Exhibit 99.1

                                    TELEBANC
                             FINANCIAL CORPORATION



                                  April 7, 1997


Dear Stockholder:

         You are  cordially  invited  to  attend  the  1997  Annual  Meeting  of
Stockholders  of TeleBanc  Financial  Corporation.  The meeting  will be held on
Wednesday,  May 7, 1997 at 11:00 a.m. at the Company's headquarters,  1111 North
Highland Street, Arlington, Virginia 22201. I hope that you will be able to join
us.

         At this  meeting you will be asked to vote,  in person or by proxy,  to
elect three directors,  amend certain provisions of the Company's certificate of
incorporation,  adopt the 1997 Stock Option Plan,  ratify the appointment of the
Company's independent accountants and act on such other business as may properly
come  before the  meeting.  The  Notice of Annual  Meeting  and Proxy  Statement
accompanying this letter describe the business to be transacted at the meeting

         It is  important  that  your  shares  be  represented  at the  meeting,
regardless  of the  number  you may hold.  Whether or not you plan to attend the
meeting in person,  please sign, date and return the enclosed proxy card as soon
as possible.  If you attend the meeting and desire to vote in person, you may do
so even though you have previously returned a proxy to the Company.

         Thank you.  We look forward to seeing you at the meeting.

                                   Sincerely,

                                   /s/ David A. Smilow

                                   David A. Smilow
                                   Chairman of the Board and
                                   Chief Executive Officer


             1111 North Highland Street, Arlington, Virginia 22201

<PAGE>



                         TELEBANC FINANCIAL CORPORATION
                           1111 NORTH HIGHLAND STREET
                            ARLINGTON, VIRGINIA 22201
                                 (703) 247-3700

                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                            TO BE HELD ON MAY 7, 1997

         NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of  Stockholders of
TeleBanc Financial Corporation (the "Company") will be held on Wednesday, May 7,
1997, at 11:00 a.m., at the Company's headquarters,  1111 North Highland Street,
Arlington, Virginia 22201, for the following purposes:

         1.       To elect three directors for terms of three years each;
         2.       To  amend   Article  4  of  the   Company's   certificate   of
                  incorporation  to increase the number of authorized  shares of
                  the Company's  common stock from 3,500,000 to 8,500,000 and to
                  authorize the issuance of nonvoting common stock;
        3.       To  amend   Article  8  of  the   Company's   certificate   of
                  incorporation  to reduce the  effect of certain  anti-takeover
                  provisions by increasing from 10% to 25% the percentage of the
                  Company's  voting  stock  which is  considered  "Control"  for
                  purposes of such Article;
         4.       To  amend   Article  11  of  the  Company's   Certificate   of
                  Incorporation  to reduce the  effect of certain  anti-takeover
                  provisions  by making it easier for the Board of  Directors to
                  approve certain  business  combination  transactions  with the
                  approval  of the  stockholders  required  by law rather than a
                  supermajority;
         5.       To adopt the 1997 Stock Option Plan;
         6.       To ratify the  appointment by the Board of Directors of Arthur
                  Andersen LLP as the Company's independent  accountants for the
                  fiscal year ending December 31, 1997; and
         7.       To transact  such other  business as may properly  come before
                  the  Annual  Meeting  or  any  adjournments  or  postponements
                  thereof.

         The Board of  Directors  has fixed the close of  business  on March 20,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting.  Only  stockholders of record at the close
of business on that date will be entitled to notice of and to vote at the Annual
Meeting or any adjournments or postponements thereof.

                                 By order of the Board of Directors,

                                 /s/ David A. Smilow

                                 David A. Smilow
                                 Chairman of the Board and
                                 Chief Executive Officer

Arlington, Virginia
April 7, 1997

--------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT.  PLEASE RETURN YOUR PROXY  PROMPTLY.  WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING IN PERSON,  PLEASE SIGN, DATE AND COMPLETE THE
ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING
AND DESIRE TO VOTE IN  PERSON,  YOU MAY DO SO EVEN  THOUGH  YOU HAVE  PREVIOUSLY
RETURNED YOUR PROXY.
--------------------------------------------------------------------------------



<PAGE>



                         TELEBANC FINANCIAL CORPORATION
                           1111 NORTH HIGHLAND STREET
                            ARLINGTON, VIRGINIA 22201

                                 PROXY STATEMENT
                         ANNUAL MEETING OF STOCKHOLDERS
                                   MAY 7, 1997

                SOLICITATION, VOTING AND REVOCABILITY OF PROXIES


         This Proxy Statement and the accompanying  Notice of Annual Meeting and
proxy  card are  being  furnished  to the  stockholders  of  TeleBanc  Financial
Corporation, a Delaware corporation (the "Company" or "TeleBanc"), in connection
with the  solicitation  of proxies by the Board of  Directors of the Company for
use at the 1997  Annual  Meeting of  Stockholders  of the Company  (the  "Annual
Meeting").  The Annual  Meeting  will be held at the  headquarters  of  TeleBanc
located at 1111 North Highland Street, Arlington,  Virginia 22201, on Wednesday,
May 7, 1997, at 11:00 a.m., and at any adjournment or postponement  thereof. The
Annual  Meeting  has been  called  for the  purposes  set forth in the Notice of
Annual Meeting.

         If the enclosed  proxy is properly  signed and returned to TeleBanc and
not revoked  prior to its use, the shares  represented  thereby will be voted at
the Annual Meeting in accordance  with the  instructions  thereon.  EXECUTED BUT
UNMARKED  PROXIES WILL BE VOTED:  (1) FOR THE ELECTION OF THE THREE  NOMINEES OF
THE BOARD OF DIRECTORS TO SERVE AS DIRECTORS; (2) FOR THE AMENDMENT OF ARTICLE 4
OF  THE  COMPANY'S  AMENDED  AND  RESTATED  CERTIFICATE  OF  INCORPORATION  (THE
"CERTIFICATE OF  INCORPORATION")  TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
THE COMPANY'S  COMMON STOCK (THE "COMMON STOCK") FROM 3,500,000 TO 8,500,000 AND
TO  AUTHORIZE  THE ISSUANCE OF NONVOTING  COMMON  STOCK (THE  "NONVOTING  COMMON
STOCK");  (3) FOR THE AMENDMENT OF ARTICLE 8 OF THE CERTIFICATE OF INCORPORATION
TO INCREASE FROM 10% TO 25% THE  PERCENTAGE OF THE COMPANY'S  VOTING STOCK WHICH
IS CONSIDERED  "CONTROL" FOR PURPOSES OF SUCH ARTICLE;  (4) FOR THE AMENDMENT OF
ARTICLE 11 OF THE CERTIFICATE OF  INCORPORATION  TO MAKE IT EASIER FOR THE BOARD
OF DIRECTORS  TO APPROVE  CERTAIN  BUSINESS  COMBINATION  TRANSACTIONS  WITH THE
APPROVAL OF THE STOCKHOLDERS  REQUIRED BY LAW RATHER THAN A  SUPERMAJORITY;  (5)
FOR THE ADOPTION OF THE 1997 STOCK OPTION PLAN; AND (6) FOR THE  RATIFICATION OF
ARTHUR  ANDERSEN  LLP AS THE  COMPANY'S  INDEPENDENT  ACCOUNTANTS.  If any other
matters are properly brought before the Annual Meeting, proxies will be voted in
the discretion of the proxy  holders.  TeleBanc is not aware of any such matters
that are proposed to be presented at the Annual Meeting.

         The cost of soliciting  proxies in the form  enclosed  herewith will be
borne by the  Company.  In  addition  to the  solicitation  of  proxies by mail,
directors,   officers  and  regular   employees  of  TeleBanc,   without   extra
remuneration,  may  solicit  proxies  personally,  by  telephone,  telegram,  or
otherwise.  TeleBanc will also utilize the services of its transfer agent, Fifth
Third Trust,  to provide  broker  search and proxy  distribution  services at an
estimated cost of $3,000.  TeleBanc will request persons, firms and corporations
holding  shares  in their  name or in the  names of their  nominees,  which  are
beneficially owned by others, to send proxy materials to and obtain proxies from
the  beneficial  owners and will  reimburse  the  holders  for their  reasonable
expenses  in doing  so. It is  anticipated  that this  Proxy  Statement  and the
enclosed proxy will be mailed to stockholders on or about April 7, 1997.

         In February 1997, the Company entered into a $29,900,000  Unit Purchase
Agreement with two investment partnerships managed by Conning & Company and with
General American Life Insurance Company, CIBC WG Argosy Merchant Fund 2, LLC, PC
Investment Company and The Northwestern Mutual Life Insurance Company (the "Unit
Purchase  Agreement").  Pursuant  to the Unit  Purchase  Agreement,  the Company
issued and sold 29,900 Units, which in the aggregate

<PAGE>



consist of (i) $13,703,469 in aggregate principal amount of the Company's Senior
Subordinated  Notes due March 31, 2004,  (ii) 29,900 shares of serial  preferred
stock,   (iii)  warrants  to  purchase  198,088  shares  of  Common  Stock  (the
"Warrants"),  and (iv)  contingent  warrants to purchase up to 205,563 shares of
Common Stock (the "Contingent  Warrants").  The serial preferred stock issued in
connection  with this  transaction  consists of 18,850 shares of Series A Voting
Convertible Preferred Stock ("Series A Preferred Stock"), 4,050 shares of Series
B Nonvoting  Convertible Preferred Stock ("Series B Preferred Stock"), and 7,000
shares of Series C Nonvoting  Convertible  Preferred  Stock ("Series C Preferred
Stock,"  and  collectively  with the Series A  Preferred  Stock and the Series B
Preferred Stock, the "Preferred Stock").

         In connection with the Unit Purchase Agreement,  certain holders of the
Series A  Preferred  Stock are  entitled  to  designate  two persons to serve as
directors  of the Company,  who shall be  nominated  for election by the Company
(subject to certain exceptions).  Such nominees to the Board of Directors,  Dean
C. Kehler and Steven F. Piaker, were elected to the Board of Directors effective
upon the closing of the sale of the Units by the Company on February  28,  1997.
The Unit Purchase Agreement also contains an affirmative covenant by the Company
that it will obtain  stockholder  approval  of the  proposed  amendments  to the
Certificate  of  Incorporation  that are presented as Proposals Two and Three in
this Proxy Statement.

         In connection with the Unit Purchase Agreement, certain amendments were
made to the  Company's  Bylaws so that the number of  directors  on the Board of
Directors may not exceed nine members,  any two directors have the right to call
a meeting of the Board of Directors and the  affirmative  vote of 66-2/3% of the
total  number of votes of the then  outstanding  shares of capital  stock of the
Company entitled generally to vote in the election of directors, voting together
as a single  class,  is required  to amend the Bylaw  provisions  regarding  the
number and selection process of the Board of Directors.

         Also  as part  of the  sale of  Units  pursuant  to the  Unit  Purchase
Agreement,  the Company  entered into an agreement with Arbor Capital  Partners,
Inc.   ("Arbor"),   a  registered   investment   advisor,   funds   manager  and
broker-dealer,   MET  Holdings  Corporation  ("MET  Holdings")  and  William  M.
Daugherty (the "Acquisition Agreement"), pursuant to which the Company purchased
substantially  all of  the  assets  and  liabilities  of  Arbor.  MET  Holdings,
TeleBanc's  largest  stockholder,  also owns a majority of the capital  stock of
Arbor. This acquisition  involved the tax-free issuance of 162,461 shares of the
Company's  Common Stock and a $500,000 cash payment for the Arbor assets.  Since
consummation  of the  Acquisition  Agreement,  Arbor has distributed the 162,461
shares of TeleBanc  Common Stock that it received in the  acquisition to its two
stockholders,  MET  Holdings  and  William  M.  Daugherty.  As a result  of this
distribution,  Arbor no longer beneficially owns any of the capital stock of the
Company.

         The securities  that can be voted at the Annual Meeting  consist of the
outstanding  shares of Common  Stock as well as the shares of Series A Preferred
Stock of the Company sold pursuant to the Unit Purchase Agreement. Each share of
Common  Stock  entitles  its holder to one vote on each matter  presented to the
stockholders. Each share of Series A Preferred Stock entitles its holder to that
number of votes equal to the largest number of whole shares of Common Stock into
which such holder's shares of Series A Preferred Stock could be converted on the
Record  Date (as defined  below)  pursuant to the  provisions  of the  Company's
Certificate of Incorporation.

         The close of  business on March 20, 1997 has been fixed by the Board of
Directors  as the  record  date (the  "Record  Date") for the  determination  of
stockholders  entitled  to notice of and to vote at the Annual  Meeting.  On the
Record  Date,  there were  approximately  220  holders of Common  Stock and five
holders  of Series A  Preferred  Stock.  The  number  of shares of Common  Stock
outstanding on the Record Date was 2,211,961,  and the total number of shares of
Common Stock into which the Series A Preferred  Stock would convert on that date
was 756,360.  The Common Stock and the Series A Preferred Stock, which will vote
together as one class with respect to the proposals  presented  for  stockholder
approval in this Proxy Statement, are collectively referred to as the

                                       2

<PAGE>

"Company's  Voting  Securities,"  and references to percentages of the Company's
Voting  Securities  are  calculated  on the basis of 2,968,321  shares of Common
Stock,  the sum of the  2,211,961  outstanding  shares of  Common  Stock and the
756,360  shares of Common  Stock into which the  outstanding  Series A Preferred
Stock could be converted on the Record Date.  On the Record Date,  the Company's
largest  stockholder,  MET Holdings,  held 1,433,081  shares of Common Stock, or
64.8% of the  outstanding  shares of Common  Stock and  48.75% of the  Company's
Voting Securities outstanding on that date.

         The  presence,  in person or by proxy,  of at least a  majority  of the
stock of the Company issued and  outstanding and entitled to vote at the meeting
is necessary to constitute a quorum at the Annual Meeting.  Stockholders'  votes
will be  tabulated  by the person  appointed by the Board of Directors to act as
inspector  of  election  for the Annual  Meeting.  Under the  Company's  Bylaws,
directors  are  elected by a plurality  of votes cast by the shares  entitled to
vote in the  election of  directors.  Unless  otherwise  required by the General
Corporation Law of the State of Delaware,  the Certificate of  Incorporation  or
the  Bylaws,  the  Company's  Bylaws  provide  that any  other  matter  put to a
stockholder  vote shall be decided by the affirmative  vote of a majority of the
votes cast on the matter. As discussed below, certain proposals to be voted upon
by the Company's stockholders that are presented in this Proxy Statement require
a higher vote for stockholder approval.

         Pursuant to the Company's  Certificate of  Incorporation,  amendment of
Article 4 of the Certificate of  Incorporation  requires the affirmative vote of
the  holders of at least a majority  of the  outstanding  shares of stock of the
Company entitled to vote thereon at the Annual Meeting. MET Holdings has advised
the  Company  that it intends to vote all  shares of Common  Stock  beneficially
owned by it in favor of the proposal  amending  Article 4 of the  Certificate of
Incorporation.  Each of the holders of the Series A Preferred Stock is obligated
by the terms of the Unit Purchase  Agreement to vote in favor of this  proposal.
MET  Holdings  and the  holders of the  Series A  Preferred  Stock  collectively
beneficially  own 73.8% of the Company's Voting  Securities  entitled to vote at
the Annual Meeting. Consequently,  approval of this amendment of the Certificate
of Incorporation is assured.

         Pursuant to the Company's  Certificate of  Incorporation,  amendment of
Article 8 of the Certificate of  Incorporation  requires the affirmative vote of
the holders of at least 66-2/3 percent of the outstanding shares of stock of the
Company entitled to vote thereon at the Annual Meeting. MET Holdings has advised
the  Company  that it intends to vote all  shares of Common  Stock  beneficially
owned by it in favor of the proposal  amending  Article 8 of the  Certificate of
Incorporation.  Each of the holders of the Series A Preferred Stock is obligated
by the terms of the Unit Purchase  Agreement to vote in favor of this  proposal.
MET  Holdings  and the  holders of the  Series A  Preferred  Stock  collectively
beneficially  own 73.8% of the Company's Voting  Securities  entitled to vote at
the Annual Meeting. Consequently,  approval of this amendment of the Certificate
of Incorporation is assured.

         Pursuant to the Company's  Certificate of  Incorporation,  amendment of
Article 11 of the Certificate of Incorporation  requires the affirmative vote of
the  holders of at least 80 percent  of the  outstanding  shares of stock of the
Company entitled to vote thereon at the Annual Meeting. MET Holdings has advised
the  Company  that it intends to vote all  shares of Common  Stock  beneficially
owned by it in favor of the proposal  amending  Article 11 of the Certificate of
Incorporation.  The holders of the Series A Preferred Stock are not obligated by
the terms of the Unit Purchase Agreement to vote in favor of this proposal.  MET
Holdings beneficially owns 48.75% of the Company's Voting Securities entitled to
vote at the Annual Meeting.

         Abstentions  and broker  non-votes  will be treated as shares  that are
present,  or  represented,  and entitled to vote for purposes of determining the
presence of a quorum at the Annual  Meeting.  Broker  non-votes and  abstentions
will not be counted in determining  the number of votes cast in connection  with
any matter presented at the Annual Meeting.

                                       3

<PAGE>



         The  presence  of  a  stockholder   at  the  Annual  Meeting  will  not
automatically  revoke the  stockholder's  proxy.  However,  any  stockholder may
revoke a proxy at any time prior to its exercise by filing with the Secretary of
TeleBanc  a written  notice of  revocation,  by  delivering  to  TeleBanc a duly
executed  proxy  bearing a later date,  or by attending  the Annual  Meeting and
giving the Secretary notice of his or her intention to vote in person.

