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                                                                  EXHIBIT 10.145

                           LOAN AND SECURITY AGREEMENT


        THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made effective as
of the 12th day of August, 1998, by and between DORFINCO CORPORATION, a Delaware
corporation ("Lender"), and PREFERRED EQUITIES CORPORATION, a Nevada corporation
("Borrower").

                              W I T N E S S E T H :

        WHEREAS,  Borrower  desires to borrow a loan in the amount of up to Four
Million and 00/100 Dollars  ($4,000,000.00) (the "Loan") from Lender, and Lender
has agreed to make the Loan to Borrower,  all subject to and accordance with the
terms and conditions of this Agreement;

        WHEREAS,  Borrower's obligations to Lender with respect to the Loan will
be secured by five (5) parcels of  undeveloped  land  located  generally  in Nye
County,  Nevada, and more particularly  described in Exhibit "A" attached hereto
and incorporated herein (the "Property").

        NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises of
the parties and subject to the following terms and  conditions,  Borrower agrees
to borrow from Lender,  and Lender agrees to loan to Borrower,  the Loan for the
purposes provided herein.  The Loan shall be evidenced by a Promissory Note (the
"Note") bearing even date herewith,  and repayment thereof shall be secured by a
Deed of Trust, Security Agreement and Fixture Filing (the "Deed of Trust"), this
Agreement  and, as  described  in on Exhibit "B" hereof,  that  certain loan and
security agreement and that certain deed of trust, pursuant to a First Amendment
to Loan  and  Security  Agreement  and a  Third  Amendment  to  Deed  of  Trust,
respectively (collectively,  the "Amendments"), and guaranteed by MEGO Financial
Corp., a New York corporation (the "Guarantor"),  by the execution of a Guaranty
Agreement  in form and  content  acceptable  to Lender  (the  "Guaranty").  This
Agreement,  the Note,  the Deed of Trust,  the  Amendments,  the  Guaranty,  any
assignment of rents or leases,  or both, and any and all other  documents now or
hereafter  executed  by  Borrower  or any  other  affiliated  person or party in
connection  with or to  evidence  or secure  payment  of the Loan are  sometimes
hereafter collectively referred to as the "Loan Documents".

        A.     DISBURSEMENTS AND MATURITY.

               A.1  Conditions to  Disbursement.  Lender shall disburse the Loan
for the purposes  provided  herein once  Borrower has: (a) provided  Lender,  at
Borrower's expense,  with (w) copies of the recorded plat maps creating the five
(5) parcels of the Property (provided, however, that upon the written request of
Lender at any time  prior to the  Maturity  Date,  Borrower  shall  perform  and
deliver to Lender  within  sixty (60) days of any such request an ALTA survey of
the Property or any one or more parcels thereof), (x) an ALTA lender's policy of
title insurance (the "Title Policy")

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insuring the lien of the Deed of Trust as a first lien on the Property, in form,
content,  and issued by a title insurer  acceptable to Lender, (y) an appraisal,
in form,  content and  performed by a licensed  appraiser  acceptable to Lender,
showing a combined value of the Property equal to at least  $12,000,000.00,  and
(z)  a  phase  one  environmental  assessment  report,  in  form  and  substance
satisfactory to Lender, for the Property; (b) satisfied all conditions set forth
herein;  (c)  deposited  into  escrow (or, in lieu  thereof,  Lender  shall have
disbursed to itself from the Loan proceeds) the following  sums: (i) the balance
due and owing on the Closing Date (as hereinafter defined) of the Lender's total
loan  commitment fee of  $40,000.00;  (ii) all closing costs and fees; and (iii)
Lender's  reasonable  attorney's fees incurred in connection  herewith;  and (d)
executed and delivered to Lender all Loan Documents  except for the  Amendments.
The  forms of the  Amendments  are  attached  hereto  as  Exhibits  "C" and "D",
respectively,  and Borrower hereby covenants and agrees that it will execute and
deliver or cause to be executed and  delivered the  Amendments in  substantially
the form and  substance  of the  forms of the  Amendments  attached  hereto,  in
recordable  form,  as  applicable,  within  forty-five  (45) days  following the
Closing Date.

               A.2 Disbursement  Amounts. On the Closing Date, the entire amount
of the Loan will be disbursed  to Borrower,  or, in the event that less than the
entire  amount of the Loan is disbursed  for any reason,  then at least four (4)
business days prior to any requested  disbursement  date after the Closing Date,
Borrower shall submit to Lender a request for disbursement of Loan proceeds that
shall specify the amount of Loan proceeds Borrower requests be disbursed and the
date on which such  disbursement is requested to be made.  Lender shall disburse
to Borrower all of the Loan proceeds (or a lesser amount thereof as Borrower may
request) on the Closing Date or the  requested  Loan  proceeds on the  requested
disbursement  date after the Closing  Date,  provided,  however,  that in either
case, the following conditions to disbursement shall have been satisfied:

                    (a) The requirements  set  forth in Section A.1 above as to
the conditions for disbursement have been satisfied;

                    (b) The  amount of Loan proceeds  requested to be disbursed,
plus  the  aggregate  amount of  Loan proceeds previously disbursed by Lender to
Borrower, does not exceed the maximum Loan amount of $4,000,000.00;

                    (c) The disbursement date is the Closing Date  or  any  date
thereafter requested for any requested disbursement of Loan proceeds,  provided,
however,  that  a  disbursement  date  after the Closing Date must be within the
period commencing on the date (the "Closing  Date")  that  the  Deed of Trust is
recorded in the Official Records of the Office of the Recorder  of Clark County,
Nevada and ending on the date (the "Final  Disbursement  Date"),  which  is  the
sixtieth (60th) day after the Closing Date;

                    (d) No Event of Default, or event which, with the giving  of
notice  or  passage  of  time or both would become an Event of Default hereunder
shall  have  occurred  and  be  continuing  as  of the date of any submission by
Borrower of a request for disbursement or the Closing  Date or any other date on
which any disbursement is to be made;

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                    (e) The  title  company  issuing  the  Title Policy shall be
prepared to  and  shall issue to Lender as beneficiary of the Deed of Trust such
title   endorsements   as  Lender  may  require  in  connection  with  any  such
disbursement of Loan proceeds;

                    (f) Borrower shall have paid to Lender (or, in lieu thereof,
Lender shall have disbursed to itself from the Loan  proceeds) a funding fee for
each requested disbursement of Loan proceeds  in an  amount equal to one percent
(1.0%)  of  the  amount  of  Loan  proceeds  requested to be disbursed. Borrower
acknowledges  that  the aforesaid funding fee is not imposed as a charge for the
use   of   money,  but  rather  is  imposed  to  permit  Lender  to  recoup  its
administrative charges and other costs in disbursing  Loan  proceeds,  and  said
funding fee shall in no way be deemed an interest charge; and

                    (g) After  disbursement  of  any  proceeds  of the Loan, the
Maximum LTV Ratio would not and shall not exceed 50%. "Maximum  LTV Ratio" means
the  ratio  of  the  total  outstanding  principal  balance  of  the Loan to the
appraised values of the five  parcels  of  land  comprising  the  Property.  For
purposed of this paragraph (g) only,  the  appraised values of such five parcels
of land comprising the Property are as follows:

Parcel 1:     A  3.76  acre  site  located  generally at the southwest corner of
              Calvada Boulevard and Highway 160. Appraised value: $780,000.00.

Parcel 2:     A 3.80 acre site located generally  at  the  northwest  corner  of
              Calvada Boulevard and Highway 160. Appraised value: $785,000.00.

Parcel 3:     A 31.83 acre site (a circular median) located generally in Calveda
              Boulevard between Dandelion Street and Charleston Drive. Appraised
              value: $3,760,000.00.

Parcel 4:     A  25.45  acre  site  (irregular  shaped) located generally at the
              northwest  corner  of  Shoshone  Drive  and  Wheeler  Pass   Road.
              Appraised value: $3,050,000.00.

Parcel 5:     A  32.98  acre  site  (irregular  shaped)  located between Highway
              160 and Pahrump Valley Boulevard, south of  Highway 372. Appraised
              value: $3,925,000.00.

        If Borrower does not request and receive  disbursements of Loan proceeds
in the aggregate amount of $4,000,000.00  by the Final  Disbursement  Date, then
the  excess  amount  of  Loan   proceeds  over  the  aggregate   amount  of  all
disbursements up to the maximum Loan amount of $4,000,000.00  may not thereafter
be borrowed.

               A.3 Use of Proceeds.  Borrower shall use the proceeds of the Loan
for general working capital purposes.

               A.4 Interest.  Interest on the outstanding  principal  balance of
the Loan will be due and payable as set forth in the Note.

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               A.5 Maturity Date. The outstanding principal balance of the Loan,
together  with all accrued and unpaid  interest then due and owing and any other
amounts  then due and owing  under any of the Loan  Documents,  shall be due and
payable on August 31,  1999 (the  "Maturity  Date").  The  Maturity  Date may be
extended for a period of one (1) year (the last day of such extension  period is
herein the "Extended Maturity Date"), subject to the payment of an extension fee
in the amount of one and one-half percent (1.5%) of the then outstanding balance
of the  Loan,  and  subject  to and in  accordance  with  all  other  terms  and
procedures  for the  extension of the term of the Loan to the Extended  Maturity
Date set forth in the Note.

               A.6 Prepayment. The outstanding principal balance of the Loan may
be prepaid in whole or in part at any time prior to the  Maturity  Date,  or, if
Borrower elects to extend the Maturity Date, the Extended Maturity Date, without
penalty  or  premium,  provided,  however,  that  any  such  prepayment  must be
accompanied  by the  payment of all  accrued  and unpaid  interest on the amount
being  prepaid plus any other amounts then due and payable under the Note or any
of the other Loan Documents.  Partial  prepayments  shall be applied to the last
due payment of principal  under the Note and shall be in addition to, and not in
lieu of, any other payment then or thereafter due under the Note.

               A.7  Non-Revolving  Loan.  The  Loan  is  a  term  loan and not a
revolving  loan,  and  amounts  borrowed  and  repaid  by  Borrower  may  not be
reborrowed.

               A.8 Additional Security. In addition to the Deed of Trust and any
other  security  document  (except  the  Amendments)  given  by  Borrower  or an
affiliate to secure the Loan, the Loan,  pursuant to the Amendments,  shall also
be   cross-collateralized   by  and  cross-defaulted  to  the  promissory  notes
evidencing  the  loans  and the deed of trust  and  other  security  instruments
described  on Exhibit "B" hereto  (together  with any and all other  agreements,
instruments or other  documents  relating to the documents  described on Exhibit
"B" below,  collectively,  the "Related  Loan  Documents")  securing  said loans
(collectively,  the "Related Indebtedness") made by Lender or its parent Textron
Financial  Corporation  to  Borrower  or its  subsidiary  corporation  Steamboat
Suites, Inc.

               A.9 Release of Security.  Notwithstanding  any other provision of
this Agreement or any other Loan Document to the contrary,  and,  subject to the
limitation set forth in the proviso below, without regard to whether the Related
Indebtedness  has been repaid and satisfied in full, upon the full repayment and
satisfaction  of the Loan  and any and all  other  amounts  due and  owing  with
respect to the Loan and any other  secured  obligations  of  Borrower  to Lender
under the Loan Documents (except for the Related  Indebtedness and those arising
under the Amendments), the collateral security in the real and personal property
and property rights and interests  encumbered by the Deed of Trust and any other
Loan Document  (including the  Amendments to the extent of the Loan  obligations
secured  thereby) shall be released,  terminated and reconveyed to the person(s)
entitled thereto, and all other Loan Documents shall be terminated and deemed to
be of no further force and effect  without the  requirement  that any additional
payment of any kind, including a release payment, be made; provided, however and
except that, if there exists with respect to the Related

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Indebtedness  at the time of  repayment  and  performance  in full of the Loan a
default or event of default, or any event or circumstance which with the passage
of time or giving of notice would become a default or event of default under the
Related Loan  Documents,  then the release and  reconveyance  of the lien of the
Deed of Trust and the release and  termination of any other  security  interest,
encumbrance or collateral  assignment or transfer created under any other of the
Loan Documents shall not be granted by Lender for so long as any such default or
event of default or such other event or circumstance is continuing.

        B. REPRESENTATIONS, COVENANTS AND WARRANTIES.

               Borrower  hereby   unconditionally   represents,   covenants  and
warrants as follows:

               B.l Power.  If Borrower or any  signatory who signs on its behalf
is a corporation, partnership, limited liability company, or trust, that it is a
corporation duly incorporated,  or a partnership,  limited liability company, or
trust duly  organized,  and in any event validly  existing under the laws of the
state of its  incorporation  or origination and duly qualified to do business in
the  State of  Nevada,  with  requisite  power  and  authority  to (i) incur the
indebtedness evidenced by the Note; (ii) enter into this Agreement and grant the
Deed of Trust;  and (iii)  enter  into any other  Loan  Documents  executed  and
delivered to Lender concurrently herewith.

               B.2 Authority.  That this Agreement,  the Note, the Deed of Trust
and all other Loan  Documents  executed  and  delivered  to Lender  concurrently
herewith by Borrower were executed in accordance  with the  requirements of law,
and,  if  Borrower or any  signatory  who signs on its behalf is a  corporation,
partnership,  limited  liability  company,  or  trust,  in  accordance  with any
requirements of its articles of incorporation, articles of partnership, articles
of organization  and/or  operating  agreement,  or declaration of trust, and any
amendments  thereto,  and  that  the  execution  of the  same,  and the full and
complete  performance  of the provisions  thereof,  is authorized by its bylaws,
articles of organization,  partnership agreement and/or operating agreement,  or
declaration of trust, and pursuant to a duly adopted  resolution of its board of
directors, partners, members and/or managers or trustees, and will not result in
any breach of, or constitute a default  under,  or result in the creation of any
lien,  charge  or  encumbrance  (other  than  those  contained  herein or in any
instrument  delivered  to Lender  concurrently  herewith)  upon any  property or
assets of Borrower under any indenture,  mortgage,  deed of trust,  bank loan or
credit  agreement or other  instrument or agreement to which Borrower is a party
or by which  Borrower is bound or, if  applicable,  under  Borrower's  corporate
charter,   bylaws,  articles  of  organization,   partnership  agreement  and/or
operating agreement, or declaration of trust.

               B.3 Financial Statements.  Any and all balance sheets, statements
of income or loss,  reconciliation  of surplus and  financial  data of any other
kind heretofore  furnished  Lender by or on behalf of Borrower and the Guarantor
are true and correct in all material respects, and fairly and accurately present
the financial condition of the subjects thereof as of the dates thereof,  and no
material  adverse  change has  occurred  in the  financial  condition  reflected
therein since the dates of the most recent  financial  data submitted to Lender.
During the Loan term, Borrower shall provide

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Lender with such financial  information relating to the Borrower,  the Guarantor
or the  Property  as may be  required  in the  Deed of Trust  or as  Lender  may
reasonably request.

               B.4  Litigation.  Except as  disclosed  on Exhibit  "E"  attached
hereto, there are no actions, suits or proceedings (collectively  "Proceedings")
pending,  or to the  knowledge  of  Borrower  threatened,  against or  affecting
Borrower,   the   Guarantor,   the  Property,   or  involving  the  validity  or
enforceability  of the Deed of Trust or the  priority  of the lien and  security
interest  thereof,  and no  event  ("Adverse  Event")  has  occurred  (including
specifically Borrower's execution of this Agreement, the Note, the Deed of Trust
or any of the other Loan Documents) which will violate in any material  respect,
be in conflict with,  result in the breach of or constitute  (with due notice or
lapse of time,  or both) a default  under any Legal  Requirement  (as  hereafter
defined),  or result  in the  creation  or  imposition  of any  lien,  charge or
encumbrance  of any nature  whatsoever on the Property  other than the liens and
security  interests created by, or referred to in, the Loan Documents.  Borrower
shall give Lender written notice of any pending or threatened  Proceeding or any
Adverse Event promptly after Borrower obtains knowledge thereof.

               B.5 Permits.  In addition to all other conditions to disbursement
set forth in this  Agreement,  before  requesting,  or being  entitled  to,  any
disbursement  of the Loan,  Borrower shall have complied,  and shall have caused
the Property to comply, with all Legal Requirements.

               B.6 Year 2000 Compliance.  Borrower acknowledges that it is aware
of the possible impact of the year 2000 problem (that is, the risk that computer
applications may not be able to properly perform date-sensitive  functions after
December  31,  1999)  upon its  computer  applications  and  on-going  business.
Borrower represents that any corrective action reasonably  necessary to mitigate
the  adverse  effects  of the year  2000  problem  on  Borrower's  business  and
operations will be taken and that Borrower does not currently have any reason to
believe that the year 2000 problem will result in a material  adverse  change in
Borrower's  or  any  of  its  affiliates'   business  condition   (financial  or
otherwise),  operations, properties or prospects, or Borrower's ability to repay
the Loan.

               The foregoing  representations,  covenants and  warranties  shall
survive until all sums payable pursuant to the Note or this Agreement,  or which
are secured by the Deed of Trust or any of the other Loan  Documents,  have been
paid in full.

        C.     DEFAULT.

               C.l Events of Default.  Any of the following  shall  constitute a
default hereunder (an "Event of Default"):

                      (a) The occurrence of a default or Event of Default  under
the Deed of Trust which continues after any applicable grace or cure period;

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                      (b) The neglect, failure or refusal of Borrower to keep in
full  force  and  effect  any  permit,  license,  consent  or  approval required
hereunder, or under the Loan Documents,  and the failure by Borrower to cure any
such neglect, failure or refusal within twenty (20) days  after  written  notice
thereof is given to Borrower;


                      (c) The false or misleading nature in any material respect
of  any  representation  or  warranty  of  Borrower  contained  herein or in any
representation to Lender concerning the financial condition of  Borrower  or  of
the Guarantor, or the reasonable determination by Lender of a material threat to
its security by reason of a material  adverse  change in the financial condition
of Borrower or the Guarantor;

                      (d) The occurrence of a default, event of default or other
breach  by  Borrower, Guarantor, or Borrower's subsidiary corporation, Steamboat
Suites, Inc., under or with  respect  to  any  indebtedness  or  obligations  of
Borrower,  Guarantor  or  Steamboat  Suites,  Inc.  to Lender or any of Lender's
affiliates which continues after any applicable grace or cure period; or

                      (e) The  failure  of  Borrower  to  execute and deliver or
cause to be executed and delivered the Amendments in substantially the form  and
substance as the forms of the Amendments attached  hereto,  in  recordable  form
within forty-five (45) days following the Closing Date.

               C.2  Acceleration.  Upon the  occurrence  of an Event of  Default
hereunder,  the entire unpaid balance of the Note including all accrued interest
shall,  at the option of Lender,  become  immediately due and payable and Lender
shall have such rights of enforcement as may be afforded by law,  hereunder,  or
under the Note, the Deed of Trust or any of the other Loan Documents.

        D.     REMEDIES.

               D.l  General.   Upon  the  occurrence  of  an  Event  of  Default
hereunder,  Lender shall have all rights and remedies  available to Lender under
the law,  hereunder or under the Note (including but not limited to the right to
accelerate the Note), the Deed of Trust or any of the other Loan Documents.

               D.2 Right to Advance or Post Funds.  Where  disputes arise which,
in the good  faith  opinion of  Lender,  may  endanger  the  performance  of any
covenant contained herein, Lender may, following ten (10) days written notice to
Borrower,  enter  into such  agreements  or  advance  funds for the  account  of
Borrower without  prejudice to Borrower's  rights, if any, to recover said funds
from the party to whom paid.  Such  agreement  or  agreements  may take the form
which Lender,  in its  discretion,  deems  proper,  including but not limited to
agreements  to  indemnify a title  insurer  against  possible  assertion of lien
claims or to pay  disputed  amounts  to  contractors  if  Borrower  is unable or
unwilling  to pay the same.  All sums paid or agreed to be paid  pursuant to any
such undertaking shall be for the account of Borrower,  Borrower shall reimburse
Lender for any such

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payments made upon demand  therefor,  with interest at the rate then  applicable
under the Note until date of reimbursement, and such advances and interest shall
be secured by the Deed of Trust.

               D.3 Curing of Defaults by Disbursement. Upon the occurrence of an
Event of Default  which may be cured by the  payment of money,  Lender,  without
waiving any right of acceleration  or foreclosure  under the Note or the Deed of
Trust which Lender may have by reason of such default, or any other right Lender
may have against Borrower because of such default,  shall have the right to make
such payment from the Loan, thereby curing the default.

               D.4 Remedies are Cumulative.  All remedies of Lender provided for
herein are  cumulative  and shall be in addition to any and all other rights and
remedies  provided  in the  Note,  the Deed of Trust  or any of the  other  Loan
Documents or by law. The exercise of any rights of Lender hereunder shall not in
any way  constitute  a cure or waiver of a default  hereunder or  elsewhere,  or
invalidate any act done pursuant to any notice of default,  or prejudice  Lender
in the exercise of any of its other rights hereunder or elsewhere unless, in the
exercise of said rights,  Lender  realizes all amounts owed to it hereunder  and
under the Note, the Deed of Trust and the other Loan Documents.

               D.5 Right of Contest. Borrower shall have the right to contest in
good  faith any  claim,  demand,  levy,  or  assessment  by a third  party,  the
assertion  or  non-satisfaction  of which would  constitute  an Event of Default
hereunder.  Any such contest shall be prosecuted  diligently and in a manner not
prejudicial  to Lender or the  rights of  Lender  hereunder.  In the event  that
Lender reasonably  determines that such claim,  demand, levy or assessment could
adversely  affect  Lender's  interest  in the  Property,  upon demand by Lender,
Borrower   shall  deposit  funds  with  Lender  or  obtain  and  record  a  bond
satisfactory to Lender in an amount sufficient to cover any amounts which may be
owing in the event the contest  may be  unsuccessful.  Borrower  shall make such
deposit or obtain and record such bond, as the case may be, within five (5) days
after demand therefor and, if made by payment of funds to Lender,  the amount so
deposited shall be disbursed in accordance with the resolution of the contest to
Borrower or the adverse claimant. The mere fact of any such contest shall not be
deemed prejudicial to Lender or any of its rights hereunder.

        E.     MISCELLANEOUS.

               E.l No Waiver.  No waiver of any  default  or breach by  Borrower
hereunder shall be implied from any omission by Lender to take action on account
of such default,  and no express  waiver shall affect any default other than the
default  specified in the waiver and the waiver shall be operative  only for the
time and to the  extent  therein  stated.  Waivers  of any  covenant,  term,  or
condition  contained herein shall not be construed as a waiver of any subsequent
breach of the same  covenant,  term or  condition.  The  consent or  approval by
Lender to or of any act by Borrower  requiring further consent or approval shall
not be deemed to waive or render  unnecessary  the  consent or approval to or of
any subsequent similar act.

                      E.2 No Third Parties  Benefitted.  This  Agreement is made
and entered into for the sole protection and benefit of Lender and Borrower. All
conditions of the obligations of Lender

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to make advances hereunder are imposed solely and exclusively for the benefit of
Lender and may be freely  modified by Lender with the concurrence of Borrower or
waived by Lender  in whole or in part at any time if in its sole  discretion  it
deems it advisable to do so. No person other than  Borrower  shall have standing
to  require  Lender  to make  any  Loan  advances  or be a  beneficiary  of this
Agreement or of any of the advances to be made hereunder.

               E.3    Intentionally Omitted.

               E.4  Notices,  Demands  and  Requests.  All  notices,  demands or
requests  provided for or permitted to be given  pursuant to this Agreement must
be in  writing  and shall be deemed  to have  been  properly  given or served by
depositing the same with a nationally recognized overnight courier service or in
the United  States Mail,  postpaid and  registered or certified  return  receipt
requested,  and  addressed  to the  addresses  set forth on the  signature  page
hereof.  All  notices,  demands  and  requests  shall be  effective  upon  being
deposited with a nationally  recognized  courier service or, on the date that is
two (2) business  days after such  deposit,  upon being  deposited in the United
States Mail.  Rejection or other  refusal to accept or the  inability to deliver
because  of changed  address of which no notice was given  shall be deemed to be
receipt of the notice,  demand or request  sent.  By giving at least thirty (30)
days written notice hereof, Borrower or Lender shall have the right from time to
time  and at any  time  during  the  term  of this  Agreement  to  change  their
respective addresses.

               E.5 Authority to File  Notices.  Borrower  irrevocably  appoints,
designates,  and authorizes  Lender as its agent (said agency being coupled with
an  interest)  to file for  record  any  notice  that  Lender  deems  reasonably
necessary or desirable to protect its interest  hereunder or under the Note, the
Deed of Trust or any of the other Loan  Documents.  Lender  shall only file such
notices if Borrower fails,  within ten (10) days after written demand by Lender,
to do so.

               E.6 Expenses.  Borrower shall pay promptly all reasonable  costs,
charges,  and expenses incurred by Lender in connection with the Loan, including
but not limited to commitment fees, loan fees,  service charges,  title charges,
tax and lien service charges,  costs of inspection,  recording fees,  processing
fees,  appraisal fees,  attorneys' fees, real property taxes and assessments and
insurance premiums, and any and all fees in consideration of Lender's commitment
to provide the Loan.

               E.7 Actions.  Lender shall have the right to commence,  appear in
or defend any action or proceeding  purporting  to affect the  Property,  or the
rights, duties, or liabilities of the parties hereunder,  or the disbursement of
any funds. In connection therewith, Lender may incur and pay costs and expenses,
including reasonable attorneys' fees, and Borrower shall pay to Lender on demand
all such costs and expenses and Lender is authorized to disburse  funds from the
Loan for said purpose.

               E.8  Commissions  and Brokerage  Fee.  Borrower  shall  indemnify
Lender  from  any  responsibility  and/or  liability  for  the  payment  of  any
commission, charge or brokerage fees to

                                                                               9
<PAGE>   10



anyone  which may be payable in  connection  with the making or refinance of the
Loan, it being  understood that any such commission,  charge,  or brokerage fees
will be paid  directly  by Borrower  to the party or parties  entitled  thereto.
Neither  Lender nor  Borrower  are aware of any person or entity  entitled  to a
commission, charge or brokerage fee as a result of the Loan.

               E.9  Applicable  Law.  This  Agreement  and all of the other Loan
Documents are to be governed by and construed in accordance with the laws of the
State of Rhode Island (and Colorado to the extent of the Amendment applicable to
the  property  located  within  Colorado)  without  regard to  conflict  of laws
principles;  provided, however, that the laws of the State of Nevada shall apply
with  respect to the  procedural  and  substantive  requirements  of Nevada real
property and personal  property  law with  request to any  foreclosure  or other
action to realize all real and  personal  property  collateral  security for the
Loan located within the State of Nevada; and provided further, however, that the
laws of the State of Colorado  shall apply with  respect to the  procedural  and
substantive  requirements  of Colorado real  property and personal  property law
with respect to any foreclosure or other action to realize all real and personal
property  collateral  security for the Loan located within Colorado.  Subject to
the  foregoing  provisos,  the  Borrower  hereby  consents to the  non-exclusive
personal  jurisdiction  of the federal and state  courts  located in  Providence
County,  Rhode Island in any and all actions between the Borrower and the Lender
arising  under or in  connection  with  this  Note,  the Loan or any of the Loan
Documents.

               E.10 Heirs,  Successors  and  Assigns.  This  Agreement  shall be
binding  upon and inure to the  benefit of the heirs,  successors,  assigns  and
personal representatives of the parties hereto; provided, however, that Borrower
shall not assign  its rights  hereunder  in whole or in part  without  the prior
written consent of Lender,  which such consent may be granted or withheld in the
sole and absolute discretion of Lender. Any such assignment without said consent
shall be void. Lender shall have the absolute right at any time and from time to
time to assign to all affiliates and  subsidiaries of Lender and to participants
or others all or certain of its  rights and  obligations  hereunder  but no such
assignment  shall,  without  Borrower's  written consent,  relieve Lender of its
obligations hereunder.

               E.11 Time.  Time is of the essence of this Agreement and each and
every provision hereof in which time is an element.

               E.12 Supplemental Agreement. The provisions of this Agreement are
not  intended  to  supersede  the  provisions  of the Deed of Trust but shall be
construed as supplemental thereto.  This Agreement,  and all representations and
warranties contained herein, shall remain in effect until the Loan has been paid
in full.

               E.13 Legal Requirements.  "Legal Requirements" shall mean (i) any
and all present and future judicial decisions,  statutes,  rulings,  directions,
rules,  regulations,  permits,  certificates  or ordinances of any  governmental
authority  in any way  applicable  to Borrower or the  Property,  including  the
ownership,  use,  occupancy,  possession,  operation,  maintenance,  alteration,
repair or  reconstruction  thereof,  (ii)  Borrower's  presently or subsequently
effective bylaws and arti-

                                                                              10
<PAGE>   11



cles of incorporation or partnership,  limited partnership, joint venture, trust
or other form of  business  association  agreement,  (iii) any and all  material
terms,  provisions and conditions of any commitment  between Lender and Borrower
which are to be performed or observed by Borrower, and (iv) any and all material
terms,  provisions and conditions of any leases and other contracts  (written or
oral) of any  nature  that  relate,  in any way,  to the  Property  and to which
Borrower may be bound,  including but not limited to any lease or other contract
pursuant to which Borrower is granted a possessory interest in the Property.

               E.14 Relationship of Parties.  The relationship  between Borrower
and Lender is, and at all time shall remain, solely that of debtor and creditor,
and  shall not be,  or be  construed  to be, a joint  venture,  equity  venture,
partnership or other  relationship of any nature,  and Lender neither undertakes
nor assumes any  responsibility  or duty to Borrower or to any other person with
respect to the Property or the Loan,  except as  expressly  provided in the Loan
Documents;  and notwithstanding  any other provision of the Loan Documents:  (a)
Lender is not, and shall not be construed as, a partner,  joint venturer,  alter
ego, manager,  controlling  person or other business associate or participant of
any kind of  Borrower  or its  partners or members and Lender does not intend to
ever assume such  status;  (b) Lender shall in no event be liable for any debts,
expenses or losses incurred or sustained by Borrower; (c) Lender does not intend
to ever assume any  responsibility  to any person for the quality,  suitability,
safety  or  condition  of the  Property;  and (d)  Lender  shall  not be  deemed
responsible for or a participant in any acts, omissions or decisions of Borrower
or its partners or members.

               E.15  Attorneys'  Fees and  Costs.  If any  legal  action  or any
arbitration or other proceeding is brought for the enforcement of this Agreement
or because of an  alleged  dispute,  breach,  default  or  misrepresentation  in
connection  with any of the  provisions  of this  Agreement,  the  successful or
prevailing  party shall be entitled to recover  reasonable  attorneys'  fees and
other  costs  incurred in that  action or  proceeding,  in addition to any other
relief to which he may be entitled.

        IN WITNESS  WHEREOF,  the  parties  hereto have  executed  this Loan and
Security Agreement the day and year first above written.

Preferred Equities Corporation              PREFERRED EQUITIES CORPORATION,
4310 Paradise Road                          a Nevada corporation
Las Vegas, Nevada  89109
Attn:  General Counsel
Telecopy: (702) 369-3194                    By: /s/ FREDERICK H. CONTE
                                               ----------------------------
                                            Name: Frederick H. Conte
                                                 --------------------------
                                            Its: President
                                                ---------------------------




                                                                              11
<PAGE>   12
DORFINCO CORPORATION                        DORFINCO CORPORATION,
c/o Textron Financial Corporation           a Delaware corporation
40 Westminster Street
Providence, Rhode Island  02940
Attn:  Division Counsel                     
Telecopy: (401) 621-5040                    By:   ______________________________
                                            Name: ______________________________
                                            Its:  ______________________________



                                                                              12
<PAGE>   13



                                   EXHIBIT "A"

                                Legal Description

All that real property  situated in the State of Nevada,  County of Nye, bounded
and described as follows:

Parcel 1:

Lot One (1) Block One (1) of CALVADA  VALLEY UNIT NO. 2 as shown by map recorded
October 5, 1970 as File No.  20291 in the Office of the County  Recorder  of Nye
County, Nevada.

