capacities with the Company.
Jerome J. Cohen (72) 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
Preferred Equities Corporation, a wholly-owned subsidiary of the Company
("PEC"). Mr. Cohen served as Chairman of the Board of MMC from April 1995 to
June 1998, as Chief Executive Officer from June 1992 to September 1997 and as
President from June 1992 until March 1995. 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 (64) 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. Mr.
Hirsch served as a director of MMC from June 1992 to June 1998, and served as
Vice President, Chief Financial Officer and Treasurer of MMC from June 1992 to
September 1996.
Eugene I. Schuster (64) 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 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. (71) 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 was Chairman and Chief Executive Officer of Peabody International
Corp. from 1969 to 1986. He was Chairman and Chief Executive Officer of GEO
International Corp. ("GEO"), a nondestructive testing, screen printing and oil
field services company, from 1981 to 1992. GEO was spun off in 1981 and became
publicly held. Mr. McConnaughy has been a director of Oxigene, Inc., Texstar
Corporation, MAI Corporation, Akzona Corp., First Bank Corp. (New Haven),
Beringer Co., Inc., the Pullman Co., Moore McCormack Resources and Peabody
International Corp. He is currently on the Board of Directors of Transact
International, Inc., DeVlieg Bullard, Inc., Levcor International, Inc., Riddell
Sports, Inc. and Wave Systems, Inc. He is also Chairman of the Board of
Excellence Group, Inc., a privately held cable company. Mr. McConnaughy is on
the Board of Trustees and Executive Committee of the Strang Cancer Prevention
Center and is Chairman of the Board of the Harlem School of the Arts.
Wilbur L. Ross, Jr. (62) 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 was Executive Managing
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Director of Rothschild, Inc., an investment banking firm, from August 1996 until
April 2000. He has been Chairman of Rothschild Recovery Fund and Asia Recovery
Fund since August 1976. As of April 1, 2000, he founded WL Ross & Co. LLC. He
remains Chairman of Asia Recovery Fund, as well as the former Rothschild
Recovery Fund, now named WLR Recovery Fund, and is Chairman of Asia Recovery
Co-Investment Partners. Mr. Ross is also a director of World Airways, Inc.,
Casella Waste Systems Inc. and Pacific Life Insurance Company (Korea).
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
Payment of non-employee director fees were reduced in December 1998 from
$40,000 to $20,000. Directors are also reimbursed for their expenses in
attending meetings of the Board and Committees of the Board. In September 1999
non-employee director fees were restored to an annual fee of $40,000. In
December, 1998, the executive salaries of Robert Nederlander and Eugene Schuster
were suspended, and therefore, as directors they were eligible to receive
non-employee directors fees. Mr. Nederlander's salary was reinstated at an
annual rate of $100,000 in April 2000, and Mr. Nederlander no longer receives
director fees as of such date.
COMMITTEES AND MEETINGS OF THE BOARD
The following is a brief description of the functions of certain
committees of the Board of Directors and the 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 six meetings during fiscal
1999.
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 1999.
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 one meeting and took action one
time by written consent during fiscal 1999.
The Executive Incentive Compensation Committee administers the terms of
the Executive Incentive Compensation Plan which commenced for fiscal 1995. The
incentive compensation committee is composed of two
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members, who are John E. McConnaughy, Jr. and Wilbur L. Ross, Jr. The Executive
Incentive Compensation Committee held no meetings during fiscal 1999.
The Board of Directors held seven meetings during fiscal 1999. 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 1999, all Directors attended at least 75% of
the aggregate of all meetings of the Board of Directors and committees on which
they served.