         A copy of the Annual Report to  Stockholders  for the fiscal year ended
December 31, 1996  accompanies  this Proxy  Statement,  and is  incorporated  by
reference  herein.  TeleBanc  has  filed an  Annual  Report on Form 10-K for its
fiscal year ended December 31, 1996 with the Securities and Exchange  Commission
(the  "Commission").  Stockholders  may  obtain,  free of charge,  a copy of the
Annual Report on Form 10-K by writing to TeleBanc  Financial  Corporation,  1111
North Highland Street, Arlington, Virginia 22201, Attention: Investor Relations.


             STOCK OWNED BY MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

         The  following  tables  set forth  certain  information  regarding  the
beneficial  ownership of the Company's Common Stock and Series A Preferred Stock
as of the  Record  Date  by (i)  any  person  known  to  the  Company  to be the
beneficial  owner  of  more  than  5% of  any  class  of  the  Company's  voting
securities,  (ii) each director and person nominated to be a director, (iii) the
Chief  Executive  Officer and each of the other  executive  officers whose total
annual salary and bonus  exceeded  $100,000  during the year ended  December 31,
1996 (the "Named  Executive  Officers"),  and (iv) all  directors  and executive
officers  as a group.  The  tables  also  reflect  the  options  that  have been
previously  granted,  including  those granted  under the  Company's  1997 Stock
Option Plan, which is subject to stockholder approval at the Annual Meeting.

         The  information in the tables is based on  information  from the named
persons regarding ownership of Common Stock and Series A Preferred Stock. Unless
otherwise indicated, each stockholder has sole voting and investment power as to
all shares listed as beneficially owned by such person.

         Under the  rules of the  Commission,  a person is deemed a  "beneficial
owner" of a  security  if such  person has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the disposition of
such  security.  A  person  is  also  deemed  to be a  beneficial  owner  of any
securities  of which that person has the right to acquire  beneficial  ownership
within 60 days.  More than one person may be deemed to be a beneficial  owner of
the same securities.

                                       4

<PAGE>

SECURITY OWNERSHIP OF THE COMPANY'S SECURITIES
<TABLE>
<CAPTION>

                                                                     AMOUNT AND         PERCENTAGE OF: CLASS
                                                                      NATURE OF             OUTSTANDING/ 
TITLE                                                                BENEFICIAL               COMPANY'S  
OF CLASS      NAME OF BENEFICIAL OWNER                                OWNERSHIP          VOTING SECURITIES (a)
--------      ------------------------                                ---------          ---------------------


<S>           <C>                                                     <C>                   <C>  
Series A      Conning Insurance Capital Limited                          4,719                25.03% / 6.38%
Preferred      Partnership III
Stock         c/o Conning & Company
              CityPlace II, 185 Asylum Street
              Hartford, CT  06103

              Conning Insurance Capital International                     667                  3.54% / 0.90%
               Partners III, L.P.
              c/o Conning & Company
              CityPlace II, 185 Asylum Street
              Hartford, CT  06103

              General American Life Insurance Company                    1,539                 8.16% / 2.08%
              700 Market Street
              St. Louis, MO  63101

              PC Investment Company                                      6,925                36.74% / 9.36%
              401 Theodore Fremd Avenue
              Rye, NY  10580

              The Northwestern Mutual Life Insurance                     5,000                26.53% / 6.76%
               Company
              720 East Wisconsin Avenue
              Milwaukee, WI  53202
</TABLE>

----------
(a)  For  purposes  of  voting at the  Annual  Meeting,  each  share of Series A
     Preferred  Stock  has  40.12519  votes,  based  on its  conversion  into an
     equivalent number of shares of Common Stock.  Accordingly,  the percentages
     reflected   include  (i)  the  percentage  of  Series  A  Preferred   Stock
     outstanding  and (ii) the  percentage  of the Company's  Voting  Securities
     beneficially  owned,  giving effect to the voting rights held by the owners
     of Series A Preferred Stock for purposes of voting at the Annual Meeting.

                                       5

<PAGE>
<TABLE>
<CAPTION>
                                                                        Amount and          Percentage of: Class  
                                                                        Nature of               Outstanding/      
Title                                                                   Beneficial               Company's        
of Class      Name of Beneficial Owner                                   Ownership          Voting Securities (a) 
--------      ------------------------                                   ---------          --------------------- 
<S>          <C>                                                     <C>                 <C>         <C>   
Common        MET Holdings Corporation                                  1,433,081           64.78%    / 48.28%
Stock         405 Park Avenue, Suite 1104
              New York, NY 10022 (b)

              David A. Smilow                                             205,365 (c)        8.50%    /  6.48%

              Mitchell H. Caplan                                          205,365 (c)        8.50%    /  6.48%

              David R. DeCamp                                              16,000 (d)          *      /    *

              Arlen W. Gelbard                                             10,000 (d)          *      /    *

              Dean C. Kehler                                                   -- (e)         n/a     /   n/a

              Steven F. Piaker                                                 -- (f)         n/a     /  7.28%

              Mark Rollinson                                               18,000 (d)          *      /    *

              Michael A. Smilow                                                -- (g)          *      /    *

              Aileen Lopez Pugh                                            42,100 (h)        1.87%    /  1.40%

              Directors and Executive Officers as a group
              (9 individuals)                                             496,830 (i)       18.42%    / 20.64% (j)

              TeleBanc Employee Stock Ownership Plan                       67,600            3.06%    /  2.28%
</TABLE>
----------

*    Less than 1%.
(a)  For  purposes  of  voting at the  Annual  Meeting,  each  share of Series A
     Preferred  Stock  has  40.12529  votes,  based  on its  conversion  into an
     equivalent number of shares of Common Stock.  Accordingly,  the percentages
     reflected  include (i) the percentage of Common Stock  outstanding and (ii)
     the  percentage  of the Company's  Voting  Securities  beneficially  owned,
     giving effect to the voting rights held by the owners of Series A Preferred
     Stock for purposes of voting at the Annual Meeting.
(b)  MET  Holdings  is the  predecessor  savings  and loan  holding  company  of
     Metropolitan Bank for Savings,  F.S.B.  ("Metropolitan Bank"). MET Holdings
     organized the Company so that it could become,  in March 1994,  the holding
     company  for  Metropolitan  Bank as part of the  Company's  initial  public
     offering  of debt and  equity  securities  in 1994.  Metropolitan  Bank was
     renamed  "TeleBank" in March 1996, and is a wholly owned  subsidiary of the
     Company.
(c)  Consists  solely of options to acquire  Common  Stock,  of which 63,219 are
     exercisable within 60 days of March 20, 1996. Messrs. D. Smilow and Caplan,
     including their affiliates,  also hold significant  ownership  positions in
     the outstanding  securities of MET Holdings. See "Security Ownership of the
     Company's Parent by Management."
(d)  For each of  Messrs.  DeCamp  and  Rollinson,  includes  options to acquire
     15,000 shares of Common  Stock,  7,000 of which are  exercisable  within 60
     days of March 20, 1997, and for Mr.  Gelbard,  includes  options to acquire
     10,000 shares of Common  Stock,  2,000 of which are  exercisable  within 60
     days of March 20, 1997.
(e)  Dean C. Kehler is the designated  director for CIBC WG Argosy Merchant Fund
     2, LLC.
(f)  Steven F. Piaker is the designated  director for Conning  Insurance Capital
     Limited  Partnership  III  and  Conning  Insurance  Capital   International
     Partners  III,  L.P.,  which  collectively  own  5,386  shares  of Series A
     Preferred Stock.
(g)  Michael A. Smilow owns 110 shares,  or 1.1%, of the Class A Common Stock of
     MET  Holdings and 117 shares,  or 1.4%,  of the Class B Common Stock of MET
     Holdings.
(h)  Includes options to acquire 35,000 shares of Common Stock.
(i)  Includes options to acquire 485,730 shares of Common Stock.
(j)  Includes an additional 216,114 of the Company's Voting Securities, based on
     the 5,386 shares of Series A Preferred Stock  collectively owned by Conning
     Insurance  Capital Limited  Partnership III and Conning  Insurance  Capital
     International  Partners  III,  L.P.,  for  which  Steven  A.  Piaker is the
     designated director.
                                       6
<PAGE>
                              ELECTION OF DIRECTORS
                                (PROPOSAL ONE)

         The Company's  Bylaws provide that the Board of Directors shall consist
of not fewer than six nor more than nine members. Pursuant to the Certificate of
Incorporation  and the Bylaws,  a majority of the  directors  then in office may
vote to fill any vacancies on the Board or any newly-created  directorships.  In
April 1996,  the Board of Directors  elected Arlen W. Gelbard to fill one of the
two vacancies on the Board of  Directors.  As discussed  above,  pursuant to the
Unit Purchase  Agreement  certain  holders of Series A Preferred  Stock have the
right to  designate  for  nomination  two  members  of the  Board of  Directors.
Effective February 28, 1997, the date of the closing of the sale of Units by the
Company,  Dean C. Kehler and Steven F. Piaker,  the  designees of the holders of
the Series A Preferred Stock,  were appointed to fill the remaining  vacancy and
one newly-created  directorship.  Messrs. Gelbard, Kehler and Piaker are members
of the class of  directors  whose  terms  expire at the 1999  annual  meeting of
stockholders.  In March 1997, the Board of Directors created a directorship with
a term expiring at this Annual Meeting,  and appointed Michael A. Smilow to fill
this  newly-created  directorship.  Michael A.  Smilow is the father of David A.
Smilow. The Company's Board of Directors currently consists of eight members.

         The Board of  Directors  consists of three  classes of  directors  with
overlapping  three-year terms. One class of directors is to be elected each year
with terms expiring at the third succeeding annual meeting of stockholders after
such election.  At the Annual  Meeting,  three directors will be elected to hold
office for  three-year  terms which will  expire at the 2000  annual  meeting of
stockholders.

         Unless  otherwise  instructed on the proxy,  it is the intention of the
persons  named in the  proxy to vote the  shares  represented  by each  properly
executed proxy for the election of the nominee directors listed below. The Board
of Directors  believes  that the nominees will stand for election and will serve
if elected.  However, if any person nominated by the Board of Directors fails to
stand for election or is unable to accept election, proxies will be voted by the
proxy  holders for the  election of such other person or persons as the Board of
Directors  may  recommend.  There is no  cumulative  voting for the  election of
directors.  Assuming the presence of a quorum at the Annual  Meeting,  directors
will be elected by a plurality of the votes cast by the shares  entitled to vote
in the election of directors.

         THE  BOARD  OF  DIRECTORS  RECOMMENDS  THAT  STOCKHOLDERS  VOTE FOR THE
ELECTION OF ITS NOMINEES AS DIRECTORS OF THE COMPANY.

         The  following  table sets forth the names of the persons  nominated by
the Board of Directors for election as directors and the current directors whose
terms do not expire until subsequent annual meetings.  Also set forth is certain
information  with respect to each  person's age at the Record Date,  the periods
during  which such person has served as a director of the Company and its wholly
owned subsidiary,  TeleBank,  and positions  currently held with the Company and
TeleBank.  The table also sets forth  certain  information  with  respect to the
Company's sole executive officer who does not also serve as a director.
<TABLE>
<CAPTION>

                                              POSITION(S) HELD WITH         DIRECTOR      FOR TERM
NAME                        AGE              THE COMPANY AND TELEBANK         SINCE       TO EXPIRE
----                        ---              ------------------------         -----       ---------

THE NOMINEES:
<S>                      <C>    <C>                                         <C>          <C>      
David R. DeCamp (1)(2)      37    Director of the Company and TeleBank        1993 (3)      2000
Mark Rollinson (1)          60    Director of the Company and TeleBank        1992 (3)      2000
Michael A. Smilow           59    Director of the Company and TeleBank        1997          2000
</TABLE>

                                       7
<PAGE>
<TABLE>
<CAPTION>

                                                      POSITION(S) HELD WITH                 DIRECTOR      FOR TERM
NAME                               AGE              THE COMPANY AND TELEBANK                  SINCE       TO EXPIRE
----                               ---              ------------------------                  -----       ---------

CONTINUING DIRECTORS:
<S>                               <C>                                                       <C>              <C> 
David A. Smilow                    35    Chairman of the Board and Chief Executive           1989 (3)         1998
                                         Officer of the Company; Chairman of the Board
                                         and Chief Risk Management Officer of TeleBank
Mitchell H. Caplan                 39    Vice Chairman of the Board and President of         1994             1998
                                         the Company; Vice Chairman, President and
                                         Chief Executive Officer of TeleBank
Arlen W. Gelbard (1)(2)            39    Director of the Company and TeleBank                1996             1999
Dean C. Kehler (1)(2)(4)           40    Director of the Company and TeleBank                1997             1999
Steven F. Piaker (1)(2)(4)         34    Director of the Company and TeleBank                1997             1999

EXECUTIVE OFFICER:
Aileen Lopez Pugh                  29    Executive Vice President - Chief Financial
                                         Officer/Treasurer of the Company and TeleBank
</TABLE>
----------

(1)  Member  of  the  compensation   committees  of  the  Company  and  TeleBank
     (together, the "Compensation  Committee") and the stock option committee of
     the Company (the "Stock Option Committee").
(2)  Member of the audit and  compliance  committees of the Company and TeleBank
     (together, the "Audit and Compliance Committee").
(3)  For the years prior to 1994, includes service as a director of TeleBank.
(4)  Nominated  as a  director  pursuant  to the  Unit  Purchase  Agreement,  as
     described above.

Director Nominees

         David R. DeCamp has been a director of the Company  since its formation
in 1994,  and a director  of  TeleBank  since 1992.  Mr.  DeCamp,  a Senior Vice
President of Grubb & Ellis,  is currently  employed as a commercial  real estate
broker.  From 1988 to 1996, Mr. DeCamp was employed as a commercial  real estate
broker by Cassidy & Pinkard,  Inc.  Mr.  DeCamp is the Chairman of the audit and
compliance committees of the Company and TeleBank.

         Mark  Rollinson  has been a director of the Company since its formation
in 1994, and a director of TeleBank since 1992. He is a self-employed  attorney,
and has been practicing law in the Leesburg, Virginia area since 1982.

         Michael A. Smilow has been a director of the Company and TeleBank since
March 1997. Mr. Smilow served as the Executive Vice President of Fannie Mae from
1984 to 1993,  and also  served as Chief  Credit  Officer  and  Chief  Operating
Officer.  He was responsible for establishing and monitoring credit policies for
Fannie Mae's product and customer  relationships.  He also served as a member of
Fannie Mae's policy and management committees.  Mr. Smilow currently serves as a
mortgage consultant.

Continuing Directors and Executive Officer

         David A.  Smilow is the  Chairman  of the  Board  and  Chief  Executive
Officer of the Company and MET  Holdings and the Chairman of the Board and Chief
Risk Management Officer of TeleBank. Prior to January 1994, Mr. Smilow served as
President  of  TeleBank.  Since  1992,  Mr.  Smilow has been a director  and the
Treasurer of Arbor. Between 1987 and 1989, Mr. Smilow was an associate in

                                       8
<PAGE>



Goldman Sachs'  Mortgage  Capital  Markets Group.  From 1984 to 1987, Mr. Smilow
worked as a bond trader with Drexel Burnham Lambert.

         Mitchell H. Caplan is the Vice  Chairman of the Board and  President of
the Company and MET Holdings and Vice  Chairman,  President and Chief  Executive
Officer of TeleBank.  He is also a co-founder  of Arbor,  where he has served as
Vice  President and director  since Arbor's  inception in 1992.  From 1990 until
December 1993, Mr. Caplan was a member of the law firms of Danziger & Caplan and
Zuckerman & Gore, where he represented and advised private and public commercial
institutions,  including MET  Holdings.  From  1985-1990,  he practiced law with
Shearman & Sterling in New York City.

         Arlen W.  Gelbard  is a member of the law firm of  Hofheimer  Gartlir &
Gross,  LLP, New York, New York where he has specialized in  transactional  real
estate, lending, leasing, foreclosures and workouts since 1982. Mr. Gelbard is a
member of the New York State Bar Association and American Bar  Association.  Mr.
Gelbard has been a director of the Company since April 1996, when he was elected
by the Company's Board of Directors to fill one of the vacancies on the Board of
Directors  of the  Company  and  TeleBank.  Mr.  Gelbard is the  Chairman of the
compensation committees of the Company and TeleBank.

         Dean  C.  Kehler  has  been a  Managing  Director  of CIBC  Wood  Gundy
Securities and co-head of the High Yield Group since August 1995.  From February
1990,  Mr.  Kehler was a founding  partner and  Managing  Director of The Argosy
Group,  L.P.,  which was acquired by CIBC Wood Gundy in August 1995.  Mr. Kehler
has  extensive  experience  in all  areas of high  yield  finance,  mergers  and
acquisitions and corporate restructuring.

         Steven F.  Piaker is a Senior Vice  President  and Partner of Conning &
Company,  a provider of asset  management,  private  equity  capital,  corporate
finance services and research to the insurance and financial  services industry.
Prior to joining  Conning & Company,  he was a Senior Vice  President of Conseco
where he was  involved  in the  formation  of  Conseco,  the  raising  of funds,
leveraged buyouts and private placement investments.

         Aileen Lopez Pugh serves as Executive Vice President - Chief  Financial
Officer/Treasurer of the Company and TeleBank. Prior to joining management,  Ms.
Pugh served as a director from 1993 to 1994. From December 1993 to May 1994, she
served as a consultant to MET Holdings in connection  with the  organization  of
the Company and its initial public offering. From 1989 through 1992, Ms. Pugh, a
certified public accountant, was an auditor with KPMG Peat Marwick.