EXCEPTING  THEREFROM  all of its right,  title and interest in and to all of the
minerals,  including gas, coal, oil and oil shales as disclosed by Deed recorded
January 10, 1961 in Book 43, Page 374, Official Records, Nye County, Nevada.

Parcel 2:

Lot One hundred  forty-eight  (148) in Block Sixteen (16) of CALVADA VALLEY UNIT
NO. 6, as shown by map  recorded  February 5, 1973 as Document  No. 36024 in the
Office of the County Recorder of Nye County, Nevada.

EXCEPTING  THEREFROM  all of its right,  title and interest in and to all of the
minerals,  including gas, coal, oil and oil shales as disclosed by Deed recorded
January 10, 1961 in Book 43, Page 374, Official Records, Nye County, Nevada.

Parcel 3:

Parcels  One (1) and Three (3) of Parcel Map  recorded  May 24, 1983 as File No.
81177 and amended by Certificate of Amendment recorded June 14, 1983 as File No.
83144 and by  Certificate  of Amendment  recorded  December 12, 1983 as File No.
99135 and by Certificate of Amendment recorded March 16, 1992 as File No. 304864
of Official Records,  Nye County,  Nevada.

Parcel 4:

Parcel Two (2) as shown by Parcel Map recorded April 26, 1994 as File No. 351410
of Official Records, Nye County, Nevada.

Parcel 5:

Lot Forty  (40) in Block  Six (6) of  AMENDED  PLAT OF  CALVADA  VALLEY  UNIT 6,
recorded  December 28, 1993 as Document  No.  345007 in the Office of the County
Recorder of Nye County, Nevada.


                                                                               1
<PAGE>   14



Lots  Nineteen  (19) and Nineteen A (19A) (to the extent of  Preferred  Equities
Corporation's reversionary interest in Lot Nineteen A (19A)) of Block Six (6) of
CALVADA  VALLEY  UNIT NO. 6,  recorded  February  5,  1973 as File No.  36024 of
Official Records,  Nye County,  Nevada,  more  particularly  described as Parcel
Nineteen (19) as shown on Parcel Map recorded  January 6, 1983 as File No. 72610
of Official Records, Nye County, Nevada.

Lot One (1) in Block Fifteen (15), Lots One hundred  seventy-three (173) and One
hundred   seventy-four  (174)  in  Block  Eleven  (11)  and  Lot  Three  hundred
twenty-three  (323) in Block Six (6) of CALVADA  VALLEY  UNIT NO. 6, as shown by
map recorded  February 5, 1973 as Document No. 36024 in the Office of the County
Recorder of Nye County, Nevada.




                                                                               2
<PAGE>   15




                                   EXHIBIT "B"



1.   A loan made by  Lender  to  Borrower  in the  amount  of up to  $7,500,000,
evidenced by a promissory  note in such amount dated August 9, 1991, and secured
by, among other things, a Loan and Security Agreement dated as of July 31, 1991,
by and between Borrower as borrower and Lender as lender, and guaranteed by MEGO
Financial Corp.

2.   A loan made by Textron Financial Corporation, a Delaware corporation and an
affiliate of Lender's ("Textron"),  to Borrower's subsidiary,  Steamboat Suites,
Inc. ("SSI"), in the amount of up to $15,000,000, evidenced by a promissory note
in such amount dated  November 30, 1995,  and secured by, among other things,  a
deed of trust from SSI to Textron dated October 5, 1994, as amended or restated,
and recorded in the Routt County Clerk and Recorder's office on October 6, 1994,
in Book 701 at Page No.  1795,  a first  amendment  to deed of trust from SSI to
Textron  dated  February  27,  1995,  and recorded in the Routt County Clerk and
Recorder's  office on March 22, 1995 in Book 706 at Page 339, a second amendment
to deed of trust from SSI to Textron  dated  November 29, 1996,  and recorded in
the Routt County Clerk and Recorder's office on December 20, 1996 in Book 728 at
Page 320, and as further amended or restated, and guaranteed by Borrower.


                                                                               1
<PAGE>   16



                                   EXHIBIT "C"


WHEN RECORDED MAIL TO:
DORFINCO CORPORATION
c/o Textron Financial Corporation
40 Westminster Street
Providence, Rhode Island  02940
Attention:  Margaret R. Hayes-Cote,
               Division Counsel


                               FIRST AMENDMENT TO
                           LOAN AND SECURITY AGREEMENT

        This First Amendment to Loan and Security  Agreement (this  "Amendment")
is made and  entered  into as of  August  12,  1998,  by and  between  PREFERRED
EQUITIES   CORPORATION,   a  Nevada  corporation   ("Borrower"),   and  DORFINCO
CORPORATION, a Delaware corporation ("Lender").

                               FACTUAL BACKGROUND

        A. Under a Loan and  Security  Agreement  dated as of August  12,  1998,
between Lender as lender and Borrower as borrower (the "Loan Agreement"), Lender
has agreed to make a loan in the  principal  amount of Four  Million  and 00/100
Dollars  ($4,000,000.00)  (as  defined in the Loan  Agreement  and  herein,  the
"Loan") to Borrower.  Capitalized terms used herein without  definition have the
meanings given to them in the Loan Agreement.

        B. Pursuant to the Loan Agreement, the Loan will be cross-collateralized
by and cross-defaulted  with that certain Loan and Security Agreement,  dated as
of July 31, 1991, between Lender as lender and Borrower as borrower (herein, the
"Related Loan Agreement"),  which secures  indebtedness of Borrower to Lender in
an amount of up to Seven Million Five Hundred Thousand Dollars ($7,500,000) (the
"Related  Loan"),  and other deeds of trust and  collateral  as described in the
Loan Agreement.

        C. Each of the Loan and the Related Loan is guaranteed by Mego Financial
Corp., a New York corporation ("Guarantor"), in accordance with (i) with respect
to the Loan, that certain  Guaranty  Agreement dated of even date herewith,  and
(ii) with respect to the Related Loan, that certain Guaranty  Agreement dated as
of July 31, 1991 (collectively, the "Guarantees").

        D. Borrower is a wholly-owned subsidiary corporation of Guarantor. It is
of  material  and  substantial  benefit  to  Guarantor  that the Loan be made to
Borrower, and each of Guarantor and

                                                                               1
<PAGE>   17



Borrower  acknowledges that it has received full and adequate  consideration for
the  incurrence by it of the  additional  obligations  to Lender as set forth in
this Amendment.

        E. This Amendment is a "Loan Document" as defined in the Loan Agreement.

        F. Lender and Borrower  now wish to amend the Related Loan  Agreement to
provide  that  it  is  cross-defaulted  to  and  cross-collateralized  with  the
obligations of Borrower with respect to the Loan and any other  indebtedness and
obligations of Borrower to Lender.

                                    AGREEMENT

        Therefore, Lender and Borrower agree as follows:

        1. Recitals.  The recitals set forth above in the Factual Background are
true, accurate and correct.

        2.  Reaffirmation of Related Loan Agreement.  Borrower  reaffirms all of
its obligations under the Related Loan Agreement, and Borrower acknowledges that
it has no claims,  offset or defenses with respect to the payment of any sum due
under the Related Loan Agreement or any other loan documents,  promissory  notes
or other  agreements  of any kind  evidencing  any  indebtedness  of Borrower to
Lender to which it is a party.

        3. Amendment. The Related Loan Agreement is hereby amended as follows:

               (a) The occurrence of a breach, default or event of default under
        or with respect to the Loan and any Loan Document  after the  expiration
        of any  applicable  grace period shall be an Event of Default or Default
        under the Related Loan Agreement, as amended.

               (b) The lien of the  Related  Loan  Agreement  shall  secure  all
        indebtedness and other  obligations of Borrower with respect to the Loan
        and any other indebtedness and obligations of Borrower to Lender, and to
        and with all  indebtedness  and other  obligations of Steamboat  Suites,
        Inc.,  a  Colorado  corporation,  to  Lender or its  affiliate,  Textron
        Financial Corporation, a Delaware corporation.

        4. Conditions Precedent. Before this Amendment becomes effective and any
party becomes  obligated  under it, all of the following  conditions  shall have
been  satisfied  at  Lender's  sole cost and expense in a manner  acceptable  to
Lender in the exercise of Lender's sole judgment:

               (a) Lender shall have received  fully  executed and  acknowledged
        originals of this  Amendment,  the attached  consent signed by Guarantor
        and  any  other  documents  which  Lender  may  require  or  request  in
        accordance with this Amendment or the other Loan Documents.

                                                                               2
<PAGE>   18



               (b) Lender shall have received reimbursement (or in lieu thereof,
        shall have retained  Loan proceeds in a sufficient  amount to cover such
        costs and expenses),  in immediately  available  funds, of all costs and
        expenses incurred by Lender in connection with this Amendment, including
        charges for title insurance (including endorsements),  recording, filing
        and escrow  charges,  fees for  appraisal  services,  and legal fees and
        expenses of Lender's  counsel.  Such costs and  expenses may include the
        actual costs for services for Lender's  in-house  staffs,  such as legal
        and appraisal services.

        5. Borrower's  Representation  and Warranties.  Borrower  represents and
warrants to Lender as follows:

               (a) Accuracy.  All  representations and warranties made and given
        by Borrower herein are true, accurate and correct.

               (b) No Default.  No Default or Event of Default has  occurred and
        is continuing under the Related Loan Agreement or this Amendment, and no
        event has occurred and is continuing  which,  with notice or the passage
        of time or both, would be a Default or Event of Default.

               (c)  Property.  Borrower  continues to lawfully  possess and hold
        title to the  property  encumbered  by the Related  Loan  Agreement,  as
        amended  by this  Amendment,  and  the  security  interests,  collateral
        assignments  and other  collateral  transfers  made by  Borrower  in the
        Related Loan Agreement as amended  constitute a first and prior security
        interest  encumbering that property,  subject to permitted exceptions to
        title approved by Lender.

        6. No  Prejudice:  Reservation  of  Rights.  This  Amendment  shall  not
prejudice  any rights or remedies  of Lender  under the Loan  Documents.  Lender
reserves,  without  limitation,  all rights which it has against any indemnitor,
guarantor,  or  endorser of the  promissory  note  secured by the  Related  Loan
Agreement.

        7. No Impairment.  Except as specifically  hereby  amended,  the Related
Loan Agreement shall remain  unaffected by this Amendment,  and the Related Loan
Agreement shall remain in full force and effect. Nothing in this Amendment shall
impair  the  security  interests,  collateral  assignments  or other  collateral
transfers  arising  under the  Related  Loan  Agreement,  which  shall  remain a
security agreement,  creating a first priority security interest in the property
described therein, subject to permitted exceptions to title approved by Lender.

        8.     Intentionally Omitted.

        9. Miscellaneous.  If any court of competent jurisdiction determines any
provision  of this  Amendment  to be  invalid,  illegal or  unenforceable,  that
portion shall be deemed severed from this Amendment,  which shall remain in full
force and effect as though the  invalid,  illegal or  unenforceable  portion had
never been a part hereof. This Amendment shall be governed by the laws

                                                                               3
<PAGE>   19



of the State of Nevada, without regard to the choice of law rules of that State.
As used here, the word "includes(s)" means "Include(s), without limitation", and
the word "including" means "including, but not limited to."



                                    BORROWER:

                                    PREFERRED EQUITIES CORPORATION, a Nevada
                                    corporation


                                    By: /s/ Frederick H. Conte
                                        ----------------------------------------
                                    Name: Frederick H. Conte
                                          --------------------------------------
                                    Title: President
                                           -------------------------------------


                                    LENDER:

                                    DORFINCO CORPORATION, a Delaware corporation


                                    By:_________________________________________

                                    Name:_______________________________________

                                    Title:______________________________________



                                                                               4
<PAGE>   20


                               GUARANTOR'S CONSENT

        The undersigned  Guarantor hereby consents to the terms,  conditions and
provisions of the foregoing First  Amendment to Loan and Security  Agreement and
the transactions contemplated by it. Guarantor hereby affirms the full force and
effectiveness  of the  Guarantees  (as  defined  therein)  and  its  obligations
thereunder  with  respect to any  indebtedness  and  obligations  of Borrower to
Lender or any of its affiliates guaranteed by Guarantor.


Dated:  August 12, 1998


ACKNOWLEDGED BY GUARANTOR:

MEGO FINANCIAL CORP.,
a New York corporation


By: /s/ Richard L. Rodriguez
    ------------------------------------
Name: Richard L. Rodriguez
      ----------------------------------
Title: Vice President
       ---------------------------------





                                                                               5
<PAGE>   21



                                   EXHIBIT "D"


WHEN RECORDED MAIL TO:
TEXTRON FINANCIAL CORPORATION
40 Westminster Street
Providence, Rhode Island  02940
Attention:   Margaret R. Hayes-Cote,
               Division Counsel


                  THIRD AMENDMENT TO COMBINATION DEED OF TRUST,
                      SECURITY AGREEMENT AND FIXTURE FILING

        This Third Amendment to Combination  Deed of Trust,  Security  Agreement
and Fixture Filing (this  "Amendment") is made and entered into as of August 12,
1998, by and between STEAMBOAT SUITES, INC., a Colorado corporation ("Grantor"),
and TEXTRON FINANCIAL CORPORATION, a Delaware corporation ("Beneficiary").

                               FACTUAL BACKGROUND

        A. Under a Loan and  Security  Agreement  dated as of August  12,  1998,
between  Dorfinco  Corporation,  a  Delaware  corporation  and an  affiliate  of
Beneficiary's,  as lender  ("Lender")  and  Preferred  Equities  Corporation  as
borrower  ("Borrower") (the "Loan Agreement"),  Lender has agreed to make a loan
in the principal amount of up to Four Million and 00/100 Dollars ($4,000,000.00)
(as  defined  in the  Loan  Agreement  and  herein,  the  "Loan")  to  Borrower.
Capitalized terms used herein without definition have the meanings given to them
in the Loan Agreement.

        B. Pursuant to the Loan Agreement, the Loan will be cross-collateralized
by and  cross-defaulted  with a deed of trust  securing  a loan in the  original
principal  amount of  $15,000,000  from  Beneficiary to Grantor dated October 5,
1994,  as  amended or  restated,  and  recorded  in the Routt  County  Clerk and
Recorder's  office on  October 6, 1994,  in Book 701 at Page No.  1795,  a first
amendment to deed of trust from Grantor to Beneficiary  dated February 27, 1995,
and recorded in the Routt County Clerk and  Recorder's  office on March 22, 1995
in Book 706 at Page 339, a second  amendment  to deed of trust  from  Grantor to
Beneficiary  dated November 29, 1996, and recorded in the Routt County Clerk and
Recorder's  office on December  20, 1996 in Book 728 at Page 320, and as further
amended or restated (herein,  the "Deed of Trust"), and other deeds of trust and
collateral as described in the Loan Agreement.

        C.  The  Loan  is  guaranteed  by  Mego  Financial  Corp.,  a  New  York
corporation  ("Guarantor"),  in accordance with that certain Guaranty  Agreement
dated of even date herewith

                                                                               1
<PAGE>   22



(the "Guaranty"). The indebtedness secured by the Deed of Trust is guaranteed by
Borrower,  in accordance with a guaranty agreement dated on or about the date of
the Deed of Trust.

        D.  Borrower is a  wholly-owned  subsidiary  corporation  of  Guarantor.
Grantor is a wholly-owned  subsidiary corporation of Borrower. It is of material
and  substantial  benefit  to  Guarantor  and  Grantor  that the Loan be made to
Borrower,  and  Grantor  acknowledges  that it has  received  full and  adequate
consideration  for  the  incurrence  by  it of  the  additional  obligations  to
Beneficiary as set forth in this Amendment.

        E. This Amendment is a "Loan Document" as defined in the Loan Agreement.

        F.  Grantor  and  Beneficiary  now  wish to  amend  the Deed of Trust to
provide  that  it  is  cross-defaulted  to  and  cross-collateralized  with  the
obligations of Borrower with respect to the Loan and any other  indebtedness and
obligations  of  Borrower  to  Beneficiary  or  Lender,  and  to  and  with  the
obligations of Steamboat Suites, Inc., a Colorado  corporation,  with respect to
all indebtedness and other obligations of Steamboat Suites, Inc. to Beneficiary.

                                    AGREEMENT

        Therefore, Grantor and Beneficiary agree as follows:

        1. Recitals.  The recitals set forth above in the Factual Background are
true, accurate and correct.

        2.  Reaffirmation  of  Deed  of  Trust.  Grantor  reaffirms  all  of its
obligations  under the Deed of Trust,  and Grantor  acknowledges  that it has no
claims,  offset or defenses with respect to the payment of any sum due under the
Deed of Trust or any other loan documents,  promissory notes or other agreements
of any kind evidencing any indebtedness of Grantor to Beneficiary to which it is
a party.

        3. Amendment. The Deed of Trust is hereby amended as follows:

                (a) The  occurrence  of a breach,  default  or event of  default
        under or with respect to the Loan and any Loan Document after expiration
        of any  applicable  grace period shall be an Event of Default under this
        Deed of Trust,  dated  October 5, 1994,  as  amended  or  restated,  and
        recorded in the Routt County Clerk and  Recorder's  office on October 6,
        1994, in Book 701 at Page No. 1795,  as amended by a first  amendment to
        deed of trust from Grantor to  Beneficiary  dated February 27, 1995, and
        recorded in the Routt  County Clerk and  Recorder's  office on March 22,
        1995 in Book 706 at Page 339, as further  amended by a second  amendment
        to deed of trust from Grantor to  Beneficiary  dated  November 29, 1996,
        and recorded in the Routt County Clerk and Recorder's office on December
        20, 1996 in Book 728 at Page 320, and as amended by that  certain  Third
        Amendment to Combination Deed of

                                                                               2
<PAGE>   23




        Trust,  Security  Agreement  and Fixture  Filing  dated as of August 12,
        1998, between Grantor and Beneficiary.

               (b) The lien of this Deed of Trust shall secure all  indebtedness
        and other obligations of Preferred Equities Corporation, with respect to
        the  Loan  and any  other  indebtedness  and  obligations  of  Preferred
        Equities  Corporation  to  Beneficiary  or  Lender,  and to and with all
        indebtedness and other obligations of Steamboat Suites, Inc., a Colorado
        corporation, to Beneficiary.

        4. Conditions Precedent. Before this Amendment becomes effective and any
party becomes  obligated  under it, all of the following  conditions  shall have
been  satisfied  at  Grantor's  sole  cost and  expense  in a manner  reasonably
acceptable to Beneficiary:

               (a)   Beneficiary   shall  have  received   fully   executed  and
        acknowledged  originals of this Amendment,  the attached consents signed
        by Guarantor  and  Borrower,  as borrower and  guarantor,  and any other
        documents  which  Beneficiary  may require or request in accordance with
        this Amendment or the other Loan Documents.

               (b)  Beneficiary  shall have received  reimbursement  (or in lieu
        thereof,  shall have retained  Loan  proceeds in a sufficient  amount to
        cover such costs and expenses),  in immediately  available funds, of all
        costs and  expenses  incurred by  Beneficiary  in  connection  with this
        Amendment,    including   charges   for   title   insurance   (including
        endorsements),  recording, filing and escrow charges, fees for appraisal
        services,  and legal fees and  expenses  of  Beneficiary's  or  Lender's
        counsel.  Such costs and  expenses  may  include  the  actual  costs for
        services for  Beneficiary's or Lender's  in-house staffs,  such as legal
        and appraisal services.

        5.  Grantor's  Representation  and  Warranties.  Grantor  represents and
warrants to Beneficiary as follows:

               (a) Accuracy.  All  representations and warranties made and given
        by Grantor herein are true, accurate and correct.

               (b) No Default.  No Default or Event of Default has  occurred and
        is continuing  under the Deed of Trust or this  Amendment,  and no event
        has occurred and is continuing which, with notice or the passage of time
        or both, would be a Default or Event of Default.

               (c) Property.  Grantor continues to lawfully possess and hold fee
        simple title to the property encumbered by the Deed of Trust, as amended
        by this Amendment, and the Deed of Trust as amended is a first and prior
        lien on that property, subject to permitted exceptions to title approved
        by Beneficiary.

        6.  No Prejudice:  Reservation  of  Rights.  This  Amendment  shall  not
prejudice  any  rights or  remedies  of  Beneficiary  or  Lender  under the Loan
Documents. Each of Beneficiary and Lender

                                                                               3
<PAGE>   24



reserves,  without  limitation,  all rights which it has against any indemnitor,
guarantor, or endorser of the promissory note secured by the Deed of Trust.

        7. No Impairment.  Except as specifically  hereby  amended,  the Deed of
Trust shall remain  unaffected  by this  Amendment,  and the Deed of Trust shall
remain in full force and  effect.  Nothing in this  Amendment  shall  impair the
liens of the Deed of Trust, which shall remain a deed of trust with the power of
sale,  creating a first  lien(s)  encumbering  the property  described  therein,
subject to permitted exceptions to title approved by Beneficiary.

        8.  Disclosure  to Title  Company.  Without  notice to or the consent of
Grantor,  Beneficiary may disclose to any title insurance  company which insures
any interest of Beneficiary  under the Deed of Trust, as amended hereby (whether
as primary insurer, coinsurer or reinsurer) any information, data or material in
Beneficiary's  possession relating to Grantor,  the indebtedness  secured by the
Deed of Trust,  as amended  hereby,  and/or the property  secured by the Deed of
Trust.

        9. Miscellaneous.  If any court of competent jurisdiction determines any
provision  of this  Amendment  to be  invalid,  illegal or  unenforceable,  that
portion shall be deemed severed from this Amendment,  which shall remain in full
force and effect as though the  invalid,  illegal or  unenforceable  portion had
never been a part hereof.  This  Amendment  shall be governed by the laws of the
State of Colorado,  without regard to the choice of law rules of that State.  As
used here, the word "includes(s)" means "Include(s),  without  limitation",  and
the word "including" means "including, but not limited to."

                                  GRANTOR:

                                  STEAMBOAT SUITES, INC., a Colorado corporation


                                  By: /s/  FREDERICK H. CONTE
                                      ------------------------------------------
                                  Name: Frederick H. Conte
                                        ----------------------------------------
                                  Title: President
                                         ---------------------------------------

                                  BENEFICIARY:

                                  TEXTRON FINANCIAL CORPORATION, a
                                  Delaware corporation


                                  By: 
                                      ------------------------------------------
                                  Name:
                                        ----------------------------------------
                                  Title: 
                                         ---------------------------------------

                                                                               4
<PAGE>   25
STATE OF NEVADA

COUNTY OF CLARK

This instrument was acknowledged before me on August 12, 1998 by Frederick H.
Conte as President of Steamboat Suites, Inc., a Colorado corporation.


                                                /s/ MARY A. FAIR
[NOTARY PUBLIC SEAL]                    ------------------------------------
                                                   Notary Public

                                        My commission expires: Oct. 30, 1998




STATE OF ____________

COUNTY OF ___________

This instrument was acknowledged before me on ________________, 1998 by 
_______________ as ______________ of Textron Financial Corporation, a Delaware
corporation.


                                                
                                        ------------------------------------
                                                   Notary Public

                                        My commission expires: _____________


<PAGE>   26



                                    CONSENTS

        The undersigned  hereby consent to the terms,  conditions and provisions
of the  foregoing  Third  Amendment  to  Combination  Deed  of  Trust,  Security
Agreement and Fixture Filing and the transactions  contemplated by it. Guarantor
hereby affirms the full force and  effectiveness  of its guaranty  agreement and
obligations  thereunder  with respect to any  indebtedness  and  obligations  of
Grantor and Borrower  guaranteed by Guarantor.  Borrower hereby affirms the full
force and  effectiveness  of its  obligations to Lender under the Loan Documents
and its guaranty  agreement and obligations with respect to any indebtedness and
obligations of Grantor to Beneficiary guaranteed by Borrower.


Dated:  August 12, 1998

ACKNOWLEDGED:

PREFERRED EQUITIES CORPORATION,
a Nevada corporation


By: /s/ FREDERICK H. CONTE
    ----------------------------------
Name: Frederick H. Conte
      --------------------------------
Title: President
       -------------------------------



ACKNOWLEDGED BY GUARANTOR:

MEGO FINANCIAL CORPORATION,
a New York corporation


By: /s/ RICHARD L. RODRIGUEZ
    ----------------------------------
Name: Richard L. Rodriguez
      --------------------------------
Title: Vice President
       -------------------------------


                                                                              6
<PAGE>   27
STATE OF NEVADA

COUNTY OF CLARK

This instrument was acknowledged before me on August 12, 1998 by Frederick H.
Conte as President of Preferred Equities Corporation, a Nevada corporation.


                                                /s/ MARY A. FAIR
[NOTARY PUBLIC SEAL]                    ------------------------------------
                                                   Notary Public

                                        My commission expires: Oct. 30, 1998




STATE OF NEVADA

COUNTY OF CLARK

This instrument was acknowledged before me on August 12, 1998 by Richard L.
Rodriguez as Vice President of Mego Financial Corporation, a New York
corporation.


                                                /s/ MARY A. FAIR
[NOTARY PUBLIC SEAL]                    ------------------------------------
                                                   Notary Public

                                        My commission expires: Oct. 30, 1998


<PAGE>   28
                                  EXHIBIT "E"

                               LITIGATION REPORT

1.   ROBERT J. FEENEY vs. MEGO MORTGAGE CORPORATION, JEFFREY S. MOORE, AND MEGO 
     FINANCIAL CORP.
     United States District Court
     Northern District, Atlanta Georgia
     Case No. 1:98CV0593-CAM; filed February 23, 1998

     On February 23, 1998, an action was filed in the United States District 
     Court of Georgia, Civil Action No. 1:98CV0593-CAM by Robert J. Feeney, 
     plaintiff, as a purported class action against Mego Mortgage Corporation 
     and Jeffrey S. Moore, the former President and Chief Executive Officer of 
     Mego Mortgage Corporation. The complaint alleges, among other things, that 
     the defendants violated the federal securities laws in connection with the 
     preparation and issuance of certain Mego Mortgage Corporation's financial 
     statements. The named plaintiff seeks to represent a class consisting of 
     purchasers of the common stock of Mego Mortgage Corporation between April 
     11, 1997 and December 18, 1997, and seeks other such relief as the Court 
     may deem just and proper. Mego Financial Corp. ("the Company") was served 
     on July 30, 1998 with an amended complaint which, among other things, adds 
     Mego Financial Corp. as a defendant, adds John Cole, Trent Hildebrand, 
     Burt W. Price and Frank J. Murphy as plaintiffs and alleges an expansion 
     of the purported class to certain purchaser's of Mego Mortgage 
     Corporation's common stock from April 11, 1997 through May 20, 1998. The 
     Company's counsel have not completed their review of the above matter; 
     however, the Company was not the parent company of Mego Mortgage 
     Corporation at the time when the matters which are cited in the 
     above-described action occurred. The Company does not believe that any 
     judgment obtained will have a material adverse effect on the Company's or 
     Preferred Equities Corporation's business or financial condition.

2.   THOMAS J. MULVEY vs. PREFERRED EQUITIES CORPORATION a.k.a. CALVADA SPRINGS 
     CORPORATION
     District Court, Clark County, Nevada
     Case No. A371479; filed March 26, 1997 and served March 31, 1997

     The Plaintiff filed this personal injury lawsuit on March 26, 1997 and is 
     seeking (i) general damages in excess of $10,000 and (ii) special damages 
     in excess of $10,000 for medical expenses, loss of income/wages, 
     attorneys' fees, costs of suit and interest allowed by law. The suit is 
     based on a third party assault and battery upon Plaintiff while entering 
     upon Defendant's property. The assailant was not an employee, agent or 
     servant of the Defendant. The Defendant's insurance carrier has accepted 
     the case for insurance defense, subject to the limits of the Defendant's 
     comprehensive general liability insurance policy maintained with Reliance 
     Insurance Company ("Policy"). The Policy provides $1MM coverage per 
     occurrence and $2MM aggregate coverage for all occurrences. In



                                       1.
<PAGE>   29
     this connection, Defendant also maintains a supplemental umbrella liability
     insurance policy with Federal Insurance Company ("Umbrella Policy") for
     $20MM additional coverage for any amounts exceeding the $2MM Policy limit,
     or an aggregate of $22MM combined insurance coverage. The Company is of
     opinion that (i) the case is fully insured (ii) the Company has valid
     defenses and (iii) any judgement obtained will not have a material adverse
     effect on the Company's business or financial condition.

3.   ROBERT SANBORN AND ERLINE SANBORN vs. PREFERRED EQUITIES CORPORATION d.b.a.
     RAMADA VACATION SUITES
     District Court, Clark County, Nevada
     Case No. A382124; filed December 9, 1997 and served January 15, 1998.

     The Plaintiffs' filed this personal injury lawsuit on December 9, 1997 and
     are seeking (i) general damages in excess of $10,000 and (ii) special
     damages in excess of $10,000 for medical expenses, loss of income/wages,
     emotional distress and (iii) punitive damages in excess of $10,000, plus
     attorneys' fees and costs of suit. The suit is based on a third party
     assault and battery upon Plaintiff Robert Sanborn in the presence of his
     wife, Earline Sanborn, while entering upon Defendant's property. The
     assailants were not employees, agents or servants of Defendant. The
     Defendant's insurance carrier, Reliance Insurance Company, has accepted the
     case for insurance defense, subject to the limits of the comprehensive
     general liability policy ("Policy"). In this connection, Defendant also
     maintains a supplemental umbrella liability insurance policy with Federal
     Insurance Company for $20 MM additional coverage for any amounts exceeding
     the $2 MM limits of the Policy or an aggregate of $22 MM combined insurance
     coverage. The Company is of opinion that (i) the case is fully insured (ii)
     the Company has valid defenses and (iii) any judgement obtained will not
     have a material adverse effect on the Company's business or financial
     condition.

4.   LILLIAN MCGILL vs. PREFERRED EQUITIES CORPORATION
     District Court, Washoe County, Nevada
     Case No. CV-N-98-00307-HDM; filed June 8, 1998 and served June 15, 1998
     
     Plaintiff filed suit under Title VII of the 1964 Civil Rights Act.
     Plaintiff alleges sexual harassment and an offensive work environment.
     Plaintiff seeks damages in the amount of $300,000.00. Defense of this
     matter has been tendered to the company's insurance carrier. The Company is
     of opinion that the case is insured.

5.   JAMES BRADLEY and CAROLE BRADLEY vs. WHITE SANDS RAMADA INN RESORTS and
     FRANK VILIMORE
     First Circuit Court, State of Hawaii
     Civil No. 98-1932-04

     Plaintiff filed suite alleging negligence. Plaintiff was illegally parked
     in a handicapped


                                       2.

<PAGE>   30
     parking space. Plaintiff suffered heart pains when told to move his 
     vehicle and has sued for negligence. Plaintiff has offered to settle for 
     $5,000.00. The case has been referred to the Company's insurance defense 
     carrier and is fully insured.

6.   GUS CHAFOULEAS vs. PREFERRED EQUITIES CORPORATION d.b.a. RAMADA VACATION 
     SUITES
     District Court, Clark County, Nevada
     Case No. A389814; filed June 19, 1998 and served on June 24, 1998

     Plaintiff filed suit alleging negligence. After swimming Plaintiff slipped 
     and fell when exiting the Defendant's swimming pool located at 100 Winnick 
     Avenue, Las Vegas, Nevada. Plaintiff sustained injury to his shoulder and 
     has sued Defendant for negligence. Plaintiff seeks general damages in 
     excess of $10,000. The case has been referred to Defendant's insurance 
     carrier for insurance defense. The Company is of opinion the case is fully 
     insured.