SECURITY OWNERSHIP
The following table sets forth, as of October 11, 2000, 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, 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>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER OR IDENTITY OF GROUP BENEFICIAL OWNERSHIP(1) COMMON SHARES OWNED
------------------------------------- ------------------------ -------------------------
<S> <C> <C>
Robert Nederlander(2)...................................... 356,140 10.2%
Eugene I. Schuster and Growth Realty Inc. ("GRI")(3) ...... 251,171 7.2%
Jerome J. Cohen (4)........................................ 184,826 5.3%
Herbert B. Hirsch (5)...................................... 271,076 7.7%
John E. McConnaughy, Jr.(6)................................ 99,845 2.8%
Wilbur L. Ross, Jr.(7)..................................... 499 *
Jon A. Joseph(8)........................................... 3,749 *
Charles G. Baltuskonis(9).................................. 1,832 *
Friedman Billings Ramsey Group, Inc. and affiliates(10).... 611,718 17.5%
All Officers and Directors as a Group (8 persons)(11)...... 1,169,138 33.3%
</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 October 11, 2000 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
41,666 shares held by an affiliate of Mr. Nederlander and 1,166 shares
issuable under an option granted pursuant to the Company's Stock Option
Plan. Does not include 16,666 shares of Common Stock owned by the Robert
E. Nederlander Foundation, an entity organized and operated exclusively
for charitable purposes, of which Mr. Nederlander is President. Mr.
Nederlander disclaims beneficial ownership of the shares owned by the
Robert E. Nederlander Foundation.
(3) 321 Fisher Building, Detroit, Michigan 48202. Consists of (i) 211,506
shares held of record by GRI, a wholly owned subsidiary of Venture
Funding, Ltd. of which Mr. Schuster is a principal shareholder, Director
and Chief Executive Officer, (ii) 39,166 shares held of record by Growth
Realty Holdings L.L.C., a limited liability corporation owned by Mr.
Schuster, GRI and Mr. Schuster's three children, and (iii) 499 shares
issuable under an option granted pursuant to the Stock Option Plan.
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(4) 1125 N.E. 125th Street, Suite 206, North Miami, Florida 33161. Includes
1,666 shares issuable under an option granted pursuant to the Stock
Option Plan. Excludes 15,583 shares owned by Mr. Cohen's spouse and
83,333 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 4,000 shares of
Common Stock owned by the Rita and Jerome J. Cohen Foundation, Inc., an
entity organized and operated exclusively for charitable purposes, of
which Mr. Cohen is President. Mr. Cohen disclaims beneficial ownership
of the shares owned by the Jerome J. Cohen Foundation.
(5) 230 East Flamingo Road, Las Vegas, Nevada 89109. Includes 666 shares
issuable under an option granted pursuant to the Stock Option Plan.
(6) 1011 High Ridge Road, Stamford, Connecticut 06905. Includes 833 shares
issuable under an option granted pursuant to the Stock Option Plan,
subject to shareholder approval of the Amended Stock Option Plan.
Excludes 500 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.
(7) 1251 Avenue of the Americas, 51st Floor, New York, New York 10020.
Consists of 499 shares issuable under an option granted pursuant to the
Stock Option Plan. Excludes 2,500 shares owned by a member of Mr. Ross'
family and 41,666 shares owned by Rothschild, Inc., of which Mr. Ross
was a Managing Director until April 1, 2000. Mr. Ross does not have any
investment or voting power over such shares and he disclaims beneficial
ownership.
(8) 4310 Paradise Road, Las Vegas, Nevada 89109. Includes 3,666 shares
issuable under an option granted pursuant to the Stock Option Plan.
(9) 4310 Paradise Road, Las Vegas, Nevada 89109. Consists of shares issuable
under an option granted pursuant to the Stock Option Plan.
(10) 1001 19th Street North, Arlington, VA 22209. Based upon a Schedule 13G
dated June 13, 1998, as amended on February 15, 2000, filed jointly by
Friedman Billings Ramsey Group, Inc., Orkney Holdings, Inc., Eric F.
Billings, Emanuel J. Friedman and W. Russell Ramsey with the SEC.