BOARD OF DIRECTORS' COMMITTEES AND NOMINATIONS BY SHAREHOLDERS

         Each of the  Board of  Directors  of the  Company  and  TeleBank  has a
compensation committee and an audit and compliance committee.  The committees of
the Boards of the Company and  TeleBank  are  comprised  of the same members and
meet simultaneously.  In 1996, the members of the Compensation  Committee of the
Company and  TeleBank  were David R. DeCamp and Mark  Rollinson  and as of April
1996,  Arlen W.  Gelbard.  In 1996,  the  members  of the Audit  and  Compliance
Committee of the Company and TeleBank were David R. DeCamp and Arlen W. Gelbard.
Effective February 28, 1997, Dean C. Kehler and Steven F. Piaker were elected as
members of the Compensation  Committee and Audit and Compliance Committee of the
Company and  TeleBank.  In addition,  the Company has a Stock Option  Committee,
which consists of the same members as the Compensation  Committee, to administer
the 1997 Stock Option Plan. The Compensation Committee establishes  compensation
for  directors,  reviews  compensation  for all executive  officers on an annual
basis and reviews the overall bonus plan offered to all employees of the Company
and TeleBank.  The Audit and Compliance Committee reviews TeleBank's  compliance
with regulatory  matters and reviews the scope of the internal  auditors and the
independent annual audit. It also reviews the independent accountants' letter to
management  concerning the effectiveness of the Company's internal financial and
accounting controls and management's

                                       9
<PAGE>



response to the letter. In addition,  the Audit and Compliance Committee reviews
and recommends to the Board of Directors the firm to be engaged as the Company's
independent accountants. The Audit and Compliance Committee may also examine and
consider  other  matters  relating to the  financial  affairs of the Company and
TeleBank as it determines  appropriate.  In 1996, the Compensation Committee and
the Audit and Compliance Committee met five and four times, respectively.

         During the year ended  December  31, 1996 the Board of Directors of the
Company  held 11  meetings.  No director  attended  fewer than 75 percent of the
aggregate of the total number of meetings of the Board of Directors  held during
the period for which he was a director and the total number of meetings  held by
all  committees  of the Board of Directors on which he served during the periods
that he served.

         The Board of Directors  acts as a nominating  committee  for  selecting
nominees for election as directors.  TeleBanc's Bylaws also permit  stockholders
eligible to vote for the  election of  directors  at the Annual  Meeting to make
nominations for directors if such nominations are made pursuant to timely notice
in  writing to the  Secretary  of the  Company.  To be  timely,  notice  must be
delivered to, or mailed to and received at, the principal  executive  offices of
the  Company  no later  than the date  designated  for  receipt  of  stockholder
proposals in a prior public disclosure by the Company. If there has been no such
prior public  disclosure,  notice must be delivered or mailed to and received at
the Company's principal executive offices not less than 60 days nor more than 90
days prior to the date of the meeting, provided that at least 70 days' notice or
prior  public  disclosure  of the  date  of the  meeting  is  given  or  made to
stockholders.  If less than 70 days'  notice or prior public  disclosure  of the
date of the  Annual  Meeting  is given or made to  stockholders,  notice  by the
stockholder  to be timely  must be  received  by the  Company not later than the
close of business on the 10th day  following the day on which such notice of the
date of the Annual  Meeting was mailed or such  public  disclosure  was made.  A
stockholder's  notice of  nomination  must also set  forth  certain  information
specified  in  Section  3.5 of  TeleBanc's  Bylaws  concerning  each  person the
stockholder proposes to nominate for election and the nominating stockholder.

COMPENSATION OF DIRECTORS

         Non-employee  directors  of the Company  receive  $750 for each Company
board and committee  meeting  attended,  and non-employee  directors of TeleBank
receive $750 for each TeleBank board or committee meeting attended. In addition,
non-employee  directors are reimbursed for travel costs and other  out-of-pocket
expenses  incurred in attending such meeting.  Annual directors' fees are capped
at $3,000 per board  member of the  Company,  and  $12,000  per board  member of
TeleBank.

                                       10
<PAGE>


                  EXECUTIVE COMPENSATION AND OTHER INFORMATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

         The  following  table sets  forth the  compensation  earned  during the
periods  indicated for the Named Executive  Officers.  The Company does not have
any stock appreciation rights ("SARs").
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE
                                                                                   LONG-TERM
                                                       ANNUAL COMPENSATION        COMPENSATION AWARDS
                                                                                     SECURITIES
NAME AND                                                                             UNDERLYING               ALL OTHER
PRINCIPAL POSITION                           YEAR    SALARY ($)(a)  BONUS ($)           OPTIONS (#)        COMPENSATION ($)(b)
------------------                           ----    -------------  ---------           -----------        -------------------
<S>                                          <C>     <C>          <C>               <C>                    <C>
David A. Smilow, Chairman and
   Chief Executive Officer of the
   Company and Chairman and                  1996    $ 205,000    $ 188,000                  ---               $ 15,000
   Chief Risk Management Officer             1995      205,000      150,000                  ---                 15,000
   of TeleBank                               1994      180,000       75,000(c)           105,365                 15,000

Mitchell H. Caplan, Vice Chairman
    and President of the Company and         1996      205,000      188,000                  ---                 15,000
    Vice Chairman, President and             1995      205,000      150,000                  ---                 15,000
    Chief Executive Officer of TeleBank      1994      180,000      125,000(c)           105,365                 15,000

Aileen Lopez Pugh, Executive Vice            1996       75,000       60,000               15,000                 13,500
    President - Chief Financial Officer/     1995       75,000       60,000                5,000                 13,500
    Treasurer of the Company                 1994       18,735(d)    10,000                5,000                   ---
    and TeleBank
</TABLE>
----------
(a)  Salary earned from the Company and TeleBank.
(b)  Dollar value of contributions by TeleBank to each officer's  account in the
     Company's ESOP (defined below).
(c)  Mr. D. Smilow's and Mr. Caplan's 1994 bonuses  reflects $75,000 for bonuses
     not paid until the first quarter of 1995 as they were  contingent  upon the
     successful  completion of the  restructuring  of an asset.  Mr. Caplan also
     received a $50,000 bonus from TeleBank in 1994 upon becoming President.
(d)  Ms. Pugh joined the Company and TeleBank in August 1994.

                                       11

<PAGE>

STOCK OPTIONS

         Option Grants. The following table contains information with respect to
grants of stock options for Common Stock to the sole Named Executive Officer who
received options during 1996. All such grants were made under the Company's 1994
Stock Option Plan. The Company does not have any SARs.
<TABLE>
<CAPTION>

                              OPTION GRANTS IN 1996
                                                                                       Potential Realizable Value
                                                                                       at Assumed Annual Rates of
                                                                                      Stock Price Appreciation for
                               Individual Grants (a)                                         Option Term (b)
--------------------------------------------------------------------------------------------------------------------
                                         % of Total Options
                          Number of            Granted
                     Securities Underlying  to Employees Exercise or Base  Expiration
Name                  Options Granted (#)  in Fiscal Year  Price ($/Sh)       Date          5%  ($)      10% ($)
----                  ------------------- ------------------------------     ------         -------      -------
<S>                           <C>               <C>           <C>            <C>           <C>         <C>     
Aileen Lopez Pugh             15,000            29.7%         $7.75          2/15/06        $73,109     $185,273
</TABLE>
----------
(a)  Option  grants  were  made on  February  15,  1996,  with  20%  immediately
     exercisable  and 20% becoming  exercisable in each  subsequent year through
     2000.
(b)  The dollar  amounts under these columns are the result of  calculations  at
     the 5% and 10% assumed annual growth rates mandated by the Commission  and,
     therefore,  are not intended to forecast possible future  appreciation,  if
     any, in the Company's Common Stock price.

         Option  Exercises and Holdings.  The Named  Executive  Officers did not
exercise any stock options during 1996. The following table presents information
with  respect to  outstanding  options held by the Named  Executive  Officers at
year-end 1996. There are no outstanding SARs.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                            AND FY-END OPTION VALUES
<TABLE>
<CAPTION>

                                                           Number of Securities
                                                      Underlying Unexercised Options        Value of Unexercised
                                                                    at                      In-the-Money Options
                                                                FY-End (#)                   at FY-End ($) (1)
                                                                ----------                   -----------------

                          Shares
                       Acquired on        Value
Name                   Exercise (#)    Realized ($)     Exercisable    Unexercisable    Exercisable     Unexercisable
----                   ------------    ------------     -----------    -------------    -----------     -------------

<S>                      <C>              <C>            <C>              <C>          <C>             <C>       
David A. Smilow             ---              ---          63,219           42,146       $  412,787      $  275,191
Mitchell H. Caplan          ---              ---          63,219           42,146          412,787         275,191
Aileen Lopez Pugh           ---              ---           9,000           16,000           60,500          96,375
</TABLE>
----------
(1)  Based on last reported sale price of the Company's Common Stock on December
     31, 1996 of $13.25 per share and  applicable  per share  exercise price for
     the options. The option grants with respect to the Named Executive Officers
     were granted with 20% immediately  exercisable and 20% becoming exercisable
     in each subsequent year for five years.  For each of Messrs.  D. Smilow and
     Caplan,  42,617  options  were  granted on April 28,  1994 with an exercise
     price of $6.125,  with the  remainder  having an  exercise  price  equal to
     $7.125.  The options expire in April 2004. As for Ms. Pugh, the Company has
     granted a total of 25,000  options with 5,000 options  granted on April 28,
     1994 with an exercise  price of $6.125,  5,000 options  granted on February
     15,  1995 with an  exercise  price of $5.50 and 15,000  options  granted on
     February 15, 1996 with an exercise  price of $7.75.  The options  expire in
     April 2004, February 2005 and February 2006, respectively.

                                       12
<PAGE>

PENSION PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN

         The Company  has  adopted and is the sponsor of a combined  stock bonus
and money purchase  pension plan that  constitutes an "employee  stock ownership
plan" under applicable law (the "ESOP"), that was originally  established by MET
Holdings.  Employees  of TeleBank who have  completed  six months of service are
eligible  to  participate  in the  ESOP.  The  Company's  and  TeleBank's  total
contributions  to the ESOP,  which are reflected in compensation  expense,  were
$224,000, $210,000 and $104,000 for the years ending December 31, 1996, 1995 and
1994, respectively.

         Under  the  ESOP,  each  Employer  (defined  to  include  the  Company,
TeleBank,  and MET  Holdings)  is  obliged  annually  to  contribute  10% of the
aggregate  compensation  that such Employer pays to eligible  participants.  The
required  contribution  is allocated to the individual ESOP accounts of eligible
participants based on a uniform percentage of compensation. A participant who is
not an employee of the Employer on the last day of the plan year  (December  31)
or who completes  less than 500 hours of service  during the plan year is not an
eligible participant.  The Employer is also required to make contribution to the
extent  necessary  to pay debt  service  on any  funds  borrowed  by the ESOP to
finance the purchase of Employer stock. Otherwise,  additional contributions are
at the discretion of the Board of Directors.

         Contributions  may be paid  either  in cash or in  common  stock of the
Company or MET  Holdings.  From time to time,  the ESOP may purchase  additional
shares of common  stock of the Company or MET  Holdings  through the purchase of
outstanding  shares in the  market  or from  individual  stockholders,  upon the
original issuance of additional  shares, or upon the sale of treasury shares, by
the  Company  or MET  Holdings.  Under its terms,  the ESOP may borrow  funds to
finance  purchases of common  stock.  As of December  31, 1996,  the Company had
notes   receivable   of  $305,000  to  the  ESOP  to  finance  the  purchase  of
approximately 60,000 shares of TeleBanc common stock and 310 preferred shares of
MET Holdings.

         The  Board  of  Directors  of the  Company  appointed  a  committee  to
administer the ESOP. On major  corporate  issues,  participants  in the ESOP are
permitted  to direct the  trustees  as to the  voting of shares of MET  Holdings
common stock  allocated to their  accounts;  otherwise  the trustees of the Plan
have sole discretion as to the voting of such stock held by the ESOP, so long as
such stock is not required to be registered  under section 12 of the  Securities
Exchange Act of 1934.  Shares of TeleBanc  Common  Stock have been  allocated to
participants'  accounts  and are voted by the  trustees in  accordance  with the
directions of participants on all matters.  Unallocated  shares will be voted by
the trustees in their sole  discretion.  Messrs.  D.  Smilow,  Caplan and Emidio
Morizio,  an  employee  of  TeleBanc  Capital  Markets,   Inc.,  a  wholly-owned
subsidiary of the Company,  serve as trustees of the ESOP.  Participant accounts
vest at the rate of 20% for each year of service,  so that accounts  become 100%
vested after five years of service. Vesting will be accelerated upon retirement,
death,  disability,  or when the participant reaches the age of 65. The Company,
MET  Holdings or the ESOP may have a right of first  refusal as to MET  Holdings
common stock  distributed to participants,  and participants will have the right
to "put" to MET Holdings  shares of MET Holdings  stock that are  distributed to
them  under  the  ESOP,  so long as such  stock  is not  publicly  traded  on an
established securities market.

REPORT OF THE COMPENSATION COMMITTEE

         The Company's and TeleBank's  compensation  program is  administered by
the  Compensation  Committee  comprised  of  five  non-employee  members  of the
Company's and  TeleBank's  Board of Directors.  Two members of the  Compensation
Committee,  Messrs.  Kehler and Piaker, were elected to that committee effective
February 28, 1997.  All decisions by the  Compensation  Committee in relation to
the  compensation  of executive  officers  are  reviewed by the full Board.  The
Company's and TeleBank's  executive  compensation  program provides  competitive
levels  of  compensation  designed  to  correlate  pay  with the  Company's  and
TeleBank's annual and long term performance goals. Underlying this objective are
the following concepts: supporting an individual pay-for-performance

                                       13
<PAGE>



policy that  differentiates  compensation  levels based on  corporate,  business
unit, and  individual  performance;  motivating  key senior  officers to achieve
strategic business objectives and rewarding them for that achievement; providing
compensation  opportunities  which  are  competitive  to  those  offered  in the
marketplace,  thus  allowing  the  Company  to compete  for and retain  talented
executives who are critical to the Company's and  TeleBank's  long term success;
and  aligning  the interest of  executives  with the long term  interests of the
Company's stockholders.

         Executive  compensation  consists  of three  components:  base  salary;
annual  incentive  bonus;  and stock options.  It is the Company's  compensation
policy to pay a combination  of salary and highly  incentive-based  compensation
consisting  of  bonuses  based on overall  Company  performance  and  individual
performances.

         During the fourth quarter of 1996, the Compensation  Committee reviewed
in detail the base salaries for executive  officers for fiscal 1997. In light of
TeleBank's  performance  and the  salary  levels of  institutions  with  similar
operations, the Compensation Committee recommended that TeleBank should continue
its  policy  of  compensation  based  on a  combination  of  salary  and  highly
incentivized  additional  compensation  consisting  of bonuses  based on overall
Company and individual performance.

         The Compensation  Committee  awards bonuses,  which bonuses are awarded
annually based on overall  corporate  performance and include  financial results
and regulatory  compliance.  All Company and TeleBank employees are eligible for
bonus  awards  under this plan  except for Messrs.  D. Smilow and Caplan,  whose
bonuses, if any, are determined  according to the discretion of the Compensation
Committee.  In addition,  the Compensation Committee reviews the compensation of
all executive and senior officers.

         Base  salaries  and bonuses for  executive  officers  were  reviewed in
detail by the Compensation Committee at its January 1997 meeting. In determining
the base  salaries,  the  Compensation  Committee  considered  various  industry
sources such as Don Richards Associates' Washington Area Accounting Compensation
Survey and SNL Executive  Compensation  Reviews for Thrift  Institutions and for
Commercial  Banks.  In  addition,  the  Compensation  Committee  considered  the
improved financial performance in 1996 and expectations for 1997 in setting 1997
base salaries.

         The  Company  maintains  a  stock  option  plan  to  provide  long-term
incentives to key employees,  including executive officers, through the grant of
stock options.  The grant of stock options is intended to foster management team
cohesion and align  management and  stockholder  interests.  Stock option grants
provide an additional means to provide  incentives for executive  officers.  The
Company  believes  that  the  grant of stock  options  can be used to  encourage
performance that can result in enhanced stockholder value.

         In addition to the compensation paid to executive officers as described
above,  executive  officers  receive,  along with and on the same terms as other
employees,  contributions  by the Company and TeleBank  pursuant to the ESOP and
group  term life  insurance  on the same  terms as other  employees,  as well as
certain other perquisites.

         CEO  Compensation.  David A.  Smilow's  1995 and 1996  salary  remained
stable at $205,000,  equally paid by the Company and  TeleBank.  The  allocation
reflects  Mr. D.  Smilow's  duties on behalf of the  Company  including  capital
market strategies and maintaining the Company's  investments of the funds raised
thereby. The Compensation Committee increased Mr. D. Smilow's 1996 bonus

                                       14
<PAGE>



$38,000  over 1995 levels based on Company  performance  as measured by the 1995
and 1996 increases in net income,  return on assets and return on  stockholders'
equity, excluding the government mandated insurance assessment.  No options were
granted to David A. Smilow in 1996.

                                                     Respectfully submitted,

                                                     Compensation Committee
                                                     ----------------------
                                                     Arlen W. Gelbard, Chairman
                                                     David R. DeCamp
                                                     Mark Rollinson


COMPARATIVE COMPANY PERFORMANCE

         The  following  chart  compares  the  yearly  percentage  change in the
cumulative  total  stockholder  return on the  Company's  Common Stock since the
initial public offering  completed in May 1994 with the cumulative  total return
on the NASDAQ Bank Index and all NASDAQ US Stocks.  The comparison  assumes $100
was  invested on May 27, 1994 in the  Company's  Common Stock and in each of the
foregoing indices and assumes reinvestment of dividends.