                                       3.
<PAGE>   31



                                 PROMISSORY NOTE

$4,000,000.00                                                  Las Vegas, Nevada
Funding Date: The date funds                                     August 12, 1998
are wire transferred by Lender



      FOR VALUE  RECEIVED  and  pursuant  to the terms of this  Promissory  Note
("Note"), the undersigned,  PREFERRED EQUITIES CORPORATION, a Nevada corporation
("Maker")  promises  to pay to the order of  DORFINCO  CORPORATION,  a  Delaware
corporation ("Lender") (the Lender and all subsequent holders of this Note being
hereinafter  referred to as the "Holder") at 40 Westminster Street,  Providence,
Rhode Island 02940, Attention:  Accounting Department, or at such other place as
the Holder  hereof may  designate in writing,  the  principal  sum of up to Four
Million and no/100  Dollars  ($4,000,000.00),  or so much as may be  outstanding
hereunder  from time to time (the "Loan"),  together with interest on the unpaid
principal balance of such  indebtedness  from time to time  outstanding,  at the
rate or rates hereinafter set forth.

1.    SECURITY.

      The  payment of this Note and all  interest,  fees and  charges  herein is
evidenced and/or secured by (a) a first lien Deed of Trust,  Security  Agreement
and Fixture Filing ("Deed of Trust") by Maker for the benefit of Lender, of even
date herewith  encumbering certain real property (the "Property") located in the
County of Nye, State of Nevada,  and described more  particularly on Exhibit "A"
to the Deed of Trust; (b) certain other real and personal  property and owned by
Maker or its  subsidiaries,  encumbered by certain  deeds of trust,  or security
agreements,  as  amended,  described  on Exhibit "B" to the Loan  Agreement  (as
defined herein);  (c) a Loan and Security  Agreement ("Loan  Agreement") of even
date herewith between Maker as borrower and Lender as lender; and (d) such other
documents  which  recite  that they  evidence,  relate to or have been  given as
security  for this  Note  (all the  aforementioned  documents  shall  herein  be
referred to as "Security Documents").

2.    INTEREST RATE.

      1. On and after the Funding Date (until maturity or default as hereinafter
provided),  interest  shall accrue and be due monthly in arrears at the rate per
annum of three  percent  (3%)  above  the  "Prime  Rate" as  announced  by Chase
Manhattan Bank, N.A. or the successor thereto (the "Basic Interest Rate"),  with
the Basic Interest Rate for any given  calendar month being  calculated by using
the Prime Rate in effect on the first  (1st) day of each  month  during the term
hereof,  provided,  however,  the Basic Interest Rate shall not be less than ten
and one-half  percent  (10.5%) per annum at any time during the original term of
this Note and any extension.  In the event Chase  Manhattan  Bank,  N.A., or any
successor  thereto,  shall  discontinue  announcement  of  said  Prime  Rate,  a
comparable  index  designated by Holder shall be used in  calculating  the Basic
Interest Rate. Interest


                                       1
<PAGE>   32



under  this  Note  shall be  calculated  based on the  actual  number of days of
interest accrual using a year of 360 days.

      2. (a)  Interest  that will  accrue  for the  period  commencing  with the
Funding Date and  continuing  through August 31, 1998 at the Basic Interest Rate
on the principal  sum advanced  shall be paid on the first day of the first full
month after the Funding Date.

            (b)  Commencing  on the  first  (1st)  day of  September,  1998  and
continuing on the first (1st) day of each and every month thereafter through and
including the Maturity Date or the Extended Maturity Date (as defined below), as
applicable,  all interest  accrued at the Basic  Interest  Rate shall be due and
payable monthly in arrears.

            (c) Unless the term of this Note is extended as provided  below,  on
August 31, 1999 (the  "Maturity  Date"),  or on such  earlier  date as this Note
becomes  due and  payable,  whether by  acceleration  or  otherwise,  the entire
outstanding principal balance hereof,  together with accrued but unpaid interest
thereon,  and all other sums  owing to Holder  hereunder  or under the  Security
Documents, shall be due and payable in full.

3.    APPLICATION OF PAYMENT.

      All principal, interest and any other amounts due under this Note shall be
payable in lawful  money of the United  States of America at the place or places
above stated.  All payments  shall be credited  first to costs and expenses,  if
any,  incurred by Holder in collecting any amounts due hereunder,  second to any
Late Charges (as hereinafter  defined) and interest accrued at the Default Rate,
third to past due  interest,  and fourth to principal  and any other amounts due
hereunder or under the Security Documents.

4.    EXTENSION.

      The term of the Loan may be  extended  at the  option  of the Maker for an
additional  one (1) year  period  (the  "Extended  Term")  (the  last day of the
Extended Term shall be the  "Extended  Maturity  Date") in  accordance  with and
subject to the  following  terms and  conditions:  (a) there  shall have been no
monetary  default  whatsoever of any kind that  extended  beyond any cure period
during the initial term of the Loan (including,  but not limited to, non-payment
of taxes and  insurance  premiums)  and there  shall  have been no  non-monetary
default which remains uncured at the time of Maker's election to extend the term
of the Loan; (b) there has been no material adverse change in the Property or in
the business or financial  condition  of Maker that would  adversely  affect its
ability to  perform  according  to the  Security  Documents;  (c) Maker may only
exercise the option to extend the term of the Loan by giving  written  notice to
Holder not less than  thirty  (30) days prior to the  expiration  of the initial
term of the Loan, together with the payment of an extension fee in the amount of
one and one-half percent (1.5%) of the then outstanding balance of the Loan; (d)
interest  will accrue on all  principal  outstanding  hereunder  throughout  the
Extended Term at the Basic Interest Rate; (e) during the Extended Term,  monthly
payments shall be made in arrears equal to the interest


                                       2
<PAGE>   33



accrued  at the  Basic  Interest  Rate  plus  fixed  principal  payments  in the
following amounts and on the following dates:

                  (i) On November 30, 1999,  an  installment  of principal in an
                  amount necessary and sufficient to cause the total outstanding
                  principal balance remaining under the Note to be Three Million
                  Dollars ($3,000,000.00) or less;

                  (ii) On February 28, 2000, an  installment  of principal in an
                  amount  necessary  and  sufficient  to cause  the  outstanding
                  principal  balance  remaining under the Note to be Two Million
                  Dollars ($2,000,000.00) or less;

                  (iii) On May 31,  2000,  an  installment  of  principal  in an
                  amount  necessary  and  sufficient  to cause  the  outstanding
                  principal  balance  remaining under the Note to be One Million
                  Dollars ($1,000,000.00); and

                  (iv) On the Extended  Maturity Date, which is August 31, 2000,
                  the entire outstanding principal balance of the Loan, plus all
                  accrued and unpaid interest thereon and any other amounts then
                  due and  payable  under the Note or any of the Loan  Documents
                  shall be due and payable;

(f) Maker shall provide Holder with an updated title  insurance  endorsement and
such other documentation and evidence reasonably requested by Holder, to confirm
Holder's lien position and other interests under the Security Documents; and (g)
Maker shall pay,  prior to the  commencement  of the Extended Term, all expenses
incurred by Holder for which Maker is billed  prior and in  connection  with the
extension,  whether or not it is  consummated,  unless failure to consummate the
extension is attributable to the sole fault of Holder.

5.    LATE PAYMENT CHARGES.

      In the event that any  monthly  payment is not  received at the above said
address (or at such other place as is  designated  pursuant to the terms hereof)
before the tenth (10th) day after the due date thereof, in addition to any other
permitted charges  hereunder,  a one-time late payment fee ("Late Charge") shall
be due and owing to Holder in the amount of five  percent  (5%) of each  monthly
payment  as it  becomes  past due and,  if the  Note  has been  accelerated,  an
additional  five percent (5%) of the  accelerated  balance if not paid when due.
Holder shall have no obligation to accept any payments hereunder not accompanied
by all outstanding late payment fees.  Notwithstanding anything contained herein
or in any Security  Document,  this paragraph is not intended to, and shall not,
create any grace  period or  indulgence  by Holder with  respect to the punctual
payment by Maker of all sums owed  Holder,  nor shall this  paragraph in any way
hinder,  prevent or delay  Holder from  exercising  any remedy which it may have
hereunder or under any Security Document,  or at law or in equity,  with respect
to Maker's failure timely to make any payment when due. Maker  acknowledges that
the Late Charge is not imposed as a charge for the use


                                       3
<PAGE>   34



of money,  but rather is imposed to permit  Holder to recoup its  administrative
charges  and other  costs in dealing  with loans not paid on time,  and the Late
Charge shall in no way be deemed an interest charge.

6.    INTEREST UPON DEFAULT.

      In the event that any payment of principal,  interest,  Late Charge or any
prepayment premium under this Note is not paid before the tenth (10th) day after
its due date, whether or not by reason of acceleration, and/or if there occurs a
default  under the  Security  Documents,  or in or under any other  document  or
instrument  evidencing,  securing,  or  otherwise  relating to the  indebtedness
evidenced hereby, which default is not cured within the applicable notice and/or
grace period, if any, expressly provided therefor, such failure shall constitute
a default  hereunder,  and such  amount  shall bear  interest  from the due date
thereof  until paid at the rate of five  percent (5%) per annum in excess of the
Basic Interest Rate (the "Default Rate").

7.    ACCELERATION.

      In the event of any  default  by Maker  hereunder  or under  the  Security
Documents,  and after the  expiration of any applicable  cure periods  specified
hereunder or under the Security Documents, Holder may at its option, in addition
to any other  remedies to which it may be  entitled,  declare  the total  unpaid
principal  balance  of the  indebtedness  evidenced  hereby,  together  with all
accrued but unpaid  interest  thereon and all other sums owing,  immediately due
and payable and all such amounts shall  thereafter  bear interest at the Default
Rate; provided,  however, the Default Rate shall not accrue on any Late Charges.
All such interest  shall be paid at the time of and as a condition  precedent to
the curing of any default  should  Holder,  in its sole  discretion,  allow such
default to be cured. Time is of the essence in this Note.

8.    PREPAYMENT.

      (a) The Loan may be  prepaid  at any  time,  in whole or in part,  without
penalty or premium,  upon thirty (30) days prior written  notice to Holder,  and
upon payment, in addition to such outstanding  principal amount, all accrued and
unpaid interest and all other amounts due hereunder shall be paid.

      (b) Notwithstanding  anything in this Note or any Security Document to the
contrary, no prepayment premium shall be charged with respect to the proceeds of
any  insurance  policy  or  condemnation  which  are  applied  by  Holder to the
principal  balance  of this  Note  and any  such  application  of  insurance  or
condemnation proceeds shall be deemed a permitted prepayment hereunder.

9.    LIMIT OF VALIDITY.

      All  agreements  between  the Maker and the Holder  hereof  are  expressly
limited  so that in no  contingency  or event  whatsoever,  whether by reason of
advancement of the proceeds hereof,


                                       4
<PAGE>   35



acceleration of maturity of the unpaid principal  balance hereof,  or otherwise,
shall the  amount  paid or agreed to be paid to the  Holder  hereof for the use,
forbearance  or  detention  of the money to be  advanced  hereunder  exceed  the
highest  lawful rate  permissible  under  applicable  usury  laws.  If, from any
circumstances  whatsoever fulfillment of any provision hereof or of the Security
Documents shall involve transcending the limit of validity prescribed by any law
which a court of competent  jurisdiction may deem applicable hereto,  then, ipso
facto,  the  obligation  to be  fulfilled  shall be reduced to the limit of such
validity,  and, if from any circumstance the Holder hereof shall ever receive as
interest an amount which would exceed the highest lawful rate, such amount which
would be  excessive  interest  shall be applied to the  reduction  of the unpaid
principal  balance  due  hereunder  and not to the  payment  of  interest.  This
provision  shall control  every other  provision of all  agreements  between the
Maker and the Holder hereof.

10.   MISCELLANEOUS.

      (a) Any  remittances  hereunder by check or draft shall be credited on the
date of receipt subject to the condition that such check or draft may be handled
for collection in accordance  with the practice of the collecting  bank or banks
and any receipt issued therefore shall be void unless the amount due is actually
received by Holder hereof.

      (b) If interest,  principal or other sum owing under this Note is not paid
when due,  after  giving  effect to any  applicable  grace  period,  whether  at
maturity or by  acceleration,  the Maker promises to pay all reasonable costs of
collection,  including  but not limited  to,  attorneys'  fees and all  expenses
incurred  by the Holder in  connection  with the  collection  of this Note,  the
protection or realization  of the collateral and  enforcement of any guaranty on
account of such collection, whether or not suit is filed hereon. Such fees shall
include, without limitation, costs and attorneys' fees incurred in any appeal.

      (c) Maker and all sureties,  endorsers,  guarantors  and all other parties
now or  hereafter  liable for the  payment  of this  Note,  in whole or in part,
hereby severally waive presentment for payment, demand and protest and notice of
protest,  acceleration,  or dishonor and non-payment of this Note, and expressly
consent to any extension of time of payment hereof or of any installment hereof,
to the release of any party liable for this obligation,  to the release,  change
or  modification  of any  collateral  posted as security for the payment of this
Note, and any such extension, modification or release may be made without notice
to any of said  parties and without in any way  affecting  or  discharging  this
liability,  provided  Maker  must  consent  to any  change  or  modification  of
collateral.

      (d) No single or partial  exercise of any power  hereunder  shall preclude
other or further exercise thereof or the exercise of any other power. The Holder
hereof  shall at all times have the right to proceed  against  any  portions  of
security  held  herefor in such order and in such  manner as the Holder may deem
fit, without waiving any rights with respect to any other security.  No delay or
omission  on the part of  Holder  hereof  in  exercising  any  right  or  remedy
hereunder or the acceptance of one or more  installments from any person after a
default  hereunder or under the Security  Documents shall operate as a waiver of
such  right or remedy or of any other  right or remedy  under this Note nor as a
waiver of such right or remedy in connection with any future default.


                                       5
<PAGE>   36



      (e) If more than one person has  executed  this Note or becomes  obligated
under this Note,  the  obligations  and  covenants  of each such person shall be
joint and several.  The release by Holder of any party liable on this Note shall
not operate to release any other party liable hereon.

      (f) In the event any one or more of the provisions  contained in this Note
shall for any reason be held to be invalid,  illegal,  or  unenforceable  in any
respect,  such invalidity,  illegality or unenforceability  shall not affect any
other  provision  of this  Note,  but this Note  shall be  construed  as if such
invalid, illegal or unenforceable provision had never been contained herein.

      (g) All  notices  hereunder  shall be deemed  to have  been duly  given if
delivered in accordance  with the  provisions set forth in Paragraph 3.07 of the
Deed of Trust; references to notice provisions contained therein relating to (i)
the Grantor  thereunder  shall be applicable to Maker,  and (ii) the Beneficiary
thereunder shall be applicable to Holder.

      (h) This Note may not be waived,  changed,  modified or discharged orally,
except  by an  agreement  in  writing  signed  by the  party  against  whom  the
enforcement of waiver, change, modification or discharge is sought.

      (i) The underlined  words appearing at the  commencement of the paragraphs
are  included  only  as a  guide  to the  contents  thereof  and  are  not to be
considered as controlling, enlarging or restructuring the language or meaning of
those paragraphs.

      (j) As used  herein,  the terms  "Maker" and  "Holder"  shall be deemed to
include their respective heirs,  successors,  legal representatives and assigns,
whether voluntary, by action of the parties, or involuntary by operation of law.

      (k) This Note is to be governed by and  construed in  accordance  with the
laws of the State of Rhode Island without regard to conflict of laws principles;
provided, however, that the laws of the State of Nevada shall apply with respect
to the  procedural  and  substantive  requirements  of Nevada real  property and
personal property law with request to any foreclosure or other action to realize
all real and personal property  collateral security for the Loan. Subject to the
foregoing  proviso,  the Maker  hereby  consents to the  non-exclusive  personal
jurisdiction of the federal and state courts located in Providence County, Rhode
Island in any and all actions  between the Maker and the Holder arising under or
in connection with this Note, the Loan or any of the Security Documents.

FOR AND IN CONSIDERATION OF HOLDER'S  ADVANCEMENT OF THE PRINCIPAL SUM HEREUNDER
IN THE AMOUNT OF $4,000,000.00,  THE MAKER,  BEING AN EXPERIENCED  DEVELOPER AND
PARTICIPANT IN  SOPHISTICATED  REAL ESTATE  VENTURES,  AND HAVING CONSULTED WITH
COUNSEL OF ITS  CHOOSING,  HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT
TO ANY ACTION OR  PROCEEDING  (I) BROUGHT BY THE MAKER,  THE HOLDER OR ANY OTHER
PERSON RELATING TO (A) THE LOAN OR (B) THE SECURITY DOCUMENTS,  OR (II) TO WHICH
THE HOLDER IS A PARTY.  THE MAKER  HEREBY  AGREES THAT THIS NOTE  CONSTITUTES  A
WRITTEN CONSENT TO WAIVER OF TRIAL BY JURY, AND THE MAKER DOES HEREBY CONSTITUTE
AND


                                       6
<PAGE>   37




APPOINT THE HOLDER ITS TRUE AND LAWFUL  ATTORNEY-IN-FACT,  WHICH  APPOINTMENT IS
COUPLED WITH AN INTEREST,  AND THE MAKER DOES HEREBY  AUTHORIZE  AND EMPOWER THE
HOLDER,  IN THE NAME,  PLACE AND STEAD OF THE MAKER,  TO FILE THIS NOTE WITH THE
CLERK OR JUDGE OF ANY COURT OF  COMPETENT  JURISDICTION  AS A STATUTORY  WRITTEN
CONSENT TO WAIVER OF TRIAL BY JURY.  THE MAKER  ACKNOWLEDGES  THAT ITS WAIVER OF
TRIAL BY JURY HAS BEEN MADE KNOWINGLY,  INTENTIONALLY  AND WILLINGLY BY MAKER AS
PART OF A BARGAINED FOR LOAN TRANSACTION.

      EXECUTED as a sealed document as of the day and year first above written.


                                  PREFERRED EQUITIES CORPORATION,
                                  a Nevada corporation


                                  By: /s/  FREDERICK H. CONTE
                                      ------------------------------------------
                                  Name: Frederick H. Conte
                                        ----------------------------------------
                                  Title: President
                                         ---------------------------------------






                                       7
<PAGE>   38
                                STATE OF NEVADA
                                        
          UNIFORM COMMERCIAL CODE -- FINANCING STATEMENT -- FORM UCC-1

        This FINANCING STATEMENT is presented for filing pursuant to the
                         Nevada Uniform Commercial Code




IMPORTANT: Read Instructions on back before filling out form      Receipt No.___




--------------------------------------------------------------------------------
1. DEBTOR (ONE NAME ONLY)
     [X] LEGAL BUSINESS NAME                 Preferred Equities Corporation
     [ ] INDIVIDUAL (LAST NAME FIRST)
--------------------------------------------------------------------------------
1A. SOCIAL SECURITY OR FEDERAL TAX NO.

--------------------------------------------------------------------------------
1B. MAILING ADDRESS           1C. CITY, STATE               1D. ZIP CODE
     4310 Paradise Road           Las Vegas, Nevada             89109
--------------------------------------------------------------------------------
1E. RESIDENCE ADDRESS         1F. CITY, STATE               1G. ZIP CODE

--------------------------------------------------------------------------------
2. ADDITIONAL DEBOT (IF ANY) (ONE NAME ONLY)
     [ ] LEGAL BUSINESS NAME
     [ ] INDIVIDUAL (LAST NAME FIRST)
--------------------------------------------------------------------------------
2A. SOCIAL SECURITY OR FEDERAL TAX NO.

--------------------------------------------------------------------------------
2B. MAILING ADDRESS           2C. CITY, STATE               2D. ZIP CODE

--------------------------------------------------------------------------------
2E. RESIDENCE ADDRESS         2F. CITY, STATE               2G. ZIP CODE

--------------------------------------------------------------------------------
3. [ ]  ADDITION DEBTOR(S) ON ATTACHED SHEET
--------------------------------------------------------------------------------
4. SECURED PARTY
     NAME             DORFINCO CORPORATION
     MAILING ADDRESS  40 Westminster Street
     CITY  Providence         STATE  Rhode Island      ZIP CODE  02940
--------------------------------------------------------------------------------
4A. SOCIAL SECURITY NO. FEDERAL TAX NO.
    OR BANK TRANSIT AND A.B.A. NO.
--------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY)
     NAME
     MAILING ADDRESS
     CITY                     STATE                    ZIP CODE
--------------------------------------------------------------------------------
5A. SOCIAL SECURITY NO. FEDERAL TAX NO.
    OR BANK TRANSIT AND A.B.A. NO.
--------------------------------------------------------------------------------
6. This FINANCING STATEMENT covers the following types of items of property (if
   crops or timber, include description of real property on which growing or to
   be growing and name of record owner of such real estate; if fixtures,
   description of real property to which affixed or to be affixed and name of
   record owner of such real estate; if oil, gas or minerals, include 
   description of real property from which to be extracted).

   See Exhibit "A" and "B" attached hereto and hereby incorporated herein
   by this reference.


   6A. ______________________________      6C. $________________________________
          SIGNATURE OF RECORD OWNER              MAXIMUM AMOUNT OF INDEBTEDNESS
                                                 TO BE SECURED AT ANY ONE TIME
   6B. ______________________________                       (OPTIONAL)
          (TYPE) RECORD OWNER OF 
               REAL PROPERTY
--------------------------------------------------------------------------------
7. CHECK IF APPLICABLE [X]

     A. [X] Proceeds of collateral are also covered

     B. [ ] Products of collateral are also covered

     C. [ ] Proceeds of above described original collateral in which a
            security interest was perfected (Debtor's Signature Not Required)

     D. [ ] Collateral was brought into this State subject to security interest
            in another jurisdiction (Debtor's Signature Not Required)
--------------------------------------------------------------------------------
8. CHECK IF APPLICABLE [X]

     [ ] DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH NRS 704.205
         AND NRS 104.9403.
--------------------------------------------------------------------------------
9.                                           (Date)  August 12 1998
                                                   -----------------------------
   Preferred Equities Corporation

   By      /s/  [SIG]                                 President
     ---------------------------------------------------------------------------
      SIGNATURE(S) OF DEBTOR(S)                        (TITLE)

     ---------------------------------------------------------------------------
      DORFINCO CORPORATION          TYPE NAME(S)

   By
     ---------------------------------------------------------------------------
      SIGNATURE(S) OF SECURED PARTY(IES)               (TITLE)

     ---------------------------------------------------------------------------
                                    TYPE NAME(S)

--------------------------------------------------------------------------------
10.                                Return Copy to:

NAME                Margaret R. Hayes-Cote, Division Counsel          TRUST
ADDRESS             Textron Financial Corporation                    ACCOUNT
CITY, STATE         40 Westminster Street                             NUMBER
AND ZIP             Providence, Rhode Island 02940               (If Applicable)

                                                                   ----------
--------------------------------------------------------------------------------
11.  This Space for Use of Filing Officer: (Date, Time, File Number
     and Filing Officer)

--------------------------------------------------------------------------------
<PAGE>   39

Debtor:  Preferred Equities Corporation
Secured Party:  DORFINCO CORPORATION
Item 6  -  continued


                                   EXHIBIT "A"

This  Financing  Statement  covers  all  of  Debtor's  interest  in  and  to the
following,  whether now existing or  hereafter  coming into  existence,  and all
substitutions, replacements, renewals and additions thereto or thereof:

      (a)   all interests in land,  estates,  easements,  rights,  improvements,
            property, fixtures, equipment,  furniture,  furnishings,  appliances
            and  appurtenances,  of every nature whatsoever  (collectively,  the
            "Premises") now or hereafter  situated on the real estate  described
            on Exhibit "B" hereto (the "Land");

      (b)   all construction materials,  vaults, gas, electric and other utility
            fixtures,  radiators,  heaters, engines, machinery, boilers, ranges,
            elevators, plumbing and heating fixtures,  draperies,  carpeting and
            other  floor  coverings,  fire  extinguishers  and any other  safety
            equipment, washers, dryers, water heaters, water fountains, mirrors,
            mantels,   air   conditioning   apparatus,   refrigerating   plants,
            refrigerators,  cooking apparatus and appurtenances, window screens,
            awnings  and storm  sashes,  which are or shall be  attached to said
            buildings,  structures or  improvements  and all other  furnishings,
            furniture,  goods  which are or are to become  fixtures,  machinery,
            equipment,  inventory,  supplies,  appliances, and tangible personal
            property of every kind and nature  whatsoever now or hereafter owned
            by Debtor and  located  in, on or about,  or used or  intended to be
            used with or in connection  with the use,  operation or enjoyment of
            the  Land  and  the  improvements   thereon,  and  all  attachments,
            additions, improvements, after-acquired property, renewals, proceeds
            and  replacements  of any of the foregoing and all the right,  title
            and  interest of Debtor in any of the  foregoing  property  which is
            subject to or covered by any  conditional  sales  contract,  chattel
            mortgage or similar lien or claim,  together with the benefit of any
            deposits or payments now or hereafter made by Debtor or on behalf of
            Debtor with respect  thereto,  all of which are hereby  declared and
            shall be deemed to be fixtures and  accessions to the freehold and a
            part of the  Premises as between the parties  hereto and all persons
            claiming by,  through or under them, and which shall be deemed to be
            a portion of the security for the  indebtedness  described in and to
            be secured by,  among other  things,  that certain Loan and Security
            Agreement  (the  "Loan  Agreement")  dated as of  August  12,  1998,
            between  Secured  Party as lender and Debtor as  borrower,  and that
            certain Deed of Trust and Security Agreement and Fixture Filing (the
            "Deed")  dated as of  August  12,  1998,  by and  among  Debtor,  as
            grantor,  United Title of Nevada, a Nevada  corporation,  as trustee
            and Secured Party, as beneficiary;



                                       1
<PAGE>   40

      (c)   all  now  owned  or  hereafter  acquired  easements,  rights-of-way,
            strips,  gores of  land,  streets,  ways,  alleys,  passages,  sewer
            rights,  waters,  water  courses,  water rights and powers,  and all
            estates,   rights,   titles,   interests,   privileges,   liberties,
            tenements,  hereditaments and appurtenances  whatsoever,  in any way
            belonging,  relating  or  appertaining  to the  Premises or any part
            thereof,  or which hereafter  shall in any way belong,  relate or be
            appurtenant thereto, and the reversions,  remainders, rents, issues,
            profits, revenues, accounts, contract rights and general intangibles
            of or arising from the Premises  (including  without  limitation all
            payments under room occupancy  agreements,  all leases or tenancies,
            proceeds of  insurance,  prepaid  insurance  premiums,  condemnation
            payments,  tenant security deposits,  escrow funds and payments from
            motel guests), and all the estate, right, title, interest, property,
            possession,  claim  and  demand  whatsoever  at  law,  as well as in
            equity, of Debtor of, in and to the same;

      (d)   any  and  all  leases,  subleases,   rental  agreements,   occupancy
            agreements,  licenses,  concessions,  entry fees,  other  agreements
            which  grant  a  possessory  interest  in  all or  any  part  of the
            Premises,  together  with  all  rents,  issues,  profits,  revenues,
            proceeds, awards, accounts, security deposits and other benefits now
            or  hereafter  arising  from the use and  enjoyment  of the Land and
            improvements thereon or any part thereof;

      (e)   all other  personal  property in any way  connected  with the use or
            enjoyment of the Premises; and

      (f)   all proceeds of any of the foregoing.



                                       2
<PAGE>   41

Debtor:  Preferred Equities Corporation
Secured Party:  DORFINCO CORPORATION
Item 6  -  continued



                                   EXHIBIT "B"

                            Legal Description of Land

All that real property  situated in the State of Nevada,  County of Nye, bounded
and described as follows:

Parcel 1:

Lot One (1) Block One (1) of CALVADA  VALLEY UNIT NO. 2 as shown by map recorded
October 5, 1970 as File No.  20291 in the Office of the County  Recorder  of Nye
County, Nevada.

EXCEPTING  THEREFROM  all of its right,  title and interest in and to all of the
minerals,  including gas, coal, oil and oil shales as disclosed by Deed recorded
January 10, 1961 in Book 43, Page 374, Official Records, Nye County, Nevada.

Parcel 2:

Lot One hundred  forty-eight  (148) in Block Sixteen (16) of CALVADA VALLEY UNIT
NO. 6, as shown by map  recorded  February 5, 1973 as Document  No. 36024 in the
Office of the County Recorder of Nye County, Nevada.

EXCEPTING  THEREFROM  all of its right,  title and interest in and to all of the
minerals,  including gas, coal, oil and oil shales as disclosed by Deed recorded
January 10, 1961 in Book 43, Page 374, Official Records, Nye County, Nevada.

Parcel 3:

Parcels  One (1) and Three (3) of Parcel Map  recorded  May 24, 1983 as File No.
81177 and amended by Certificate of Amendment recorded June 14, 1983 as File No.
83144 and by  Certificate  of Amendment  recorded  December 12, 1983 as File No.
99135 and by Certificate of Amendment recorded March 16, 1992 as File No. 304864
of Official Records, Nye County, Nevada.

Parcel 4:

Parcel Two (2) as shown by Parcel Map recorded April 26, 1994 as File No. 351410
of Official Records, Nye County, Nevada.



                                       3
<PAGE>   42

Parcel 5:

Lot Forty  (40) in Block  Six (6) of  AMENDED  PLAT OF  CALVADA  VALLEY  UNIT 6,
recorded  December 28, 1993 as Document  No.  345007 in the Office of the County
Recorder of Nye County, Nevada.

Lots  Nineteen  (19) and Nineteen A (19A) (to the extent of  Preferred  Equities
Corporation's reversionary interest in Lot Nineteen A (19A)) of Block Six (6) of
CALVADA  VALLEY  UNIT NO. 6,  recorded  February  5,  1973 as File No.  36024 of
Official Records,  Nye County,  Nevada,  more  particularly  described as Parcel
Nineteen (19) as shown on Parcel Map recorded  January 6, 1983 as File No. 72610
of Official Records, Nye County, Nevada.

Lot One (1) in Block Fifteen (15), Lots One hundred  seventy-three (173) and One
hundred   seventy-four  (174)  in  Block  Eleven  (11)  and  Lot  Three  hundred
twenty-three  (323) in Block Six (6) of CALVADA  VALLEY  UNIT NO. 6, as shown by
map recorded  February 5, 1973 as Document No. 36024 in the Office of the County
Recorder of Nye County, Nevada.



                                       4
<PAGE>   43
<TABLE>
<S>                                                                                                 <C>
Las Vegas, Nevada 89102                                    STATE OF NEVADA                                                     18315
Phone 800-945-0092

                                    UNIFORM COMMERCIAL CODE -- FINANCING STATEMENT -- FORM UCC-1

                                  THIS FINANCING STATEMENT IS PRESENTED FOR FILING PURSUANT TO THE
                                                   NEVADA UNIFORM COMMERCIAL CODE

IMPORTANT: READ INSTRUCTIONS ON BACK BEFORE FILLING OUT FORM.                                       RECEIPT NO. ____________________
====================================================================================================================================
1.  DEBTOR                                                                                  1A. SOCIAL SECURITY OR FEDERAL TAX NO.
       [X] LEGAL BUSINESS NAME              Preferred Equities Corporation
       [ ] INDIVIDUAL (LAST NAME FIRST)
------------------------------------------------------------------------------------------------------------------------------------
1B.  MAILING ADDRESS                                             1C.  CITY, STATE                                      1D.  ZIP CODE
          4310 Paradise Road                                          Las Vegas, Nevada                                     89109
------------------------------------------------------------------------------------------------------------------------------------
1E.  RESIDENCE ADDRESS                                           1F.  CITY, STATE                                      1G.  ZIP CODE

------------------------------------------------------------------------------------------------------------------------------------
2.   ADDITIONAL DEBTOR (IF ANY) (ONE NAME ONLY)                                             2A.  SOCIAL SECURITY OR FEDERAL TAX NO.
       [ ] LEGAL BUSINESS NAME
       [ ] INDIVIDUAL (LAST NAME FIRST)
------------------------------------------------------------------------------------------------------------------------------------
2B.  MAILING ADDRESS                                             2C.  CITY, STATE                                      2D.  ZIP CODE

------------------------------------------------------------------------------------------------------------------------------------
2E.  RESIDENCE ADDRESS                                           2F.  CITY, STATE                                      2G.  ZIP CODE

====================================================================================================================================
3.   [ ] ADDITIONAL DEBTOR(S) ON ATTACHED SHEET
====================================================================================================================================
4.   SECURED PARTY                                                                          4A.  SOCIAL SECURITY NO. FEDERAL TAX NO.
       NAME  DORFINCO CORPORATION                                                                OR BANK TRANSIT AND A.B.A. NO.
       MAILING ADDRESS  40 Westminster Street
       CITY  Providence        STATE  Rhode Island      ZIP CODE  02940
====================================================================================================================================
5.   ASSIGNEE OF SECURED PARTY (IF ANY)                                                     5A.  SOCIAL SECURITY NO. FEDERAL TAX NO.
       NAME                                                                                      OR BANK TRANSIT AND A.B.A. NO.
       MAILING ADDRESS
       CITY                    STATE                    ZIP CODE         
====================================================================================================================================
6.   This FINANCING STATEMENT covers the following types or items of property (if crops or timber, include description of real
     property on which growing or to be growing and name of record owner of such real estate; if fixtures, include description of
     real property to which affixed or to be affixed and name of record owner of such real estate; if oil, gas or minerals, include 
     description of real property from which to be extracted).