Consists of 601,716 shares owned by Friedman Billings Ramsey Group, Inc.
and 10,002 shares owned personally by Emanuel J. Friedman. The Company
has been advised that Emanuel J. Friedman, Eric F. Billings and W.
Russell Ramsey are each control persons with respect to Friedman
Billings Ramsey Group, Inc. and are the sole voting trustees of the
Friedman Billings Ramsey Group, Inc. Voting Trust, which has sole
discretion to vote approximately 89.1% of the voting power of Friedman
Billings Ramsey Group, Inc.
(11) See Notes (2)-(9).
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MANAGEMENT
OFFICERS OF THE COMPANY
The Company's executive officers and key personnel are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert Nederlander.............................. 67 Chairman of the Board, Chief Executive Officer and
Director
Jerome J. Cohen................................. 72 President, Director, Chairman of the Board, Chief
Executive Officer and President of PEC
Herbert B. Hirsch............................... 64 Senior Vice President, Chief Financial Officer,
Treasurer and Director
Eugene I. Schuster.............................. 63 Vice President and Director
Jon A. Joseph................................... 53 Senior Vice President, General Counsel and Secretary
Charles G. Baltuskonis.......................... 50 Vice President and Chief Accounting Officer
Gregg A. McMurtrie.............................. 45 Executive Vice President and Chief Operating
Officer -- PEC
S. Duke Campbell................................ 57 Senior Vice President -- Marketing and Sales -- PEC
</TABLE>
All of the incumbent officers have held office since the Share
Acquisition, with the exception of Messrs. Joseph, Baltuskonis, McMurtrie and
Campbell, who have held their respective offices since December 1998, April
1997, November 1998 and May 1998, respectively. The business experience of
Messrs. Nederlander, Cohen, Hirsch and Schuster appears under the caption
"Election of Directors" set forth herein.
Jon A. Joseph has been a Senior Vice President, Secretary and General
Counsel of the Company since December 1998. 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. Mr. Joseph was a Vice
President and Associate General Counsel of the Company from July 1995 to
December 1998.
Charles G. Baltuskonis has been Vice President and Chief Accounting
Officer of the Company since joining the Company in April 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.
Gregg A. McMurtrie was named Executive Vice President and Chief
Operating Officer of PEC in November 1998. Mr. McMurtrie joined the staff on PEC
in August 1982. From August 1982 to July 1987, Mr. McMurtrie served in various
capacities in the credit, internal auditing, marketing, customer relations,
sales and executive departments. He was General Manager, Colorado Land Sales,
from September 1987 to February 1989. Since September 1989, Mr. McMurtrie has
served as Director of Sales Administration. He was promoted to Vice President of
PEC in August 1991.
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S. Duke Campbell was named the Senior Vice President, Marketing and
Sales of PEC in May 1998. Prior to that time, he was a Vice President of PEC
since joining the Company in July 1996. From 1995 to 1996, Mr. Campbell served
as a Principal at D.I.A.L. Pro Northwest, Inc., a value added reseller as Vice
President of Marketing and Sales for Hostar International, Inc., a manufacturer
of innovative material management systems for hospitals, from 1991 to 1994. From
1989 to 1990, Mr. Campbell was the Senior Principal of Gulf American Financial
Services, Inc., a financial services company that specializes in receivables
management. Prior to 1990, Mr. Campbell served in various positions at Thousand
Trails, Inc., a Texas company that owns and operates member campground resorts.
Don A. Mayerson held the offices of Executive Vice President, General
Counsel and Secretary from January 1988 to December 1998. Mr. Mayerson retired
on December 31, 1998 and continues to serve the Company as a consultant until
December 31, 2000.
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, all Section 16(a) filing requirements
applicable to its officers, Directors and greater than ten percent beneficial
owners have been satisfied, except that a Form 5 filed by each of Robert
Nederlander, Jerome J. Cohen, Herbert B. Hirsch, Eugene I. Schuster, John E.