                               [GRAPHIC OMITTED]
<TABLE>
<CAPTION>


                                                        PERIOD ENDING 
                                   ----------------------------------------------------------
INDEX                              5/27/94   12/31/94  6/30/95   12/31/95  6/30/96   12/31/96
---------------------------------------------------------------------------------------------
<S>                                <C>        <C>       <C>      <C>       <C>       <C>   
TELEBANC FINANCIAL CORPORATION     100.00     91.84     93.84    126.53    159.18    216.33
NASDAQ TOTAL RETURN INDEX          100.00    103.43    128.97    146.27    165.60    179.92
NASDAC BANKS INDEX                 100.00     93.82    113.41    139.73    147.70    184.71
</TABLE>


                                       15


<PAGE>

INTERESTS OF CERTAIN PERSONS

         Subject to stockholder approval of the 1997 Stock Option Plan, David A.
Smilow,  Mitchell  H.  Caplan and  William M.  Daugherty,  a Vice  President  of
TeleBanc  Capital  Markets,  Inc.,  each have been granted an option to purchase
40,000 shares of the Company's  Common Stock at $13.50 per share,  which options
will become exercisable in three  installments,  each consisting of one-third of
the  shares  covered  by  the  option,  with  the  first  installment   becoming
exercisable  for 30  days  on  February  28,  1998,  and the  second  and  third
installments  becoming exercisable for 30 days on February 28, 1999 and February
28, 2000,  respectively  so long as the optionee  continues to be an employee of
TeleBanc  or a  subsidiary  on each such date.  The  options  granted to Messrs.
Caplan and Daugherty were intended to constitute  incentive stock options to the
extent permissible under the Internal Revenue Code. The option granted to Mr. D.
Smilow was a nonqualified  option.  Subject to stockholder  approval of the 1997
Stock Option Plan,  each of Messrs.  D. Smilow and Caplan have also been granted
an option to purchase  60,000  shares of Common Stock at $13.50 per share,  with
the  option  exercisable  immediately  as to 20%  of  such  shares  and as to an
additional 20% of such shares on each of the next four anniversaries of February
25, 1997,  so long as the optionee  continues to be an employee of TeleBanc or a
subsidiary on each such anniversary.

CERTAIN TRANSACTIONS

         The  Company's  policy  is not to  enter  into  any  transactions  with
officers,  directors,  or 5%  stockholders  or other  affiliates  of the Company
unless the terms are as  favorable to the Company as those  generally  available
from  unaffiliated  third  parties.  Transactions  between  the  Company and its
affiliates will require approval by a majority of disinterested directors.

         In  connection  with the sale of Units  pursuant  to the Unit  Purchase
Agreement,  the Company entered into the Acquisition  Agreement with Arbor,  MET
Holdings  and  William  M.  Daugherty.   MET  Holdings,  the  Company's  largest
stockholder, also owns a majority of the capital stock of Arbor. Pursuant to the
Acquisition Agreement,  the Company acquired substantially all of the assets and
liabilities  of Arbor and the Company  issued  162,641 shares of Common Stock to
Arbor and paid Arbor $500,000.  The purchase price paid by the Company was based
on an independent appraisal by Corporate Finance of Washington, Inc. that valued
the Arbor assets at $3.1 million. Mr. Daugherty, the other stockholder of Arbor,
is the President of Arbor. Upon the acquisition of the Arbor assets, the Company
issued to Mr.  Daugherty  an option  for  24,201  shares  of Common  Stock  (the
"Daugherty  Option"),   which  has  an  exercise  price  of  $64,407.69  and  is
exercisable for a period of 10 years from February 28, 1997. In addition,  Arbor
has  distributed the 162,461 shares of TeleBanc Common Stock that it received in
the acquisition to its two stockholders,  MET Holdings and Mr. Daugherty.  Since
consummation  of the  Arbor  transaction,  Mr.  Daugherty  has  served as a Vice
President of TeleBanc  Capital Markets,  Inc., a wholly-owned  subsidiary of the
Company.

         As discussed above, in February 1997, the Company completed the sale of
Units pursuant to the Unit Purchase  Agreement with two investment  partnerships
managed by Conning & Company and with General  American Life Insurance  Company,
CIBC WG Argosy Merchant Fund 2, LLC, PC Investment  Company and The Northwestern
Mutual Life Insurance Company.  In connection with the Unit Purchase  Agreement,
certain  holders of the Series A Preferred  Stock are entitled to designate  two
persons  to serve as  directors  of the  Company,  who  shall be  nominated  for
election by the Company  (subject to certain  exceptions).  Such nominees to the
Board of  Directors,  Dean C. Kehler and Steven F.  Piaker,  were elected to the
Board of  Directors  effective  upon the closing of the sale of the Units by the
Company on February 28, 1997.

                                       16

<PAGE>



SECURITY OWNERSHIP OF THE COMPANY'S PARENT BY MANAGEMENT

         The  following  table sets forth certain  information  as of the Record
Date with respect to the  beneficial  ownership by the management of the Company
of equity  securities of the Company's  parent,  MET Holdings.  MET Holdings has
four classes of equity  securities,  Class A Common Stock, Class B Common Stock,
6% Class A Serial  Preferred  Stock  ("Class A Serial  Preferred  Stock") and 6%
Class B Serial Preferred Stock ("Class B Serial Preferred Stock").  No shares of
Class A Serial  Preferred Stock have been issued.  The Class A Serial  Preferred
Stock and Class B Serial  Preferred  Stock have certain  limited  voting rights.
Unless otherwise required by law, the Class B Common Stock is non-voting.
<TABLE>
<CAPTION>

NAME                                                     EQUITY SECURITY OWNED                   PERCENT OF CLASS
----                                                     ---------------------                   ----------------
<S>                                          <C>                                                    <C>    
  and Chief Executive Officer of the
  Company and MET Holdings and                   4,091 (Class A Common Stock) (a)                      40.7 %
  Chairman of the Board and Chief Risk           1,641 (Class B Common Stock) (a)                      26.3
  Management Officer of TeleBank                 2,091 (Class B Serial Preferred Stock) (a)            41.8

Mitchell H. Caplan, Vice Chairman and
  President of the Company and MET                 987 (Class A Common Stock) (b)                       9.8
  Holdings and Vice Chairman, President          1,051 (Class B Common Stock) (b)                      16.8
  and Chief Executive Officer of TeleBank        1,079 (Class B Serial Preferred Stock) (b)            21.6

Michael A. Smilow, Director of the                 110 (Class A Common Stock)                           1.1
  Company and TeleBank                             117 (Class B Common Stock)                           1.4

Directors and Executive Officers                 5,188 (Class A Common Stock)                          51.6
  of TeleBanc as a group                         2,809 (Class B Common Stock)                          44.9
  (9 individuals)                                3,170 (Class B Serial Preferred Stock)                63.4
</TABLE>
----------
(a) Includes 1,586 shares of Class A Common Stock,  980 shares of Class B Common
    Stock  and 893  shares  of Class B Serial  Preferred  Stock  owned by Mr. D.
    Smilow's wife.
(b) Includes  645 shares of Class A Common  Stock,  655 shares of Class B Common
    Stock and 1,079 shares of Class B Serial  Preferred  Stock,  with respect to
    which Mr. Caplan shares beneficial ownership.

                  AMENDMENT OF CERTIFICATE OF INCORPORATION TO
            INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
             AND TO AUTHORIZE THE ISSUANCE OF NONVOTING COMMON STOCK
                                 (PROPOSAL TWO)

         Section 4.1 of the Certificate of Incorporation currently provides that
the total  number of shares of all classes of stock that the Company  shall have
the authority to issue is 4,000,000  shares,  consisting of 3,500,000  shares of
Common Stock and 500,000 shares of serial preferred stock. Section 4.2(a) of the
Certificate of  Incorporation  provides that each share of Common Stock shall be
identical in all respects to all the other shares of Common Stock.  The proposed
amendment to Article 4 of the  Certificate of  Incorporation  is to increase the
authorized  number of shares of Common Stock from  3,500,000 to 8,500,000 and to
authorize  the  issuance of  Nonvoting  Common  Stock.  The text of the proposed
amendment is set forth at Exhibit A to this Proxy  Statement,  and the following
discussion  of the proposed  amendment is qualified in its entirety by reference
to Exhibit A.

Increase in the Number of Shares of Authorized Common Stock

                                       17

<PAGE>



         Of the 3,500,000 presently authorized shares of Common Stock, 2,211,961
were issued and outstanding on the Record Date, and a total of 2,385,624  shares
were  required to be reserved for issuance for the following  purposes:  437,230
for stock options,  345,000 for warrants issued in connection with the Company's
initial public offering in 1994 ("Initial Warrants"),  198,088 for the Warrants,
205,563 the  Contingent  Warrants and 1,199,743 for the potential  conversion of
the Preferred Stock.  Accordingly,  the Company does not have sufficient  Common
Stock to meet all of its existing obligations.  Also, subject to the approval by
stockholders  of  Proposal  Five,  the  Company  will be  required to reserve an
additional  440,000  shares for  options.  Of the 500,000  presently  authorized
shares of serial preferred stock, on the Record Date,  18,850 shares of Series A
Preferred  Stock,  4,050 shares of Series B Preferred  Stock and 7,000 shares of
Series C  Preferred  Stock were  issued and  outstanding,  and 11,050  shares of
Series A  Preferred  Stock and 25,850  shares of Series B  Preferred  Stock were
reserved for  issuance  with respect to the  potential  conversion  of Preferred
Stock. On the Record Date,  470,100 shares of authorized but not outstanding and
unreserved  shares of serial  preferred  stock  remained  available  for  future
issuance.

         The  Company  has made an  affirmative  covenant  in the Unit  Purchase
Agreement to obtain stockholder approval of this amendment.  As discussed above,
the  current  number of  authorized  but  unissued  shares  of  Common  Stock is
insufficient  to permit  the  issuance  of all of the  shares  of  Common  Stock
(whether voting or nonvoting)  called for in connection with stock options,  the
exercise of the Initial Warrants,  the Warrants and the Contingent  Warrants and
the  conversion of the  Preferred  Stock.  Additionally,  the Board of Directors
believes that the proposed  increase in the authorized shares of Common Stock in
excess of the number of shares  necessary for a Preferred  Stock  conversion and
the exercise of the Initial Warrants,  the Warrants and the Contingent  Warrants
is desirable to enhance the Company's  flexibility  in connection  with possible
future  actions,  such as use in employee  benefit  plans,  stock splits,  stock
dividends,  financings,  the raising of additional  capital  through a potential
public offering or private  placement,  possible future mergers or acquisitions,
and other general  corporate  purposes.  The unissued and  unreserved  shares of
Common Stock and serial  preferred  stock will be available for issuance for any
proper  corporate  purpose,  as  authorized  from  time to time by the  Board of
Directors,  without further  approval of stockholders of the Company,  except as
otherwise required by law.  Elimination of the delay occasioned by the necessity
of obtaining  stockholder  approval  will better enable the Company to engage in
financing  transactions and  acquisitions  which take full advantage of changing
market  conditions.  The Company is not  presently  engaged in any  negotiations
concerning the issuance of any shares of the additional authorized Common Stock,
nor are there any present  arrangements,  understandings or plans concerning the
issuance of such  shares,  apart from the  transactions  described in this Proxy
Statement.

         As a  Delaware  corporation,  the  Company  is taxed on its  authorized
capital stock. In general,  the annual  franchise tax is $90 on the first 10,000
shares  and  the  further  sum of $50 on each  10,000  shares  or part  thereof.
Currently, the Company's annual franchise tax is $17,540.  Increasing the number
of  authorized  shares of Common  Stock to  8,500,000  will  result in an annual
franchise tax of $42,540.  TeleBanc  stockholders  do not have any preemptive or
stock purchase rights to purchase  additional shares of TeleBanc stock,  whether
now or hereafter  authorized.  Further  issuances of additional shares of Common
Stock or serial  preferred stock or securities  convertible  into such stock may
have a dilutive effect on existing stockholders.

         In the event of a proposed  merger,  tender  offer or other  attempt to
gain control of the Company of which  management  does not approve,  it might be
possible  for the Board of  Directors  to  authorize  the  issuance of shares of
Common  Stock or serial  preferred  stock in a  transaction  that could have the
effect of frustrating or impeding such takeover attempt.  The Board of Directors
has no  current  intention  to issue  authorized  but  unissued  shares for such
purpose.  The  Board  of  Directors  is not  aware  of any  specific  effort  to
accumulate the Company's capital stock in order to obtain control of the Company
by means of a merger, tender offer or otherwise.

                                       18
<PAGE>

         If the  proposed  amendment is approved,  after  reservation  for stock
options,  the exercise of the Initial Warrants,  the Warrants and the Contingent
Warrants,  and the potential future  conversion of the Preferred Stock,  748,651
shares of Common Stock would be available for issuance.

Authorization of Issuance of Nonvoting Common Stock

         Pursuant  to the Unit  Purchase  Agreement,  the  Company has agreed to
obtain  stockholder  approval  of  the  issuance  of  authorized  shares  of the
Company's Common Stock as Nonvoting  Common Stock.  The Unit Purchase  Agreement
and the Certificate of Incorporation provide that Nonvoting Common Stock must be
available  for issuance in certain  instances in  connection  with the Preferred
Stock.  The  purpose  of the  Nonvoting  Common  Stock is to  permit  one of the
purchasers  in the Unit  Purchase  Agreement  to convert  its shares of Series C
Preferred  Stock into a form of Common  Stock.  That  purchaser,  CIBC WG Argosy
Merchant Fund 2, LLC, is subject to regulatory  limitations  as to the ownership
of voting stock. The Company's Certificate of Incorporation provides that shares
of the  Company's  Series C  Preferred  Stock may be  converted  into  shares of
Nonvoting  Common Stock at any time.  The number of shares of  Nonvoting  Common
Stock into which  shares of the Series C Preferred  Stock shall be  converted is
the product obtained by multiplying the Applicable  Conversion Rate (as defined)
by the number of shares being  converted at any time.  Also, the  Certificate of
Incorporation  provides  that if a dividend is payable in voting Common Stock or
other  securities  of the Company that are voting  securities,  the Company must
make  available to each holder of Preferred  Stock,  at such  holder's  request,
dividends  consisting of nonvoting  securities of the Company that are otherwise
identical to the voting securities. On the Record Date, there were 18,850 shares
of Series A Preferred Stock,  4,050 shares of Series B Preferred Stock and 7,000
shares of Series C Preferred Stock issued and outstanding.  Although the Company
has no specific plans at this time, the Board of Directors could issue Nonvoting
Common Stock in connection with possible  acquisitions,  dividends,  convertible
debt issuances,  employee  incentive  programs and public and private  offerings
that are not related to the Unit Purchase Agreement.

         Holders of Nonvoting Common Stock will be entitled to receive notice of
meetings of the  Company's  stockholders,  but will have no voting rights on any
matter or thing (including the election of directors) unless otherwise  required
by law.  Each share of Nonvoting  Common  Stock may be converted  into one fully
paid and  nonassessable  share of voting  Common  Stock upon the  occurrence  of
certain  events:  (i) any  sale to the  public  in a widely  dispersed  offering
(including a public offering of stock),  (ii) any disposition of no more than 2%
of the Company's outstanding voting securities pursuant to Rule 144 or Rule 144A
promulgated  under  the  Securities  Act of  1933,  as  amended,  (iii)  certain
transfers pursuant to a right of first refusal set forth in transfer restriction
agreements  executed in  connection  with the Unit Purchase  Agreement,  or (iv)
certain  transfers in a single  transaction  to an  independent  third party who
acquires at least a majority of the Company's voting stock without regard to the
transfer of such  securities.  No  stockholder  approval  would be  necessary to
effect the conversion of Nonvoting Common Stock into Common Stock if a holder of
Nonvoting Common Stock were to exercise its conversion privilege.

         If the proposed amendment is approved, the Board of Directors may issue
authorized  shares of Nonvoting  Common Stock  without  further  approval of the
Company's  stockholders  unless  such  approval  is  required  for a  particular
transaction by applicable law or regulations. Stockholders of the Company do not
have any preemptive rights to subscribe for any shares of Nonvoting Common Stock
that may be issued.

         The  creation  of  Nonvoting  Common  Stock is not  intended to have an
anti-takeover effect. The proposed amendment to the Certificate of Incorporation
is not  part  of a plan  by  the  Board  of  Directors  to  adopt  a  series  of
anti-takeover  measures.  The  Company's  Board of Directors  does not presently
intend to propose any additional  measures  designed to discourage any unfair or
unnegotiated  takeovers  apart from the three  amendments to the  Certificate of
Incorporation   proposed  in  this  Proxy  Statement  and  those  measures  that
previously have been adopted, but

                                       19

<PAGE>



reserves  the right to propose  and adopt  additional  measures  if the Board of
Directors determines that such measures are in the best interests of the Company
and its stockholders.

VOTE REQUIRED

         Adoption of the proposed  amendment of Article 4 of the  Certificate of
Incorporation  requires  the  affirmative  vote  of the  holders  of at  least a
majority  of the  outstanding  shares of stock of the  Company  entitled to vote
thereon at the Annual  Meeting.  MET  Holdings  has advised the Company  that it
intends to vote all shares of Common Stock  beneficially owned by it in favor of
this  proposal.  Each of the holders of Series A Preferred  Stock is required by
the  terms  of the Unit  Purchase  Agreement  to vote in favor of this  proposed
amendment.  MET  Holdings  and the  holders  of the  Series  A  Preferred  Stock
collectively   beneficially  own  73.8%  of  the  Company's  Voting  Securities.
Consequently,  approval  of the  amendment  of Article 4 of the  Certificate  of
Incorporation is assured.