                      See Exhibit "A" and "B" attached hereto and hereby incorporated herein by this reference


                                               [THIS SPACE FOR USE OF FILING OFFICER]


     6a. _________________________________________________________     6C. $________________________________________________________
                      SIGNATURE OF RECORD OWNER                                         MAXIMUM AMOUNT OF INDEBTEDNESS TO
                                                                                      BE SECURED AT ANY ONE TIME (OPTIONAL)
     6B. _________________________________________________________
                 (TYPE) RECORD OWNER OF REAL PROPERTY
====================================================================================================================================
7.     Check      A. [X] Proceeds of    B. [ ] Products of    C. [ ] Proceeds of above described    D. [ ] Collateral was brought 
         if              collateral            collateral            original collateral in which          into this State subject
     Applicable          are also              are also              a security interest was               to security interest in
        [X]              covered               covered               perfected (Debtor's Signature         another jurisdiction
                                                                     Not Required)                         (Debtor's signature Not
                                                                                                           Required)
====================================================================================================================================
8.     Check
         if         [ ] DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH NRS 704.205 AND NRS 104.9403.
     Applicable
        [X]
====================================================================================================================================
9.                                          (Date)  August 12, 1998          11.  This Space for Use of Filing Officer: (Date, Time,
     PREFERRED SECURITIES CORPORATION                                             File Number and Filing Officer)
                                                     PRESIDENT
     By   /s/ [SIG]
        ________________________________________________________________
           SIGNATURE(S) OF DEBTOR(S)                   TITLE   

     ___________________________________________________________________
     DORFINCO CORPORATION        TYPE NAME(S)

     By ________________________________________________________________
          SIGNATURE(S) OF SECURED PARTY(IES)           (TITLE)

     ___________________________________________________________________
                                 TYPE NAME(S)  
========================================================================
                           RETURN COPY TO:

NAME          Margaret R. Hayes-Cote, Division Counsel        TRUST
ADDRESS       Textron Financial Corporation                  ACCOUNT
CITY, STATE   40 Westminster Street                           NUMBER
AND ZIP       Providence, Rhode Island 02940             (IF APPLICABLE)
                                                                             WHITE -- Alphabetical; PINK -- Acknowledgement;
                                                         _______________          GREEN -- Secured Party; BLUE -- Debtor.  
</TABLE>
<PAGE>   44

                        ENVIRONMENTAL INDEMNITY AGREEMENT

      THIS ENVIRONMENTAL  INDEMNITY AGREEMENT (this "Agreement") is entered into
as of the  12th day of  August,  1998 by and  between  DORFINCO  CORPORATION,  a
Delaware corporation ("Indemnitee") and PREFERRED EQUITIES CORPORATION, a Nevada
corporation  ("Indemnitor").  The parties  hereto enter into this  contract with
reference to the following facts:

      A.  Indemnitee  has agreed to make a loan to  Indemnitor  in the amount of
Four Million and 00/100 Dollars  ($4,000,000.00) (the "Loan"). The Loan is to be
evidenced by a Promissory Note (the "Note"),  and the Note is to be secured by a
Deed of Trust,  Security  Agreement  and  Fixture  Filing  (the "Deed of Trust")
encumbering certain property located in the County of Nye, State of Nevada (such
property  or any parcel or portion  thereof  is herein the  "Property")  as more
particularly described on Exhibit "A" attached hereto and incorporated herein by
this reference.  The making of the Loan is subject to a condition precedent that
Indemnitor make and deliver this Indemnity Agreement to Indemnitee.

      B. Indemnitor  acknowledges that Indemnitee would not make the Loan in the
absence of this Agreement.

      C. Indemnitor  acknowledges that Indemnitee may sustain Losses (as defined
herein)  both prior to and  following a  foreclosure  of  Indemnitee's  security
interest in the Property pursuant to the Deed of Trust.

      D. Indemnitor  acknowledges and agrees that any amounts owed to Indemnitee
by Indemnitor  pursuant to the  provisions of this  Agreement are not secured by
the Deed of Trust nor are they  related  in any  manner to any  amounts  owed to
Indemnitee  pursuant  to the Note and that said  liabilities  shall  survive and
continue to be of full force and effect  notwithstanding  a sale or  foreclosure
conducted  pursuant  to the  Deed  of  Trust,  the  making  of a deed in lieu of
foreclosure  in favor of Indemnitee  or a transfer of any other  interest in the
Property, whether by Indemnitor or Indemnitee or by any successor or assignee of
Indemnitor or Indemnitee.

      NOW,  THEREFORE,  in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:

      1. Hazardous Substances.  As used herein,  "Hazardous Substance" means any
substance,  material,  element, compound, mixture, solution, waste, pollutant or
matter  that may give  rise to  liability  under (i) the  Resource  Conservation
Recovery  Act, as amended by the  Hazardous  and Solid Waste  Amendments of 1984
(RCRA, 42 U.S.C.  Sections 6901 et seq.); (ii) the  Comprehensive  Environmental
Response,  Compensation  and  Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986 (CERCLA, 42 U.S.C.  Sections 9601 et.
seq.);  (iii) the Clean Water Act (CWA, 33 U.S.C.  Sections 1251, et seq.); (iv)
the Safe Drinking Water Act (14 U.S.C.  Sections  1401, et seq.);  (v) the Toxic
Substances  Control  Act  (TSCA,  15 U.S.C.  Sections  2601 et  seq.);  (vi) the
Hazardous Materials Transportation Act (49 U.S.C. Sections 1801, et seq.); (vii)
the  Emergency  Planning  and  Community  Right to Know Act of 1986 (42  U.S.C.,
Sections 11001, et seq.);



                                                                               1
<PAGE>   45

(viii) the Clean Air Act (42 U.S.C. Sections 7401, et seq.); (ix) the Endangered
Species Act (16 U.S.C. Sections 1531, et seq.); (x) any regulations  promulgated
pursuant to Items (i) - (ix) above;  (xi) any  similar  local,  state or federal
laws,  rules,  ordinances  or  regulations  either in  existence  as of the date
hereof, or enacted or promulgated after the date of this Agreement, that concern
the management,  control, storage, discharge,  treatment,  containment,  removal
and/or  transport of substances or materials  that are or may become a threat to
public  health or the  environment;  or (xii) any common  law  theory  involving
materials or  substances  which are (or alleged to be) hazardous to human health
or the environment, based on nuisance, trespass, negligence, strict liability or
other  tortious  conduct  (items (i) through (xi) are  collectively  referred to
herein as "Environmental Laws").

      2.  Indemnity.  Indemnitor  hereby agrees to indemnify,  save,  defend (at
Indemnitor's  sole  cost and  expense)  and hold  harmless  Indemnitee,  Textron
Financial  Corporation  and  Textron,   Inc.,  and  their  respective  officers,
directors,  agents, and employees, and the successors and assigns of each of the
foregoing (all of such persons or entities being collectively referred to herein
as  "Indemnified  Persons"  and each such  reference  shall  refer  jointly  and
severally to each such person),  from and against the full amount of any and all
Losses,  except,  however,  to the extent that any such Losses are caused by the
gross  negligence  or  wilful   misconduct  of  Indemnitee,   Textron  Financial
Corporation  and/or Textron,  Inc.  "Losses" shall mean any and all liabilities,
obligations, losses, damages, penalties, claims, actions, suits, costs, expenses
and  disbursements  (including,  but not limited to, all attorneys' fees and all
other professional or consultants' expenses incurred in investigating, preparing
for,  serving as a witness in or  defending  against  any action or  proceeding,
whether  actually  commenced or  threatened,  which may be asserted  against any
Indemnified  Person),  arising from,  in respect of, as a consequence  of, or in
connection with any of the following: (a) the removal of any Hazardous Substance
on or released from the  Property,  whether such removal is done or completed by
Indemnitor,  Indemnitee, or any other person or entity and regardless of whether
or not such  removal is  rendered  pursuant  to a court order or the order of an
administrative  agency;  (b) claims asserted by any person or entity (including,
without  limitation,  any governmental agency or  quasi-governmental  authority,
board, bureau, commission, department, instrumentality or public body, court, or
administrative tribunal (a "Governmental Agency")), in connection with or in any
way  arising  out  of  the  presence,   storage,   use,  disposal,   generation,
transportation,  or treatment  of any  Hazardous  Substance  on, in or under the
Property,  either prior to or after the date of this  Agreement and either prior
to, during, or after the time that Indemnitor became owner of the Property;  (c)
the violation or claimed  violation of any  Environmental  Laws in regard to the
Property, whether such violation or claimed violation occurred prior to or after
the date of this  Agreement and  regardless of whether such  violation  occurred
prior  to,  during,  or  after  the time  that  Indemnitor  became  owner of the
Property;  or (d) the  preparation  of an  environmental  audit on the Property,
whether conducted or authorized by Indemnitor,  Indemnitee,  or a third party or
the  implementation  of any  environmental  audit's  recommendations,  provided,
however,  that Indemnitee  shall have had reasonable  grounds to believe that an
environmental audit was justified due to such Indemnitee's  reasonable belief as
to the presence or probable presence of any Hazardous  Substance on the Property
and that such  presence  could  give rise to a  material  adverse  effect on the
Property or the ability of Indemnitor to



                                                                               2
<PAGE>   46

repay the Loan or perform its obligations with respect thereto.  Nothing in this
Agreement shall be deemed to imply a right by Indemnitee to go onto the Property
except as specifically set forth herein or in any of the Security Documents.

      3. Payments.  Payments under this indemnity in respect of all Losses shall
be due and payable as such Losses are  incurred.  The  Indemnified  Person shall
provide Indemnitor notice of any claim that may result in a Loss with reasonable
promptness,  and Indemnitor  shall have the right to defend the same;  provided,
however,  that  failure by an  Indemnified  Person to give such notice shall not
relieve Indemnitor from any liability,  duty or obligation hereunder,  except to
the extent  Indemnitor  has been  prejudiced  by any delay or failure to provide
such notice.  Indemnitor  will pay interest on any amount not paid from the time
such Losses are  incurred  prior to the date of notice at the  non-Default  Rate
described  in the Note and shall pay interest on any such amount not paid within
ten (10) days of notice from  Indemnitee to  Indemnitor  that such amount is due
and payable at the Default Rate, but in no event to exceed the maximum  interest
rate allowed by law. The  Indemnified  Persons  shall be entitled to recover the
full  amount of all  items to be  indemnified  or  reimbursed  pursuant  to this
Agreement,  regardless  of  whether  (i) such  items are  incurred  or  suffered
pursuant to an order of any  Governmental  Agency  relating to the  cleaning up,
remedying or other  responsive  action  required by applicable  law, or (ii) any
Indemnified  Person now or hereafter has or should have had actual  knowledge of
any environmental  condition giving rise to an  indemnification or reimbursement
obligations under this Agreement.

      4.  Obligation to Defend.

            (a) Assumption of Defense. Indemnitor is bound to defend any and all
actions or proceedings  that may be brought  against any  Indemnified  Person in
connection  with or arising out of the matters  covered by this  Agreement  upon
receipt of written notice from any  Indemnified  Person that a claim of a nature
described in this indemnity has been asserted against such  Indemnified  Person.
In the event that Indemnitor is defending an Indemnified Person,  Indemnitor may
settle the claim only with the Indemnified Person's prior written consent,  said
consent  or the  denial  thereof to be in the  Indemnified  Person's  reasonable
discretion.

            (b)  Delivery of  Acknowledgment.  Within  thirty (30) days from the
date of  receipt  by  Indemnitor  from  Indemnified  Person of a notice of claim
pursuant to the foregoing  Paragraph  4(a),  Indemnitor  must  acknowledge  in a
writing  satisfactory  to  the  Indemnified  Person  its  duty  to  defend  (the
"Acknowledgment"); provided, however, that until the Indemnified Person receives
the  Acknowledgment,  the  Indemnified  Person  shall be entitled to defend such
claim and Indemnitor shall be bound in the manner set forth in subparagraph 4(d)
hereof.

            (c) Conduct of Defense;  Participation by Indemnified Person. In the
event that Indemnitor is defending an Indemnified  Person, such defense shall be
conducted by reputable  attorneys  retained by Indemnitor,  satisfactory to said
Indemnified Person in its reasonable  discretion,  at Indemnitor's sole cost and
expense.  In  addition,   said  Indemnified  Person  shall  have  the  right  to
participate  in such  proceedings  and to be represented by attorneys of its own
choosing.  The  Indemnified  Person shall be  responsible  for the costs of such
participation unless the Indemnified



                                                                               3
<PAGE>   47

Person shall have concluded in its reasonable  discretion  that the interests of
the Indemnified Person and of Indemnitor in the action conflict in such a manner
and to such an extent as to require,  consistent  with  applicable  standards of
professional  responsibility,  retention of separate counsel for the Indemnified
Person,  in which case Indemnitor  shall pay for separate  counsel chosen by the
Indemnified Person.

            (d) Indemnitor's  Failure to Defend.  If Indemnitor fails to deliver
the  Acknowledgment  or fails to choose counsel  satisfactory to the Indemnified
Person,  Indemnitor  shall not  thereafter  be entitled to elect to defend,  and
Indemnitor  shall be bound by and shall be  conclusively  liable for the results
obtained by the Indemnified  Person,  including without limitation the amount of
any judgment or good faith  out-of-court  settlement or compromise and all costs
and fees of counsel incurred by the Indemnified Person in connection therewith.

      5.  Intentionally Omitted.

      6.  Notification  by  Indemnitor.  Indemnitor  agrees  promptly,  upon its
receipt of notice  thereof,  to notify  Indemnitee  of the  commencement  of any
litigation  or  proceedings  pending,  threatened  or commenced  (whether or not
served)  against  Indemnitor  or any other party in  connection  with  Hazardous
Substances  and  the  Property  and  of  the  receipt  of any  notice  from  any
Governmental  Agency  in  regard  to  Hazardous  Substances  and  the  Property.
Indemnitor shall  immediately  upon receipt provide the Indemnified  Person with
true,  complete and correct  copies of all such notices and other  documentation
related to said notices, litigation or proceedings.

      7.  Invalidity.  If any  terms of this  Agreement  shall be held  invalid,
illegal or  unenforceable,  such provisions  shall be severable from the rest of
this Agreement and the validity,  legality,  or  enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

      8. Attorneys'  Fees. In any action to enforce or interpret this Agreement,
the  prevailing  party shall be entitled  to receive  from the losing  party its
attorneys' fees and costs incurred in connection therewith.

      9. No Time Limit.  There is no time limitation on Indemnitor'  obligations
hereunder,  and the  Indemnitor  waives  all  present  and  future  statutes  of
limitations  as a  defense  to any  action to  enforce  the  provisions  of this
Agreement.

      10. Notice. All notices,  demands or requests provided for or permitted to
be given  pursuant to this  Agreement  must be in writing and shall be deemed to
have been  properly  given or served by  depositing  the same with a  nationally
recognized  overnight courier service or in the United States Mail, postpaid and
registered or certified return receipt requested, and addressed to the addresses
specified below. All notices, demands and requests shall be effective upon being
deposited with a nationally  recognized  courier service or, on the date that is
two (2) business  days after such  deposit,  upon being  deposited in the United
States Mail.  Rejection or other  refusal to accept or the  inability to deliver
because  of changed  address of which no notice was given  shall be deemed to be
receipt of the notice,  demand or request  sent.  By giving at least thirty (30)
days written notice hereof,



                                                                               4
<PAGE>   48

Indemnitor or the  Indemnitee  shall have the right from time to time and at any
time during the term of this Agreement to change their respective addresses.

      "Indemnitee" and "Indemnified Persons"

            DORFINCO CORPORATION
            c/o Textron Financial Corporation
            40 Westminster Street
            Providence, Rhode Island  02940
            Attn: Division Counsel

      "Indemnitor"

            PREFERRED EQUITIES CORPORATION
            4310 Paradise Road
            Las Vegas, Nevada  89109
            Attn: President and General Counsel

      11.  Captions,  Gender,  and Number.  Any section or  paragraph,  title or
caption  contained in this  Agreement is for  convenience  only and shall not be
deemed  a part of this  Agreement.  As used in this  Agreement,  the  masculine,
feminine or neuter  gender,  and the  singular or plural  number,  shall each be
deemed to include the others whenever the context so allows.

      12. Indemnified Persons' Rights. The parties hereto expressly  acknowledge
that this Agreement is made  expressly  only for the benefit of the  Indemnified
Persons.

      13.  Successors  and Assigns.  This  Agreement  shall be binding upon, and
inure  to the  benefit  of,  the  parties  named  herein  and  their  respective
successors and assigns.  Indemnitor's  obligations  hereunder  shall survive and
continue to be of full force and effect  notwithstanding a foreclosure conducted
pursuant to the Deed of Trust,  the making of a deed in lieu of  foreclosure  by
Indemnitor  in favor of  Indemnitee  or a transfer of any other  interest in the
Property, whether by Indemnitor or Indemnitee or by any successor or assignee of
Indemnitor or Indemnitee.

      14. Failure or Indulgence  Not Waiver.  No failure or delay on the part of
an Indemnified Person in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any power, right or privilege preclude any other or further exercise of any such
power,  right or  privilege.  All powers,  rights and  privileges  hereunder are
cumulative to, and not exclusive of, any powers,  rights or privileges otherwise
available.

      15.  Governing  Law. This  Agreement is to be governed by and construed in
accordance with the laws of the State of Rhode Island without regard to conflict
of laws  principles;  provided,  however,  that the laws of the  State of Nevada
shall apply with  respect to the  procedural  and  substantive  requirements  of
Nevada real property and personal property law with respect to any



                                                                               5
<PAGE>   49

foreclosure or other action to realize all real and personal property collateral
security for the Loan located within the State of Nevada.

      16.  Joint and Several  Obligation.  If more than one person has  executed
this  Agreement  as  Indemnitor  or becomes  obligated  under this  Agreement as
Indemnitor, the obligations and covenants of each such person shall be joint and
several.  The release by  Indemnitee  of any party liable  under this  Agreement
shall not operate to release any other party liable hereunder.

      17. Effect of this  Agreement.  This Agreement  shall remain in full force
and effect and  continue  to be  effective  should any  petition  be filed by or
against the Indemnitor  under the  Bankruptcy  Code, as the same may be amended,
for liquidation or reorganization, or should Indemnitor become insolvent or make
an  assignment  for the benefit of  creditors or should a receiver or trustee be
appointed  for the  benefit  of  creditors  or should a  receiver  or trustee be
appointed  for all or any  significant  part of the  Indemnitor's  assets.  This
Agreement  shall  continue to be effective if at any time payment or performance
of the Indemnitor's obligations (or any part thereof) under the Deed of Trust or
the other Security  Documents (as defined in the Deed of Trust) is,  pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned  by  Indemnitee,   whether  as  a  "preferential  transfer,"  "voidable
preference,"  "fraudulent  conveyance," or otherwise,  as if the portion of such
payment rescinded, reduced, restored, or returned had never been made.

      18. Jury Trial; Jurisdiction.  Indemnitor hereby waives the right to trial
by jury in any  litigation  arising out of,  relating to, or connected with this
Agreement, it being acknowledged by Indemnitor that Indemnitor is a professional
developer  engaged and  knowledgeable  in  sophisticated  commercial real estate
transactions  and that  Indemnitor  makes this waiver of trial by jury knowingly
and voluntarily and only after consultation with sophisticated  legal counsel of
Indemnitor's choosing.  Indemnitor hereby consents to the non-exclusive personal
jurisdiction of the federal and state courts located in Providence County, Rhode
Island in any and all actions between the Indemnitor and the Indemnitee  arising
under or in  connection  with this  Agreement,  the Loan or any of the  Security
Documents.

      IN WITNESS WHEREOF,  Indemnitor has executed this Agreement as of the date
and year first written above.

                                        "Indemnitor"
                                
                                        PREFERRED EQUITIES CORPORATION,
                                        a Nevada corporation
                                
                                
                                        By:  /s/  FREDERICK H. CONTE
                                             -----------------------------------
                                        Name: Frederick H. Conte
                                              ----------------------------------
                                        Title: President
                                               ---------------------------------


<PAGE>   50

                                        "Indemnitee"

                                        DORFINCO CORPORATION,
                                        a Delaware corporation


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                                                                               7
<PAGE>   51

                                   EXHIBIT "A"

                          LEGAL DESCRIPTION OF PROPERTY


All that real property  situated in the State of Nevada,  County of Nye, bounded
and described as follows:

Parcel 1:

Lot One (1) Block One (1) of CALVADA  VALLEY UNIT NO. 2 as shown by map recorded
October 5, 1970 as File No.  20291 in the Office of the County  Recorder  of Nye
County, Nevada.

EXCEPTING  THEREFROM  all of its right,  title and interest in and to all of the
minerals,  including gas, coal, oil and oil shales as disclosed by Deed recorded
January 10, 1961 in Book 43, Page 374, Official Records, Nye County, Nevada.

Parcel 2:

Lot One hundred  forty-eight  (148) in Block Sixteen (16) of CALVADA VALLEY UNIT
NO. 6, as shown by map  recorded  February 5, 1973 as Document  No. 36024 in the
Office of the County Recorder of Nye County, Nevada.

EXCEPTING  THEREFROM  all of its right,  title and interest in and to all of the
minerals,  including gas, coal, oil and oil shales as disclosed by Deed recorded
January 10, 1961 in Book 43, Page 374, Official Records, Nye County, Nevada.

Parcel 3:

Parcels  One (1) and Three (3) of Parcel Map  recorded  May 24, 1983 as File No.
81177 and amended by Certificate of Amendment recorded June 14, 1983 as File No.
83144 and by  Certificate  of Amendment  recorded  December 12, 1983 as File No.
99135 and by Certificate of Amendment recorded March 16, 1992 as File No. 304864
of Official Records, Nye County, Nevada.

Parcel 4:

Parcel Two (2) as shown by Parcel Map recorded April 26, 1994 as File No. 351410
of Official Records, Nye County, Nevada.



                                                                               1
<PAGE>   52

Parcel 5:

Lot Forty  (40) in Block  Six (6) of  AMENDED  PLAT OF  CALVADA  VALLEY  UNIT 6,
recorded  December 28, 1993 as Document  No.  345007 in the Office of the County
Recorder of Nye County, Nevada.

Lots  Nineteen  (19) and Nineteen A (19A) (to the extent of  Preferred  Equities
Corporation's reversionary interest in Lot Nineteen A (19A)) of Block Six (6) of
CALVADA  VALLEY  UNIT NO. 6,  recorded  February  5,  1973 as File No.  36024 of
Official Records,  Nye County,  Nevada,  more  particularly  described as Parcel
Nineteen (19) as shown on Parcel Map recorded  January 6, 1983 as File No. 72610
of Official Records, Nye County, Nevada.

Lot One (1) in Block Fifteen (15), Lots One hundred  seventy-three (173) and One
hundred   seventy-four  (174)  in  Block  Eleven  (11)  and  Lot  Three  hundred
twenty-three  (323) in Block Six (6) of CALVADA  VALLEY  UNIT NO. 6, as shown by
map recorded  February 5, 1973 as Document No. 36024 in the Office of the County
Recorder of Nye County, Nevada.



                                                                               2
<PAGE>   53
                               GUARANTY AGREEMENT


        This GUARANTY AGREEMENT  ("Guaranty") made as of the 12th day of August,
1998, by the undersigned  party  ("Guarantor")  to, with, and for the benefit of
DORFINCO CORPORATION  ("Lender"),  a Delaware corporation,  having its principal
office at 40 Westminster Street, Providence, Rhode Island 02940.

                                   WITNESSETH:

        WHEREAS,   PREFERRED   EQUITIES   CORPORATION,   a  Nevada   corporation
("Borrower") desires to obtain a $4,000,000.00 loan ("Loan") from Lender;

        WHEREAS,  Lender  is  unwilling  to make  the  Loan to  Borrower  unless
Guarantor  guarantees to Lender the full and timely payment and  satisfaction of
the Obligations (as hereinafter defined) of Borrower; and

        WHEREAS, Guarantor acknowledges that the making of the Loan by Lender to
Borrower provides direct benefits to Guarantor;

        NOW, THEREFORE,  in consideration of the mutual covenants and agreements
herein contained and of other good and valuable  consideration,  the receipt and
sufficiency  of which is hereby  acknowledged,  and in order to induce Lender to
make the Loan to Borrower,  and intending to be legally  bound,  Guarantor  does
hereby warrant, represent and covenant unto Lender as follows:

        1.     GUARANTY AND SURETY.

        Guarantor hereby absolutely and unconditionally  guarantees, and becomes
surety for, the full and timely payment and performance of the Obligations.

        2.     OBLIGATIONS.

        2.1     The word  "Obligations"  as used  throughout this Guaranty means
                all debts, obligations,  and liabilities of Borrower arising out
                of or  relating  to the  following  documents  each of even date
                herewith:

                2.1.1.  Promissory  Note  ("Note") made by Borrower to the order
                        of Lender in an original face amount of $4,000,000.00;

                2.1.2.  Loan and Security  Agreement  (the "Loan  Agreement") by
                        and between Borrower and Lender;

                2.1.3   Environmental  Indemnity  Agreement given by Borrower to
                        Lender; and



                                                                               1
<PAGE>   54

                2.1.4   The  other   documents,   instruments   and   agreements
                        described  in the  Loan  Agreement  as loan or  security
                        documents.

(All  of  the  foregoing,   including  any  future  modifications  thereto,  are
hereinafter collectively referred to as the "Loan Documents").  Without limiting
the  generality  of the  foregoing,  "Obligations"  is used  herein  in its most
comprehensive sense to include all debts, obligations and indebtedness described
in the Loan  Documents,  whether now or hereafter  made,  incurred,  or created,
voluntary or involuntary, due to not due, absolute or contingent,  liquidated or
unliquidated, determined or undetermined, and regardless of whether there is any
recourse with respect to any portion of such Obligations as against Borrower.

        3.     SUBSEQUENT ACTS BY LENDER.

               Lender  may,  at  its  sole  discretion  and  without  notice  to
Guarantor,  take any  action  permitted  under the Loan  Documents  which  might
otherwise  be deemed a legal or equitable  release or  discharge of  Guarantor's
obligations  hereunder  without  either  impairing or affecting the liability of
Guarantor for payment of the Obligations, which actions might include, by way of
illustration and not limitation:

                3.1     the renewal or  extension of any of the  Obligations  or
                        any payments hereunder;

                3.2     the acceptance of partial payment of the Obligations;

                3.3     the  settlement,   release,   compounding,   compromise,
                        cancellation,  rearrangement  or consolidation of any of
                        the Obligations;

                3.4     the  collection  of or other  liquidation  of any claims
                        Lender may have in respect to the Obligations;

                3.5     the granting of indulgences, forebearances, compromises,
                        extensions or  adjustments in respect to any covenant or
                        agreement under the Loan Documents;

                3.6     the release from  liability of any Guarantor  and/or any
                        additional  parties  who may  guarantee  payment  of the
                        Obligations or any portion thereof;

                3.7     the release,  surrender,  exchange or  compromise  to or
                        with Borrower of any lien,  security or collateral  held
                        by Lender as security for the Obligations; or

                3.8     the release or  compromise  of any lien or security held
                        by Lender as security  for the  liability  of any person
                        who is guarantying the Obligations.



                                                                               2
<PAGE>   55

        4.     EXPENSES.

               Guarantor agrees to reimburse Lender for all reasonable  expenses
that are not reimbursed by Borrower  (including  without  limitation  reasonable
attorneys' fees and expenses)  incurred in good faith by Lender in enforcing the
Obligations,  pursuing  any  remedies  set  forth  in the  Loan  Documents,  and
enforcing this Guaranty.  Guarantor shall not have any obligation for payment of
reimbursement  of any cost or  expense  incurred  by Lender,  Textron  Financial
Corporation  or any  assignee of this  Guaranty  for  salaries or wages of their
respective officers or employees or for any fixed overhead expenses.

        5.     PAYMENT BY GUARANTOR.

               Upon the  occurrence  and during the  continuance  of an Event of
Default under the Loan Documents,  Guarantor agrees to pay or perform on written
demand all the  Obligations.  Lender shall not be required to liquidate any lien
or any other  form of  security,  instrument,  or note  held by Lender  prior to
making such  demand.  THIS IS A GUARANTY OF PAYMENT AND  PERFORMANCE  AND NOT OF
COLLECTION,  and Guarantor  hereby waives all rights that Guarantor may have, if
any,  to  require  that any  action be brought  against  Borrower  (or any other
person) or to require that resort be first made  against any  security  prior to
demanding payment or performance hereunder.

        6.     CUMULATIVE REMEDIES.

               Guarantor  hereby agrees that all rights and remedies that Lender
is afforded by reason of this  Guaranty are separate and  cumulative  and may be
pursued separately, successively, or concurrently, as Lender deems advisable. In
addition,  all such rights and  remedies are  non-exclusive  and shall in no way
limit or  prejudice  Lender's  ability  to pursue any other  legal or  equitable
rights or remedies that may be available. Without limiting the generality of the
foregoing,  Guarantor  agrees  that in any  action  by  Lender  by reason of the
Obligations,  Lender at its election may proceed (a) against Guarantor  together
with Borrower, (b) against Guarantor and Borrower  individually,  or (c) against
Guarantor  only without having  commenced any action against or having  obtained
any judgment against Borrower.

        7.     WAIVERS BY GUARANTOR.

                7.1     Guarantor hereby waives:

                        7.1.1.  notice of  acceptance  of this  Guaranty  and of
                                creation of the Obligations;

                        7.1.2.  presentment and notice of non-payment;

                        7.1.3.  protest,   notice  of  protest,  and  notice  of
                                dishonor to Guarantor or to



                                                                               3
<PAGE>   56

                                any  other  party  with  respect  to  any of the
                                Obligations;

                        7.1.4.  all  other  notices  to  which  Guarantor  might
                                otherwise be entitled;

                        7.1.5.  any defense or circumstance (including,  without
                                limitation,   disability,  insolvency,  lack  of
                                authority or power, insanity, minority, death or
                                dissolution) which might otherwise  constitute a
                                legal  or  equitable  discharge  of  Guarantor's
                                liability  hereunder  other than a defense based
                                on the gross negligence or wilful  misconduct of
                                Lender;

                        7.1.6.  any defense of Borrower to the Obligations other
                                than a defense based on the gross  negligence or
                                wilful  misconduct of Lender or  satisfaction of
                                the Obligations;

                        7.1.7.  any   rights  to   extension,   composition   or
                                otherwise  under  the  Bankruptcy  Code  or  any
                                amendments  thereof, or under any state or other
                                federal statute;

                        7.1.8.  the  right to  trial  by jury in any  litigation
                                arising out of,  relating to, or connected  with
                                this   Guaranty,   if  being   acknowledged   by
                                Guarantor  that  Guarantor is  knowledgeable  in
                                sophisticated     commercial     real     estate
                                transactions,  and  that  Guarantor  makes  this
                                waiver   of   trial   by  jury   knowingly   and
                                voluntarily  and only  after  consultation  with
                                sophisticated   legal  counsel  of   Guarantor's
                                choosing; and

                        7.1.9.  the benefits of Nevada's "one-action rule" under
                                Nev. Rev. Stat. Section 40.430.