McConnaughy, Jr. and Wilber L. Ross Jr. to report their receipt of options to
purchase 2,083, 2,083, 833, 833, 833 and 833 shares respectively, of common
stock under the Company's Stock Option Plan was not timely filed.
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").
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, when accrual of payments to assignors ceased, $13.3
million was payable to the Assignors. On March 2, 1995, the Assignors agreed to
defer payment of $10 million of the amounts due to them pursuant to an amendment
to the Assignment and Assumption Agreement providing for the subordination of
such amounts to payment of debt for money borrowed by the Company or obligations
of the Company's subsidiaries guaranteed by the Company (Subordinated Debt).
Warrants (Warrants) to purchase 166,666 shares of common
9
<PAGE> 11
stock, at an exercise price of $25.50 per share (the closing market price per
share on March 2, 1995 and as adjusted for the one-for-six stock split in
September 1999), were granted to the Assignors in consideration of the payment
deferral and subordination. The balance of $3.3 million was paid to the
assignors as follows: $809,000 including interest of $59,000 in June 1995, and
the balance of $2.6 million including interest of $45,000 in January 1997. The
Warrants were exercised in August 1997 in a non-cash transaction, whereby the
Subordinated Debt was reduced by $4.25 million. Interest on the Subordinated
Debt was to be paid semiannually at the rate of 10% per year starting September
1, 1995, and the Subordinated Debt was to be repaid in semiannual principal
payments commencing March 1, 1997. On March 1, 1997, the Assignors received the
first semiannual principal payment of $1.4 million plus interest related to the
repayment of the Subordinated Debt. In connection with exercise of the Warrants,
payments aggregating $4.25 million were deemed paid and the semiannual payments
were scheduled to resume in March 1999, with a partial payment made in September
1998. In accordance with the Tenth Amendment to Assignment and Assumption
Agreement, the principal payments aggregating $4.3 million were deferred until
December 1, 2000. Interest of $430,000 on Subordinated Debt was paid during
fiscal 1999 and is current through September 2000. The Subordinated Debt is
collateralized by a pledge of PEC's outstanding stock.
In April 1995, PEC entered into an arrangement with Ramada, a subsidiary
of Cendant Corporation, of which Mr. Nederlander became a director in July 1995.
Transactions with MMC. The Company formed MMC in June 1992 as a
wholly-owned subsidiary and operated MMC as such until November 1996. MMC is a
specialized consumer finance company that originates, purchases, sells,
securitizes and services consumer loans consisting primarily of conventional
uninsured home improvement and debt consolidation loans which are generally
secured by liens on residential property.
In November 1996, MMC consummated an initial public offering and as a
result, the Company's ownership of MMC was reduced to approximately 81.3% of the
outstanding common stock. On September 2, 1997, Mego Financial distributed all
of its 10 million shares of MMC's common stock to Mego Financial's shareholders
in the Spin-off. To fund MMC's past operations and growth and in conjunction
with filing consolidated income tax returns, MMC incurred debt to the Company
and its subsidiary, PEC. The amount of intercompany debt was $10.1 million at
August 31, 1997 of which $3.4 million was paid in October 1997 together with
$500,000 advanced by the Company to MMC in September 1997. Subsequently,
separate agreements were made in April and June 1998 to adjust by reductions the
remaining $6.2 million indebtedness, since the major portion was no longer
payable under the Tax Sharing and Indemnity Agreement between the Company and
MMC. Under these agreements, MMC paid $1.6 million, which was separately owed to
PEC. Following this transaction, MMC had no outstanding indebtedness to the
Company. The Company was a guarantor under a lease for office space for MMC, the
maximum guaranteed obligation of which is estimated to be $2.0 million. The
Company also guaranteed a maximum of $500,000 in equipment lease obligations for
MMC. MMC ceased operations in April 2000.