         THE  BOARD  OF  DIRECTORS  RECOMMENDS  THAT  STOCKHOLDERS  VOTE FOR THE
PROPOSED  AMENDMENT TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF THE COMPANY'S
COMMON STOCK AND TO AUTHORIZE THE ISSUANCE OF NONVOTING COMMON STOCK.


                  AMENDMENT OF CERTIFICATE OF INCORPORATION TO
                   REVISE TWO CURRENT ANTI-TAKEOVER PROVISIONS
                           (PROPOSALS THREE AND FOUR )

         The Company's Certificate of Incorporation  currently includes a number
of provisions,  so-called  "anti-takeover"  provisions,  intended to protect the
Company's  stockholders in the event of a takeover  attempt that, in the opinion
of the Board of  Directors,  may not be in the best  interests of the  Company's
stockholders.  These proposals are intended to enhance  management's  bargaining
power against potential bidders.  However,  they were adopted in connection with
the Company's  initial  public  offering in 1994,  and in  contemplation  of the
Company's  securities being widely held. That is not the case.  Furthermore,  in
the sale of Units pursuant to the Unit Purchase  Agreement,  the  limitations on
the amount of "Voting Stock" which constitutes "Control" for purposes of Article
8 has the effect of limiting  the amount of Voting  Stock which can be held by a
purchaser thereunder.  The Company agreed to amend this limitation in Article 8,
as well as to amend  Article 11,  because the Board of Directors  believes  that
these  current  provisions  need to be revised  in order to allow the  Company a
greater measure of flexibility in corporate  financing and business  combination
transactions.  The text of the proposed  amendments  of Article 8 and 11 are set
forth as Exhibit B and Exhibit C to this Proxy Statement,  respectively, and the
following discussion of the terms of the proposed amendments is qualified in its
entirety by reference to Exhibit B and Exhibit C.

Proposed Amendment of Article 8 (Proposal Three)

         Article 8 of the Certificate of Incorporation  currently  prohibits any
person from acquiring  "Control" of the Company unless such acquisition has been
approved in advance by 66-2/3% of the outstanding shares of capital stock of the
Company  entitled to vote  generally in the  election of directors  (the "Voting
Stock").  In Section  8.3 of the  Certificate  of  Incorporation,  "Control"  is
defined  as the sole or shared  power to vote or  direct  the  voting  of, or to
dispose or to direct the  disposition of 10 percent or more of the Voting Stock,
subject to certain  exceptions.  Section 8.2 of the Certificate of Incorporation
provides that, in addition to other penalties, if any person acquires Control in
violation of Article 8, all shares of stock beneficially owned by that person in
excess of 10 percent  of the  Company's  Voting  Stock  shall lose their  voting
power.

         The Board of  Directors  believes  that the  definition  of  Control is
unnecessarily restrictive, and should be modified by increasing the Voting Stock
ownership  threshold in the definition of Control from 10% to 25%. Such approval
will have the immediate effect of permitting the holders of Series B

                                       20
<PAGE>



Preferred Stock (which generally is nonvoting) to convert such stock to Series A
Preferred Stock (which generally votes with the Common Stock).

Proposed Amendment of Article 11 (Proposal Four)

         Article 11 of the  Certificate  of  Incorporation  currently  prohibits
business  combinations  with an  "Interested  Stockholder"  or an  affiliate  or
associate of such person unless such business  combination  has been approved by
the  affirmative  vote of at least (i) the holders of 80% of the total number of
outstanding  shares of Voting  Stock and (ii) the holders of  two-thirds  of the
voting  power of the  outstanding  shares of the  Voting  Stock,  excluding  for
purposes of calculating the affirmative vote and the total number of outstanding
shares  under  clause  (ii)  above  all  shares  of  Voting  Stock  owned by the
Interested  Stockholder  and  its  affiliates  and  associates.  An  "Interested
Stockholder"  is  defined as any person  that is (i) the  beneficial  owner of 5
percent or more of the then outstanding Voting Stock or (ii) an affiliate of the
Company  that,  within the two years  preceding  the date in  question,  was the
beneficial owner of ten percent or more of the then outstanding Voting Stock.

         The Certificate of Incorporation further provides that this higher vote
for a business  combination  is not required if two conditions are met: (i) that
at least  two-thirds of the  "Continuing  Directors"  then in office approve the
business combination and (ii) that certain price and procedure  requirements are
met. A "Continuing  Director" is defined as a director who is unaffiliated  with
the  Interested  Stockholder  and who was a director  prior to the time that the
Interested Stockholder became an Interested  Stockholder.  If the two conditions
are met, the business  combination need only be approved by the affirmative vote
required  by law and any other  provision  of the  Certificate  of  Corporation.
Generally,  the Delaware General Corporation Law requires approval by a majority
of eligible shares to approve a business combination.

         The Board of  Directors  believes  that the higher  vote for a business
combination involving an Interested Stockholder may be unnecessarily restrictive
if either one of the two conditions set forth in the paragraph above is met. The
proposed  amendment  of Article 11 would  require  the higher  vote to approve a
business  combination  only if the business  combination did not meet one or the
other of these conditions.

         The  proposed  amendments  to Articles 8 and 11 of the  Certificate  of
Incorporation are not part of a plan by the Board of Directors to adopt a series
of anti-takeover  measures.  The Company's Board of Directors does not presently
intend to propose any additional  measures  designed to discourage any unfair or
unnegotiated  takeovers  apart from the four  amendments  proposed in this Proxy
Statement and those measures that previously have been adopted, but reserves the
right to  propose  and  adopt  additional  measures  if the  Board of  Directors
determines  that such measures are in the best  interests of the Company and its
stockholders.

VOTE REQUIRED FOR AMENDMENT OF ARTICLE 8

         Adoption of the proposed  amendment of Article 8 of the  Certificate of
Incorporation  requires the affirmative  vote of the holders of at least 66-2/3%
of the  outstanding  shares of stock of the Company  entitled to vote thereon at
the Annual Meeting. MET Holdings has advised the Company that it intends to vote
all shares of Common Stock  beneficially  owned by it in favor of this proposal.
Each of the holders of Series A Preferred  Stock is required by the terms of the
Unit  Purchase  Agreement  to vote in  favor  of this  proposed  amendment.  MET
Holdings  and  the  holders  of  the  Series  A  Preferred  Stock   collectively
beneficially  own  73.8%  of  the  Company's  Voting  Securities.  Consequently,
approval of the amendment of Article 8 of the  Certificate of  Incorporation  is
assured.

VOTE REQUIRED FOR AMENDMENT OF ARTICLE 11

         Adoption of the proposed  amendment of Article 11 of the Certificate of
Incorporation  requires the  affirmative  vote of the holders of at least 80% of
the outstanding shares of stock of the Company

                                       21
<PAGE>



entitled to vote  thereon at the Annual  Meeting.  MET  Holdings has advised the
Company that it intends to vote all shares of Common Stock beneficially owned by
it in favor of this  proposal.  The holders of Series A Preferred  Stock are not
required by the terms of the Unit  Purchase  Agreement  to vote in favor of this
proposed amendment.
MET Holdings beneficially owns 48.75% of the Company's Voting Securities.

         THE  BOARD  OF  DIRECTORS  RECOMMENDS  THAT  STOCKHOLDERS  VOTE FOR THE
PROPOSED REVISIONS OF THESE TWO CURRENT ANTI-TAKEOVER PROVISIONS.


                     ADOPTION OF THE 1997 STOCK OPTION PLAN
                                 (PROPOSAL FIVE)

         The TeleBanc Financial  Corporation 1997 Stock Option Plan (the "Plan")
was adopted by the Board of Directors of TeleBanc on February 25, 1997,  subject
to  stockholder  approval  at the Annual  Meeting,  to provide  for the grant of
options to purchase shares of Common Stock to employees,  nonemployee  directors
and independent contractors of TeleBanc, its subsidiaries and affiliates.  As of
March 20, 1997, there were  approximately 51 employees,  non-employee  directors
and independent  contractors of TeleBanc and its subsidiaries and affiliates who
were eligible to participate in the Plan.

         The principal provisions of the Plan are summarized below. Such summary
does not,  however,  purport to be complete  and is qualified in its entirety by
the terms of the Plan. A copy of the Plan is attached hereto as Exhibit D and is
incorporated herein by reference.

         The Board of  Directors  of TeleBanc  believes  that stock  options are
important to attract and to encourage  the continued  employment  and service of
officers,   other  selected  employees,   non-employee  directors  and  selected
independent contractors by facilitating their acquisition of a stock interest in
TeleBanc.  The acquisition and holding of an equity interest in TeleBanc by such
individuals is in the best interest of TeleBanc  because  equity  ownership will
even more  closely  align  their  interests  with the  interests  of  TeleBanc's
stockholders.

         The  adoption  of the Plan is subject to  stockholder  approval  at the
Annual Meeting.  TeleBanc is submitting the Plan for stockholder approval at the
Annual  Meeting to allow  TeleBanc to obtain a tax deduction for the full amount
allowable with respect to the exercise of options  granted under the Plan and to
provide  flexibility to grant options  qualifying as incentive stock options for
tax purposes  ("incentive  options").  See "--Federal Income Tax Consequences of
the Plan."

DESCRIPTION OF THE PLAN

         The Plan provides for the grant of options to  employees,  non-employee
directors and independent  contractors of TeleBanc and employees and independent
contractors of any  subsidiary of TeleBanc.  A total of 440,000 shares of Common
Stock will be reserved for issuance to  employees,  non-employee  directors  and
independent contractors under the Plan, representing  approximately 19.9% of the
outstanding  shares of Common Stock on March 20, 1997. Based on the $14.50 price
of a share of Common Stock on March 31, 1997, the aggregate value of the 440,000
shares reserved for issuance under the Plan is $6.4 million.

         The Plan is administered by the Stock Option Committee,  which consists
of not less than two outside directors appointed by the Board of Directors.  The
Stock Option  Committee  selects the employees and  independent  contractors  of
TeleBanc and its  subsidiaries  and  affiliates to whom options will be granted.
Options  covering not more than 200,000 shares of Common Stock may be granted to
any employee during any calendar year.  Grants of stock options  contingent upon
stockholder approval of the Plan have been made to certain executive officers as
set out in the table below.

                                       22
<PAGE>





         The option  exercise  price under the Plan may not be less than 100% of
the fair market value of the Common Stock on the date of grant of the option (or
110%  in  the  case  of  an  incentive  stock  option  granted  to  an  optionee
beneficially  owning more than 10% of the outstanding Common Stock). The maximum
option term is 10 years (or five years in the case of an incentive  stock option
granted to an  optionee  beneficially  owning  more than 10% of the  outstanding
Common  Stock).  Options  become vested and  exercisable  at the time and to the
extent provided in the option agreement  related to such Option.  Options become
exercisable  in full upon the  occurrence of a change in control of TeleBanc (as
defined in the Plan). Generally, for this purpose, a change in control is deemed
to occur if any person (i) acquires direct or indirect  beneficial  ownership of
at least 50% of the issued and  outstanding  shares of Common  Stock or (ii) has
the power  (whether as a result of  ownership of capital  stock,  by contract or
otherwise)  or ability to elect or cause the election of  directors  who, at the
time of such  election,  constitute  a  majority  of the board of  directors  of
TeleBanc.  The Stock Option  Committee  has the  discretion  to  accelerate  the
vesting and exercisability of options.

         There is a $100,000 limit on the value of stock (determined at the time
of grant) covered by incentive stock options that first become exercisable by an
optionee in any calendar year. No option may be granted more than 10 years after
the effective date of the Plan. Generally,  during an optionee's lifetime,  only
the optionee (or a guardian or committee if the optionee is  incapacitated)  may
exercise an option  except that,  upon  approval by the Stock Option  Committee,
nonqualified  options  may be  transferred  to  certain  family  members  of the
optionee, charitable organizations or to trusts for the benefit of such persons.
Incentive stock options are non-transferable except at death.

         Payment for shares purchased under options granted pursuant to the Plan
may be made either in cash or by  exchanging  shares of Common Stock of TeleBanc
with a fair market value of up to the total option  exercise  price and cash for
any difference.  Options may be exercised by directing that certificates for the
shares  purchased be delivered to a licensed  broker as agent for the  optionee,
provided that the broker tenders to TeleBanc cash or cash  equivalents  equal to
the option  exercise  price plus the  amount of any taxes that  TeleBanc  may be
required to withhold in connection with the exercise of the option.

         If an employee's employment with TeleBanc or a subsidiary, affiliate or
former subsidiary following a spin-off (a "Spin-Off Corporation")  terminates by
reason of death or permanent and total disability,  his or her options,  whether
or not then exercisable, may be exercised within three years after such death or
disability,  unless otherwise  provided with respect to a particular option (but
not later than the date the option would  otherwise  expire).  If the employee's
employment  by  TeleBanc or a  subsidiary,  affiliate  or  Spin-Off  Corporation
terminates for any reason other than death or  disability,  options held by such
optionee  terminate  three  months  after  such  termination,  unless  otherwise
provided with respect to a particular  option.  In that event, each option would
be  exercisable  to the extent it had become vested before such  termination  of
employment (unless otherwise provided in the option agreement).

         If the outstanding shares of Common Stock are increased or decreased or
changed into or exchanged for a different number or kind of shares or securities
of   TeleBanc,   by   reason   of   merger,    consolidation,    reorganization,
recapitalization,  reclassification,  stock  split-up,  combination  of  shares,
exchange  of shares,  stock  dividend or other  distribution  payable in capital
stock,  or  other  increase  or  decrease  in such  shares  without  receipt  of
consideration by TeleBanc,  an appropriate and proportionate  adjustment will be
made in the number and kinds of shares  subject to the Plan,  and in the number,
kinds and per share exercise price of shares subject to the unexercised  portion
of  options  granted  prior  to any  such  change.  Any  such  adjustment  in an
outstanding  option,  however,  will be made without a change in the total price
applicable to the  unexercised  portion of the option,  but with a corresponding
adjustment in the per share option price.

         Upon  any   dissolution  or   liquidation   of  TeleBanc,   or  upon  a
reorganization,  merger or  consolidation in which TeleBanc is not the surviving
corporation,  or upon the sale of substantially all of the assets of TeleBanc to
another corporation, or upon any transaction (including, without

                                       23
<PAGE>



limitation,  a merger  or  reorganization  in which  TeleBanc  is the  surviving
corporation)  approved by the Board of Directors  which results in any person or
entity owning 80% or more of the total  combined  voting power of all classes of
stock of TeleBanc,  the Plan and the options issued  thereunder  will terminate,
unless   provision  is  made  in  connection  with  such   transaction  for  the
continuation of the Plan, the assumption of the options or both the continuation
of the Plan and the assumption of such options, or for the substitution for such
options of new options covering the stock of a successor corporation or a parent
or subsidiary thereof,  with appropriate  adjustments as to the number and kinds
of shares and the per share exercise  price.  In the event of such  termination,
all  outstanding  options  shall  be  exercisable  in full  during  such  period
immediately  prior  to the  occurrence  of  such  termination  as the  board  of
directors in its discretion shall determine.

         The Board of Directors may amend the Plan with respect to shares of the
Common Stock as to which  options  have not been  granted.  However,  TeleBanc's
stockholders  must approve any amendment that would (i) change the  requirements
as to eligibility to receive incentive stock options;  (ii) increase the maximum
number of shares in the  aggregate  for which  incentive  stock  options  may be
granted  (except  for  adjustments  upon  changes in  capitalization);  or (iii)
otherwise  cause the Plan to fail to satisfy the  requirements of Section 162(m)
of the Internal Revenue Code relating to limitations on the deduction of amounts
not constituting qualified performance-related compensation.

         The Board of Directors  at any time may  terminate or suspend the Plan.
Unless previously terminated,  the Plan will terminate automatically on February
25, 2007, the tenth anniversary of the date of adoption of the Plan by the Board
of Directors.  No termination,  suspension or amendment of the Plan may, without
the consent of the person to whom an option has been granted,  adversely  affect
the rights of the holder of the option.

NEW PLAN BENEFITS

         The table below  provides  certain  information  as of the date of this
proxy statement  regarding stock options granted under the Plan to (i) the Named
Executive  Officers  (which  includes  all  executive  officers of TeleBanc as a
group,  and (iii) all employees of TeleBanc as a group  (including  all officers
who are not  executive  officers).  No other  grants under the 1997 Stock Option
Plan have been made. All such grants are subject to stockholder  approval of the
Plan.

                                NEW PLAN BENEFITS
<TABLE>
<CAPTION>

                                                                                                   NUMBER OF
        NAME AND POSITION(S)                                  EXERCISE PRICE (A)               OPTIONS GRANTED
        --------------------                                  ------------------               ---------------

<S>                                                                 <C>                              <C>    
David A. Smilow, Chairman of the Board and                          $13.50                           100,000
   Chief Executive Officer of the Company and
   Chairman of the Board and Chief Risk Management
   Officer of TeleBank

Mitchell H. Caplan, Vice Chairman and                               $13.50                           100,000
   President of the Company and Vice Chairman,
   President and Chief Executive Officer of TeleBank

Aileen Lopez Pugh, Executive Vice President                           --                               --
   - Chief Financial Officer/Treasurer of the
   Company and TeleBank

All employees as a group (51 persons)                               $13.50                           200,000
</TABLE>
----------
(a) All option  grants were made at 100% of the fair market  value of the Common
    Stock on the date of grant.  Grants  covering  60,000 shares to each Messrs.
    Caplan and D. Smilow are ten-year,

                                       24
<PAGE>



     nonqualified  options  vesting  20% on the date of  grant  and 20% per year
     thereafter.  Grants covering 40,000 shares to Messrs.  Caplan and D. Smilow
     are  nonqualified  options  vesting to the extent of 1/3 of such  shares on
     each of the first three  anniversaries  of the date of grant that expire if
     not exercised within 30 days of first becoming exercisable.


FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN

         The  grant of an option is not a  taxable  event  for the  optionee  or
TeleBanc.

         Upon  exercising a  non-qualifying  option,  an optionee will recognize
ordinary income in an amount equal to the difference  between the exercise price
and the fair market  value of the Common  Stock on the date of exercise  (except
that, if the optionee is subject to certain  restrictions  on transfer of shares
of Common Stock, the measurement date may be delayed,  unless the optionee makes
a special tax election  within 30 days after exercise to have income  determined
without  regard to the  restrictions).  If  TeleBanc  complies  with  applicable
reporting  requirements,  it will be entitled to a business expense deduction in
the same amount.  Non-qualifying  options under the Plan are intended to satisfy
the  requirements  applicable  to "qualified  performance-related  compensation"
under the Code, so that TeleBanc should be entitled to deduct the full amount of
such compensation income without regard to the $1,000,000  limitation imposed on
the deduction of annual compensation paid to each of the chief executive officer
and  the  four  other  most  highly  compensated  officers  of a  publicly  held
corporation.  Upon a taxable  disposition  of shares  acquired  pursuant  to the
exercise of a non-incentive option, the optionee will have taxable gain or loss,
measured by the difference  between the amount  realized on the  disposition and
the tax basis of the shares (generally,  the amount paid for the shares plus the
amount treated as ordinary income at the time the option was exercised).

         If the optionee surrenders shares of Common Stock in payment of part or
all of the exercise price for  non-qualifying  options,  no gain or loss will be
recognized  with  respect to the shares  surrendered  and the  optionee  will be
treated as receiving an equivalent  number of shares pursuant to the exercise of
the option in a non-taxable  exchange.  The basis of the shares surrendered will
be  treated  as the  substituted  tax basis for an  equivalent  number of option
shares received. However, the fair market value of any shares received in excess
of the number of shares surrendered will be taxed as ordinary income.

         With respect to  "incentive  options," an optionee  will not  recognize
taxable income upon exercise of an incentive option,  and any gain realized upon
a disposition of shares received pursuant to the exercise of an incentive option
will be taxed as long-term  capital gain if the optionee holds the shares for at
least  two  years  after  the date of grant  and for one year  after the date of
exercise of the  option.  However,  the excess of the fair  market  value of the
shares  subject  to an  incentive  option on the  exercise  date over the option
exercise price will be included in the optionee's  alternative  minimum  taxable
income in the year of  exercise  (except  that,  if the  optionee  is subject to
certain  restrictions on transfer,  the  determination of the amount included in
alternative  minimum  taxable income may be delayed,  unless the optionee elects
within 30 days following  exercise to have income  determined  without regard to
such restrictions) for purposes of the alternative  minimum tax. An optionee may
be  entitled  to a credit  against  regular tax  liability  in future  years for
minimum taxes paid with respect to the exercise of incentive  options.  TeleBanc
and its subsidiaries and affiliates will not be entitled to any business expense
deduction with respect to the grant or exercise of an incentive  option,  except
as discussed below.

         For the  exercise of an incentive  option to qualify for the  foregoing
tax  treatment,  the optionee  generally  must be an employee of TeleBanc or its
subsidiaries  from the date the option is granted  through a date  within  three
months before the date of exercise.  In the case of an optionee who is disabled,
this three-month  period is extended to one year. In the case of an employee who
dies, the three-month period and the holding period for shares received pursuant
to the exercise of the option are waived.

                                       25
<PAGE>





         If all of the foregoing requirements for incentive option treatment are
met except for the special  holding  period rules set forth above,  the optionee
will recognize  ordinary  income upon the disposition of the shares in an amount
equal to the  excess  of the fair  market  value of the  shares  at the time the
option was exercised over the option  exercise price.  However,  if the optionee
was subject to certain  restrictions on transfer of Common Stock at the time the
option was exercised,  the measurement date may be delayed,  unless the optionee
has made a special  tax  election  within 30 days after the date of  exercise to
have taxable income determined without regard to such restrictions.  The balance
of the  realized  gain,  if any,  will be  long-  or  short-term  capital  gain,
depending  upon whether or not the shares were sold more than one year after the
option was exercised. If the optionee sells the shares prior to the satisfaction
of the holding  period  rules but at a price below the fair market  value of the
shares at the time the option was  exercised  (or other  applicable  measurement
date),  the amount of ordinary  income (and the amount  included in  alternative
minimum  taxable  income,  if the sale occurs during the same year as the option
was exercised)  will be limited to the excess of the amount realized on the sale
over the option exercise  price.  If TeleBanc  complies with applicable (if any)
reporting  requirements,  it will be allowed a business expense deduction to the
extent the optionee recognizes ordinary income.

         If an optionee  exercises  an incentive  option by tendering  shares of
Common  Stock  with a fair  market  value  equal  to part  or all of the  option
exercise price, the exchange of shares generally will be treated as a nontaxable
exchange  (except  that  this  treatment  would not  apply if the  optionee  had
acquired the shares being  transferred  pursuant to the exercise of an incentive
option and had not satisfied the special holding period requirements  summarized
above).  If the exercise is treated as a tax free  exchange,  the optionee would
have no taxable  income from the  exchange  and  exercise  (other  than  minimum
taxable  income as  discussed  above) and the tax basis of the shares  exchanged
would be  treated  as the  substituted  basis for the  shares  received.  If the
optionee used shares  received  pursuant to the exercise of an incentive  option
(or another  statutory  option) as to which the optionee had not  satisfied  the
applicable  holding  period  requirement,  the  exchange  would be  treated as a
taxable disqualifying  disposition of the exchanged shares, with the result that
the excess of the fair market value of the shares  tendered over the  optionee's
basis in the shares would be taxable.

         The  foregoing  is a brief  summary  of some of the  principal  federal
income tax  consequences of stock option grants under the Plan and recipients of
grants  under the Plan should  consult with their  personal  tax  advisors  with
respect to such grants and transactions in stock acquired pursuant to the Plan.

REQUIRED VOTE

         Assuming  the  presence  of  a  quorum  at  the  Annual  Meeting,   the
affirmative  vote of the  holders  of a majority  of the shares of voting  stock
present in person or  represented  by proxy,  and entitled to vote at the Annual
Meeting is required to approve the Plan.

         THE BOARD OF  DIRECTORS  UNANIMOUSLY  RECOMMENDS A VOTE FOR APPROVAL OF
THE PLAN.


          RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                 (PROPOSAL SIX)

         The Board of Directors has approved the  appointment of Arthur Andersen
LLP to continue as TeleBanc's independent public accountants for the year ending
December  31,  1997,  subject  to  ratification  by  stockholders  at the Annual
Meeting.  Arthur Andersen LLP has been acting as independent  public accountants
for the Company since fiscal 1995.  Representatives  of Arthur Andersen LLP will
be present at the Annual  Meeting.  They will be given an  opportunity to make a
statement  if  they  desire  to do so  and  will  be  available  to  respond  to
appropriate questions.

                                       26
<PAGE>





         Unless otherwise indicated,  properly executed proxies will be voted in
favor of ratifying the appointment of Arthur Andersen LLP to audit the books and
accounts of the Company for the year ending December 31, 1997. No  determination
has been  made as to what  action  the  Board  of  Directors  would  take if the
stockholders do not ratify the appointment.

         THE BOARD OF DIRECTORS  UNANIMOUSLY  RECOMMENDS THAT  STOCKHOLDERS VOTE
FOR THE  RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1997.


                              STOCKHOLDER PROPOSALS

         Any proposal  that a stockholder  wishes to have  presented at the next
annual  meeting and  included  in the proxy  materials  of the  Company  must be
received  at the  main  office  of the  Company,  1111  North  Highland  Street,
Arlington,  Virginia  22201, no later than December 8, 1997. If such proposal is
in compliance with all of the  requirements of Rule 14a-8 of the Exchange Act of
1934,  as amended,  it will be included in the proxy  statement and set forth on
the form of proxy  issued for the next annual  meeting of  stockholders.  Please
send any such proposal by certified mail, return receipt requested.


                                  OTHER MATTERS

         The Board of Directors is not aware of any matters that may come before
the Annual Meeting other than those specifically  listed in the Notice of Annual
Meeting of  Stockholders.  If any other  business is properly  presented  at the
Annual  Meeting,  it is the  intention  of the proxy  holders  to vote or act in
accordance with their best judgment with respect to such matters.

                                 By order of the Board of Directors,

                                 /s/ David A. Smilow

                                 David A. Smilow
                                 Chairman of the Board and
                                 Chief Executive Officer


                                       27
<PAGE>



                                                                       EXHIBIT A
                                                                       ---------


                              TEXT OF PROPOSAL TWO
                              --------------------

         Resolved,  that  Section  4.1 of the  Company's  Amended  and  Restated
Certificate  of  Incorporation  shall be amended by deleting the text of Section
4.1 in its entirety and replacing it with the following:

                  The total  number of shares of all  classes  of stock that the
                  Corporation  shall have the  authority  to issue is  9,000,000
                  shares,  of which  500,000  shares  shall be serial  preferred
                  stock,  having  a par  value of $0.01  per  share  ("Preferred
                  Stock"), and 8,500,000 shall be classified as shares of common
                  stock, having a par value of $0.01 per share ("Common Stock").
                  The  Board of  Directors  is  expressly  authorized  to issue,
                  without  stockholder  approval,  any  unissued  shares  of the
                  Corporation's  authorized  Common  Stock as  nonvoting  Common
                  Stock ("Nonvoting Common Stock").

         Resolved,  that the second  sentence of Section 4.2(a) of the Company's
Amended and Restated  Certificate of Incorporation  shall be amended by deleting
the word "Each" at the beginning of that sentence and inserting in its place the
words "Except as provided in Section 4.2(e) hereof, each".

         Resolved,  that the first  sentence of Section  4.2(b) of the Company's
Amended and Restated  Certificate of Incorporation  shall be amended by deleting
the word "Each" at the beginning of that sentence and inserting in its place the
words "Except as provided in Section 4.2(e) hereof, each".

         Resolved,  that  Section  4.2 of the  Company's  Amended  and  Restated
Certificate of Incorporation  shall be amended by inserting a new Section 4.2(e)
which shall provide as follows:

                           (e)      NONVOTING COMMON STOCK.

                           The  holders  of  Nonvoting  Common  Stock  shall  be
                  entitled   to  notice  of   meetings   of  the   Corporation's
                  stockholders.  Notwithstanding  any  other  provision  of this
                  Amended  and  Restated  Certificate  of  Incorporation  or the
                  Corporation's Bylaws, the Nonvoting Common Stock shall have no
                  voting  rights  upon any matter or thing  (including,  without
                  limitation,  the  election of  directors)  unless  provided by
                  applicable  law.   Subject  to  and  in  compliance  with  the
                  following  provisions  of this Section  4.2(e),  each share of
                  Nonvoting  Common  Stock  held by any  person or entity may be
                  converted  into one  fully-paid  and  non-assessable  share of
                  voting Common Stock.

                                    (i) In connection  with the  disposition  of
                           shares   upon  the   occurrence   (or  the   expected
                           occurrence   as  described  in  Section   4.2(e)(iii)
                           below),  of any Conversion  Event (as defined below),
                           each  holder  of  Nonvoting  Common  Stock  shall  be
                           entitled to convert such Nonvoting  Common Stock into
                           an equal number of shares of voting Common Stock.

                                    (ii) For purposes of this Section 4.2(e),  a
                           "Conversion  Event"  shall mean,  (A) any sale to the
                           public  in a widely  dispersed  offering  (including,
                           without  limitation,  a  public  offering  registered
                           under the  Securities  Act of 1933, as amended),  (B)
                           any   disposition   under   Rule  144  or  Rule  144A
                           promulgated by the Securities and Exchange Commission
                           under the Securities Act of 1933, as amended,  or any
                           similar  rule  then  in  force  of no more  than  two
                           percent (2%) of the outstanding  voting securities of
                           the Corporation, (C) any transfer pursuant to a right
                           of  first   refusal   set   forth  in  the   Transfer
                           Restriction Agreement, dated as of February 28, 1997,
                           by and among the  Purchasers  (as  identified  in the
                           $29,900,000 Unit Purchase

                                      A-1
<PAGE>



                           Agreement, dated as of February 19, 1997, between the
                           Purchasers and the Corporation), David A. Smilow, MET
                           Holdings  Corporation  and  the  Corporation  or  the
                           Transfer Restriction Agreement,  dated as of February
                           28, 1997,  by and among the  Purchasers,  Mitchell H.
                           Caplan, MET Holdings  Corporation and the Corporation
                           or (D) any  transfer  in a single  transaction  to an
                           independent  third  party  who  acquires  at  least a
                           majority  of the  voting  stock  of  the  Corporation
                           without  regard to the  transfer of such  securities.
                           For purposes of this Section  4.2(e)  "person"  shall
                           include  any  natural  person  and  any  corporation,
                           partnership,  joint  venture,  trust,  unincorporated
                           organization and any other entity or organization.

                                    (iii) Each holder of Nonvoting  Common Stock
                           shall be  entitled  to  convert  shares of  Nonvoting
                           Common Stock in connection with any Conversion  Event
                           if  such  holder   reasonably   believes   that  such
                           Conversion Event shall be consummated,  and a written
                           request for  conversion  from any holder of Nonvoting
                           Common Stock to the Corporation stating such holder's
                           reasonable belief that a Conversion Event shall occur
                           shall  be   conclusive   and   shall   obligate   the
                           Corporation  to effect  such  conversion  in a timely
                           manner   so  as  to  enable   each  such   holder  to
                           participate in such Conversion Event. The Corporation
                           shall not cancel the shares of Nonvoting Common Stock
                           so  converted  before  the tenth day  following  such
                           Conversion  Event and shall reserve such shares until
                           such tenth day for reissuance in compliance  with the
                           next  sentence.  If any  shares of  Nonvoting  Common
                           Stock are  converted  into  shares  of voting  Common
                           Stock in connection with a Conversion  Event and such
                           shares  of  voting  Common  Stock  are  not  actually
                           distributed,  disposed  of or sold  pursuant  to such
                           Conversion  Event, such shares of voting Common Stock
                           shall be promptly converted back into the same number
                           of shares of Nonvoting  Common Stock, and during such
                           period prior to such distribution,  disposal or sale,
                           the holder of such voting  Common  Stock shall not be
                           entitled   to  vote   such   shares   notwithstanding
                           provisions  of this Amended and Restated  Certificate
                           of Incorporation.

                                    (iv) To exercise its conversion privilege, a
                           holder of Nonvoting  Common Stock shall surrender the
                           certificate or certificates  representing  the shares
                           being  converted to the  Corporation at its principal
                           office,   and  shall  give  written   notice  to  the
                           Corporation at that office that such holder elects to
                           convert such shares. Such notice shall also state the
                           name or names (with  address or  addresses)  in which
                           the certificate or certificates  for shares of voting
                           Common Stock issuable upon such  conversion  shall be
                           issued. The certificate or certificates for shares of
                           Nonvoting  Common Stock  surrendered  for  conversion
                           shall be accompanied by proper assignment  thereof to
                           the  Corporation  or in  blank.  The date  when  such
                           written  notice  is  received  by  the   Corporation,
                           together  with  the   certificate   or   certificates
                           representing  the shares of  Nonvoting  Common  Stock
                           being converted,  shall be the "Conversion  Date". As
                           promptly as practicable  after the  Conversion  Date,
                           the Corporation  shall issue and shall deliver to the
                           holder of the shares of Nonvoting  Common Stock being
                           converted,  or on its written order, such certificate
                           or  certificates  as it may request for the number of
                           shares  of  voting  Common  Stock  issuable  upon the
                           conversion  of such shares of Nonvoting  Common Stock
                           in  accordance  with the  provisions  of this Section
                           4.2(e).  Such conversion shall be deemed to have been
                           effected immediately prior to the closing of business
                           on the  Conversion  Date, and at such time the rights
                           of the  holder as holder of the  converted  shares of
                           Nonvoting  Common Stock shall cease and the person(s)
                           in whose  name(s)  any  certificate(s)  for shares of
                           voting  Common  Stock  shall be  issuable  upon  such
                           conversion shall be deemed to have become

                                      A-2
<PAGE>



                           the  holder or  holders  of  record of the  shares of
                           voting Common Stock represented thereby.


                                      A-3
<PAGE>



                                                                       EXHIBIT B
                                                                       ---------


                             TEXT OF PROPOSAL THREE
                             ----------------------

         Resolved,  that the  definition  of  "Control"  in  Section  8.3 of the
Company's Amended and Restated  Certificate of Incorporation shall be amended by
deleting the word "10" and inserting in its place the word "25".


                                      B-1
<PAGE>



                                                                       EXHIBIT C
                                                                       ---------


                              TEXT OF PROPOSAL FOUR
                              ---------------------

         Resolved,  that the first  paragraph of Section  11.2 of the  Company's
Amended and Restated  Certificate of Incorporation  shall be amended by deleting
the words  "if the  conditions  specified  in both  paragraphs  (a) and (b)" and
inserting  in their place "if the  condition or  conditions  specified in either
paragraph (a) or paragraph (b)."