                                                            /s/ [SIG]
                                                            --------------------
                                                            Guarantor's Initials


                7.2     It is  expressly  agreed  that  Guarantor  shall  remain
                        liable hereon  regardless of whether Borrower is held to
                        be not liable on the Obligations (other than in the case
                        of  satisfaction  thereof) and regardless of whether all
                        or any portion of the Obligations are  "non-recourse" or
                        "limited  recourse".  It is agreed between Guarantor and
                        Lender that the foregoing  waivers are of the essence of
                        the Loan transaction and that, but for this Guaranty and
                        such waivers, Lender would decline to make the Loan.

        8.     WAIVER AND RELEASE OF SUBROGATION AND PARTICIPATION.

               Except as otherwise provided in NRS 40.475 and 40.485,  Guarantor
shall have no right of subrogation in or under the Loan Documents, and no rights
of reimbursement, indemnity or



                                                                               4
<PAGE>   57

contribution  from the Borrower or any other rights by law,  equity,  statute or
contract  that  would  give  rise  to  a  creditor-debtor  relationship  between
Guarantor  and the  Borrower.  Except as  otherwise  provided  in NRS 40.475 and
40.485,  Guarantor  shall have no right to  participate in any way in any of the
collateral  which is  conveyed  under the Loan  Documents  as  security  for the
Obligations.  Guarantor  hereby  explicitly  waives  and  releases  any  of  the
above-described rights of subrogation,  reimbursement,  indemnity, contribution,
participation,  and any right to require the  marshaling  of  Borrower's  assets
under any circumstances to the extent Guarantor is legally permitted to do so.

                                                            /s/ [SIG]
                                                            --------------------
                                                            Guarantor's Initials


        9.     INDEMNIFICATION.

               Guarantor  expressly  agrees  that  if  either  Borrower  or  the
Guarantor  makes any payment  under any Loan  Documents  (as defined in the Loan
Agreement)  to  Lender,  which  payment  or any  part  thereof  is  subsequently
invalidated, declared to be fraudulent or preferential, or otherwise required to
be repaid to a trustee,  receiver or any other party under any  bankruptcy  act,
state or federal law, common law or equitable cause,  then to the extent of such
repayment,  the indebtedness or any part thereof  intended to be satisfied,  the
liens securing the same and this Guaranty shall be revived and continued in full
force and effect as if said payment had not been made.

        10.    REPRESENTATIONS AND WARRANTIES.

               Guarantor hereby represents and warrants to Lender that:

                10.1    Guarantor  is  a  corporation  duly  organized,  validly
                        existing  and in good  standing  under  the  laws of the
                        State  of  New  York,  and  has  all  requisite   power,
                        corporate or  otherwise,  to conduct its business and to
                        execute  and  deliver,  and to perform  its  obligations
                        under, this Guaranty.

                10.2    The execution,  delivery and performance by Guarantor of
                        this Guarantor has been duly authorized by all necessary
                        corporate  action by Guarantor and does not and will not
                        (i)  violate  any  provisions  of  the   certificate  or
                        articles of  incorporation,  bylaws,  or any  agreement,
                        law,   rule,   regulation,    order,   writ,   judgment,
                        injunction,  decree, determination or award presently in
                        effect to which Guarantor is a party or is subject; (ii)
                        result in, or require the creation or imposition of, any
                        lien upon or with respect to any asset of Guarantor;  or
                        (iii) result in a breach of, or  constitute a default by
                        Guarantor under, any indenture, loan or credit agreement
                        or  any  other   agreement,   document,   instrument  or
                        certificate to which Guarantor is a party or by which it
                        or any of its assets are bound or affected.

                10.3    No  approval,  authorization,  order,  license,  permit,
                        franchise or consent of, or



                                                                               5
<PAGE>   58

                        registration, declaration, qualification or filing with,
                        any  governmental  authority  is required in  connection
                        with  the   execution,   delivery  and   performance  by
                        Guarantor of this Guaranty.

                10.4    Guarantor's  last  annual   financial   statements  were
                        prepared   in   accordance   with   generally   accepted
                        accounting  principles  ("GAAP") and fairly  present the
                        financial   condition   and  results  of   operation  of
                        Guarantor  as of the date or dates  thereof  and for the
                        periods   covered   thereby.   There  were  no  material
                        liabilities, direct or indirect, fixed or contingent, of
                        Guarantor as of the dates of such  financial  statements
                        which  were  not  reflected  therein  or  in  the  notes
                        thereto,  which have not  otherwise  been  disclosed  to
                        Lender  in   writing.   Except  for  any  such   changes
                        heretofore  expressly  disclosed  in  writing to Lender,
                        there  has  been  no  material  adverse  change  in  the
                        financial  condition  of  Guarantor  from the  financial
                        conditions shown in the foregoing financial  statements,
                        nor has  Guarantor  incurred any  material  liabilities,
                        direct or indirect,  fixed or contingent,  which are not
                        shown in its financial statements.  Guarantor is able to
                        pay all of its debts as they become due. Guarantor shall
                        maintain such solvent financial condition, giving effect
                        to this  Guaranty,  as long as Guarantor is obligated to
                        Lender  hereunder.  Guarantor's  obligations  under this
                        Guaranty  will not  render  Guarantor  unable to pay its
                        total liabilities.

                10.5    Except  as   otherwise   disclosed   in  the   financial
                        statements  referred  to in  Section  10.4  above  or in
                        Exhibit "E" to the Loan Agreement, there are no actions,
                        suits,  proceedings,  orders or  injunctions  pending or
                        threatened against or affecting  Borrower,  at law or in
                        equity,  or  before  or by any  governmental  authority,
                        which could have a material adverse effect on Guarantor.

                10.6    No information,  exhibit or written report  furnished by
                        or on behalf of  Borrower to Lender in  connection  with
                        the Loan contains any material  misstatement  of fact or
                        omits the statement of a material fact necessary to make
                        any   statements   contained   herein  or  therein   not
                        misleading.

                10.7    Guarantor  now has no defense  whatever  to any  action,
                        suit or proceeding  whatsoever that may be instituted on
                        this Guaranty.

                10.8    No other agreement  exists between  Guarantor and Lender
                        regarding the liability of Guarantor hereunder.

                10.9    This  Guaranty   constitutes   a  valid   obligation  of
                        Guarantor.



                                                                               6
<PAGE>   59

        11.    STRICT PERFORMANCE; WAIVERS.

               No failure,  delay or  omission by Lender to exercise  any of the
rights,  powers,  remedies  and  privileges  hereunder  shall be deemed a waiver
thereof and every such  right,  power,  remedy and  privilege  may be  exercised
repeatedly.  No notice to or demand on Guarantor  shall be deemed to be a waiver
of the  right of  Lender  to take  further  action  without  notice or demand as
provided herein.  In no event shall any modification or waiver of the provisions
of this Guaranty be effective unless in writing  executed by Lender.  Any waiver
granted shall be applicable only in the specific instance for which it is given.
Failure of Lender to insist upon strict  performance or observance of any of the
terms, provisions and covenants hereof or to exercise any right herein contained
shall  not be  construed  as a waiver or  relinquishment  of the right to demand
strict  performance on the  Obligations  and shall not be deemed a waiver of the
breach of any provision hereof or of any of the Loan Documents.

        12.    CAPTIONS.

               The captions  appearing  herein are used for  reference  only and
shall not be construed as limiting anything set forth herein.

        13.    SEVERABILITY.

               The  invalidity  or  unenforceability  of any  provision  of this
Guaranty shall not affect the other provisions  hereof,  and this Guaranty shall
be construed as if the invalid or unenforceable  provision had never been a part
of this Guaranty.

        14.    GOVERNING LAW.

               All questions with respect to the  construction  of this Guaranty
and the rights and  liabilities  of the parties  hereto shall be  determined  in
accordance  with the applicable  provisions of the internal laws of the State of
Nevada without regard to the principles of conflicts of laws.

        15.    ASSIGNMENT; DELEGATION; BINDING EFFECT.

               After funding of the Loan by Lender,  this Guaranty is assignable
and  transferable by Lender.  Each reference herein to Lender shall be deemed to
include its successors and assigns,  in whose favor the rights and privileges of
this Guaranty shall also run. The duties and obligations of Guarantor may not be
transferred by Guarantor without the prior written consent of Lender. The duties
and   obligations  of  Guarantor   shall  bind   Guarantor's   heirs,   personal
representatives, executors, successors and assigns.

        16.    TERMINATION; REINSTATEMENT.

                16.1    Guarantor's  obligations hereunder shall terminate,  and
                        this Guaranty shall be



                                                                               7
<PAGE>   60

                        released,  upon payment and  performance  in full of the
                        Obligations; provided, however and except that, if there
                        exists  with  respect to the  Related  Indebtedness  (as
                        defined in the Loan  Agreement  at the time of repayment
                        and  performance in full of the Obligations a default or
                        event of  default,  or any event or  circumstance  which
                        with the  passage  of time or  giving  of  notice  would
                        become a default or event of default  under the  Related
                        Loan Documents (as defined in the Loan Agreement),  then
                        the release and  termination  of this Guaranty shall not
                        be granted by Lender for so long as any such  default or
                        event of default or such other event or  circumstance is
                        continuing.

                16.2    This Guaranty  shall remain in full force and effect and
                        continue to be effective should any petition be filed by
                        or against Borrower under the Bankruptcy Code, as at any
                        time amended,  for  liquidation  or  reorganization,  or
                        should Borrower  become  insolvent or make an assignment
                        for the benefit of creditors or a receiver or trustee be
                        appointed for all or any significant  part of Borrower's
                        assets, and this Guaranty shall continue to be effective
                        or be  reinstated,  as the case  may be,  if at any time
                        payment of the  Obligations,  or any part  thereof,  is,
                        pursuant  to  applicable  law,  rescinded  or reduced in
                        amount,  or must  otherwise  be  restored or returned by
                        Lender, whether as a "preferential  transfer," "voidable
                        preference,"  "fraudulent  conveyance," or otherwise, as
                        if the  portion  of  such  payment  rescinded,  reduced,
                        restored or returned had never been made.

        17.    NOTICES.

               All notices,  demands or requests provided for or permitted to be
given  pursuant to this Agreement must be in writing and shall be deemed to have
been  properly  given  or  served  by  depositing  the  same  with a  nationally
recognized  overnight courier service or in the United States Mail, postpaid and
registered or certified return receipt requested, and addressed to the addresses
specified below. All notices, demands and requests shall be effective upon being
deposited with a nationally  recognized  courier service or, on the date that is
two (2) business  days after such  deposit,  upon being  deposited in the United
States Mail.  Rejection or other  refusal to accept or the  inability to deliver
because  of changed  address of which no notice was given  shall be deemed to be
receipt of the notice,  demand or request  sent.  By giving at least thirty (30)
days written notice hereof,  Guarantor and Lender shall have the right from time
to time and at any  time  during  the term of this  Agreement  to  change  their
respective addresses.



                                                                               8
<PAGE>   61

               The addresses are:

               Lender:                Dorfinco Corporation
                                      40 Westminster Street
                                      Providence, Rhode Island  02940
                                      Attention: Division Counsel
                                      Telecopy No.  (401) 621-5040

               Guarantor:             4310 Paradise Road
                                      Las Vegas, NV  89109
                                      Attention:  President and General Counsel
                                      Telecopy No.  (702) 369-4398

               w/copy to:             Mr. Jerome J. Cohen, President
                                      1125 N.E. 125th Street
                                      Suite 206
                                      North Miami, FL 33161
                                      Telecopy No. (305) 899-1824

        18.    JURISDICTION.

               Guarantor   hereby   consents  to  the   non-exclusive   personal
jurisdiction of the federal and state courts located in Clark County,  Nevada in
any and all  actions  between  the  Guarantor  and  Lender  arising  under or in
connection with this Guaranty, the Loan or any of the Loan Documents.

               IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty the
day and year first above written.

                                            MEGO FINANCIAL CORP.,
                                            a New York corporation


                                            By  /s/  RICHARD L. RODRIGUEZ
                                                --------------------------------
                                            Name:  Richard L. Rodriguez
                                                  ------------------------------
                                            Its:  Vice President
                                                  ------------------------------



                                                                               9
<PAGE>   62

                             SUBORDINATION AGREEMENT



TO:     DORFINCO CORPORATION
        40 Westminster Street
        Providence, Rhode Island  02940

Ladies and Gentlemen:

        The   undersigned   Mego  Financial   Corp.,  a  New  York   corporation
("Creditor") is or may be a creditor of Preferred Equities Corporation, a Nevada
corporation  ("Debtor").  Creditor  understands that Debtor has requested you to
extend  credit to Debtor,  but that you are  unwilling to do so unless you first
receive Creditor's subordination agreement as herein contained.

        In order to induce you at any time or from time to time at your  option,
to make loans or extend credit or other  accommodation  or benefit to or for the
account of Debtor,  under the Loan  Agreement (as  hereinafter  defined),  or to
grant such  renewals or extensions  as you may deem  advisable,  it is agreed as
follows:

        1.     Creditor and Debtor represent and warrant to you that,

               (a) At May 31, 1998, the total PEC  Indebtedness  owing by Debtor
to Creditor is $961,000.00. "PEC Indebtedness" as used herein shall mean present
indebtedness and any future indebtedness of Debtor to Creditor which may be from
time  to  time  directly  or  indirectly  incurred,   including  any  negotiable
instruments   evidencing  same,  all  debts,  demands,   monies,   indebtedness,
liabilities  and  obligations  owed  or  to  become  owing  including  interest,
principal,  costs and other charges, and all claims,  rights,  causes of action,
judgments,  decrees  or  other  obligations  of any kind  whatsoever;  provided,
however, that the term "PEC Indebtedness" does not include any sums



                                                                               1
<PAGE>   63

payable  by Debtor  to  Creditor  from time to time  under  income  tax  sharing
arrangements between Debtor and Creditor.

               (b) there is no default in the PEC  Indebtedness  from  Debtor to
Creditor.

        2. Creditor agrees with you that the PEC  Indebtedness  and all security
therefor shall be and hereby is subordinated to the obligations of Debtor to you
with  respect  to the Loan (as  defined  in the Loan  Agreement)  and all  other
obligations of Debtor to you under any and all of the Loan Documents (as defined
in the Loan Agreement) (collectively, the "Obligations") to the extent (and only
to the  extent)  hereinafter  provided.  After the  occurrence  and  during  the
continuance of an Event of Default  under,  and as defined in, that certain Loan
and Security  Agreement (the "Loan  Agreement"),  of even date herewith  between
you, as lender, and Debtor, as borrower:

               (a) the payment of the PEC  Indebtedness  shall be deferred until
the full payment of the Obligations  (including all interest  accruing after the
date of filing of a petition by or against  Debtor under any  bankruptcy  act or
code) of any nature whatsoever now due to you from Debtor or which may hereafter
be incurred and become due to you from Debtor.

               (b)  Creditor  will not,  without  your  prior  written  consent,
assert, collect,  enforce or release the PEC Indebtedness or any part thereof or
take any action to foreclose,  realize upon or release any  collateral  securing
the PEC Indebtedness or enforce any security agreements,  real estate mortgages,
lien instruments, or other encumbrances securing the PEC Indebtedness.

               (c) Creditor will hold in trust and immediately pay to you in the
same form of payment  received from application upon the amount now or hereafter
owing  to you  by  Debtor,  any  amount  Debtor  pays  to  Creditor  on the  PEC
Indebtedness.



                                                                               2
<PAGE>   64

               (d)  Creditor  will  forthwith  assign,  deliver  or  cause to be
delivered to you any collateral for the PEC Indebtedness now held by Creditor or
anyone on its behalf, or in the future received by it or anyone on its behalf.

               (e) Creditor, in its capacity hereunder as Creditor,  agrees that
it will  not,  without  your  prior  written  consent,  commence,  prosecute  or
participate in any administrative, legal, or equitable action against Debtor for
collection of the PEC Indebtedness or in any administrative, legal, or equitable
action for collection of the PEC Indebtedness that might adversely affect Debtor
or its properties.

        3. If Creditor in violation of this Agreement shall commence,  prosecute
or  participate in any suit,  action or proceeding  against  Debtor,  Debtor may
interpose  as a  defense  or  plea  the  making  of this  Agreement  and you may
intervene  and  interpose  such  defense  or plea in your name or in the name of
Debtor.  If after the  occurrence  and  during  the  continuance  of an Event of
Default, Creditor shall attempt to enforce any security agreements,  real estate
mortgages  or  deeds of trust  or any  lien  instruments  or other  encumbrances
securing  payment of any PEC  Indebtedness,  you or Debtor may by virtue of this
Agreement  restrain  the  enforcement  thereof  in your  name or in the  name of
Debtor.  If after the  occurrence  and  during  the  continuance  of an Event of
Default,  Creditor  obtains  any  assets of Debtor  for  application  to any PEC
Indebtedness as a result of any  administrative,  legal, or equitable action, or
otherwise, Creditor agrees to forthwith pay, deliver, and assign to you any such
assets for application upon the Obligations.

        4. As additional security for the Obligations due you and in furtherance
hereof,  upon  the  occurrence  of and  during  the  continuance  of an Event of
Default, Creditor:



                                                                               3
<PAGE>   65

               (a) shall assign to you the PEC  Indebtedness as security for any
and all of the Obligations now and hereafter owing by Debtor to you; and

               (b)  irrevocably  authorizes  you or any person you may designate
to, after the  security  for the  Obligations  has been  exhausted,  collect and
receive the proceeds of the PEC  Indebtedness  and to do any and all things with
the same  power and  authority  that  Creditor  might or could have done if this
Agreement had not been  executed,  including the filing and proving of claims in
your  name or in the  name of  Creditor,  in  receiverships,  bankruptcies,  and
proceedings under any bankruptcy act or any amendments  thereto.  The net amount
received by you from the PEC Indebtedness shall be applied to the payment of the
Obligations  due and to become due from Debtor to you,  and the excess,  if any,
shall be returned to Creditor.

        5. Upon the  occurrence  of and  during the  continuance  of an Event of
Default,  Debtor  agrees with you that it will not,  without your prior  written
consent, pay to Creditor any sum on account of the PEC Indebtedness,  or execute
or delivery any negotiable  instruments as evidence of the PEC  Indebtedness  or
any part thereof.

        6. Creditor agrees that you may grant  extensions of the time of payment
or performance to and make compromises,  including  releases of collateral,  and
settlements  with Debtor and all other  persons  without the consent of Creditor
and without affecting the agreements of Creditor or Debtor hereunder.

        7. If, at any time hereafter,  you shall, pursuant to the Loan Agreement
determine to discontinue the extension of credit to Debtor,  you may do so. This
Agreement  shall  continue  in full force and  effect  until  Debtor  shall have
satisfied all of the Obligations and you shall have been paid



                                                                               4
<PAGE>   66

in full  all  Obligations  that  may be due to you from  Debtor  under  the Loan
Agreement and the other Loan Documents.  Upon the full payment and  satisfaction
by Debtor of all of the Obligations  under the Loan Agreement and the other Loan
Documents,  this Agreement  shall  automatically  terminate and be of no further
force and effect.

        8. This  Agreement  shall be binding upon the  successors and assigns of
Creditor  and  Debtor,  and shall inure to the  benefit of your  successors  and
assigns.

        9. This  Agreement and the  Obligations  which it secures and all rights
and liabilities of the parties shall be governed as to validity, interpretation,
enforcement and effect by the laws of the State of Nevada.

        10. Unless an Event of Default  shall have  occurred and be  continuing,
nothing  in this  Agreement  is  intended  or shall be  construed  to  prohibit,
restrict or otherwise  limit any payment to or remedy by Creditor at any time so
long as Debtor's  cash flow and working  capital are  sufficient.  In  addition,
nothing in this  Agreement is intended or shall be  construed to interfere  with
Debtor's  payment or Creditor's  collection at any time of amounts due by Debtor
under the tax  sharing  arrangements  between  Debtor  and  Creditor;  provided,
however,  (i) that Creditor shall  promptly  advise Lender of any change in such
tax sharing  arrangements  and (ii) that Debtor's cash flow and working  capital
shall remain sufficient following any change in such tax sharing arrangement.

        11. In the event Creditor received any cash or other property in payment
of PEC Indebtedness  which is not permitted under the provisions of Paragraph 10
or other provisions of this Agreement,  you shall have the right to recover such
payment  from  Creditor  and  apply  the same to the  Obligations.  In the event
Creditor  receives  any cash or other  property  in payment of PEC  Indebtedness
which is permitted under the provisions of this Agreement, including, without



                                                                               5
<PAGE>   67

limitation,  Paragraph  10 hereof,  Creditor  shall not be  required to make any
payment to or reimbursement of yourself or Debtor as a result of such payment.

        IN WITNESS  WHEREOF,  Creditor and Debtor have  severally  duly executed
this Agreement as of the 12th day of August, 1998.



                                        DEBTOR:

                                        PREFERRED EQUITIES CORPORATION,
                                        a Nevada corporation


                                        By: /s/ FREDERICK H. CONTE
                                            ------------------------------------

                                        Its:  President
                                             -----------------------------------


                                        CREDITOR:

                                        MEGO FINANCIAL CORP.,
                                        a New York corporation


                                        By:  /s/  RICHARD L. RODRIGUEZ
                                            ------------------------------------

                                        Its:   Vice President
                                             -----------------------------------

ACCEPTED BY:

DORFINCO CORPORATION

By:
    ------------------------------

Its:
      ----------------------------



                                                                               6
<PAGE>   68

                             BORROWER'S CERTIFICATE

        Re: $4,000,000 loan by Dorfinco Corporation, a Delaware corporation,  to
Preferred Equities Corporation,  a Nevada corporation.  Borrower's address: 4310
Paradise Blvd., Las Vegas,  Nevada 89109.  Real property security located in Nye
County, Nevada (the "Real Property").

                                   * * * * * *

        In  order  to  induce  DORFINCO  CORPORATION   ("Lender")  to  make  the
above-referenced loan (the "Loan") to Preferred Equities  Corporation,  a Nevada
corporation  ("Borrower"),  Borrower  hereby  certifies and represents as of the
date of the funding of the Loan, and warrants as follows:

               (a) Except as set forth on Exhibit  "E" to the Loan and  Security
Agreement  dated August 12, 1998 (the "Loan  Agreement"),  between  Borrower and
Lender,  there are no actions,  suits or proceedings  pending,  and, to the best
knowledge  and  belief  of  Borrower,  there  are  no  actions,  suits,  claims,
investigations or proceedings threatened,  against or affecting Borrower, or the
business,  operations,  properties  or  assets  of  Borrower,  before  or by any
governmental department, commission, board, regulatory authority, bureau, agency
or  instrumentality,  domestic,  foreign,  Federal,  state or municipal  (herein
collectively called "governmental  agency"),  or any court,  arbitrator or grand
jury,  which  may  result  in  any  material  adverse  change  in  the  business
operations, properties or assets or in the condition, financial or otherwise, of
Borrower,  or in the ability of Borrower  to perform its  obligations  under the
documents  to be executed in  connection  with the Loan (the "Loan  Documents").
Borrower  is  not  in  default  with  respect  to  any  judgment,  order,  writ,
injunction,  decree, demand, rule or regulation of any court, arbitrator,  grand
jury or of any governmental agency,  default under which might have consequences
which would materially and adversely affect the business, operations, properties
or assets or the condition, financial or otherwise, of Borrower.

               (b) Neither the  execution  and  delivery by Borrower of the Loan
Documents,  nor the consummation of the transaction  contemplated  therein,  nor
compliance with the terms and conditions thereof will conflict with or result in
a breach  of,  or  constitute  a breach  under  any of the  terms,  obligations,
covenants,  conditions or provisions of Borrower's  articles of incorporation or
bylaws or of any indenture, mortgage, lease, deed of trust, pledge, bank loan or
credit agreement,  or any other agreement or instrument to which Borrower is now
a party or by which its  properties  may be bound or affected,  or any judgment,
order, writ, injunction,  decree or demand of any court, arbitrator,  grand jury
or  governmental  agency,  or result in the creation or  imposition of any lien,
charge or  encumbrance  of any nature  whatsoever  upon any property or asset of
Borrower under the terms or provisions of any of the foregoing.  Borrower is not
in default in the  performance  or observance of any of the terms,  obligations,
covenants,  conditions  or  provisions  contained  in  any  indenture  or  other
agreement  creating,  evidencing  or  securing  an  indebtedness  of Borrower or
pursuant to which Borrower is a party or by which Borrower or its properties may
be bound or affected.



                                       1
<PAGE>   69

               (c) To the best of Borrower's  knowledge after diligent  inquiry,
Borrower has obtained all required  consents and releases in order to enter into
the loan transaction and execute the Loan Documents and has complied with and is
not in violation of all applicable statutes, laws, ordinances and regulations of
any kind or nature in order to effectively  vest in Lender a valid first lien in
the Real Property pursuant to the Loan Documents.

               (d) Borrower  has the power and  authority to enter into the Loan
and execute the Loan  Documents and the parties  executing the Loan Documents on
behalf of Borrower have been authorized to do so. The Loan is a valid obligation
of Borrower.

               (e) To Borrower's best knowledge after diligent  inquiry,  except
as may be set forth in Exhibit "E" to the Loan Agreement,  Borrower has complied
in all material  respects  with all  applicable  statutes,  rules,  regulations,
orders, restrictions, licenses and permits of any domestic or foreign government
or any  instrumentality or agency thereof,  having jurisdiction over the conduct
of its business and ownership of its properties (including,  without limitation,
applicable statutes,  rules,  regulations,  orders and restrictions  relating to
equal employment  opportunities,  zoning,  building, fire, health and safety and
environmental  standards or controls) and Borrower has no knowledge of any event
or  condition  that would cause any of the above to be violated in any  material
respect.

               (f) Borrower has filed all United  States  income tax returns and
all state and  municipal  tax returns  which are  required to be filed,  and has
paid,  or made  provision  for the  payment  of, all taxes which have become due
pursuant to said  returns or pursuant to any  assessment  received by  Borrower,
except such filings and taxes,  if any, as are being contested in good faith and
as to which adequate reserves have been provided.

               (g) Subject to the  Permitted  Encumbrances  described on Exhibit
"B" to the Deed of Trust (as defined in the Loan  Agreement),  Borrower has good
and marketable  title in fee simple absolute to all of the Real Property (except
Parcel 19A thereof) free and clear of any interest which could divest Borrower's
interest  therein,  divest  Lender's  interest  therein or which could adversely
affect the  validity  and/or  priority of the lien of the Deed of Trust given as
security for the Loan.

               (h) Borrower is not a foreign  corporation,  foreign partnership,
foreign  trust,  foreign estate or foreign person (as those terms are defined in
the Internal  Revenue Code of 1986, as amended) and Borrower's U.S.  Federal Tax
I.D. Number is 88-0106662.  Borrower's address is as set forth on page 1 hereof.
Borrower is a Nevada corporation duly formed and validly existing under the laws
of the State of Nevada.

               (i) To the best of Borrower's  knowledge after diligent  inquiry,
the Real  Property  and soil and ground  water  thereof  are free from any toxic
and/or hazardous materials including asbestos, PCBs, pesticides,  herbicides and
any other material(s) defined as "hazardous  substances," "hazardous materials,"
or "toxic substances" in the Comprehensive Environmental Response,  Compensation
and Liability act of 1980 as Amended,  the  Hazardous  Materials  Transportation
Act, The Resource Conservation and Recovery Act, and those substances defined as
hazardous or toxic wastes under



                                       2
<PAGE>   70

applicable  state law (other than any  landscaping or maintenance  products of a
type or  quantity  typically  used at a location  having a use  consistent  with
Borrower's  use of the Real  Property  as of the  Loan  closing).  Further,  the
Borrower  agrees  that it will  not  permit  the  storage  of any  toxic  and/or
hazardous  material,  as described above, in, on and/or around the Real Property
now or at any future time. Borrower will indemnify and save Lender harmless from
any and all claims, judgments,  damages, penalties, fines, costs, liabilities or
losses (including, without limitation, diminution in value of the Real Property)
which may result from  contamination  of the Real  Property by hazardous  and/or
toxic material(s),  except to the extent that any such claim, judgment,  damage,
penalty,  fine,  cost,  liability  or loss arises from the gross  negligence  or
wilful misconduct of Lender.

               (j) All work, labor, services and materials, if any, furnished to
or in  connection  with the Real  Property  have been fully  paid for,  with the
exception of any work  currently  in progress as to which  Borrower has properly
posted  a  Notice  of   Nonresponsibility   and  as  to  which  no   mechanic's,
materialman's or other liens have been previously  filed, so that no mechanic's,
materialman's  or other lien may properly be filed  against the Real Property or
any portion  thereof  for work done up to the funding of the Loan,  except as to
unpaid items which the title policy will insure over.

               (k)  Neither  Borrower  nor  Guarantor  is  the  subject  of  any
insolvency or bankruptcy  proceeding or the subject of any suit or proceeding at
law or in equity or otherwise, the result of any of which might affect the title
to the Real  Property  or the  improvements  thereon  or  Borrower's  ability to
perform  its  obligations  and  agreements  under  the Loan  Documents  or under
Borrower's articles of incorporation or bylaws.

               (l)  Borrower  has  no  actual  knowledge  of any  violations  in
connection  with the use and  operation of the Real  Property,  whether filed or
threatened,  or of any restriction  against the sale of the Real Property or any
portion  thereof;  all required  permits and licenses have been obtained for the
Real Property.

               (m) At the time of  disbursement  of the funds in connection with
the Loan:

                   (i) The  Real  Property  has not been  taken,  in whole or in
                   part, in condemnation or any other similar  proceedings,  and
                   no such proceedings were pending; and

                   (ii) The  representations  made in the materials submitted in
                   connection  with the  application  for the Loan by  Borrower,
                   including but not limited to the type of development,  income
                   and expenses of the Real Property and the financial condition
                   and credit of Borrower are as  represented  in said materials
                   without  material  adverse change,  except such change as has
                   been approved in writing by Lender.



                                        3
<PAGE>   71

DATED as of August 12, 1998.



                                        PREFERRED EQUITIES CORPORATION,
                                        a Nevada corporation


                                        By: /s/  FREDERICK H. CONTE
                                            ------------------------------------

                                        Name:  Frederick H. Conte
                                               ---------------------------------

                                        Title:  President
                                                --------------------------------



                                        4
<PAGE>   72

                             GUARANTOR'S CERTIFICATE


      Re: $4,000,000 loan by Dorfinco Corporation,  a Delaware  corporation,  to
Preferred Equities Corporation,  a Nevada corporation,  to be guaranteed by Mego
Financial  Corp., a New York  corporation.  Guarantor's  address:  4310 Paradise
Blvd., Las Vegas, Nevada 89109.