Management Services Provided by PEC to MMC. MMC and PEC were parties to
a management services arrangement pursuant to which certain executive,
accounting, legal, management information, data processing, human resources,
advertising and promotional personnel of PEC provided services to MMC on an as
needed basis. For the years ended August 31, 1998 and 1997, approximately
$616,000 and $967,000, respectively, of the salaries and expenses of certain
employees of PEC were attributable to and paid by MMC in connection with
services rendered by such employees to MMC. This agreement was terminated by
agreement during fiscal 1998.
Servicing Agreement between PEC and MMC. For the years ended August 31,
1998 and, 1997 MMC paid servicing fees to PEC of approximately $2 million and
$1.8 million, respectively. MMC entered into a servicing agreement with PEC (the
Servicing Agreement), providing for the payment of servicing fees at an annual
rate of 50 basis points on the principal balance of loans serviced per year. The
Servicing Agreement was modified effective September 1, 1997, to provide for the
payment of servicing fees at an annual rate of 40 basis points on the principal
balance of loans serviced per year, reduced to 35 basis points per year in
January 1998. For the years ended August 31, 1998 and 1997, MMC incurred
interest expense in the amount of $29,000 and $16,000 respectively, related to
fees payable to PEC for these services. The interest rates were based on PEC's
average cost of funds and equaled 10.46% in 1998 and 10.48% in 1997. As of
August 31, 1998, PEC no longer serviced loans for MMC.
10
<PAGE> 12
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").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------- --------------------------
OTHER NUMBER OF
FISCAL 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 1999 $ 65,424(D) $ -- $ 5,901 833 $ --
Chairman of the Board and 1998 200,000 -- 6,373 2,083 1,039
Chief Executive Officer 1997 150,000 2,885 4,378 -- 2,010
--------
Jerome J. Cohen 1999 $300,002 $ 6,000 $ 9,800 2,083 $ 2,400
President 1998 300,002 -- 8,383 2,083 2,644
1997 300,002 368,800 7,259 -- 2,329
--------
Herbert B. Hirsch 1999 $200,000 $ 2,400 $ 2,335 1,667 $ 2,909
Senior Vice President, Chief 1998 200,000 -- 2,005 833 2,341
Financial Officer and Treasurer 1997 200,000 147,520 1,743 -- 2,319
--------
Jon A. Joseph 1999 $209,770 $ 1,200 $ -- -- $ 2,838
General Counsel and Secretary 1998 -- -- -- -- --
1997 -- -- -- -- --
Charles G. Baltuskonis 1999 $129,000 $ -- $ -- 833 $ 1,943
President, and Chief 1998 -- -- -- -- --
Accounting Officer 1997 -- -- -- -- --
Gregg A. McMurtrie 1999 $144,869 $ -- $ -- 833 $ 2,172
Vice President and Chief 1998 -- -- -- -- --
Operating Officer 1997 -- -- -- -- --
</TABLE>
-----------------------
(A) Incentive compensation attributable to the year ended August 31, 1999 to
Messrs. Cohen, Hirsch and Joseph is included in the preceding table as
1999 compensation and to the year ended August 31, 1997 paid to Messrs.
Cohen and Hirsch is included in the above table as 1997 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 the
shareholders on February 9, 1994 and later amended and restated. See
Stock Option Plan. 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 holders of record of the MMC's
common stock held by the Company in the Spin-off, the Stock Option
Committee accelerated the vesting of all such options, excluding those
options granted subsequent to February 26, 1997. There were 25,417 of
options held by Named Executive Officers at August 31, 1999. There were
no options exercised by the executive officers during fiscal 1999.
(C) Represents the Company's discretionary matching contributions of 25% of
the employee's contribution to the Company's 401(k) Plan on behalf of
the employee.
(D) Prior to December 11, 1998, Mr. Nederlander earned an annual salary of
$200,000. On that date, his salary was suspended. In April 2000, Mr.
Nederlander's salary was reinstated at an annual rate of $100,000.