                                      C-1
<PAGE>



                                                                       EXHIBIT D
                                                                       ---------


                         TELEBANC FINANCIAL CORPORATION
                             1997 STOCK OPTION PLAN


                  TELEBANC FINANCIAL CORPORATION ("TeleBanc") hereby adopts this
TeleBanc Financial  Corporation 1997 Stock Option Plan (the "Plan") the terms of
which shall be as follows:

                  1.       PURPOSE

                  The Plan is intended to advance the  interests  of TeleBanc by
providing eligible  individuals (as designated pursuant to Section 4 below) with
an opportunity to acquire or increase a proprietary interest in TeleBanc,  which
thereby will create a stronger incentive to expend maximum effort for the growth
and success of TeleBanc and its  subsidiaries,  and will encourage such eligible
individuals  to  remain  in  the  employ  of  TeleBanc  or one  or  more  of its
subsidiaries. Each stock option granted under the Plan (an "Option") is intended
to be an "incentive stock option"  ("Incentive Stock Option") within the meaning
of  Section  422 of the  Internal  Revenue  Code of 1986,  or the  corresponding
provision of any  subsequently-enacted tax statute, as amended from time to time
(the  "Code"),  except to the extent that any such  Option (i) would  exceed the
limitations set forth in Section 7 below; (ii) is specifically designated at the
time of grant as not being an Incentive  Stock  Options;  or (iii) is granted to
someone who is not an employee of TeleBanc or any  subsidiary  or  affiliate  of
TeleBanc.

                  2.       ADMINISTRATION

                           (a)  Board.  The Plan  shall be  administered  by the
Board of Directors of TeleBanc  (the  "Board"),  which shall have the full power
and authority to take all actions,  and to make all  determinations  required or
provided  for under the Plan or any  Option  granted  or  Option  Agreement  (as
defined  in  Section 8 below)  entered  into  under the Plan and all such  other
actions  and  determinations  not  inconsistent  with  the  specific  terms  and
provisions of the Plan deemed by the Board to be necessary or appropriate to the
administration  of the Plan or any Option  granted or Option  Agreement  entered
into hereunder.  All such actions and determinations shall be by the affirmative
vote of a majority of the members of the Board present at a meeting at which any
issue  relating to the Plan is properly  raised for  consideration  or without a
meeting by written  consent of the Board executed in accordance  with TeleBanc's
Articles  of   Incorporation   and  By-Laws,   and  with   applicable  law.  The
interpretation  and construction by the Board of any provision of the Plan or of
any Option granted or Option Agreement entered into hereunder shall be final and
conclusive.

                           (b)  Committee.  The  Board  may  from  time  to time
appoint a Stock Option Committee (the  "Committee")  consisting of not less than
two  members  of the Board,  none of whom shall be an officer or other  salaried
employee of TeleBanc or any of its subsidiaries,  and each of whom shall qualify
in all  respects as a  "non-employee  director"  as defined in Rule 16b-3 of the
Securities and Exchange  Commission  under the  Securities  Exchange Act of 1934
(the "Exchange Act") and an "outside director" for purposes of Section 162(m) of
the Code. The Board,  in its sole  discretion,  may provide that the role of the
Committee shall be limited to making recommendations to the Board concerning any
determinations  to be made and  actions to be taken by the Board  pursuant to or
with respect to the Plan, or the Board may delegate to the Committee such powers
and  authorities  related  to the  administration  of the Plan,  as set forth in
Section 2(a) above, as the Board shall  determine,  consistent with the Articles
of  Incorporation  and By-Laws of TeleBanc  and  applicable  law.  The Board may
remove  members,  add members,  and fill vacancies on the Committee from time to
time, all in accordance with TeleBanc's  Articles of Incorporation  and By-Laws,
and with applicable law. The majority vote of the Committee,  or acts reduced to
or approved in writing by a majority of the members of the  Committee,  shall be
the valid acts of the Committee.

                                      D-1
<PAGE>





                           (c) No  Liability.  No  member of the Board or of the
Committee  shall be liable  for any action or  determination  made in good faith
with respect to the Plan or any Option granted or Option Agreement  entered into
hereunder.

                           (d)  Delegation to the  Committee.  In the event that
the Plan or any  Option  granted  or Option  Agreement  entered  into  hereunder
provides for any action to be taken by or determination to be made by the Board,
such action may be taken by or such  determination  may be made by the Committee
if the power and  authority to do so has been  delegated to the Committee by the
Board  as  provided  for in  Section  2(b)  above.  Unless  otherwise  expressly
determined by the Board, any such action or determination by the Committee shall
be final and conclusive.

                  3.       STOCK

                           The stock  that may be  issued  pursuant  to  Options
granted  under the Plan  shall be shares of common  stock,  $.01 par  value,  of
TeleBanc (the  "Stock"),  which shares may be treasury  shares or authorized but
unissued  shares.  The number of shares of Stock that may be issued  pursuant to
Options granted under the Plan shall not exceed in the aggregate 440,000 shares,
subject to  adjustment as provided in Section 17 below.  If any Option  expires,
terminates,  or is  terminated  or canceled  for any reason prior to exercise in
full, the shares of Stock that were subject to the  unexercised  portion of such
Option shall be available for future Options granted under the Plan.

                  4.       ELIGIBILITY

                           (a) Employees.  Options may be granted under the Plan
to any employee of TeleBanc or any  "subsidiary  corporation"  (a  "Subsidiary")
thereof  within the meaning of Section  424(f) of the Code  (including  any such
employee  who is an officer or director of  TeleBanc or any  Subsidiary)  as the
Board shall  determine  and  designate  from time to time prior to expiration or
termination  of the Plan.  The  maximum  number of  shares of Stock  subject  to
Options  that may be  granted  under the Plan  during any  calendar  year to any
executive  officer  or  other  employee  of  TeleBanc  or any  Subsidiary  whose
compensation  is or may be subject to Code ss. 162(m) is 200,000 shares (subject
to adjustment as provided in Section 17 hereof).

                           (b) Directors and  Independent  Contractors.  Options
not intended to constitute  Incentive Stock Options may be granted to members of
the Board who are not employees of TeleBanc or any Subsidiary and to independent
contractors  performing  services for TeleBanc or a Subsidiary  as determined by
the Board from time to time on the basis of their  importance to the business of
TeleBanc or such Subsidiary.

                           (c) Multiple Grants. An individual may hold more than
one Option, subject to such restrictions as are provided herein.

                  5.       EFFECTIVE DATE AND TERM OF THE PLAN

                           (a) Effective Date. The Plan shall be effective as of
the date of adoption  by the Board,  which date is set forth  below,  subject to
approval  of  the  Plan,  within  one  year  of  such  effective  date,  by  the
shareholders of TeleBanc by a majority of the votes present and entitled to vote
at a duly held  meeting of the  shareholders  at which a quorum  representing  a
majority of all  outstanding  voting  stock is  present,  either in person or by
proxy  or  by  written  consent  in  accordance  with  TeleBanc's   Articles  of
Incorporation and By-Laws; provided,  however, that upon approval of the Plan by
the  shareholders of TeleBanc as set forth above,  all Options granted under the
Plan  on or  after  the  effective  date  shall  be  fully  effective  as if the
shareholders  of TeleBanc had approved the Plan on the  effective  date.  If the
shareholders  fail to approve the Plan within one year of such  effective  date,
any options granted hereunder shall be null and void and of no effect.

                                      D-2
<PAGE>





                           (b) Term.  The Plan  shall  terminate  on the date 10
years from the effective date.

                  6.       GRANT OF OPTIONS

                  Subject  to the terms and  conditions  of the Plan,  the Board
may, at any time and from time to time,  prior to the date of termination of the
Plan,   grant  to  such  eligible   individuals   as  the  Board  may  determine
("Optionees"),  Options to  purchase  such number of shares of the Stock on such
terms  and  conditions  as the  Board  may  determine,  including  any  terms or
conditions  which may be necessary  to qualify  such Options as Incentive  Stock
Options.  The date on which the Board  approves  the grant of an Option (or such
later date as is specified by the Board) shall be  considered  the date on which
such Option is granted.

                  7.       LIMITATION ON INCENTIVE STOCK OPTIONS

                  An Option (other than an Option described in exception (ii) of
Section 1) shall  constitute  an  Incentive  Stock Option to the extent that the
aggregate  fair market value  (determined  at the time the Option is granted) of
the stock with respect to which  Incentive Stock Options are exercisable for the
first time by any  Optionee  during any  calendar  year  (under the Plan and all
other plans of the Optionee's employer corporation and its parent and subsidiary
corporations  within the meaning of Section  422(d) of the Code) does not exceed
$100,000. This limitation shall be applied by taking Options into account in the
order in which they were granted.

                  8.       OPTION AGREEMENTS

                  All Options granted pursuant to the Plan shall be evidenced by
written agreements ("Option Agreements"),  to be executed by TeleBanc and by the
Optionee,  in such form or forms as the Board shall from time to time determine.
Option Agreements covering Options granted from time to time or at the same time
need not contain similar  provisions;  provided,  however,  that all such Option
Agreements shall comply with all terms of the Plan.

                  9.       OPTION PRICE

                  The  purchase  price of each share of the Stock  subject to an
Option  (the  "Option  Price")  shall be fixed by the Board  and  stated in each
Option Agreement, except that the Option Price of a share of Stock subject to an
Option that is intended to  constitute  an  Incentive  Stock Option shall be not
less than 100  percent of the fair  market  value of a share of the Stock on the
date the Option is granted (as determined in good faith by the Board); provided,
however, that in the event the Optionee would otherwise be ineligible to receive
an Incentive Stock Option by reason of the provisions of Sections  422(b)(6) and
424(d) of the Code  (relating to stock  ownership of more than 10 percent),  the
Option Price of an Option that is intended to be an Incentive Stock Option shall
be not less than 110 percent of the fair market value of a share of Stock at the
time  such  Option  is  granted.  In the  event  that the  Stock is listed on an
established national or regional stock exchange, is admitted to quotation on the
National  Association of Securities  Dealers  Automated  Quotation System, or is
publicly  traded on an established  securities  market,  in determining the fair
market value of the Stock, the Board shall use the closing price of the Stock on
such  exchange or System or in such market (the highest  such  closing  price if
there is more that one such exchange or market) on the trading date  immediately
before the Option is granted  (or, if there is no such closing  price,  then the
Board shall use the mean  between the high and low prices on such date),  or, if
no sale of the Stock had been made on such  day,  on the next  preceding  day on
which any such sale shall have been made.

                  10.      TERM AND EXERCISE OF OPTIONS

                           (a) Term.  Each Option  granted  under the Plan shall
terminate  and all rights to  purchase  shares  thereunder  shall cease upon the
expiration of ten years from the date such

                                      D-3
<PAGE>



Option is  granted,  or on such date prior  thereto as may be fixed by the Board
and stated in the Option Agreement relating to such Option;  provided,  however,
that in the event the  Optionee  would  otherwise  be  ineligible  to receive an
Incentive  Stock Option by reason of the  provisions  of Sections  422(b)(6) and
424(d) of the Code  (relating to stock  ownership  of more than 10 percent),  an
Option granted to such Optionee that is intended to be an Incentive Stock Option
shall in no event be  exercisable  after the  expiration  of five years from the
date it is granted.

                           (b) Option Period and  Limitations on Exercise.  Each
Option shall be  exercisable,  in whole or in part, at any time and from time to
time, over a period commencing on or after the date of grant and ending upon the
expiration or  termination of the Option,  as the Board shall  determine and set
forth in the Option  Agreement  relating to such  Option.  Without  limiting the
foregoing,  the Board,  subject to the terms and  conditions of the Plan, may in
its sole  discretion  provide that an Option may not be exercised in whole or in
part for any period or periods of time during which such Option is  outstanding;
provided,  however,  that any  such  limitation  on the  exercise  of an  Option
contained in any Option  Agreement may be  rescinded,  modified or waived by the
Board, in its sole discretion,  at any time and from time to time after the date
of grant of such Option, so as to accelerate the time at which the Option may be
exercised.  Each Option shall be  exercisable,  in whole or in part, at any time
and from time to time, over a period  commencing on the date of grant and ending
upon the expiration of the Option.  Notwithstanding  any other  provision of the
Plan, no Option  granted to an Optionee  under the Plan shall be  exercisable in
whole or in part prior to the date the Plan is approved by the  shareholders  of
TeleBanc as provided in Section 5 above.

                           (c) Method of Exercise. An Option that is exercisable
hereunder  may be exercised by delivery to TeleBanc on any business  day, at its
principal office, addressed to the attention of the Committee, of written notice
of exercise,  which  notice  shall  specify the number of shares with respect to
which the Option is being exercised, and shall be accompanied by payment in full
of the  Option  Price of the  shares  for which the  Option is being  exercised,
except as provided below.  The minimum number of shares of Stock with respect to
which an Option may be exercised,  in whole or in part, at any time shall be the
lesser of 100 shares or the  maximum  number of shares  available  for  purchase
under the Option at the time of  exercise.  Payment of the Option  Price for the
shares of Stock  purchased  pursuant to the  exercise of an Option shall be made
(i) in cash or in cash  equivalents;  (ii)  through  the tender to  TeleBanc  of
shares of Stock,  which shares shall be valued,  for purposes of determining the
extent to which the Option  Price has been paid  thereby,  at their fair  market
value  (determined  in the manner  described  in Section 9 above) on the date of
exercise; (iii) by delivering a written direction to TeleBanc that the Option be
exercised pursuant to a "cashless"  exercise/sale  procedure  (pursuant to which
funds to pay for  exercise of the Option are  delivered  to TeleBanc by a broker
upon receipt of stock  certificates  from TeleBanc) or a cashless  exercise/loan
procedure  (pursuant  to which the  optionees  would obtain a margin loan from a
broker to fund the exercise)  through a licensed  broker  acceptable to TeleBanc
whereby the stock  certificate or certificates for the shares of Stock for which
the Option is  exercised  will be  delivered to such broker as the agent for the
individual  exercising  the Option and the broker will deliver to TeleBanc  cash
(or cash  equivalents  acceptable to TeleBanc) equal to the Option Price for the
shares of Stock purchased pursuant to the exercise of the Option plus the amount
(if any) of federal and other taxes that  TeleBanc,  may,  in its  judgment,  be
required to withhold  with  respect to the  exercise of the Option;  (iv) to the
extent  permitted by applicable law and under the terms of the Option  Agreement
with  respect  to such  Option,  by the  delivery  of a  promissory  note of the
Optionee to TeleBanc on such terms as shall be set out in such Option Agreement;
(v) by a  combination  of the methods  described in (i),  (ii),  (iii) and (iv).
Payment in full of the Option  Price need not  accompany  the written  notice of
exercise  if the Option is  exercised  pursuant  to the  cashless  exercise/sale
procedure  described above. An attempt to exercise any Option granted  hereunder
other  than as set forth  above  shall be  invalid  and of no force and  effect.
Promptly after the exercise of an Option,  the individual  exercising the Option
shall  be  entitled  to the  issuance  of a Stock  certificate  or  certificates
evidencing  his  ownership  of such  shares.  A separate  Stock  certificate  or
certificates  shall be issued for any shares purchased  pursuant to the exercise
of an Option that is intended to be an Incentive Stock Option, which certificate
or certificates shall not include any shares that were purchased pursuant to the
exercise of an Option  that is not an  Incentive  Stock  Option.  An  individual
holding or exercising an Option shall

                                      D-4
<PAGE>



 have none of the  rights of a  shareholder  until the  shares of Stock  covered
thereby  are fully paid and issued to him and,  except as provided in Section 18
below,  no adjustment  shall be made for dividends or other rights for which the
record date is prior to the date of such issuance.

                           (d)  Restrictions  on Transfer of Stock. If an Option
is  exercised  before the date that is six months from the later of (i) the date
of grant of the Option or (ii) the date of shareholder  approval of the Plan and
the  sale  of  stock  acquired  pursuant  to such  exercise  would  subject  the
individual  exercising the Option to liability  under Section 16 of the Exchange
Act, then such certificate or certificates  shall bear a legend  restricting the
transfer of the Stock covered  thereby  until the  expiration of six months from
the later of the date  specified  in clause (i) above or the date  specified  in
clause (ii) above.

                           (e)  Change in  Control.  In the event of a Change in
Control (as defined below),  subject to the limitations set out in Section 17(f)
hereof and except as the Board shall  otherwise  provide in an Option  Agreement
with respect to an Option granted under the Plan, all outstanding  Options shall
become  immediately  exercisable  in full,  without  regard to any limitation on
exercise  imposed  pursuant to Section 10(b) above.  For purposes of the Plan, a
"Change in  Control"  shall be deemed to occur if any person  shall (a)  acquire
direct or indirect  beneficial  ownership of more than 50% of the total combined
voting  power  with  respect  to the  election  of  directors  of the issued and
outstanding  stock of TeleBanc (except that no Change in Control shall be deemed
to have occurred if the persons who were  stockholders  of TeleBanc  immediately
before such  acquisition  own all or  substantially  all of the voting  stock or
other interests of such person immediately after such transaction),  or (b) have
the power  (whether as a result of stock  ownership,  revocable  or  irrevocable
proxies,  contract or  otherwise)  or ability to elect or cause the  election of
directors  consisting at the time of such election of a majority of the Board. A
"person" for this purpose shall mean any person, corporation, partnership, joint
venture or other  entity or any group (as such term is defined  for  purposes of
Section 13(d) of the Exchange  Act),  other than those persons who  beneficially
own, or have outstanding options or warrants to acquire,  more than five percent
of the voting stock of TeleBanc as of February  25,  1997.  For purposes of this
Section  10(e),  "fair market  value" shall be  determined  in  accordance  with
Section 9 hereof and a person shall be deemed to be a  beneficial  owner as that
term is used in Rule 13d-3 under the Exchange Act.