                                   * * * * * *

      In  order  to  induce   DORFINCO   CORPORATION   ("Lender")  to  make  the
above-referenced loan (the "Loan") to Preferred Equities  Corporation,  a Nevada
corporation  ("Borrower") and to accept the Guaranty Agreement of Mego Financial
Corp.  ("Guarantor")  in connection  therewith,  Guarantor  hereby certifies and
represents as of the date of the funding of the Loan, and warrants as follows:

            (a)  Except as set  forth on  Exhibit  "E" to the Loan and  Security
Agreement  dated August 12, 1998 (the "Loan  Agreement"),  between  Borrower and
Lender,  there are no actions,  suits or proceedings  pending,  and, to the best
knowledge  and  belief  of  Guarantor,  there  are no  actions,  suits,  claims,
investigations or proceedings threatened, against or affecting Guarantor, or the
business,  operations,  properties  or  assets  of  Guarantor,  before or by any
governmental department, commission, board, regulatory authority, bureau, agency
or  instrumentality,  domestic,  foreign,  Federal,  state or municipal  (herein
collectively called "governmental  agency"),  or any court,  arbitrator or grand
jury,  which  may  result  in  any  material  adverse  change  in  the  business
operations, properties or assets or in the condition, financial or otherwise, of
Guarantor,  or in the ability of Guarantor to perform its obligations  under the
Guaranty  Agreement  (the  "Guaranty") to be executed by Guarantor in connection
with the Loan. Guarantor is not in default with respect to any judgment,  order,
writ, injunction,  decree, demand, rule or regulation of any court,  arbitrator,
grand  jury or of any  governmental  agency,  default  under  which  might  have
consequences   which  would   materially  and  adversely  affect  the  business,
operations,  properties or assets or the condition,  financial or otherwise,  of
Guarantor.

            (b) Neither the execution and delivery by Guarantor of the Guaranty,
nor the  consummation of the transaction  contemplated  therein,  nor compliance
with the terms and  conditions  thereof will conflict with or result in a breach
of, or  constitute  a breach  under any of the  terms,  obligations,  covenants,
conditions or provisions of Guarantor's  articles of  incorporation or bylaws or
of any indenture,  mortgage,  lease, deed of trust,  pledge, bank loan or credit
agreement,  or any other  agreement or  instrument  to which  Guarantor is now a
party or by which its  properties  may be bound or  affected,  or any  judgment,
order, writ, injunction,  decree or demand of any court, arbitrator,  grand jury
or  governmental  agency,  or result in the creation or  imposition of any lien,
charge or  encumbrance  of any nature  whatsoever  upon any property or asset of
Guarantor  under the terms or provisions of any of the  foregoing.  Guarantor is
not  in  default  in  the  performance  or  observance  of  any  of  the  terms,
obligations,  covenants,  conditions or provisions contained in any indenture or
other



                                       1
<PAGE>   73

agreement  creating,  evidencing  or securing an  indebtedness  of  Guarantor or
pursuant to which  Guarantor is a party or by which  Guarantor or its properties
may be bound or affected.

            (c) To the best of Guarantor's  knowledge  after  diligent  inquiry,
Guarantor  has obtained  all required  consents and releases in order to execute
the Guaranty.

            (d)  Guarantor has the power and authority to enter into and execute
the Guaranty, and the parties executing the Guaranty on behalf of Guarantor have
been authorized to do so. The Guaranty is a valid obligation of Guarantor.

            (e) To Guarantor's best knowledge after diligent inquiry,  except as
may be set forth in Exhibit "E" to the Loan Agreement, Guarantor has complied in
all material respects with all applicable statutes, rules, regulations,  orders,
restrictions,  licenses and permits of any domestic or foreign government or any
instrumentality or agency thereof,  having  jurisdiction over the conduct of its
business  and  ownership  of  its  properties  (including,  without  limitation,
applicable statutes,  rules,  regulations,  orders and restrictions  relating to
equal employment  opportunities,  zoning,  building, fire, health and safety and
environmental standards or controls) and Guarantor has no knowledge of any event
or  condition  that would cause any of the above to be violated in any  material
respect.

            (f) Guarantor has filed all United States income tax returns and all
state and municipal tax returns which are required to be filed, and has paid, or
made  provision  for the payment of, all taxes which have become due pursuant to
said returns or pursuant to any  assessment  received by Guarantor,  except such
filings and taxes,  if any, as are being contested in good faith and as to which
adequate reserves have been provided.

            (g)  Guarantor is not a foreign  corporation,  foreign  partnership,
foreign  trust,  foreign estate or foreign person (as those terms are defined in
the Internal  Revenue Code of 1986, as amended) and Guarantor's U.S. Federal Tax
I.D. Number is 13-5629885. Guarantor's address is as set forth on page 1 hereof.
Guarantor is a New York  corporation  duly formed and validly existing under the
laws of the State of New York and in good  standing  and  qualified as a foreign
corporation   in  all   jurisdictions   in  which  such  good  standing   and/or
qualification is required.

            (h)  Guarantor is not the subject of any  insolvency  or  bankruptcy
proceeding  or the  subject  of any suit or  proceeding  at law or in  equity or
otherwise,  the  result of any of which  might  affect  Guarantor's  ability  to
perform its obligations and agreements  under the Guaranty or under  Guarantor's
articles of incorporation or bylaws.

            (i) The representations made in the materials submitted by Guarantor
in connection with the  application for the Loan by Borrower,  including but not
limited to the financial condition and credit of Guarantor are as represented in
said materials  without material adverse change,  except such change as has been
approved in writing by Lender.



                                       2
<PAGE>   74

DATED as of August 12, 1998.



                                        MEGO FINANCIAL CORP.,
                                        a New York corporation


                                        By:  /s/  RICHARD L. RODRIGUEZ
                                            ------------------------------------

                                        Name:   Richard L. Rodriguez
                                                --------------------------------

                                        Title:  Vice President
                                                --------------------------------



                                       3
<PAGE>   75

                                 DEED OF TRUST,

                      SECURITY AGREEMENT AND FIXTURE FILING

                           Dated as of August 12, 1998

                         in the amount of: $4,000,000.00

                         PREFERRED EQUITIES CORPORATION,
                              a Nevada corporation
                having its principal office at 4310 Paradise Road
                             Las Vegas, Nevada 89109

                                (the "Grantor");

                             UNITED TITLE OF NEVADA,
                              a Nevada corporation
             having its principal office at 2389-A Renaissance Drive
                             Las Vegas, Nevada 89119
                              (the "Trustee"); and

                              DORFINCO CORPORATION,
                             a Delaware corporation
                    having an office at 40 Westminster Street
                         Providence, Rhode Island 02940.

                              (the "Beneficiary").

                              LOCATION OF PREMISES

                                   Nye County
                                 State of Nevada

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

                       After recording, please return to:

                              DORFINCO CORPORATION
                        c/o Textron Financial Corporation
                              40 Westminster Street
                         Providence, Rhode Island 02940
                       Attention: Margaret R. Hayes-Cote,
                                Division Counsel


<PAGE>   76

STATE OF NEVADA     )
                    ) ss.
COUNTY OF NYE       )



             DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FILING


                         KNOW ALL MEN BY THESE PRESENTS:

      THIS DEED OF TRUST  (hereinafter  referred to as this  "Deed") is made and
entered into as of the 12th day of August, 1998, by and among PREFERRED EQUITIES
CORPORATION,  a Nevada  corporation,  having as a mailing  address 4310 Paradise
Road,  Las Vegas,  Nevada 89109  (hereinafter  referred to as Grantor"),  UNITED
TITLE OF  NEVADA,  a Nevada  corporation,  having  as a mailing  address  2389-A
Renaissance  Drive,  Las Vegas,  Nevada  89119  (hereinafter  referred to as the
"Trustee") and DORFINCO CORPORATION,  a Delaware  corporation,  having a mailing
address of 40 Westminster  Street,  Providence,  Rhode Island 02940 (hereinafter
referred to as the "Beneficiary").

      In  order  to  secure  the  payment,  performance  and  observance  of the
indebtedness and other obligations of Grantor hereinafter set forth, Grantor has
granted and  conveyed,  and does by these  presents  mortgage,  grant,  warrant,
assign,  convey,  pledge and set over unto the Trustee,  IN TRUST, WITH POWER OF
SALE,  all of the  following  described  land and  interests  in land,  estates,
easements,  rights,  improvements,  property,  fixtures,  equipment,  furniture,
furnishings,  appliances and appurtenances (hereinafter collectively referred to
as the "Premises"):

      (a)   All those  certain  tracts,  or  parcels  of land more  particularly
            described in Exhibit "A" attached  hereto and by this reference made
            a part hereof (hereinafter referred to as the "Land").

      (b)   All buildings,  structures and improvements (the  "Improvements") of
            every nature whatsoever now or hereafter situated on the Land.

      (c)   All construction materials,  vaults, gas, electric and other utility
            fixtures,  radiators,  heaters, engines, machinery, boilers, ranges,
            elevators, plumbing and heating fixtures,  draperies,  carpeting and
            other  floor  coverings,  fire  extinguishers  and any other  safety
            equipment, washers, dryers, water heaters, water fountains, mirrors,
            mantels,   air   conditioning   apparatus,   refrigerating   plants,
            refrigerators,  cooking apparatus and appurtenances, window screens,
            awnings  and storm  sashes,  which are or shall be  attached to said
            buildings,  structures or  improvements  and all other  furnishings,
            furniture,  goods  which are or are to become  fixtures,  machinery,
            equipment,  inventory,  supplies,  appliances, and tangible personal
            property of every kind and nature whatsoever



                                       1
<PAGE>   77

            now or  hereafter  owned by Grantor and located in, on or about,  or
            used or  intended  to be used  with or in  connection  with the use,
            operation  or  enjoyment  of the  Land  and  Improvements,  and  all
            attachments,   additions,  improvements,   after-acquired  property,
            renewals,  proceeds and replacements of any of the foregoing and all
            the right,  title and  interest  of Grantor in any of the  foregoing
            property  which is subject to or  covered by any  conditional  sales
            contract,  chattel mortgage or similar lien or claim,  together with
            the benefit of any  deposits or payments  now or  hereafter  made by
            Grantor or on behalf of Grantor with respect  thereto,  all of which
            are  hereby  declared  and  shall  be  deemed  to  be  fixtures  and
            accessions to the freehold and a part of the Premises as between the
            parties  hereto and all persons  claiming by, through or under them,
            and which  shall be deemed to be a portion of the  security  for the
            indebtedness herein described and to be secured by this Deed.

      (d)   All  now  owned  or  hereafter  acquired  easements,  rights-of-way,
            strips,  gores of  land,  streets,  ways,  alleys,  passages,  sewer
            rights,  waters,  water  courses,  water rights and powers,  and all
            estates,   rights,   titles,   interests,   privileges,   liberties,
            tenements,  hereditaments and appurtenances  whatsoever,  in any way
            belonging,  relating  or  appertaining  to the  Premises or any part
            thereof,  or which hereafter  shall in any way belong,  relate or be
            appurtenant thereto, and the reversions,  remainders, rents, issues,
            profits, revenues, accounts, contract rights and general intangibles
            of or arising from the Premises  (including  without  limitation all
            payments under room occupancy  agreements,  all leases or tenancies,
            proceeds of  insurance,  prepaid  insurance  premiums,  condemnation
            payments,  tenant security deposits,  escrow funds and payments from
            motel guests), and all the estate, right, title, interest, property,
            possession,  claim  and  demand  whatsoever  at  law,  as well as in
            equity, of Grantor of, in and to the same.

      (e)   Any  and  all  leases,  subleases,   rental  agreements,   occupancy
            agreements,  licenses,  concessions,  entry fees,  other  agreements
            which grant a possessory interest in all or any part of the Land and
            Improvements,  together with all rents, issues,  profits,  revenues,
            proceeds, awards, accounts, security deposits and other benefits now
            or  hereafter  arising  from the use and  enjoyment  of the Land and
            Improvements or any part thereof.

      TO HAVE AND TO HOLD the Premises,  with all privileges  and  appurtenances
thereunto belonging,  unto the Trustee,  forever. Grantor covenants that Grantor
is lawfully  seized and  possessed  of the  Premises as  aforesaid,  and has all
requisite  right and authority to convey the same, that the same is unencumbered
except for those matters  expressly set forth in Exhibit "B" attached hereto and
by this  reference  made a part  hereof,  and that Grantor does warrant and will
forever defend the title thereto to the Trustee and the Beneficiary  against the
claims of all persons  whomsoever,  except as to those matters set forth in said
Exhibit "B" or otherwise  permitted in the Security  Documents  (as  hereinafter
defined).

      This  Deed  is  given  to  secure  the  following  described  indebtedness
(collectively the "Indebtedness"):



                                       2
<PAGE>   78

      (a)   All sums  evidenced by that  certain  Promissory  Note  (hereinafter
            referred  to as the  "Note"  dated of even  date  herewith,  made by
            Grantor,  payable to the order of the  Beneficiary  in the principal
            face  amount  of  up  to  FOUR  MILLION  AND  NO/100  U.S.   DOLLARS
            ($4,000,000.00),  together  with  interest  thereon,  with the final
            payment being due on August 31, 1999, unless extended as provided in
            the Note;  together with any and all modifications,  renewals and/or
            extensions of the Note.

      (b)   Any and all additional  advances made by the  Beneficiary to protect
            or preserve the Premises or the lien hereof on the Premises,  or for
            taxes,  assessments or insurance  premiums as  hereinafter  provided
            (whether  or not the  original  Grantor  remains  the  owner  of the
            Premises at the time of such advances).

      (c)   Any and all other sums owed by Grantor to the Beneficiary hereunder,
            under the Note, or any and all other indebtedness,  liabilities,  or
            obligations of Grantor to the Beneficiary, of any nature whatsoever,
            whether now existing or hereafter created,  whether direct, indirect
            or secondary, and any and all modifications,  extensions or renewals
            thereof,  including  without  limitation  sums owed  under any other
            instrument  evidencing,  securing or in any way  concerning the debt
            evidenced by the Note.  Without  limiting the  foregoing,  this Deed
            shall also secure the following indebtedness:

            (i)   A loan made by  Beneficiary  to Grantor in the amount of up to
                  $7,500,000,  evidenced  by a  promissory  note in such  amount
                  dated August 9, 1991,  and secured by, among other  things,  a
                  Loan and Security  Agreement dated as of July 31, 1991, by and
                  between  Grantor as borrower and  Beneficiary  as lender,  and
                  guaranteed by Mego Financial Corp.; and

            (ii)  A loan  made by  Beneficiary's  affiliate,  Textron  Financial
                  Corporation,  a Delaware  corporation  ("Lender") to Grantor's
                  subsidiary,  Steamboat Suites,  Inc. ("SSI"), in the amount of
                  up to  $15,000,000,  evidenced  by a  promissory  note in such
                  amount dated  November 30, 1995,  guaranteed  by Grantor,  and
                  secured by,  among other  things,  a deed of trust from SSI to
                  Textron  dated  October 5, 1994,  as amended or restated,  and
                  recorded in the Routt  County Clerk and  Recorder's  office on
                  October  6,  1994,  in Book  701 at  Page  No.  1795,  a first
                  amendment to deed of trust from SSI to Textron dated  February
                  27,  1995,   and  recorded  in  the  Routt  County  Clerk  and
                  Recorder's office on March 22, 1995 in Book 706 at Page 339, a
                  second  amendment  to deed of trust from SSI to Textron  dated
                  November 29, 1996,  and recorded in the Routt County Clerk and
                  Recorder's  office on  December  20,  1996 in Book 728 at Page
                  320, and as further amended or restated.

            The indebtedness  described in the foregoing clauses (i) and (ii) is
            herein  defined as the  "Related  Indebtedness",  and the  documents
            described in the foregoing  clauses (i) and (ii),  together with the
            referenced guaranties and any and all other documents or instruments
            evidencing,  securing  or  executed  in  connection  with any of the
            Related Indebtedness are herein collectively defined as the "Related
            Loan Documents".



                                       3
<PAGE>   79

      The Note, this Deed and the following  instruments which evidence,  secure
and/or relate to the loan evidenced by the Note are  hereinafter  referred to as
the "Security Documents:"

      (a)   Loan and  Security  Agreement  dated of even  date  herewith  by and
            between  Grantor as Borrower  and  Beneficiary  as Lender (the "Loan
            Agreement");

      (b)   Guaranty  Agreement  dated of even date  herewith by Mego  Financial
            Corp. as guarantor  (the  "Guarantor")  in favor of the  Beneficiary
            (the "Guaranty"); and

      (c)   All other  documents,  instruments  or  agreements  now or hereafter
            securing,  evidencing  and/or  relating  to the debt  secured by the
            Note, except for the Environmental  Indemnity Agreement of even date
            herewith from Grantor to Beneficiary.

      Should the  Indebtedness be paid according to the tenor and effect thereof
when the same shall  become due and  payable,  and should  Grantor  perform  all
covenants,  terms and conditions herein contained in a timely manner,  then this
conveyance shall be released,  terminated and reconveyed to the persons entitled
thereto of record at the request and the expense of Grantor.

      Grantor hereby further covenants and agrees as follows:

                                    ARTICLE I

1.01 Payment of  Indebtedness.  Grantor will pay the Note according to the tenor
thereof and all other sums now or hereafter  secured hereby promptly as the same
shall become due.

1.02 Taxes, Liens and Other Charges.

      (a)   In the event of the  passage of any  state,  federal,  municipal  or
            other governmental law, order, rule or regulation, subsequent to the
            date hereof,  in any manner  changing or  modifying  the laws now in
            force governing the taxation of the Indebtedness or this Deed or the
            manner of collecting  taxes with respect  thereto so as to adversely
            affect  the  Beneficiary  (exclusive  of any  tax  on  Beneficiary's
            income), Grantor will promptly pay any such tax. If Grantor fails to
            make such  prompt  payment or if, in the  reasonable  opinion of the
            Beneficiary,   any  such  state,   federal,   municipal,   or  other
            governmental law, order,  rule or regulation  prohibits Grantor from
            making such  payment or would  penalize the  Beneficiary  if Grantor
            makes  such  payment  or  if,  in  the  reasonable  opinion  of  the
            Beneficiary,  the  making  of  such  payment  might  result  in  the
            imposition  of  interest  beyond the  maximum  amount  permitted  by
            applicable law, then the entire balance of the principal sum secured
            by this Deed and all interest  accrued  thereon shall, at the option
            of the Beneficiary, become immediately due and payable.

      (b)   Grantor  will pay (to the extent same are not paid from the escrowed
            funds  provided  for in  Paragraph  1.04),  before  the same  become
            delinquent,  all  taxes,  liens,  assessments  and  charges of every
            character including all utility charges, now or hereafter levied or



                                       4
<PAGE>   80

            assessed  upon  the  Premises;  and upon  demand  will  furnish  the
            Beneficiary receipted bills evidencing such payment.

      (c)   Grantor  will not  suffer or permit any  mechanic's,  materialman's,
            laborer's, statutory or other lien to remain outstanding upon all or
            any part of the Premises.

      (d)   Grantor, at its expense, may contest,  after prior written notice to
            Beneficiary,  by  appropriate  legal  proceedings  conducted in good
            faith and with due diligence,  the amount,  validity or application,
            in whole or in part,  of any taxes,  liens,  assessments  or charges
            levied  or   assessed   upon  the   Premises   or  any   mechanic's,
            materialman's,  laborer's, statutory or other lien filed against the
            Premises,  so  long as  such  proceedings  operate  to  prevent  the
            collection or other realization  thereon,  the sale or forfeiture of
            the  Premises  or any  part  thereof  to  satisfy  the  same  or the
            impairment  of  Beneficiary's  lien;  provided  that (i) during such
            contest the Grantor shall, at the option of the Beneficiary, provide
            Beneficiary with security satisfactory to the Beneficiary,  assuring
            the payment of any additional interest,  charge,  penalty or expense
            arising from or incurred as a result of such contest, and (ii) if at
            any time payment of any  obligation  imposed upon the Grantor  under
            this  Paragraph  1.02 shall become  necessary to prevent the sale or
            forfeiture  of the Premises or any part thereof to satisfy the same,
            then Grantor shall pay the same in  sufficient  time to prevent sale
            or forfeiture.

1.03  Insurance.

      (a)   Grantor  shall  deliver  to and  maintain  for  the  benefit  of the
            Beneficiary during the term of this Deed, original paid up insurance
            policies  (or  certified  copies  thereof) of  acceptable  insurance
            companies, in amounts, in form and in substance, and with expiration
            dates all reasonably  acceptable to the Beneficiary and containing a
            waiver   of   subrogation    rights   by   the   insuring   company,
            non-contributory   standard   mortgage  benefit  clause,   or  their
            equivalents, and a mortgage loss payable endorsement in favor of and
            satisfactory  to the  Beneficiary  and breach of warranty  coverage,
            providing the following types of insurance on the Premises:

            (i)   unless  waived in writing by  Beneficiary,  insurance  against
                  loss or damage by hazards as are  customarily  insured against
                  with  respect  to   unimproved   land  (or,  if  the  Land  is
                  subsequently improved, then as are customarily insured against
                  with respect to improved  land) as are  presently  included in
                  so-called "all risk extended  coverage" and against other such
                  insurable  hazards as, under good  insurance  practices,  from
                  time to time are  insured  against for  properties  of similar
                  character and location.  The amount of the foregoing insurance
                  shall not be less than the greater of (a) the full replacement
                  value of the Premises  including any or all  improvements  and
                  personal  property  now  or  hereafter  thereon,  or  (b)  the
                  aggregate  of the face  amount  of the  Indebtedness  plus any
                  other debt encumbering the Premises,  provided,  however, that
                  nothing herein shall be deemed to require  insurance in excess
                  of amounts available from one or more insurance companies



                                       5
<PAGE>   81

                  acceptable to  Beneficiary  pursuant to Section  1.03(a);  and
                  said  policies of  insurance  shall  provide for a  deductible
                  acceptable to the Beneficiary,  provide for breach of warranty
                  coverage,  replacement cost  endorsements  satisfactory to the
                  Beneficiary, and shall not permit co-insurance;

            (ii)  such other  insurance on the Premises or any  replacements  or
                  substitutions  therefor,  including  public/general  liability
                  and, if the Land is  subsequently  improved,  property  damage
                  insurance  in  an  amount   reasonably   satisfactory  to  the
                  Beneficiary,  and  flood  insurance  (if the  Premises  are or
                  become  located in an area which is considered a flood risk by
                  the U.S. Department of Housing and Urban Development),  and in
                  such amounts as may from time to time be  reasonably  required
                  by the Beneficiary against other insurable casualties which at
                  the time are commonly  insured against in the case of premises
                  similarly  situated,  due regard being given to the height and
                  type of the improvements,  their construction,  location,  use
                  and occupancy, or any replacements or substitutions therefor.

      (b)   The Beneficiary is hereby  authorized and empowered,  at its option,
            to adjust  or  compromise  any loss  under  any  insurance  policies
            maintained  pursuant  to this  Paragraph  1.03,  and to collect  and
            receive the proceeds from any such policies.  Each insurance company
            is hereby  authorized  and  directed  to make  payment  for all such
            losses  directly to the  Beneficiary,  instead of to Grantor and the
            Beneficiary  jointly.  In the event any  insurance  company fails to
            disburse  directly  and  solely  to the  Beneficiary  but  disburses
            instead  either solely to Grantor or to Grantor and the  Beneficiary
            jointly,  Grantor  agrees  immediately  to endorse and transfer such
            proceeds to the Beneficiary.  Upon the failure of Grantor to endorse
            and transfer such proceeds as aforesaid, the Beneficiary may execute
            such  endorsements  or transfers  for and in the name of Grantor and
            Grantor  hereby   unconditionally   and  irrevocably   appoints  the
            Beneficiary as Grantor's agent and attorney-in-fact, coupled with an
            interest to endorse and transfer such proceeds to Beneficiary. After
            deducting from said insurance  proceeds all of its expenses incurred
            in  the  collection  and  administration  of  such  sums,  including
            attorneys'  fees, the  Beneficiary may apply the net proceeds or any
            part thereof,  at its option (i) to the payment of the Indebtedness,
            whether or not due and in  whatever  order the  Beneficiary  elects,
            (ii) to the repair and/or  restoration  of the Premises or (iii) for
            any other purposes or objects for which the  Beneficiary is entitled
            to advance funds under this Deed; all without  affecting the lien of
            this Deed. The  Beneficiary  shall not be held  responsible  for any
            failure to collect any insurance proceeds due under the terms of any
            policy regardless of the cause of such failure.

      (c)   All insurance  policies required pursuant to this Deed shall provide
            that the coverage  afforded  thereby shall not expire or be amended,
            canceled or otherwise  terminated  without at least thirty (30) days
            prior written notice to the  Beneficiary.  At least thirty (30) days
            prior to the expiration date of each policy  maintained  pursuant to
            this Paragraph 1.03, a renewal or replacement  thereof  satisfactory
            to the Beneficiary  shall be delivered to the  Beneficiary.  Grantor
            shall deliver to the Beneficiary receipts



                                       6
<PAGE>   82

            evidencing the payment for all such insurance  policies and renewals
            or replacements.  The delivery of any insurance  policies  hereunder
            shall  constitute an assignment of all unearned  premiums as further
            security hereunder.  In the event of the foreclosure of this Deed or
            any  other  transfer  of title to the  Premises  in full or  partial
            extinguishment of the Indebtedness, all right, title and interest of
            Grantor  in and to all  insurance  policies  then in  force,  to the
            extent  applicable to the  Premises,  shall pass to the purchaser or
            grantee.

1.04 Monthly  Deposits.  From and after the  occurrence of one or more Events of
Default under this Deed (subject to all applicable cure or grace  periods),  and
upon the written  request of Beneficiary  to Grantor,  Grantor will deposit with
the Beneficiary,  on the due date of each monthly  installment under the Note, a
sum which, in the estimation of the  Beneficiary,  shall be equal to one-twelfth
(1/12) of the  annual  taxes,  assessments  and  insurance  premiums  on or with
respect to the Premises. Said deposits shall be held by the Beneficiary, free of
interest,  and free of any liens or claims on the part of  creditors  of Grantor
and as  part  of  the  security  of  the  Beneficiary,  and  to be  used  by the
Beneficiary  to pay current  taxes,  assessments  and insurance  premiums on the
Premises as the same are due. Said deposits  shall not be trust funds but may be
commingled  with the general  funds of the  Beneficiary.  If said  deposits  are
insufficient to pay the taxes, assessments and insurance premiums in full as the
same become due,  Grantor will deposit with the Beneficiary  such additional sum
or sums as may be  required  in order  for the  Beneficiary  to pay such  taxes,
assessments  and insurance  premiums in full, in accordance  with all applicable
law. Upon the occurrence of any default or Event of Default at any time when the
Beneficiary  is in  possession of such  deposits,  the  Beneficiary  may, at its
option,  apply any of said deposits to the payment of the  Indebtedness  in such
manner as it may elect.

1.05  Condemnation.  If all or any portion of the  Premises  shall be damaged or
taken through  condemnation (which term when used in this Deed shall include any
damage or taking by any governmental  authority and any transfer by private sale
in  lieu  thereof),   either   temporarily  or  permanently,   then  the  entire
Indebtedness shall, at the option of the Beneficiary, become immediately due and
payable.  The Beneficiary shall be entitled to receive all compensation,  awards
and other  payments  or relief  thereof,  provided,  however,  that  Grantor may
participate in any such  condemnation  proceedings to the extent of its interest
in the Premises and retain any such  payments only to the extent of its interest
in the Premises  remaining after the Beneficiary has received full  compensation
for its interest in the Premises.  The Beneficiary is hereby authorized,  at its
option,  to commence,  appear in and  prosecute,  in its own or,  subject to the
foregoing sentence,  in Grantor's name, any action or proceeding relating to any
condemnation, and to settle or compromise any claim in connection therewith. All
such compensation,  awards,  damages,  claims, rights of action and proceeds and
the right  thereto  are hereby  assigned  by Grantor to the  Beneficiary.  After
deducting from said  condemnation  proceeds all of its expenses  incurred in the
collection  and  administration  of such sums,  including  attorneys'  fees, the
Beneficiary may apply the net proceeds or any part thereof, at its option:

      (a)   to the  payment  of the  Indebtedness,  whether  or not  due  and in
            whatever order the Beneficiary elects,

      (b)   to the repair and/or restoration of the Premises, or



                                       7
<PAGE>   83

      (c)   for any other  purposes  for which the  Beneficiary  is  entitled to
            advance  funds under this Deed,  all without  affecting  the lien or
            priority of this Deed, and any balance of such moneys then remaining
            shall be paid to Grantor.  Grantor  agrees to execute  such  further
            assignment of any such compensation, awards, damages, claims, rights
            of action and proceeds as the Beneficiary may require.

1.06  Care of Premises.

      (a)   Grantor will keep the buildings,  parking areas, roads and walkways,
            recreational  facilities,  landscaping and all other improvements of
            any kind now or hereafter  erected on the Land or any part  thereof,
            and the fixtures,  furnishings and equipment therein and thereon, in
            good  condition and repair,  will not commit or suffer any waste and
            will not do or suffer to be done  anything  which will  increase the
            risk of fire or other hazard to the Premises or any part thereof.

      (b)   Grantor  will  not  remove  or  demolish  or  alter  the  structural
            character of any improvement located on the Land without the written
            consent of the Beneficiary.

      (c)   If the  Premises or any part thereof is damaged by fire or any other
            cause,  Grantor will give  immediate  written  notice thereof to the
            Beneficiary.

      (d)   The  Beneficiary,  Trustee or their respective  representatives  are
            hereby authorized to enter upon and inspect the Premises at any time
            during normal  business  hours or, upon an occurrence of an Event of
            Default, at any time.

      (e)   Subject to  Grantor's  right of contest  set forth in Section D.5 of
            the Loan  Agreement,  Grantor will promptly  comply with all present
            and  future  laws,   ordinances,   rules  and   regulations  of  any
            governmental  authority  affecting the Premises or any part thereof.
            Grantor will deliver to the  Beneficiary  within ten (10) days after
            Grantor's  receipt  thereof  copies of any  additional  governmental
            permits or approvals or  disapprovals  or notices that relate to any
            matter that would  materially  adversely  affect the Premises issued
            with regard to the Premises or any portion thereof.

      (f)   If all or any part of the Premises shall be damaged by fire or other
            casualty,   Grantor  will  promptly  restore  the  Premises  to  the
            equivalent of its original condition;  and if a part of the Premises
            shall  be  damaged  through  condemnation,   Grantor  will  promptly
            restore, repair or alter the remaining portions of the Premises in a
            manner   satisfactory  to  the  Beneficiary.   Notwithstanding   the
            foregoing,  Grantor  shall not be obligated to so restore  unless in
            each instance,  the Beneficiary  agrees to make available to Grantor
            (pursuant to a procedure  satisfactory to the  Beneficiary)  any net
            insurance  or  condemnation   proceeds   actually  received  by  the
            Beneficiary  hereunder  in  connection  with such  casualty  loss or
            condemnation, to the extent such proceeds are required to defray the
            expense   of  such   restoration;   provided,   however,   that  the
            unavailability   or   insufficiency   of  any  such   insurance   or
            condemnation proceeds to defray the entire expense of



                                       8
<PAGE>   84

            restoration  shall in no way relieve  Grantor of its  obligation  to
            restore.  In the event all or any portion of the  Premises  shall be
            damaged or destroyed by fire or other  casualty or by  condemnation,
            Grantor shall promptly  deposit with the  Beneficiary a sum equal to
            the  amount  by  which  an  architect's   estimate   (acceptable  to
            Beneficiary) of cost of the restoration of the Premises  exceeds the
            actual  net  insurance  or  condemnation  proceeds  received  by the
            Beneficiary in connection with such damage or destruction.