11
<PAGE> 13
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended August 31, 1999 to the Named
Executive Officers. No such options were granted to or exercised by the Named
Executive Officers or others during the fiscal year ended August 31, 2000.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS POTENTIAL REALIZABLE
UNDERLYING GRANTED TO VALUE AT ASSUME ANNUAL
OPTIONS/SARS EMPLOYEES IN EXERCISE PRICE EXPIRATION RATES OF STOCK PRICE
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE APPRECIATION FOR OPTION TERM
----------------------- ----------- ------------- -------------- ---------- ----------------------------
5%($) 10%($)
------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Robert Nederlander 833 5.0% $ 6.00 09/22/08 $ 2,124 $ 6,347
Jerome J. Cohen 2,083 12.5% $ 6.00 09/22/08 $ 5,312 $ 15,872
Herbert B. Hirsch 1,667 10.0% $ 6.00 09/22/08 $ 4,251 $ 12,703
Jon A. Joseph -- -- $ -- -- $ -- $ --
Charles G. Baltuskonis 833 5.0% $ 6.00 09/22/08 $ 2,124 $ 6,347
Gregg A. McMurtrie 833 5.0% $ 6.00 09/22/08 $ 2,124 $ 6,347
</TABLE>
--------------
(1) On September 23, 1998, the exercise price of these options was revised
to $6.00 per share which represented fair value at the date of
repricing. Effective September 9, 1999, the Company consummated a one
for six reverse stock split to all of the Company's common shares
outstanding. All shares and per share references have been restated to
retroactively show the effect of this reverse stock split.
AGGREGATED FISCAL YEAR-END VALUE TABLE
The following table sets forth certain information concerning
unexercised stock options held by the Named Executive Officers as of August 31,
1999. No stock options were exercised by the Named Executive Officers during the
fiscal years ended August 31, 1999 and 2000.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
HELD AT AUGUST 31, 1999 OPTIONS HELD AT AUGUST 31, 1999(1)
--------------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert Nederlander 416 2,500 $ -- $ --
Jerome J. Cohen 416 3,750 $ -- $ --
Herbert B. Hirsch 167 2,333 $ -- $ --
Jon A. Joseph 2,667 6,500 $ -- $ --
Charles G. Baltuskonis 1,333 3,667 $ -- $ --
Gregg A. McMurtrie 333 2,167 $ -- $ --
</TABLE>
-------------------------
(1) The closing sales price of the Company's Common Stock as reported on the
Nasdaq National Market on August 31, 1999 was $4.14. The exercise price
as of August 31, 1999 was $6.00 per share, therefore, the value of the
unexercised options at August 31, 1999 was zero. On September 9, 1999,
the Company consummated a one for six reverse stock split. All shares
and per share references have been restated to retroactively show the
effect of this reverse stock split.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Jerome J.
Cohen which expires on January 31, 2002. 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.
12
<PAGE> 14
The Company has entered into an employment agreement, renewable annually
unless either party gives notice of termination, with Jon A. Joseph which
expires on December 31, 2000 and provides for an annual base salary of $200,000
plus .5% of Incentive Income as defined in the Company's Incentive Plan.
The Company has entered into a Compensation Agreement with S. Duke
Campbell dated August 26, 1999, which provides for an annual base salary of
$125,000. In addition, Mr. Campbell is to be paid, monthly, a sales commission
of one-quarter of one percent (0.25%) of net sales, occurring after September 1,
1999, and a Profit Contribution Bonus for reducing sales and marketing costs for
fiscal 2000. If Mr. Campbell's employment is terminated by the Company, other
than for cause, Mr. Campbell shall receive his base salary and sales commissions
to the date of termination, the portion of his Profit Contribution Bonus, if
any, earned through the immediately preceding quarter, and a severance payment
in an amount equal to his then current annual base salary. If Mr. Campbell
resigns or terminates his employment by the Company he will be entitled to his
base salary and sales commissions through the date of such termination. In
addition, after the end of fiscal 2000, a new arrangement relating to
profitability to take the place of the Profit Contribution Bonus will be agreed
upon and added to the agreement by amendment. If the Company and Mr. Campbell
have not agreed to such amendment to this agreement by November 30, 2000 and Mr.