                  11.      TRANSFERABILITY OF OPTIONS

                  During the lifetime of an Optionee to whom an Incentive  Stock
Option is granted,  only such Optionee (or, in the event of legal  incapacity or
incompetence,  the Optionee's guardian or legal representative) may exercise the
Incentive  Stock Option.  No Option shall be assignable or  transferable  by the
Optionee  to whom it is  granted,  other than by will or the laws of descent and
distribution,  except  that the  Optionee  may  transfer  an Option  that is not
intended to  constitute  an  Incentive  Stock Option (a) pursuant to a qualified
domestic  relations  order as defined for  purposes of the  Employee  Retirement
Income  Security  Act of 1974,  as amended,  or (b) by gift:  to a member of the
"Family"  (as defined  below) of the  Optionee,  to or for the benefit of one or
more  organizations  qualifying  under Code ss.ss.  501(c)(3)  and  170(c)(2) (a
"Charitable  Organization")  or to a trust  for  the  exclusive  benefit  of the
Optionee,  one or more members of the Optionee's  Family, one or more Charitable
Organizations,  or any  combination  of the  foregoing,  provided  that any such
transferee shall enter into a written agreement to be bound by the terms of this
Agreement.  For this  purpose,  "Family"  shall mean the spouse,  siblings,  and
lineal ancestors and descendants of the Optionee.

                  12.      TERMINATION OF EMPLOYMENT OR SERVICE

                           Upon  the  termination  of the  employment  or  other
service of an Optionee with  TeleBanc or a  Subsidiary,  other than by reason of
the death or  "permanent  and total  disability"  (within the meaning of Section
22(e)(3)  of the Code) of such  Optionee,  any  Option  granted  to an  Optionee
pursuant  to the  Plan  shall  terminate  three  months  after  the date of such
termination of employment or service and thereafter  such Optionee shall have no
further  right to purchase  shares of Stock  pursuant to such Option;  provided,
however, that the Board may provide, by inclusion of

                                      D-5
<PAGE>



appropriate language in any Option Agreement,  that the Optionee may (subject to
the general  limitations  on exercise set forth in Section 10(b) above),  in the
event of termination of employment or service of the Optionee with TeleBanc or a
Subsidiary,  exercise an Option,  in whole or in part, at any time subsequent to
such termination of employment or service and prior to termination of the Option
pursuant to Section  10(a)  above,  either  subject to or without  regard to any
installment or other  limitation on exercise  imposed  pursuant to Section 10(b)
above.  Whether a leave of absence or leave on  military or  government  service
shall constitute a termination of employment or service for purposes of the Plan
shall be  determined  by the  Board,  which  determination  shall  be final  and
conclusive.  For purposes of the Plan, a  termination  of  employment or service
with  TeleBanc or a  Subsidiary  shall not be deemed to occur if the Optionee is
immediately  thereafter  employed by or otherwise providing services to TeleBanc
or any Subsidiary.

                  13.      RIGHTS IN THE EVENT OF DEATH OR DISABILITY

                           (a) Death. If an Optionee dies while in the employ or
service  of  TeleBanc  or a  Subsidiary  or  within  the  period  following  the
termination  of  employment  or service  during which the Option is  exercisable
under Section 12 above or Section 13(b) below,  the executors or  administrators
or legatees  or  distributees  of such  Optionee's  estate  shall have the right
(subject  to the general  limitations  on  exercise  set forth in Section  10(b)
above),  at any time within one year after the date of such Optionee's death and
prior to termination of the Option  pursuant to Section 10(a) above, to exercise
any Option held by such Optionee at the date of such Optionee's  death,  whether
or not such Option was exercisable  immediately  prior to such Optionee's death;
provided,  however,  that the Board may  provide  by  inclusion  of  appropriate
language  in any  Option  Agreement  that,  in the  event  of the  death  of the
Optionee,  the executors or  administrators  or legatees or distributees of such
Optionee's estate may exercise an Option (subject to the general  limitations on
exercise set forth in Section  10(b)  above),  in whole or in part,  at any time
subsequent  to such  Optionee's  death and prior to  termination  of the  Option
pursuant to Section  10(a)  above,  either  subject to or without  regard to any
installment or other  limitation on exercise  imposed  pursuant to Section 10(b)
above.

                           (b) Disability.  If an Optionee terminates employment
or service with TeleBanc or a Subsidiary by reason of the  "permanent  and total
disability"  (within  the  meaning  of  Section  22(e)(3)  of the  Code) of such
Optionee,  then such  Optionee  shall  have the right  (subject  to the  general
limitations  on exercise set forth in Section 10(b)  above),  at any time within
one  year  after  such  termination  of  employment  or  service  and  prior  to
termination of the Option pursuant to Section 10(a) above, to exercise, in whole
or in part, any Option held by such Optionee at the date of such  termination of
employment or service,  whether or not such Option was  exercisable  immediately
prior to such termination of employment or service; provided,  however, that the
Board may provide, by inclusion of appropriate language in any Option Agreement,
that the Optionee may (subject to the general  limitations on exercise set forth
in Section  10(b)  above),  in the event of the  termination  of  employment  or
service  of  the  Optionee  with  TeleBanc  or a  Subsidiary  by  reason  of the
"permanent and total disability"  (within the meaning of Section 22(e)(3) of the
Code) of such  Optionee,  exercise  an Option  in whole or in part,  at any time
subsequent to such termination of employment or service and prior to termination
of the Option  pursuant to Section  10(a)  above,  either  subject to or without
regard to any  installment  limitation on exercise  imposed  pursuant to Section
10(b) above.  Whether a termination of employment or service is to be considered
by reason of "permanent and total disability" for purposes of this Plan shall be
determined by the Board, which determination shall be final and conclusive.

                  14.      USE OF PROCEEDS

                  The  proceeds  received  by  TeleBanc  from  the sale of Stock
pursuant to Options  granted  under the Plan shall  constitute  general funds of
TeleBanc.

                           D-6
<PAGE>



                  15.      REQUIREMENTS OF LAW

                           (a) Violations of Law. TeleBanc shall not be required
to sell or issue any shares of Stock under any Option if the sale or issuance of
such shares would constitute a violation by the individual exercising the Option
or TeleBanc  of any  provisions  of any law or  regulation  of any  governmental
authority,  including without limitation any federal or state securities laws or
regulations.  Any  determination in this connection by the Board shall be final,
binding, and conclusive. TeleBanc shall not be obligated to take any affirmative
action in order to cause the  exercise  of an Option or the  issuance  of shares
pursuant  thereto  to  comply  with any law or  regulation  of any  governmental
authority. As to any jurisdiction that expressly imposes the requirement that an
Option shall not be exercisable  unless and until the shares of Stock covered by
such  Option are  registered  or are  subject  to an  available  exemption  from
registration, the exercise of such Option (under circumstances in which the laws
of such jurisdiction  apply) shall be deemed  conditioned upon the effectiveness
of such registration or the availability of such an exemption.

                           (b)  Compliance  with Rule 16b-3.  The intent of this
Plan is to qualify for the  exemption  provided by Rule 16b-3 under the Exchange
Act.  To the  extent  any  provision  of the  Plan  does  not  comply  with  the
requirements  of Rule  16b-3,  it  shall be  deemed  inoperative  to the  extent
permitted  by law and  deemed  advisable  by the Board and shall not  affect the
validity of the Plan. In the event Rule 16b-3 is revised or replaced, the Board,
or the  Committee  acting on behalf of the Board,  may  exercise  discretion  to
modify this Plan in any respect  necessary  to satisfy the  requirements  of the
revised exemption or its replacement.

                  16.      AMENDMENT AND TERMINATION OF THE PLAN

                  The  Board  may,  at any time and  from  time to time,  amend,
suspend or terminate the Plan as to any shares of Stock as to which Options have
not been  granted;  provided,  however,  that no  amendment  by the Board shall,
without  approval by a majority of the votes  present and  entitled to vote at a
duly held meeting of the shareholders of TeleBanc at which a quorum representing
a majority of all  outstanding  voting  stock is,  either in person or by proxy,
present and voting on the amendment,  or by written  consent in accordance  with
applicable state law and the Articles of Incorporation  and By-Laws of TeleBanc,
change the  requirements  as to eligibility to receive  Incentive Stock Options,
increase the maximum number of shares of Stock in the aggregate that may be sold
pursuant to Incentive  Stock Options granted under the Plan (except as permitted
under  Section 17 hereof) or modify the Plan so that Options  granted  under the
Plan could not satisfy the applicable requirements of Code ss. 162(m). Except as
permitted  under Section 17 hereof,  no amendment,  suspension or termination of
the Plan shall, without the consent of the holder of the Option, alter or impair
rights or obligations under any Option theretofore granted under the Plan.

                  17.      EFFECT OF CHANGES IN CAPITALIZATION

                           (a) Changes in Stock.  If the  outstanding  shares of
Stock are  increased or  decreased or changed into or exchanged  for a different
number  or kind of  shares  or other  securities  of  TeleBanc  by reason of any
recapitalization,  reclassification,  stock split, reverse split, combination of
shares,  exchange of shares,  stock  dividend or other  distribution  payable in
capital  stock,  or other increase or decrease in such shares  effected  without
receipt of consideration by TeleBanc,  occurring after the effective date of the
Plan,  the number and kinds of shares for the  purchase of which  Options may be
granted  under the Plan shall be adjusted  proportionately  and  accordingly  by
TeleBanc.  In  addition,  the number and kind of shares  for which  Options  are
outstanding  shall  be  adjusted  proportionately  and  accordingly  so that the
proportionate  interest of the holder of the Option  immediately  following such
event shall, to the extent practicable, be the same as immediately prior to such
event. Any such adjustment in outstanding Options shall not change the aggregate
Option Price payable with respect to shares subject to the  unexercised  portion
of the  Option  outstanding  but  shall  include a  corresponding  proportionate
adjustment in the Option Price per share. If there is a distribution  payable in
the capital stock of a subsidiary  corporation of TeleBanc ("Spin-off  Shares"),
to the extent consistent with Treasury  Regulation Section  1.425-1(a)(6) or the
corresponding

                                      D-7
<PAGE>



provision of any subsequent regulation, each outstanding Option shall thereafter
additionally  pertain  to the  number of  Spin-off  Shares  that would have been
received in such distribution by a shareholder of TeleBanc who owned a number of
shares of Common  Stock  equal to the number of shares  that are  subject to the
Option at the time of such  distribution,  and the aggregate Option Price of the
Option  shall be allocated  between the Spin-off  Shares and the Common Stock in
proportion to the relative fair market values of a Spin-off Share and a share of
Common Stock immediately after the distribution of Spin-off Shares.

                           (b) Reorganization in Which TeleBanc Is the Surviving
Corporation.  Subject  to  Subsection  (c)  hereof,  if  TeleBanc  shall  be the
surviving  corporation  in  any  reorganization,  merger,  or  consolidation  of
TeleBanc with one or more other  corporation s, any Option  theretofore  granted
pursuant  to the Plan shall  pertain to and apply to the  securities  to which a
holder of the number of shares of Stock  subject to such Option  would have been
entitled immediately  following such  reorganization,  merger, or consolidation,
with a corresponding  proportionate  adjustment of the Option Price per share so
that the aggregate  Option Price  thereafter  shall be the same as the aggregate
Option Price of the shares remaining subject to the Option  immediately prior to
such reorganization, merger, or consolidation.

                           (c)  Reorganization  in  Which  TeleBanc  Is Not  the
Surviving  Corporation  or Sale of  Assets  or Stock.  Upon the  dissolution  or
liquidation  of TeleBanc,  or upon a merger,  consolidation,  reorganization  or
other business  combination of TeleBanc with one or more other entities in which
TeleBanc is not the surviving entity, or upon a sale of all or substantially all
of the assets of TeleBanc to another entity, or upon any transaction (including,
without  limitation,  a  merger  or  reorganization  in  which  TeleBanc  is the
surviving  corporation)  approved  by the Board  which  results in any person or
entity (or persons or entities acting as a group or otherwise in concert) owning
80  percent  or more of the  combined  voting  power of all  classes of stock of
TeleBanc, the Plan and all Options outstanding hereunder shall terminate, except
to the extent  provision is made in writing in connection with such  transaction
for  the  continuation  of  the  Plan  and/or  the  assumption  of  the  Options
theretofore  granted,  or for the  substitution  for such Options of new options
covering the stock of a successor  entity,  or a parent or  subsidiary  thereof,
with  appropriate  adjustments as to the number and kinds of shares and exercise
prices, in which event the Plan and Options  theretofore  granted shall continue
in the  manner  and  under  the  terms  so  provided.  In the  event of any such
termination of the Plan, each individual  holding an Option shall have the right
(subject to Section 17(f) below and to the general  limitations  on exercise set
forth in Section 10(b) above, and except as otherwise  specifically  provided in
the  Option  Agreement  relating  to  such  Option),  immediately  prior  to the
occurrence of such  termination  and during such period  occurring prior to such
termination as the Board in its sole  discretion  shall determine and designate,
to  exercise  such  Option in whole or in part,  whether or not such  Option was
otherwise  exercisable at the time such termination occurs and without regard to
any installment  limitation on exercise imposed pursuant to Section 10(b) above.
The Board  shall  send  written  notice of an event  that will  result in such a
termination to all individuals who hold Options not later than the time at which
TeleBanc gives notice thereof to its shareholders.

                           (d)  Adjustments.  Adjustments  under this Section 17
related to stock or  securities  of TeleBanc  shall be made by the Board,  whose
determination  in that  respect  shall be final,  binding,  and  conclusive.  No
fractional shares of Stock or units of other securities shall be issued pursuant
to any such  adjustment,  and any fractions  resulting from any such  adjustment
shall be eliminated in each case by rounding downward to the nearest whole share
or unit.

                           (e) No  Limitations on  Corporation.  The grant of an
Option  pursuant  to the Plan  shall not affect or limit in any way the right or
power of TeleBanc to make  adjustments,  reclassifications,  reorganizations  or
changes of its capital or business structure or to merge, consolidate,  dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.

                           (f) Parachute Limitation.  If the acceleration of the
exercisability  or  vesting of any  Option or any other  benefit to an  Optionee
under this Plan would be considered a

                                      D-8
<PAGE>



"parachute payment" within the meaning of Section 280G(b)(2) of the Code and if,
after reduction for any applicable federal excise tax imposed by Section 4999 of
the Code (the  "Excise  Tax") and federal  income tax  imposed by the Code,  the
Optionee's net proceeds from the exercise of such Options and from other amounts
that would be so considered  would be less than the amount of the Optionee's net
proceeds resulting from the payment of the Reduced Amount described below, after
reduction  for federal  income  taxes,  then the  exercisability  and vesting of
Options  and other  benefits  provided  under the Plan  shall be  limited to the
Reduced Amount.  The "Reduced  Amount" shall be the largest amount that could be
received by the Optionee  under the Plan and each Option  Agreement such that no
payment or other  benefit  received  by the  Optionee  under the Plan and Option
Agreements and any other agreement,  contract,  or  understanding  heretofore or
hereafter  entered into between the Optionee and TeleBanc or any Subsidiary (the
"Other  Agreements") and any formal or informal plan or other arrangement (other
than the Plan) heretofore or hereafter adopted by TeleBanc or any Subsidiary for
the direct or indirect  provision of  compensation  to the  Optionee  (including
groups or classes of  participants or  beneficiaries  of which the Optionee is a
member),  whether or not such compensation is deferred, is in cash, or is in the
form of a benefit to or for the Optionee (a "Benefit  Plan") would be subject to
the Excise Tax. In the event that the  Optionee  shall be limited to the Reduced
Amount under the preceding sentence,  then the Optionee shall have the right, in
the Optionee's  sole  discretion,  to designate those payments or benefits under
the Plan and Option  Agreements,  any Other  Agreements,  and any Benefit Plans,
that should be reduced or  eliminated  so as to avoid having the benefits to the
Optionee  under the Plan and Option  Agreements be subject to the Excise Tax. In
the event that the Optionee would otherwise be deemed to have received an amount
that would  constitute  a  parachute  payment,  the amount  received by him that
exceeds the maximum amount permissible under this Section 17(f) shall be treated
as a loan to him and shall be repaid, with interest,  to the extent necessary to
reduce the amount paid to the maximum  permissible  amount. The interest rate of
any such loan shall be at the minimum rate  necessary to avoid  characterization
of the loan as an excess parachute  payment and the other terms of any such loan
shall  conform to customary  and  reasonable  terms that would be  applicable to
loans of a similar unsecured type made by a bank or other financial  institution
to an  unrelated  third  party.  Any such loan shall be repaid in full not later
than six months after the date on which  TeleBanc  notifies the Optionee  that a
loan relationship  exists,  and may be repaid by the Optionee without prepayment
penalty at any time during such six month period.

                  18.      DISCLAIMER OF RIGHTS

                  No  provision  in the Plan or in any Option  granted or Option
Agreement  entered  into  pursuant to the Plan shall be construed to confer upon
any individual the right to remain in the employ of TeleBanc or any  Subsidiary,
or to  interfere  in any way with the right and  authority  of  TeleBanc  or any
Subsidiary  either to increase or decrease the compensation of any individual at
any time,  or to terminate  any  employment  or other  relationship  between any
individual and TeleBanc or any Subsidiary.

                  19.      NONEXCLUSIVITY OF THE PLAN

                  Neither  the  adoption of the Plan nor the  submission  of the
Plan to the shareholders of TeleBanc for approval shall be construed as creating
any  limitations  upon the right and  authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or  specifically  to a particular
individual or individuals) as the Board in its discretion  determines desirable,
including,   without  limitation,   the  granting  of  stock  options  or  stock
appreciation rights otherwise than under the Plan.

                                      * * *

                                      D-9
<PAGE>





                  This  Plan was  duly  adopted  and  approved  by the  Board of
Directors  of  TeleBanc  by  resolution  at a  meeting  held on the  25th day of
February, 1997.


                                                /s/ Sang-Hee Yi
                                                --------------------------------
                                                Assistant Secretary of TeleBanc


                  This Plan was duly approved by the shareholders of TeleBanc at
a meeting held the ______ day of ________________, 1997.


                                                --------------------------------
                                                Secretary of TeleBanc



                                      D-10