1.07  Leases and Other  Agreements  Affecting  Property.  Grantor  will duly and
punctually perform all terms, covenants,  conditions and agreements binding upon
it under any lease, sublease, rental agreement, occupancy agreement or any other
agreement of any nature whatsoever which involves or affects the Premises or any
part thereof if such failure to perform would have a materially  adverse  effect
on the  Premises  or  Grantor's  ability to repay or perform  the  Indebtedness.
Grantor  will  furnish  the  Beneficiary  with  executed  copies of all  leases,
subleases,  rental  agreements or occupancy  agreements now or hereafter created
upon the Premises or any part  thereof.  Grantor  will not,  without the express
written consent of the Beneficiary,  enter into any lease, sublease or occupancy
agreements  with  respect to the  Premises  or any  portion  thereof;  provided,
however, that the Beneficiary's prior written consent shall not be required with
respect to the entering  into,  modification  or  termination  of any  occupancy
agreement  for  any of the  Premises  consisting  of a  portion  of any  legally
subdivided  parcel and having a term of less than sixty (60) days.  Grantor will
not, without the express written consent of the Beneficiary, terminate or modify
either orally or in writing, any lease, sublease,  rental agreement or occupancy
agreement  now  existing  or  hereafter  created  upon the  Premises or any part
thereof,  nor will Grantor  permit any  assignment or a subletting by any Tenant
without the prior express written consent of the  Beneficiary.  Grantor will not
accept  payment  of rent more than one (1) month in  advance  without  the prior
express written consent of the  Beneficiary.  In order to further secure payment
of  the  Note  and  the  observance,  performance  and  discharge  of  Grantor's
obligations,   Grantor  hereby  assigns,   transfers  and  sets  over  unto  the
Beneficiary, and grants the Beneficiary a security interest in, all of Grantor's
right,  title  and  interest  in, to and under  all  leases,  subleases,  rental
agreements,  occupancy  agreements,  licenses,  concessions,  entry fees,  other
agreements  which  grant  a  possessory  interest  and  other  contracts  now or
hereafter  affecting  the  Premises or any part thereof and in and to all of the
rents, issues,  profits,  revenues,  proceeds,  awards and other benefits now or
hereafter  arising  from  the use and  enjoyment  of the  Premises  or any  part
thereof; provided, however, that Beneficiary hereby licenses back to Grantor the
right to collect  the same  unless and until an Event of  Default  has  occurred
hereunder.

1.08 Security  Agreement and Fixture Filing.  Insofar as (i) any of the property
listed in paragraphs (b) through (e) on pages 1 and 2 hereof and, (ii) all other
personal property in any way connected with the use or enjoyment of the Premises
(hereinafter  all  collateral  defined in Sections  (i) and (ii) hereof shall be
collectively  referred to as  "Collateral")  this Deed, in  compliance  with the
provisions of the Uniform  Commercial  Code as enacted in the State of Nevada as
it may be amended from time to time (the "UCC"),  is hereby made and declared to
be: (x) a  security  agreement,  encumbering  the  Collateral  and (y) a fixture
filing.  Grantor does hereby  grant to the  Beneficiary  a  continuing  lien and
security  interest  in and  to all of  said  Collateral  and  all  replacements,
substitutions,  additions and proceeds thereof and all  after-acquired  property
relating thereto. A financing statement or statements reciting this Deed to be a
security agreement, affecting all of said



                                       9
<PAGE>   85

Collateral aforementioned,  shall be executed by Grantor and the Beneficiary and
appropriately  filed.  Grantor  covenants and agrees that, prior to changing its
name, identity or structure, it will so notify the Beneficiary and will promptly
execute any financing  statements or other  instruments  deemed necessary by the
Beneficiary to prevent any filed  financing  statement  from becoming  seriously
misleading or losing its perfected status. The remedies for any violation of the
covenants, terms and conditions of the security agreement herein contained shall
be (i) as prescribed  herein,  or (ii) as prescribed by general law, or (iii) as
prescribed by the specific  statutory  consequences now or hereafter enacted and
specified in the UCC, all at the  Beneficiary's  sole election.  Grantor and the
Beneficiary agree that the filing of such financing  statement(s) in the records
normally having to do with personal property shall never be construed in anywise
derogating  from or impairing this  declaration  and hereby stated  intention of
Grantor  and the  Beneficiary  that  everything  used  in  connection  with  the
production of income from the Premises, adapted for use therein, and/or which is
described  in this Deed,  is, and at all times and for all  purposes  and in all
proceedings  both  legal or  equitable  shall be,  regarded  as part of the real
estate  irrespective of whether (a) any such item is physically  attached to the
improvements,  (b)  serial  numbers  are used for the better  identification  of
certain items capable of being thus identified in a recital contained herein, or
(c) any such item is referred to or reflected in any such financing statement(s)
so filed at any time. Similarly,  the mention in any such financing statement(s)
of the rights in and to (aa) the proceeds of any  insurance  policy  relating to
the Premises,  or (bb) any award in eminent domain  proceedings  for a taking or
for loss of value, or (cc) Grantor's interest as lessor in any present or future
lease,  sublease, or rights to income growing out of the use and/or occupancy of
the Premises,  whether pursuant to lease, sublease, or otherwise, shall never be
construed  as in  anywise  altering  any of the  rights  of the  Beneficiary  as
determined by this  instrument  or impugning  the priority of the  Beneficiary's
lien granted hereby or by any other recorded document,  but such mention in such
financing  statement(s)  is declared to be for the protection of the Beneficiary
in the event any court  shall at any time  hold with  respect  to the  foregoing
(aa), (bb) or (cc), that notice of the Beneficiary's  priority of interest to be
effective  against  a  particular  class  of  persons,  must be filed in the UCC
records.  The information  contained  herein is provided in order that this Deed
shall comply with the  requirements  of the UCC for  instruments  to be filed as
financing statements. The "Debtor" is the Grantor hereunder; the "Secured Party"
is the Beneficiary herein, the principal place of business of the "Debtor" is as
set forth on Page 1 of this Deed,  the  mailing  addresses  of the  "Debtor  and
"Secured  Party" are as set forth on Page 1 of this Deed, and the types or items
of collateral are as described hereinabove.

1.09 Further Assurances;  After Acquired Property. At any time, and from time to
time, upon request by the Beneficiary, Grantor will make, execute and deliver or
cause  to be  made,  executed  and  delivered,  to the  Beneficiary  and,  where
appropriate,  cause to be recorded and/or filed and from time to time thereafter
to be re-recorded  and/or refiled at such time and in such offices and places as
shall be deemed desirable by the Beneficiary, any and all such other and further
deeds to secure debt, security agreements,  financing  statements,  continuation
statements,  instruments of further assurance,  certificates and other documents
as may, in the reasonable opinion of the Beneficiary,  be necessary or desirable
in order to effectuate,  complete,  or perfect,  or to continue and preserve (a)
the  obligation of Grantor under the Note and under this Deed,  and (b) the lien
of this Deed as a lien upon and  security  title in and to all of the  Premises,
whether now owned or hereafter acquired by Grantor.  Upon any failure by Grantor
so to do, the Beneficiary may make, execute, record, file, re-record



                                       10
<PAGE>   86

and/or  refile any and all such deeds to secure debt,  deeds of trust,  security
agreements,   financing  statements,   continuation   statements,   instruments,
certificates,  and documents  for and in the name of Grantor and Grantor  hereby
irrevocably  appoints the Beneficiary the agent and  attorney-in-fact of Grantor
so to do. The lien hereof will automatically attach, without further act, to all
after acquired property attached to and/or used in the operation of the Premises
or any part thereof.

1.10  Expenses.

      (a)   If any action or proceeding  is commenced  regarding the Premises or
            the Loan and to which action or proceeding  the  Beneficiary  or the
            Trustee is made a party or in which it becomes  necessary  to defend
            or uphold  the lien of this  Deed,  the  Grantor  shall,  on demand,
            reimburse  the   Beneficiary   and  the  Trustee  for  all  expenses
            (including,  without  limitation,  reasonable  attorneys'  fees  and
            appellate  attorneys'  fees) incurred by the Beneficiary  and/or the
            Trustee  in  any  such  action  or  proceeding.  In  any  action  or
            proceeding  to  foreclose  this Deed or to recover or collect all or
            any portion of the  Indebtedness,  the provisions of law relating to
            the recovering of costs,  disbursements  and allowances shall remain
            unaffected by this covenant.

      (b)   Subject to the contest rights of Grantor set forth in Section D.5 of
            the Loan Agreement,  the Grantor shall pay when due all payments and
            charges on all liens,  encumbrances,  ground and other  leases,  and
            security  interests  which may be or become  superior or inferior to
            the lien of this Deed,  and, if Grantor shall not make such payments
            within  five  (5)  days  following  receipt  of  written  notice  of
            Grantor's  failure  to pay from  Beneficiary  (unless  circumstances
            require that the Beneficiary make any such payment(s) immediately in
            order to protect  its  secured  interest  and/or  lien in any of the
            Premises),  the Beneficiary  shall have the right,  but shall not be
            obligated,  to pay such payments and charges and the Grantor  shall,
            on  demand,  reimburse  the  Beneficiary  for  amounts  so paid.  In
            addition,  upon  default of the  Grantor in the  performance  of any
            other  terms,  covenants,  conditions  or  obligations  by  it to be
            performed  under any such prior or  subordinate  lien,  encumbrance,
            lease or security  interest,  the Beneficiary  shall have the right,
            but shall not be obligated,  to cure such default in the name and on
            behalf of the Grantor.  All sums  advanced and  reasonable  expenses
            incurred at any time by the  Beneficiary  pursuant to this Paragraph
            1.10 or as otherwise provided under the terms and provisions of this
            Deed or under  applicable law shall bear interest from the date that
            such sum is advanced or expense incurred,  to and including the date
            of  reimbursement,  computed at an interest rate equal to the lesser
            of the Default Rate under the Note, or the highest  lawful  contract
            rate.

      (c)   The  Grantor  agrees  to  bear  and  pay  all  expenses   (including
            reasonable  attorneys'  fees and appellate  attorneys' fees actually
            incurred)  of or  incidental  to the  enforcement  of any  provision
            hereof, or the enforcement, compromise or settlement of this Deed or
            the  Indebtedness,  and for the curing thereof,  or for defending or
            asserting  the  rights  and  claims of the  Beneficiary  in  respect
            thereof, by litigation or otherwise.  All rights and remedies of the
            Beneficiary shall be cumulative and may be exercised singly or



                                       11
<PAGE>   87

            concurrently.  Notwithstanding  anything  herein  contained  to  the
            contrary,   the  Grantor,   being  an   experienced   developer  and
            participant  in  sophisticated  real  estate  ventures,  and  having
            consulted  with counsel of its choosing:  (a) hereby waives trial by
            jury in any action  brought by Beneficiary to enforce any provisions
            of this Deed; (b) will not (i) at any time insist upon, or plead, or
            in any manner whatever claim or take any benefit or advantage of any
            stay or extension or moratorium law, any exemption from execution or
            sale of the Premises or any part thereof,  wherever enacted,  now or
            at any time  hereafter in force,  which may affect the covenants and
            terms of performance  of this Deed,  nor (ii) claim,  take or insist
            upon any benefit or  advantage  of any law now or hereafter in force
            providing  for the  valuation or appraisal of the  Premises,  or any
            part  thereof,  prior to any sale or sales thereof which may be made
            pursuant  to any  provision  herein,  or  pursuant  to  the  decree,
            judgment or order of any court of competent jurisdiction,  nor (iii)
            after any such sale or sales,  claim or exercise any right under any
            statute  heretofore  or hereafter  enacted to redeem the property so
            sold or any part thereof; (c) hereby expressly waives all benefit or
            advantage of any such law or laws  referred to in  subparagraph  (b)
            above;  and  (d)  covenants  not to  hinder,  delay  or  impede  the
            execution  of  any  power   herein   granted  or  delegated  to  the
            Beneficiary,  but to suffer and permit the  execution of every power
            as though no such law or laws had been made or enacted. The Grantor,
            for itself  and all who may claim  under it,  waives,  to the extent
            that it lawfully may, all right to have the Premises  marshaled upon
            any foreclosure hereof.

1.11 Estoppel Affidavits.  Grantor, upon fifteen (15) days prior written notice,
shall furnish to the Beneficiary a written statement, duly acknowledged, setting
forth the unpaid  principal of, and interest on, the Indebtedness and whether or
not any offsets or defenses  are claimed to exist  against  such  principal  and
interest,  and such other  information  as may be  reasonably  requested  by the
Beneficiary.

1.12 Subrogation. The Beneficiary shall be subrogated to the claims and liens of
all parties  whose claims or liens are  discharged  or paid with the proceeds of
the Indebtedness.

1.13 Books, Records,  Accounts and Annual Reports.  Grantor covenants and agrees
to deliver to Beneficiary  such books,  records,  accounts and annual reports in
the form, at the times and containing such  information as may be required to be
delivered by Grantor or SSI to Beneficiary  pursuant to the terms and provisions
of any Related Loan Documents.

1.14 Limit of Validity.  All agreements  between the Grantor and the Beneficiary
are expressly limited so that in no contingency or event whatsoever,  whether by
reason of advancement of the proceeds of the Note,  acceleration  of maturity of
the unpaid principal balance of the Note or otherwise,  shall the amount paid or
agreed to be paid to the  Beneficiary  for the use,  forbearance or detention of
the money to be advanced  hereunder  exceed the highest lawful rate  permissible
under applicable usury laws. If, from any circumstances whatsoever,  fulfillment
of any provision hereof or of the Security Documents shall involve  transcending
the  limit  of  validity  prescribed  by any  law  which a  court  of  competent
jurisdiction may deem applicable  hereto,  then ipso facto, the obligation to be
fulfilled  shall be  reduced  to the limit of such  validity,  and,  if from any
circumstance the



                                       12
<PAGE>   88

Beneficiary  shall ever  receive as  interest an amount  which would  exceed the
highest  lawful rate,  such amount which would be  excessive  interest  shall be
applied to the reduction of the unpaid principal  balance due under the Note and
not to the  payment of  interest.  This  provision  shall  control  every  other
provision of all agreements between the Grantor and the Beneficiary.

1.15  No  Further  Encumbrances.  Grantor  shall  not,  directly  or  indirectly
(including, without limitation, by equipment leasing or similar arrangements, or
by pledging or  hypothecation  of  partnership  interests in  Grantor),  further
encumber the Premises,  or any part thereof, it being understood by Grantor that
the Premises,  and all parts thereof, shall remain free and clear of any and all
debt instruments or other  obligations for repayment of money except those given
in connection with the loan evidenced by the Note.

1.16  Restrictions  on  Transfers.  Grantor  shall  comply  with  the  following
restrictions  on transfers,  provided,  however,  that nothing in Paragraph 1.15
hereof or this Paragraph 1.16 shall be deemed to apply to, restrict or otherwise
limit to any  degree any sale,  transfer,  encumbrance,  hypothecation  or other
assignment  or transfer of any of the publicly  traded  stock of Mego  Financial
Corp.:

      (a)   Grantor shall not, without first obtaining the prior written consent
            of the  Beneficiary  (which  consent may be given or withheld by the
            Beneficiary  in  the   Beneficiary's   sole   discretion),   whether
            voluntarily  or  involuntarily  by operation of law or otherwise (i)
            transfer, sell, convey or assign all or any portion of the Premises,
            or  contract  to  do  any  of  the  foregoing,   including,  without
            limitation,  options to purchase and  installment  sales  contracts,
            land  contracts,  real estate  contracts or contracts for deed, (ii)
            lease  all or any  portion  of the  Premises  or  change  the  legal
            possession or use thereof, except as otherwise permitted pursuant to
            Paragraph  1.07  hereof,   or  (iii)  except  as  provided  in  this
            Paragraph, permit the dilution,  transfer, pledge,  hypothecation or
            encumbrance of any partnership interest of Grantor, or of any stock,
            partnership or beneficial  interests in any partner of Grantor which
            is a  corporation,  partnership  or a trust  (exclusive  of  Grantor
            limited partner  transfers).  Without limiting the generality of the
            preceding  sentence,  the prior written  consent of the  Beneficiary
            shall be  required  for (i) any  transfer  made to a  subsidiary  or
            affiliate   entity  of  Grantor,   (ii)  any  transfer   made  to  a
            reconstituted general or limited partnership, (iii) transfers by any
            partnership  to its  individual  partners  or vice  versa,  (iv) any
            transfer by any corporation to its  stockholders or vice versa,  and
            (v) any  corporate  merger or  consolidation.  In the event that the
            Beneficiary,  in the  Beneficiary's  sole discretion,  is willing to
            consent to a transfer  which would  otherwise be  prohibited by this
            Paragraph 1.16(a), the Beneficiary may condition its consent on such
            terms as it desires,  including,  without limitation, an increase in
            the interest rate of the Note (and recalculation of the amortization
            provisions thereof), and the requirement that Grantor pay a transfer
            fee,  together  with any  expenses  incurred by the  Beneficiary  in
            connection  with the  granting of such consent  (including,  without
            limitation, attorneys' fees).

      (b)   Notwithstanding  anything  contained in this  Paragraph  1.16 to the
            contrary, in the event that Grantor requests,  prior to the maturity
            or other  repayment in full of the  Indebtedness,  that  Beneficiary
            consent to the transfer of and the release of the lien of this



                                       13
<PAGE>   89

            Deed on any one or more of the five (5)  parcels of Land,  then,  in
            addition to the  conditions  that  Beneficiary  must grant its prior
            written  consent  to such  transfer  and that no Event of Default or
            circumstance  that with the  passage  of time or giving of notice or
            both would  constitute  an Event of Default  shall then exist and be
            continuing,  Grantor shall also satisfy the following  conditions to
            any such release:

            (i)   Grantor shall pay to Beneficiary a release payment equal to at
                  least  the  greater  of (x) fifty  percent  (50%) of the total
                  stated  purchase  price  for  the  applicable  parcel  of Land
                  (including  any  deferred,  contingent  or  earn-out  portions
                  thereof  or any  additional  consideration  to be  paid by the
                  purchaser  or  transferee  subsequent  to the  closing  of the
                  acquisition  of the applicable  parcel of Land);  or (y) fifty
                  percent  (50%)  of the  following  appraised  values  of  such
                  parcels of Land:

<TABLE>
<S>                                                  <C>          
                        Parcel 1 on Exhibit "A":     $  780,000.00
                        Parcel 2 on Exhibit "A":        785,000.00
                        Parcel 3 on Exhibit "A":      3,760,000.00
                        Parcel 4 on Exhibit "A":      3,050,000.00
                        Parcel 5 on Exhibit "A":      3,925,000.00
</TABLE>

                  Notwithstanding  the  foregoing,  if an  Event of  Default  or
                  circumstance that with the passage of time or giving of notice
                  or both would  constitute an Event of Default shall then exist
                  and be  continuing,  Beneficiary  may in its  sole  discretion
                  require  that  any  such  release  payment  be  increased.  No
                  additional release payment shall be payable upon the repayment
                  and satisfaction in full of the Indebtedness.

            (ii)  The  Maximum  LTV Ratio (as  defined in Section  A.2(g) of the
                  Loan Agreement) shall not, after any such transfer and release
                  payment to Beneficiary, exceed 50%.

      (c)   If Grantor violates the terms of Paragraph 1.16 hereof,  in addition
            to any other rights or remedies  which  Grantor may have herein,  in
            any other Security Document, or at law or in equity, Beneficiary may
            increase the interest  rate  charged on the  Indebtedness  up to the
            Default Rate, such interest being due on demand and being secured by
            this Deed.

1.17 Representations and Warranties.  As a special inducement to the Beneficiary
to make the loan evidenced by the Note, and with knowledge that the  Beneficiary
will rely  thereon,  Grantor  represents  and  warrants  to the  Beneficiary  as
follows:

      (a)   There exist no leases or subleases,  occupancy agreements or similar
            arrangements affecting all or any portion of the Premises other than
            those  identified  on  Exhibit  "C"  attached  hereto  and  by  this
            reference made a part hereof;

      (b)   There are no license, franchise,  commission,  management,  service,
            maintenance, or other contracts or agreements in existence affecting
            in any way the operation,



                                       14
<PAGE>   90

            maintenance  or conduct of business at the Premises other than those
            identified on Exhibit "C".

      (c)   There  are  no  equipment  leases,   rental  agreements  or  similar
            arrangements  affecting  in any way the  operating,  maintenance  or
            conduct of business at the Premises  other than those  identified on
            Exhibit "C".

      (d)   All licenses,  permits and other approvals  necessary or appropriate
            for conduct of the business  carried out at the  Premises  have been
            obtained  by  Grantor  and same are  current  and in full  force and
            effect.

      (e)   All sales and payroll tax  obligations  of Grantor which are due and
            payable have been satisfied.

      (f)   There are no UCC Financing  Statements  which affect or encumber any
            portion of the Premises or any other  security for the  Indebtedness
            other than those in favor of Beneficiary or its affiliates.

1.18.  Environmental Matters. Grantor warrants that (a) to the best of Grantor's
knowledge,  the Premises do not contain any  Hazardous  Material the presence of
which would violate any Environmental Law, as hereinafter  defined,  (b) Grantor
has not received any notice from any governmental agency, entity or other person
with regard to Hazardous Materials on or affecting the Premises,  and (c) to the
best of Grantor's knowledge,  neither Borrower nor the Premises,  or any portion
thereof are in violation of any  applicable  Environmental  Laws, as hereinafter
defined,  relating to or  affecting  the  Premises or  Grantor.  Grantor  hereby
indemnifies  and agrees to defend  and hold the  Beneficiary  harmless  from and
against any and all liens, damages,  losses,  liabilities,  obligations,  fines,
penalties,  claims, litigation,  demands, judgments, suits, proceedings,  costs,
disbursements,  response  costs,  or expenses  of any kind or nature  whatsoever
(including, without limitation,  attorneys',  consultants' and experts' fees and
expenses)  (except to the  extent  that any of the  foregoing  are caused by any
gross  negligence  or wilful  misconduct of  Beneficiary)  which may at any time
(whether  prior to or after  foreclosure  of this Deed and  whether  prior to or
after payment of the Note) be imposed  upon,  incurred by or asserted or awarded
against  Grantor,  the  Beneficiary  or the  Premises  and  arising  directly or
indirectly  from or out of (i) the  presence of any  Hazardous  Materials at any
time on, in, under or affecting all or any portion of the  Premises,  regardless
of whether or not caused by or within the control of Grantor, (ii) the violation
or alleged  violation of any  Environmental  Law with respect to the Premises or
any portion  thereof,  and (iii) any attempts by the  Beneficiary to enforce the
foregoing rights. The foregoing rights shall include,  without  limitation,  the
cost of removal of any and all  Hazardous  Materials  from all or any portion of
the  Premises  or any  surrounding  areas,  additional  costs  required  to take
necessary  precautions  to protect  against the discharge,  spillage,  emission,
leakage,  seepage or release of Hazardous  Materials  on, in, under or affecting
the Premises or into the air,  water, or soil, and costs incurred to comply with
Environmental  Laws in connection with all or any portion of the Premises or any
surrounding areas. For purposes of this Deed, "Hazardous Material" or "Hazardous
Materials"  means  and  includes  petroleum  products,   flammable   explosives,
radioactive materials, asbestos or any material containing



                                       15
<PAGE>   91

asbestos,  polychlorinated  biphenyls,  and/or any hazardous, toxic or dangerous
waste, substance,  element, compound,  mixture, solution,  pollutant or material
now or hereafter  defined as such, or as a hazardous  substance,  or any similar
term, by or in any Environmental Law. For purposes of this Deed,  "Environmental
Law" or  "Environmental  Laws"  shall  mean  any  law  commonly  referred  to or
generally known as "Superfund" or "Superlien"  law, or any other federal,  state
or local statute,  law,  ordinance,  code,  rule,  regulation,  order or decree,
regulating,   relating  to  or  imposing   liability  or  standards  of  conduct
concerning,  any hazardous  materials as may now or at any time  hereafter be in
effect,  including without limitation,  the following as the same may be amended
or replaced from time to time, and all regulations  promulgated thereunder or in
connection therewith:  the Superfund Amendments and Reauthorization Act of 1986;
the  Comprehensive  Environmental  Response,  Compensation  and Liability Act of
1980; the Clean Air Act; the Clean Water Act; the Toxic Substances  Control Act;
the  Resource  Conservation  and  Recovery  Act as  amended  by the Solid  Waste
Disposal Act; the Safe Drinking Water Act; the Emergency  Planning and Community
Right to Know Act of 1986; the Hazardous  Materials  Transportation Act; and the
Endangered Species Act.

1.19 Use of Premises.  Grantor  represents  and warrants  that as of the date of
this Deed, the Premises are vacant (except for any occupancy agreement permitted
pursuant to Paragraph  1.07 hereof),  and consist of undeveloped  land.  Grantor
covenants  that  Grantor  will not allow any other uses on the  Premises  unless
Beneficiary has given its prior written consent thereto.

                                   ARTICLE II

2.01 Events of  Default.  The terms  "Event of Default" or "Events of  Default",
wherever used in this Deed, shall mean any one or more of the following events:

      (a)   Failure by Grantor to pay any sum within five (5) days after its due
            date and, upon the first occurrence only of any such failure to pay,
            written notice from  Beneficiary that payment is due under the Note,
            this Deed, or any payment of tax or insurance premium when due; or

      (b)   Failure by Grantor to duly  observe,  comply with or perform  within
            twenty (20) days after  written  notice of such  failure is given to
            Grantor,  any other term,  covenant,  condition or agreement of this
            Deed not requiring the payment of money by Grantor except Paragraphs
            1.15 and 1.16; or

      (c)   The  occurrence of a default or event of default under or failure by
            Grantor or any Guarantor to perform any of its or their  obligations
            under any of the Security  Documents,  which is not cured within any
            applicable cure period; or

      (d)   Any warranty or  representation of Grantor contained in this Deed or
            in any other instrument, document, transfer, conveyance, assignment,
            loan agreement or financial  statement given by Grantor with respect
            to  the  Indebtedness  secured  hereby,  is  incomplete,  untrue  or
            misleading in any material respect; or



                                       16
<PAGE>   92

      (e)   The  filing  by  Grantor,  its  general  partners  (if  any)  or any
            Guarantor of a voluntary  petition in bankruptcy or  adjudication of
            Grantor or any Guarantor as a bankrupt or  insolvent,  or the filing
            by Grantor or any  Guarantor  of any  petition or answer  seeking or
            acquiescing  in  any   reorganization,   arrangement,   composition,
            readjustment,  liquidation, dissolution or similar relief for itself
            under  any  present  or  future  federal,  state  or  other  law  or
            regulation  relating to  bankruptcy,  insolvency or other relief for
            debtors,  or the  seeking or  consenting  to or  acquiescing  in the
            appointment of any trustee, receiver or liquidator of Grantor or any
            Guarantor  or of all or any  substantial  part of the Premises or of
            any or all of the rents, issues, profits or revenues thereof, or the
            making by Grantor or any Guarantor of any general assignment for the
            benefit of creditors,  or the admission in writing by Grantor or any
            Guarantor of its inability to pay its debts generally as they become
            due; or

      (f)   The entry by a court of competent jurisdiction of an order, judgment
            or  decree  approving  a  petition,  filed  against  Grantor  or any
            Guarantor,  seeking any  reorganization,  arrangement,  composition,
            readjustment,  liquidation,  dissolution  or other  relief under any
            present or future federal, state or other law or regulation relating
            to bankruptcy,  insolvency or other relief for debtors, which order,
            judgment or decree  remains  unvacated and unstayed for an aggregate
            of sixty (60) days  (whether  or not  consecutive)  from the date of
            entry  thereof,  or the  appointment  of any  trustee,  receiver  or
            liquidator  of  Grantor,  or  any  Guarantor,   or  of  all  or  any
            substantial  part  of the  Premises  or of any or all of the  rents,
            issues,   profits  or  revenues   thereof  without  the  consent  or
            acquiescence of Grantor,  which  appointment  shall remain unvacated
            and unstayed  for an  aggregate  of sixty (60) days  (whether or not
            consecutive); or

      (g)   Failure by Grantor to comply  with the terms of  Paragraphs  1.15 or
            1.16 hereof; or

      (h)   The termination, liquidation or dissolution of Grantor; or

      (i)   Failure to  maintain  or cause any  occupant  of any  portion of the
            Premises to maintain, any license,  permit, or contract necessary or
            appropriate  for  conduct of any  business  now or  hereafter  being
            operated at the Premises which would have a material  adverse effect
            on the Premises or any business conducted thereon by Grantor; or

      (j)   Any  default  or event of  default  occurs  under any  Related  Loan
            Documents or otherwise with respect to the Related Indebtedness, and
            the same is continuing  after lapse of any applicable  grace or cure
            period; or

      (k)   Any default  continuing  after the expiration of any applicable cure
            or grace  period  under any other note or  mortgage,  evidencing  or
            securing  indebtedness of an entity affiliated with Grantor in favor
            of the Beneficiary or its affiliates.

2.02  Acceleration  of  Maturity.  If any Event of Default  shall have  occurred
(subject to any applicable grace or cure period),  then the entire  Indebtedness
shall, at the option of the Beneficiary,



                                       17
<PAGE>   93

immediately  become due and payable without notice or demand,  time being of the
essence of this Deed; and no omission on the part of the Beneficiary to exercise
such option when entitled to do so shall be construed as a waiver of such right.

2.03  Beneficiary's  Right  to Enter  and Take  Possession,  Operate  and  Apply
Revenues.

      (a)   If  any  Event  of  Default  shall  have  occurred  (subject  to any
            applicable  grace  or  cure  period),  Grantor  upon  demand  of the
            Beneficiary, shall forthwith surrender to the Beneficiary the actual
            possession of the Premises, and if, and to the extent,  permitted by
            law, the Beneficiary itself, or by such officers or agents as it may
            appoint,  may enter and take possession of all the Premises  without
            the appointment of a receiver, or an application  therefor,  and may
            exclude Grantor and its agents and employees wholly  therefrom,  and
            may have joint access with Grantor to the books, papers and accounts
            of Grantor regarding the Premises.

      (b)   If Grantor  shall for any reason  fail to  surrender  or deliver the
            Premises or any part thereof  after such demand by the  Beneficiary,
            the Beneficiary may obtain a judgment or decree  conferring upon the
            Beneficiary the right to immediate  possession or requiring  Grantor
            to deliver immediate  possession of the Premises to the Beneficiary,
            to the entry of which judgment or decree Grantor hereby specifically
            consents.  Grantor will pay to the  Beneficiary,  upon  demand,  all
            expenses of obtaining such judgment or decree,  including reasonable
            compensation to the Beneficiary,  its attorneys and agents;  and all
            such expenses and compensation  shall, until paid, be secured by the
            lien of this Deed.

      (c)   Upon  every  such  entering  upon  or  taking  of  possession,   the
            Beneficiary may hold, store,  use,  operate,  manage and control the
            Premises and conduct the business  thereof,  and,  from time to time
            (i) make all necessary and proper  maintenance,  repairs,  renewals,
            replacements,  additions,  and improvements  thereto and thereon and
            purchase or otherwise acquire  additional  fixtures,  personalty and
            other  property;  (ii) insure or keep the  Premises  insured;  (iii)
            manage and  operate the  Premises  and  exercise  all the rights and
            powers of  Grantor to the same  extent as  Grantor  could in its own
            name or otherwise  with respect to the same; and (iv) enter into any
            and all agreements  with respect to the exercise by others of any of
            the powers herein granted the  Beneficiary,  all as the  Beneficiary
            from time to time may determine to be in its best interest.  In such
            event,  the  Beneficiary  may  collect  and  receive  all the rents,
            issues, profits and revenues from the Premises, including those past
            due as well as those accruing thereafter, and shall have the benefit
            of all  operating  expenses  and deposits  prepaid by Grantor,  and,
            after deducting (aa) all out-of-pocket and  administrative  expenses
            of taking,  holding,  managing and operating the Premises (including
            compensation  for the  services  of all  persons  employed  for such
            purposes); (bb) the cost of all such maintenance, repairs, renewals,
            replacements,  additions, improvements,  purchases and acquisitions;
            (cc) the cost of such  insurance;  (dd) such taxes,  assessments and
            other similar charges as the Beneficiary may at its option pay; (ee)
            other proper charges upon the Premises or any part thereof; and (ff)
            the reasonable compensation, expenses and disbursements of the



                                       18
<PAGE>   94

            attorneys  and agents of the  Beneficiary,  and (gg) the  payment of
            deposits required in Paragraph 1.04, the Beneficiary shall apply the
            remainder of the moneys so received by the  Beneficiary as set forth
            in the Note.