Campbell has received or earned, a Profit Contribution bonus for fiscal 2000,
Mr. Campbell may elect to resign or terminate his employment by the Company
during the thirty-day period following November 30, 2000 and he then shall be
entitled to a severance payment in an amount equal to his then current annual
base salary in addition to his base salary and sales commissions through the
date of such termination.
STOCK OPTION PLAN
Under the Company's Stock Option Plan, as originally adopted, 87,500
shares of common stock were reserved for issuance upon exercise of options. In
1997, the Company's Board of Directors approved an amendment to the Stock Option
Plan to increase by 83,333 shares the number of shares of common stock reserved
for issuance pursuant to the Company's Stock Option Plan, subject to approval by
the Company's shareholders. The amendment was approved by the shareholders at
the Annual Meeting held September 9, 1997, resulting in an aggregate of 170,833
shares of common stock reserved for issuance pursuant to the Stock Option Plan,
of which 76,833 had been issued due to the exercise of options through August
31, 1997. During fiscal 1998, the Company's Board of Directors unanimously
approved, subject to approval by the Company's shareholders, the amendment and
restatement of the Stock Option Plan. The amendments to the Stock Option Plan
(the Plan Amendments) approved by the Company's Board of Directors consist of
changes to permit the grant of options to non-employee directors of the Company
and changes to conform the Stock Option Plan to changes to the federal
securities laws. On September 16, 1998, the shareholders approved the amendment
and restatement of the Stock Option Plan. The Stock Option Plan is designed to
serve as an incentive for retaining qualified and competent employees and
directors.
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 twenty-eight (28) individuals),
including officers and directors 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
13
<PAGE> 15
from the date of grant (except in the case of incentive stock options granted to
10% shareholders) and are not transferable other than by will or by the laws of
descent and distribution.
In August 1997, in connection with the Spin-off of MMC, the Stock Option
Committee accelerated the vesting of all options granted, excluding those
granted subsequent to February 26, 1997. As of August 31, 1997, an aggregate of
75,833 of such options were exercised.
In September 1997, subsequent to the Spin-off, an additional 58,083
incentive stock options were granted under the Stock Option Plan to employees of
fair market value, which was authorized by the Stock Option Committee, of which
2,500 were subject to future shareholder approval of the Plan Amendments in
accordance with applicable law, which shareholders' approval was obtained on
September 16, 1998, when the Amended and Restated Stock Option Plan was approved
by shareholders. On September 23, 1998, an additional 18,500 incentive stock
options were granted under the Stock Option Plan. In addition, the exercise
price of all options issued September 2, 1997 was revised from $18.75 per share
to $6.00 per share. Effective September 9, 1999, the Company consummated a
one-for-six reverse stock split of all of the Company's shares of common stock.
All shares and per share references have been restated to retroactively show the
effect of this reverse stock split.
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.
On June 22, 1994, the Board of Directors also approved an employment
agreement with Jerome J. Cohen, President of the Company, and an agreement with
Herbert B. Hirsch, executive officer of the Company, pursuant to which Messrs.
Cohen and Hirsch are entitled to receive 2.5% and 1%, respectively, of Incentive
Income of the Company, as defined in the Incentive Plan, for the five-year
period commencing with fiscal 1995 (extended to a seven-year period for Mr.
Cohen), which amounts would directly reduce the amounts available for awards
under the Incentive Plan.
On September 2, 1997, the Board of Directors authorized agreements with
Mr. Hirsch and Mr. Mayerson, pursuant to which the Company would pay them a
separation payment of $150,000 and $250,000, respectively, at such time as they
no longer are employed by the Company. Payments of $10,000 per month to Mr.