      (d)   Whenever all Events of Default have been cured pursuant to the terms
            and  conditions  of  any  applicable  Loan  Document,   and  if  the
            Beneficiary in the Beneficiary's sole discretion shall have accepted
            such  cure,  the  Beneficiary  shall  surrender  possession  of  the
            Premises to Grantor,  its  successors or assigns.  The same right of
            taking possession,  however,  shall exist if any subsequent Event of
            Default shall occur and be continuing.

2.04  Performance by the  Beneficiary  of Defaults by Grantor.  If Grantor shall
default in the  payment,  performance  or  observance  of any term,  covenant or
condition of this Deed, the Beneficiary may, at its option,  without waiving the
right to accelerate the maturity of the  Indebtedness,  pay,  perform or observe
the same if Grantor  shall not make such  payment or perform or observe any such
term,  covenant or condition  within five (5) days following  receipt of written
notice of Grantor's failure to pay, perform or observe from Beneficiary  (unless
circumstances  require that the Beneficiary  make any such payment or perform or
observe any such term, covenant or condition immediately in order to protect its
secured  interest  and/or lien in any of the Premises).  The  Beneficiary  shall
determine in its reasonable discretion the necessity for any such actions and of
the amounts to be paid.  The  Beneficiary  is hereby  empowered  to enter and to
authorize  others to enter upon the Premises or any part thereof for the purpose
of  performing  or  observing  any such  defaulted  term,  covenant or condition
without thereby  becoming liable to Grantor or any person in possession  holding
under Grantor.

2.05 Receiver. If an Event of Default shall have occurred, the Beneficiary, upon
application  to a court of  competent  jurisdiction,  shall be entitled  without
notice and without  regard to the  occupancy  or value of any  security  for the
Indebtedness  or the  solvency  of any  party  bound  for  its  payment,  to the
appointment of a receiver to take  possession of and to operate the Premises and
to  collect,  apply and use the rents,  issues,  profits and  revenues  thereof,
including those past due as well as those accruing thereafter, and said receiver
shall have the benefit of all operating expenses and deposits prepaid by Grantor
it  being  acknowledged  by  Grantor  that if an  Event of  Default  shall  have
occurred,  that  Beneficiary  shall have the right to the  Premises and that the
Premises and the rents and profits  therefrom in such event will be in danger of
being lost, or materially  injured or impaired.  The receiver  shall have all of
the rights and powers  permitted under the laws of the state wherein the Land is
situated.  Grantor  will  pay to the  Beneficiary  upon  demand  all  reasonable
expenses,   including  receiver's  fees,  attorney's  fees,  costs  and  agent's
compensation,  incurred  pursuant to the provisions of this Paragraph  2.05; and
all such expenses shall be secured by this Deed.

2.06 Enforcement.

      (a)   Upon the occurrence of an Event of Default, the Beneficiary may take
            such action in accordance with all applicable law, without notice or
            demand,  as it deems  advisable  to protect  and  enforce its rights
            against the Grantor and to the Premises,  including, but not limited
            to, the following actions, each of which may be pursued concurrently
            or



                                       19
<PAGE>   95

            otherwise,  at such time and in such  order as the  Beneficiary  may
            determine,  in  its  sole  discretion,  and to  the  fullest  extent
            permitted  by  applicable  law,   without   impairing  or  otherwise
            affecting  the other  rights and  remedies of the  Beneficiary:  (1)
            exercise the rights granted in Paragraphs  2.02 through 2.05 hereof,
            (2) exercise the power of sale and/or institute  proceedings for the
            complete  judicial  foreclosure  of this  Deed;  (3) with or without
            entry,  to the  extent  permitted  and  pursuant  to the  procedures
            provided by applicable  law,  institute  proceedings for the partial
            foreclosure  of this Deed for the portion of the  Indebtedness  then
            due and payable, subject to the continuing lien of this Deed for the
            balance of the  Indebtedness  not then due; (4) institute an action,
            suit or  proceeding  in equity for the specific  performance  of any
            covenant,  condition or agreement contained herein or in the Note to
            the extent  permitted  by  applicable  law; or (5) pursue such other
            remedies as Beneficiary may have under applicable law.

      (b)   Upon the  occurrence  of an Event of Default and the election of the
            Beneficiary  to effect a trustee's  sale of the  Premises in lieu of
            judicial foreclosure,  then the Beneficiary may instruct the Trustee
            to  commence  such sale and  consummate  such sale in the  following
            manner:

                  The  Trustee  shall sell the  Premises  at public  auction for
                  cash,  after  having  first given such notice of hearing as to
                  the commencement of foreclosure proceedings and obtaining such
                  findings  or leave of court as may be then  required by law in
                  giving such notice and  advertising the time and place of such
                  sale in such manner as may be  provided by law,  and upon such
                  and any resales and upon compliance with the law then relating
                  to  foreclosure  proceedings,  to convey title to purchaser as
                  hereinafter set forth.

                  The  Trustee  shall  deliver  to the  purchaser  at  any  such
                  Trustee's sale its deed, without warranty,  which shall convey
                  to the  purchaser  the  interest  in the  Premises  which  the
                  Grantor  has or has the  power  to  convey  at the time of the
                  execution  of this  Deed,  and  such as it may  have  acquired
                  hereafter.  The Trustee's  deed shall recite the facts showing
                  that  the  sale  was  conducted  in  compliance  with  all the
                  requirements  of law and of this Deed,  which recital shall be
                  prima  facie  evidence  of  such   compliance  and  conclusive
                  evidence   thereof  in  favor  of  bona  fide  purchasers  and
                  encumbrances.

      (c)   The proceeds of any sale made under this Article II,  together  with
            any other sums which then may be held by the Beneficiary  under this
            Deed,  whether  under the  provisions  of this  Article  II or other
            otherwise,  shall be applied as follows, subject to the requirements
            of all applicable law:

            First:  To the  payment of the cost and  expenses  of any such sale,
            including reasonable compensation to the Beneficiary, its agents and
            counsel,  of the  cost  and  expenses  of any  judicial  proceedings
            wherein  the  same  may  be  made,  of  any   reasonable   trustee's
            commission,  and a reasonable  auctioneer's  fee if such expense has
            been incurred.



                                       20
<PAGE>   96

            Second:  To payment of taxes due and  unpaid on the  property  sold,
            unless the notice of sale provided that the property be sold subject
            to taxes thereon and the property was so sold.

            Third:  To  payment  of all  reasonable  expenses,  liabilities  and
            advances  made or  incurred  by the  Beneficiary  under  this  Deed,
            together  with  interest as provided  herein on all advances made by
            the Beneficiary.

            Fourth: To the payment of the whole amount then due, owing or unpaid
            under the Indebtedness.

            Fifth:  To the payment of the  surplus,  if any, to whomever  may be
            lawfully entitled to receive the same.

            The  Beneficiary  and any  receiver  of the  Premises,  or any  part
            thereof,  shall be liable to account for only those  rents,  issues,
            profits and proceeds actually received by it.

      (d)   In case of a sale under this Deed, the Premises,  real, personal and
            mixed, may be sold in one parcel or more than one parcel.

      (e)   The purchaser of the Premises sold pursuant to this Deed may, during
            any redemption  period  allowed to Grantor or any other party,  make
            such repairs or  alterations  on said  property as may be reasonably
            necessary for the proper operation,  care, preservation,  protection
            and  insuring  thereof.  Any  sums so paid  together  with  interest
            thereon from the time of such  expenditure at the rate of the lesser
            of the Default  Rate under the Note or the highest  lawful  contract
            rate shall be added to and become a part of the amount  required  to
            be paid for redemption from such sale.

      (f)   Upon any sale made under this Deed, the  Beneficiary may bid for and
            acquire the  Premises or any part thereof and in lieu of paying cash
            therefor may make  settlement  for the  purchase  price by crediting
            upon the Indebtedness  the net sale price after deducting  therefrom
            the  expenses  of the sale and the costs of the action and any other
            sums which the Beneficiary is authorized to deduct under this Deed.

      (g)   No recovery of any  judgment  by the  Beneficiary  and no levy of an
            execution  under any  judgment  upon the  Premises or upon any other
            property of the Grantor shall affect in any manner or to any extent,
            the lien of this Deed upon the Premises or any part thereof,  or any
            liens, rights, powers or remedies of the Beneficiary hereunder,  but
            such liens,  rights,  powers,  and remedies of the Beneficiary shall
            continue unimpaired as before.

      (h)   In the  event of any sale  made  under or by virtue of this Deed the
            entire  Indebtedness  secured  hereby,  if not  previously  due  and
            payable, immediately thereupon shall,



                                       21
<PAGE>   97

            anything in the Note or in this Deed to the contrary
            notwithstanding, become due and payable.

2.07 Interest After Default.  If any payment due hereunder is not paid when due,
subject to any  applicable  grace or cure periods,  then and in such event,  the
Grantor shall pay interest thereon from and after the date on which such payment
first  becomes due at the Default  Rate  provided in the Note and such  interest
shall be due and payable,  on demand,  whether or not any action shall have been
taken or  proceeding  commenced to recover the same or to  foreclose  this Deed.
Nothing  in this  Paragraph  2.07 or in any other  provision  of this Deed shall
constitute an extension of the time of payment of the Indebtedness.

2.08  Grantor's  Actions  After  Default.  After the  happening  of any Event of
Default and immediately upon the commencement of any action, suit or other legal
proceeding by the  Beneficiary to obtain judgment for the  Indebtedness,  or any
portion thereof, or of any other nature in and of the enforcement of the Note or
of this Deed, the Grantor will, if required by the  Beneficiary,  consent to the
appointment  of a receiver or receivers of the Premises and of all the earnings,
revenues, rents, issues, profits and income thereof.

2.09 Control By Beneficiary  After Default.  Notwithstanding  the appointment of
any receiver,  liquidator or trustee of the Grantor,  or of any of its property,
or of the Premises or any part  thereof,  the  Beneficiary  shall be entitled to
retain  possession and control of all property now and hereafter covered by this
Deed.

2.10 Waiver of  Appraisement,  Valuation,  Stay,  Execution and Redemption Laws.
Grantor  agrees  to the  full  extent  permitted  by law,  that in the case of a
default on the part of Grantor  hereunder,  neither  Grantor nor anyone claiming
through or under it shall or will set up, claim or seek to take advantage of any
appraisement,  valuation,  stay, extension,  homestead,  exemption or redemption
laws now or hereafter in force, in order to prevent or hinder the enforcement or
foreclosure of this Deed, or the absolute sale of the Premises, or the final and
absolute putting into possession  thereof,  immediately  after such sale, of the
purchasers  thereof,  and Grantor,  for itself and all who may at any time claim
through or under it,  hereby  waives to the full extent that it may  lawfully so
do,  the  benefit  of all such  laws,  and any and all right to have the  assets
comprised  in the  security  intended to be created  hereby  marshaled  upon any
foreclosure of the lien hereof.

2.11 Remedies  Cumulative.  No right, power or remedy conferred upon or reserved
to the  Beneficiary by this Deed is intended to be exclusive of any other right,
power or remedy,  but each and every right, power and remedy shall be cumulative
and  concurrent  and shall be in addition to any other  right,  power and remedy
given  hereunder now or hereafter  existing at law or in equity or by statute to
the fullest extent permitted by law.

2.12 Waiver.

      (a)   No delay or omission of the Beneficiary or of any holder of the Note
            to exercise  any right,  power or remedy  accruing  upon any default
            shall exhaust or impair any such right,



                                       22
<PAGE>   98

            power or  remedy  or shall be  construed  to be a waiver of any such
            default, or acquiescence  therein; and every right, power and remedy
            given by this Deed to the  Beneficiary may be exercised from time to
            time and as often as may be deemed expedient by the Beneficiary.  No
            consent or waiver,  express or implied,  by the Beneficiary to or of
            any  breach  or  default  by  Grantor  in  the  performance  of  the
            obligations  hereunder  shall be deemed or construed to be a consent
            or waiver to or of any other breach or default in the performance of
            the same or any other obligations of Grantor  hereunder.  Failure on
            the part of the Beneficiary to complain of any act or failure to act
            or to declare  an Event of  Default,  irrespective  of how long such
            failure continues,  shall not constitute a waiver by the Beneficiary
            of its rights  hereunder  or impair any  rights,  powers or remedies
            arising by virtue of any breach or default by Grantor.

      (b)   If the  Beneficiary  (i) grants  forbearance or an extension of time
            for the  payment of any sums  secured  hereby;  (ii) takes  other or
            additional  security  for the  payment of any sums  secured  hereby;
            (iii) waives or does not exercise any right granted herein or in the
            Note;  (iv)  releases any part of the Premises from the lien of this
            Deed or otherwise changes any of the terms, covenants, conditions or
            agreements  of the Note or this Deed;  (v) consents to the filing of
            any map, plat or replat affecting the Premises; (vi) consents to the
            granting of any easement or other right  affecting the Premises;  or
            (vii)  makes or  consents to any  agreement  subordinating  the lien
            hereof,  any such act or  omission  shall  not  release,  discharge,
            modify, change or affect the original liability under the Note, this
            Deed or any other obligation of Grantor or any subsequent  purchaser
            of the  Premises  or any  part  thereof,  or any  maker,  co-signer,
            endorser,  surety  or  guarantor  except  to the  extent of any such
            waiver,  release or modification  actually given; nor shall any such
            act or omission  preclude the Beneficiary from exercising any right,
            power or privilege  herein  granted or intended to be granted in the
            event of any default then made or of any  subsequent  default;  nor,
            except  as  otherwise   expressly   provided  in  an  instrument  or
            instruments executed by the Beneficiary, shall the lien of this Deed
            be  altered  thereby.  In the  event  of the  sale  or  transfer  by
            operation of law or  otherwise  of all or any part of the  Premises,
            the Beneficiary,  without notice, is hereby authorized and empowered
            to deal with any such vendee or  transferee  with  reference  to the
            Premises or the Indebtedness, or with reference to any of the terms,
            covenants, conditions or agreements hereof, as fully and to the same
            extent as it might deal with the original parties hereto and without
            in any way releasing or discharging any liabilities or obligations.

2.13  Suits to Protect the Premises.  Beneficiary  shall have the power, with at
      least ten (10) days' prior written notice to Grantor (unless circumstances
      require that  Beneficiary  act  immediately  without any such  notice,  as
      determined by Beneficiary in its sole discretion):

      (a)   to institute and maintain such suits and  proceedings as it may deem
            expedient  to prevent  any  impairment  of the  Premises by any acts
            which may be unlawful or any violation of this Deed,



                                       23
<PAGE>   99

      (b)   to  preserve  or protect its  interest  in the  Premises  and in the
            rents, issues, profits and revenues arising therefrom, and

      (c)   to restrain the enforcement of or compliance with any legislation or
            other   governmental   enactment,   rule  or   order   that  may  be
            unconstitutional  or otherwise  invalid,  if the  enforcement  of or
            compliance  with such  enactment,  rule or order  would  impair  the
            security  hereunder  or  be  prejudicial  to  the  interest  of  the
            Beneficiary.

2.14  Beneficiary  May File  Proofs of Claim.  In the case of any  receivership,
insolvency, bankruptcy, reorganization,  arrangement, adjustment, composition or
other proceedings  affecting Guarantor,  Grantor, or any of them or any of their
creditors or property, the Beneficiary, to the extent permitted by law, shall be
entitled to file such proofs of claim and other documents as may be necessary or
advisable  in  order to have  the  claims  of the  Beneficiary  allowed  in such
proceedings  for the entire amount due and payable by Grantor under this Deed at
the date of the institution of such  proceedings  and for any additional  amount
which may become due and payable by Grantor hereunder after such date.

                                   ARTICLE III

3.01  Credits  Waived.  Grantor will not claim nor demand nor be entitled to any
credit or credits against the  Indebtedness  for the taxes assessed  against the
Premises or any part  thereof,  and no  deductions  shall  otherwise  be made or
claimed from the taxable  value of the Premises or any part thereof by reason of
this Deed or the Indebtedness.

3.02 No Release.  Grantor agrees that in the event the Premises are sold and the
Beneficiary  enters  into any  agreement  with the  then  owner of the  Premises
extending the time of payment of the  Indebtedness,  or otherwise  modifying the
terms  hereof,  Grantor  shall  continue  to be liable  to pay the  Indebtedness
according  to the tenor of any such  agreement  unless  expressly  released  and
discharged in writing by the  Beneficiary.  Nothing in this Paragraph 3.02 shall
be deemed to be a waiver of Paragraph 1.16 hereof.

3.03 Successors and Assigns. The provisions and covenants of this Deed shall run
with the land,  shall be binding on  Grantor,  and shall inure to the benefit of
and be binding  upon Grantor and the  Beneficiary  and their  respective  heirs,
executors,  legal representatives,  successors and permitted assigns. Whenever a
reference  is made in  this  Deed to  Guarantor,  the  Trustee,  Grantor  or the
Beneficiary  such reference shall be deemed to include a reference to the heirs,
executors, legal representatives, successors and permitted assigns thereof.

3.04  Terminology.  All personal  pronouns used in this Deed whether used in the
masculine,  feminine or neuter  gender,  shall  include all other  genders;  the
singular shall include the plural,  and vice versa.  Titles and Articles are for
convenience  only and  neither  limit nor amplify  the  provisions  of this Deed
itself.

3.05 Severability.  If any provision of this Deed or the application  thereof to
any person or circumstance  shall be invalid or unenforceable to any extent, the
remainder of this Deed and the



                                       24
<PAGE>   100

application of such  provisions to other persons or  circumstances  shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.

3.06  Applicable  Law.  Grantor  agrees  that  this  Deed  shall  be  construed,
interpreted  and  enforced in  accordance  with the laws of the State of Nevada;
provided,  however, that if any applicable conflict or choice of law rules would
choose the law of  another  state,  Grantor  waives  such rules and agrees  that
Nevada substantive,  procedural and constitutional law shall nonetheless govern.
Notwithstanding  any provision of this Deed, Note or any other agreement between
Grantor or  Beneficiary,  nothing in this Deed shall require the Grantor to pay,
or the  Beneficiary  to accept,  interest in an amount  which would  subject the
Beneficiary to any penalty under  applicable  law. In the event that the payment
of any interest due hereunder would subject the Beneficiary to any penalty under
applicable  law, then ipso facto the  obligations of the Grantor to make payment
shall be reduced to the highest rate authorized under applicable law.

3.07 Notices,  Demands and Requests.  All notices,  demands or requests provided
for or permitted to be given  pursuant to this Deed must be in writing and shall
be deemed to have been properly  given or served by  depositing  the same with a
nationally  recognized  overnight  courier service or in the United States Mail,
postpaid and registered or certified return receipt requested,  and addressed to
the  addresses  set forth on the first page  hereof.  All  notices,  demands and
requests  shall be effective upon being  deposited with a nationally  recognized
courier  service  or,  on the date  that is two (2)  business  days  after  such
deposit,  upon being  deposited in the United  States  Mail.  Rejection or other
refusal  to accept or the  inability  to deliver  because of changed  address of
which no notice was given shall be deemed to be receipt of the notice, demand or
request sent. By giving at least thirty (30) days written notice hereof, Grantor
or the Beneficiary shall have the right from time to time and at any time during
the term of this Deed to change their respective addresses.

3.08 Time of the Essence.  Time is of the essence with respect to each and every
covenant, agreement and obligation of Grantor under this Deed.

3.09 Title Acts by Trustee. At any time upon written request of the Beneficiary,
payment of its fees and  presentation  of this Deed and the Note for endorsement
(in case of full reconveyance, for cancellation and retention) without affecting
the liability of any person for the payment of the Indebtedness  secured by this
Deed,  the  Trustee  may (a)  consent  to the  making  of any map or plat of the
Premises, (b) join in granting any easement or creating any restriction thereon,
(c) join in any subordination or other agreement affecting this Deed or the lien
or  charge  thereof,  (d)  reconvey,  without  warranty,  all or any part of the
Premises.  The grantee in any  reconveyance  may be  described as the "person or
persons legally  entitled  thereto",  and the recitals therein of any matters of
facts shall be conclusive proof of the truthfulness  thereof. The Grantor agrees
to pay a reasonable  Trustee's  fee for full or partial  reconveyance,  together
with a recording fee for said reconveyance.

3.10 Successor  Trustee.  At the option of the Beneficiary,  with or without any
reason,  a successor or substitute  trustee may be appointed by the  Beneficiary
without any  formality  other than a  designation  in writing of a successor  or
substitute  trustee,  who shall thereupon  become vested with and succeed to all
the powers and duties given to the Trustee herein named, the same as if the



                                       25
<PAGE>   101

successor or substitute trustee had been named original Trustee herein; and such
right to appoint a  successor  or  substitute  trustee  shall exist as often and
whenever the Beneficiary desires.

3.11  Acknowledgments by Grantor.  Grantor acknowledges that the information set
forth on the cover hereof is  incorporated  herein by reference and that Grantor
has received a true copy of this Deed.

3.12 Releases.  Section A.9 of the Loan  Agreement  provides for the release and
reconveyance  of the  lien  of this  Deed  encumbering  the  Premises  upon  the
repayment and performance in full of the Indebtedness, subject to the conditions
set forth in said Section A.9,  prior to the full  repayment and  performance of
the Related  Indebtedness;  provided,  however and except that,  if there exists
with  respect  to  the  Related  Indebtedness  at  the  time  of  repayment  and
performance in full of the  Indebtedness  a default or event of default,  or any
event or  circumstance  which with the passage of time or giving of notice would
become a default or event of default under the Related Loan Documents,  then the
release and  reconveyance of the lien of the Deed hereof shall not be granted by
Beneficiary  for so long as any such  default  or event of default or such other
event or circumstance is continuing.

            IN WITNESS WHEREOF, Grantor has executed this Deed under seal, as of
the day and year first above written.



                                        PREFERRED EQUITIES CORPORATION,
                                        a Nevada corporation


                                        By : /s/  FREDERICK H. CONTE
                                            ------------------------------------

                                        Name:  Frederick H. Conte
                                               ---------------------------------

                                        Title:  President and COO
                                                --------------------------------



                                       26
<PAGE>   102

STATE OF NEVADA   )
                  ) .ss
COUNTY OF CLARK   )


     This instrument was acknowledged before me on August 12, 1998 by Frederick 
H. Conte as President & COO of PREFERRED EQUITIES CORPORATION, a Nevada 
corporation.


                                           /s/ MARY A. FAIR
                                           ---------------------------------
                                           NOTARY PUBLIC
[NOTARY PUBLIC SEAL]
                                           My Commission Expires: Oct. 30, 1998 




                                       27
<PAGE>   103

                                   EXHIBIT "A"


                                LEGAL DESCRIPTION

All that real property  situated in the State of Nevada,  County of Nye, bounded
and described as follows:

Parcel 1:

Lot One (1) Block One (1) of CALVADA  VALLEY UNIT NO. 2 as shown by map recorded
October 5, 1970 as File No.  20291 in the Office of the County  Recorder  of Nye
County, Nevada.

EXCEPTING  THEREFROM  all of its right,  title and interest in and to all of the
minerals,  including gas, coal, oil and oil shales as disclosed by Deed recorded
January 10, 1961 in Book 43, Page 374, Official Records, Nye County, Nevada.

Parcel 2:

Lot One hundred  forty-eight  (148) in Block Sixteen (16) of CALVADA VALLEY UNIT
NO. 6, as shown by map  recorded  February 5, 1973 as Document  No. 36024 in the
Office of the County Recorder of Nye County, Nevada.

EXCEPTING  THEREFROM  all of its right,  title and interest in and to all of the
minerals,  including gas, coal, oil and oil shales as disclosed by Deed recorded
January 10, 1961 in Book 43, Page 374, Official Records, Nye County, Nevada.

Parcel 3:

Parcels  One (1) and Three (3) of Parcel Map  recorded  May 24, 1983 as File No.
81177 and amended by Certificate of Amendment recorded June 14, 1983 as File No.
83144 and by  Certificate  of Amendment  recorded  December 12, 1983 as File No.
99135 and by Certificate of Amendment recorded March 16, 1992 as File No. 304864
of Official Records, Nye County, Nevada.

Parcel 4:

Parcel Two (2) as shown by Parcel Map recorded April 26, 1994 as File No. 351410
of Official Records, Nye County, Nevada.

Parcel 5:

Lot Forty  (40) in Block  Six (6) of  AMENDED  PLAT OF  CALVADA  VALLEY  UNIT 6,
recorded  December 28, 1993 as Document  No.  345007 in the Office of the County
Recorder of Nye County, Nevada.



                                       1
<PAGE>   104

Lots  Nineteen  (19) and Nineteen A (19A) (to the extent of  Preferred  Equities
Corporation's reversionary interest in Lot Nineteen A (19A)) of Block Six (6) of
CALVADA  VALLEY  UNIT NO. 6,  recorded  February  5,  1973 as File No.  36024 of
Official Records,  Nye County,  Nevada,  more  particularly  described as Parcel
Nineteen (19) as shown on Parcel Map recorded  January 6, 1983 as File No. 72610
of Official Records, Nye County, Nevada.

Lot One (1) in Block Fifteen (15), Lots One hundred  seventy-three (173) and One
hundred   seventy-four  (174)  in  Block  Eleven  (11)  and  Lot  Three  hundred
twenty-three  (323) in Block Six (6) of CALVADA  VALLEY  UNIT NO. 6, as shown by
map recorded  February 5, 1973 as Document No. 36024 in the Office of the County
Recorder of Nye County, Nevada.



                                       2
<PAGE>   105

                                   EXHIBIT "B"


                             PERMITTED ENCUMBRANCES

      All  Permitted  Encumbrances  are those  items  set forth in that  certain
Commitment  for Title  Insurance  dated July 8, 1998 as issued by Chicago  Title
Insurance Company as items 1 and 2 (as to non-delinquent  amounts),  3, 4, 5, 6,
7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17 and 18.



                                       1
<PAGE>   106

                                   EXHIBIT "C"


                   LEASES, SUBLEASES, CONTRACTS AND AGREEMENTS

None.



                                       1
<PAGE>   107
                                   [PEC LOGO]

                         PREFERRED EQUITIES CORPORATION

         4310 Paradise Road, Las Vegas, NV 89109-6597 o 702.737.3700 o
                  Toll Free 1.800.634.6431 o Fax 702.369.3194


August 12, 1998


Dorfinco Corporation
c/o Textron Financial Corporation
40 Westminster Street
Providence, Rhode Island 02940

Ladies and Gentlemen:

I have acted as Nevada counsel for Preferred Equities Corporation, a Nevada
corporation ("Borrower"), in connection with certain matters related to a Four 
Million and no/100 Dollar ($4,000,000.00) loan ("Loan") dated as August 12, 
1998, from Dorfinco Corporation, ("Lender"), to Borrower. I have also acted as 
Nevada counsel for Mego Financial Corp., guarantor of the Loan ("Guarantor"). 
The Loan is secured by the Deed (as hereinafter defined) in favor of Dorfinco 
on certain parcels of land in Pahrump, Nevada as described in said Deed ("the 
Property"). This opinion is being delivered in accordance with certain 
requirements of the Loan.

I have reviewed the following documents, all of which are dated August 12, 1998:

     a.   Loan and Security Agreement, between Lender and Borrower;

     b.   Promissory Note, in the stated principal amount of $4,000,000.00, 
          executed by Borrower;

     c.   Deed of Trust, Security Agreement and Fixture Filing (the "Deed"),
          from Borrower, as grantor, to United Title of Nevada, as trustee, and
          for the benefit of Lender as beneficiary;

     d.   County and Secretary of State of Nevada UCC-1 financing statement 
          (the "UCC Financing Statements") executed by Borrower;

     e.   Guaranty Agreement (the "Guaranty"), executed by Guarantor;

     f.   Environmental Indemnity Agreement, executed by the Borrower;



<PAGE>   108
     g.   Subordination Agreement, executed by Borrower, as debtor, and
          Guarantor, as creditor, in favor of and accepted by Lender;

     h.   Borrower's Certificate, executed by Borrower; and

     i.   Guarantor's Certificate, executed by Guarantor.

For the purpose of this opinion, the foregoing documents listed in paragraphs 
a. through i. are referred to herein as the "Loan Documents". It is the opinion 
of the undersigned that:

1.   Borrower is a corporation, duly formed, validly existing and in good
     standing under the laws of the State of Nevada. Borrower has full right,
     power and authority to carry out and consummate all transactions
     contemplated by the Loan Documents and has duly authorized the taking of
     any and all action necessary to carry out and consummate the transactions
     contemplated to be performed on its part by the Loan Documents. Borrower
     has executed and delivered each Loan Document.

2.   Guarantor has the right, power, authority and capacity to execute the
     Guaranty. Guarantor has duly authorized, executed and delivered the
     Guaranty. The Guaranty constitutes the legal, valid and binding obligations
     of Guarantor, enforceable against Guarantor, subject to the limiting
     conditions of 8. infra of this opinion, in accordance with its terms.

3.   No consent, approval, order, authorization, registration, declaration or
     designation of or filing with any governmental authority of the United
     States or the State of Nevada, or any subdivision thereof, is required in
     connection with the authorization, execution, delivery or performance by
     Borrower and Guarantor, as applicable, of the Loan Documents or the
     consummation of any of the transactions contemplated thereby, except for
     the recordation or filing of the Deed and the UCC Financing Statements.

4.   Other than as shown on Exhibit "A" attached hereto there are no suits,
     actions, proceedings or investigations pending or, to the best of my
     knowledge, threatened against or involving Borrower, Guarantor or the
     Property before any court, arbitrator or administrative or governmental
     body. None of the matters shown on Exhibit "A" including but not limited to
     Robert J. Feeney vs. Mego Mortgage Corporation, Jeffrey S. Moore and Mego
     Financial Corp., shall, to the best of my knowledge after reasonable
     inquiry, result in any material adverse change in the contemplated
     business, condition or operation of Borrower, Guarantor or the Property.


                                       2
<PAGE>   109
5.   The execution, delivery and performance of the Loan Documents and the
     documents, instruments and agreements provided for therein will not result
     in a breach of or default under (i) any other document, instrument or
     agreement to which Borrower is a party or to which Guarantor is a party or
     by which Borrower or Guarantor or any of Borrower's or Guarantor's property
     is subject or bound; or (ii) any law, statute, ordinance, judgement, order,
     writ, injunction, decree, rule or regulation of any court, administrative
     agency or other governmental authority, or any determination or award of
     any arbitrator, of the United States or the State of Nevada, or any
     subdivision thereof, by which Borrower or Guarantor or any of Borrower's or
     Guarantor's property is subject or bound.

6.   All certificates, licenses, permits or approvals which must be issued by
     any federal, state or municipal authority as a condition for the present
     use or occupancy of the Property have been duly issued and are in full
     force and effect.

7.   Assuming the collection of interest and other charges provided for in the
     Loan Documents is undertaken strictly in accordance with the terms thereof,
     the Loan Documents will not violate the usury laws of the State of Nevada.

8.   If governed by Nevada law, the Loan Documents are legal, valid, binding and
     enforceable against Borrower in accordance with their terms, subject to
     bankruptcy, insolvency, moratorium and similar laws affecting the rights of
     creditors generally and to general principles of equity (regardless of
     whether such enforceability is considered in a proceeding in equity or at
     law), and except that certain provisions of the Loan Documents may not be
     enforceable in whole or in part under the laws of the State of Nevada, but
     the inclusion of such provisions does not affect the validity of the Loan
     Documents, and the Loan Documents contain adequate provisions for enforcing
     payment of the monetary obligations of Borrower under the Promissory Note,
     and for the practical realization of the rights and benefits afforded by
     the Loan Documents, provided such enforcement is conducted in accordance
     with the procedures established by the laws of the State of Nevada.


9.   Without limiting the opinion expressed in 5 supra, to the best of my
     knowledge, the execution and delivery of and performance by Borrower and
     Guarantor under the Loan Documents do not and will not violate any state
     statute, rule or regulation. As used herein, the term "to the best of my
     knowledge" means to my Actual Knowledge as the term "Actual Knowledge" is
     defined in the Legal Opinion Accord of the ABA Section of Business Law
     (1991).


                                       3