Mayerson commenced in January 1999 and the remaining balance as of October 12,
2000 is $30,000. In December 1998, the salaries of Messrs. Nederlander and
Schuster were suspended. Mr. Nederlander's salary was reinstated in April 2000
at an annual rate of $100,000
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 paid 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
14
<PAGE> 16
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. Through December 31, 1998, $300,000
was paid on Mr. Schuster's policy and $400,000 was paid on each of the others,
leaving a balance of premiums in the amount of $600,000 still owed by the
Company on the policies. Pursuant to an amendment to the original agreement,
executed in April 1999, future payments by the Company relating to the policies
were waived by Messrs. Nederlander, Cohen, Hirsch, Mayerson and Schuster. In
consideration of the waiver, the Company agreed to accept repayment of the
lesser of the premiums paid or the cash value of the policy, upon the deaths of
the respective insured parties.
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.
15
<PAGE> 17
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 received an increase in base
compensation in fiscal 1999.
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 1999 was
approximately $15,000. No amounts were 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 (since amended to seven years as to Mr. Cohen)
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, 2002, 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. Mr. Mayerson retired from
the Company on December 31, 1998.
BOARD OF DIRECTORS
Robert Nederlander Jerome J. Cohen Herbert B. Hirsch
Eugene I. Schuster John E. McConnaughy, Jr. Wilbur L. Ross, Jr.
16
<PAGE> 18
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,
1994 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.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
MEGO FINANCIAL CORP. 100.00 259.28 166.68 240.75 307.00 108.94
SIC CODE INDEX 100.00 124.18 118.07 145.25 106.85 119.46
NASDAQ MARKET INDEX 100.00 118.99 133.61 184.93 179.61 329.84
</TABLE>
17
<PAGE> 19
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 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 1999 Annual Report on Form 10-K for the fiscal
year ended August 31, 1999, and the Company's Quarterly Report on Form 10-Q for
the period ended May 31, 2000, each as filed with the Securities and Exchange
Commission, except for exhibits, accompanies this Proxy Statement. Upon request,
the Company will provide copies of the exhibits to its Form 10-K 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: Jon A.
Joseph, 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 available 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
Shareholders interested in presenting a proposal for consideration at
the Company's 2000 annual meeting of shareholders may do so by following the
procedures prescribed in Rule 14a-8 under the Securities Exchange Act of 1934
and the Company's Bylaws. To be eligible for inclusion in the proxy statement
and form of proxy relating to the meeting, shareholder proposals must be
received by the Corporate Secretary within a reasonable time before the Company
begins to print and mail its proxy materials. If a shareholder proposal is
received after such time, the proxy holders may vote in their discretion as to
the proposal, all of the shares for which they have received proxies for the
2000 annual meeting of shareholders.
By Order of the Board of Directors,
JON A. JOSEPH
Senior Vice President, General Counsel
and Secretary
October 12, 2000
18
<PAGE> 20
MEGO FINANCIAL CORP.
COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY -- ANNUAL MEETING OF SHAREHOLDERS - NOVEMBER 9, 2000
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 1999 Annual
Meeting of Shareholders of the Company to be held at the offices of Greenberg
Traurig, P.A., 885 Third Avenue, 21st Floor, New York, New York 10022, on
Thursday, November 9, 2000, at 10:00 A.M. local time, and at any adjournment(s),
or postponement(s) thereof.
The undersigned hereby instructs said proxies or their substitutes:
1. ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
[ ] VOTE FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as indicated to the contrary all nominees listed below.
below).
</TABLE>
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:
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2. 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> 21
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH ANY DIRECTIONS HEREINBEFORE
GIVEN. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED TO ELECT DIRECTORS.
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 October 12, 2000,
and the Company's Annual Report on Form 10-K for the fiscal year ended August
31, 1999 and the Company's Quarterly Report on Form 10-Q for the period ended
May 31, 2000.
Dated:_____________________, 2000
_________________________________
Signature
_________________________________
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.
